UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
Or
o
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO
_______________
COMMISSION FILE NO. 001-12494
CBL & ASSOCIATES PROPERTIES, INC.
(Exact Name of registrant as specified in its charter)
DELAWARE
62-1545718
(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer Identification Number)
2030 Hamilton Place Blvd., Suite 500, Chattanooga, TN
37421-6000
(Address of principal executive office, including zip
code)
423.855.0001
(Registrant’s telephone number, including area
code)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
|
Large accelerated filer
x
|
Accelerated filer
o
|
|
|
Non-accelerated filer
o
(Do not check if smaller
reporting company)
|
Smaller Reporting Company
o
|
|
|
|
|
|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
x
As of
May 5, 2008, there were 66,320,709 shares of common stock, par value $0.01 per share,
outstanding.
1
CBL & Associates Properties, Inc.
Table of Contents
PART I
|
FINANCIAL INFORMATION
|
3
|
Item 1.
|
Financial Statements
|
3
|
|
Condensed Consolidated Balance Sheets
|
3
|
|
Condensed Consolidated Statements of Operations
|
4
|
|
Condensed Consolidated Statements of Cash Flows
|
5
|
|
Notes to Unaudited Condensed Consolidated Financial
Statements
|
7
|
Item 2.
|
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
|
20
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market
Risk
|
36
|
Item 4.
|
Controls and Procedures
|
37
|
PART II
|
OTHER INFORMATION
|
37
|
Item 1.
|
Legal Proceedings
|
37
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of
Proceeds
|
47
|
Item 3.
|
Defaults Upon Senior Securities
|
47
|
Item 4.
|
Submission of Matters to a Vote of Security
Holders
|
48
|
Item 5.
|
Other Information
|
48
|
2
PART
I – FINANCIAL INFORMATION
ITEM 1:
|
Financial Statements
|
CBL & Associates Properties, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
|
|
March 31,
2008
|
|
|
|
December 31,
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Real estate assets:
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
868,233
|
|
|
|
$
|
917,578
|
|
Buildings and improvements
|
|
|
7,207,622
|
|
|
|
|
7,263,907
|
|
|
|
|
8,075,855
|
|
|
|
|
8,181,485
|
|
Less accumulated depreciation
|
|
|
(1,157,209
|
)
|
|
|
|
(1,102,767
|
)
|
|
|
|
6,918,646
|
|
|
|
|
7,078,718
|
|
Held for sale
|
|
|
161,298
|
|
|
|
|
—
|
|
Developments in progress
|
|
|
308,467
|
|
|
|
|
323,560
|
|
Net investment in real estate assets
|
|
|
7,388,411
|
|
|
|
|
7,402,278
|
|
Cash and cash equivalents
|
|
|
65,742
|
|
|
|
|
65,826
|
|
Cash held in escrow
|
|
|
2,640
|
|
|
|
|
—
|
|
Receivables:
|
|
|
|
|
|
|
|
|
|
Tenant, net of allowance for doubtful accounts of $1,209
in
2008 and $1,126 in 2007
|
|
|
68,506
|
|
|
|
|
72,570
|
|
Other
|
|
|
11,233
|
|
|
|
|
10,257
|
|
Mortgage and other notes receivable
|
|
|
40,849
|
|
|
|
|
135,137
|
|
Investments in unconsolidated affiliates
|
|
|
195,397
|
|
|
|
|
142,550
|
|
Intangible lease assets and other assets
|
|
|
256,170
|
|
|
|
|
276,429
|
|
|
|
$
|
8,028,948
|
|
|
|
$
|
8,105,047
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Mortgage and other notes payable
|
|
$
|
5,889,620
|
|
|
|
$
|
5,869,318
|
|
Accounts payable and accrued liabilities
|
|
|
363,043
|
|
|
|
|
394,884
|
|
Total liabilities
|
|
|
6,252,663
|
|
|
|
|
6,264,202
|
|
Commitments and contingencies (Notes 3,5 and 11)
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
888,510
|
|
|
|
|
920,297
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 15,000,000 shares
authorized:
|
|
|
|
|
|
|
|
|
|
7.75% Series C cumulative redeemable preferred
stock,
460,000 shares
outstanding in 2008 and 2007
|
|
|
5
|
|
|
|
|
5
|
|
7.375% Series D cumulative redeemable preferred
stock,
700,000 shares
outstanding in 2008 and 2007
|
|
|
7
|
|
|
|
|
7
|
|
Common stock, $.01 par value, 180,000,000 shares
authorized,
66,306,558 and 66,179,747 shares issued and
outstanding
in 2008 and 2007,
respectively
|
|
|
663
|
|
|
|
|
662
|
|
Additional paid-in capital
|
|
|
999,468
|
|
|
|
|
990,048
|
|
Accumulated other comprehensive loss
|
|
|
(12,329
|
)
|
|
|
|
(20
|
)
|
Accumulated deficit
|
|
|
(100,039
|
)
|
|
|
|
(70,154
|
)
|
Total shareholders’ equity
|
|
|
887,775
|
|
|
|
|
920,548
|
|
|
|
$
|
8,028,948
|
|
|
|
$
|
8,105,047
|
|
The
accompanying notes are an integral part of these balance sheets.
3
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
REVENUES:
|
|
|
|
|
|
|
|
Minimum rents
|
|
$
|
172,032
|
|
$
|
154,249
|
|
Percentage rents
|
|
|
4,990
|
|
|
6,482
|
|
Other rents
|
|
|
5,011
|
|
|
4,415
|
|
Tenant reimbursements
|
|
|
86,279
|
|
|
77,671
|
|
Management, development and leasing fees
|
|
|
2,938
|
|
|
1,221
|
|
Other
|
|
|
7,029
|
|
|
4,980
|
|
Total revenues
|
|
|
278,279
|
|
|
249,018
|
|
EXPENSES:
|
|
|
|
|
|
|
|
Property operating
|
|
|
48,024
|
|
|
43,065
|
|
Depreciation and amortization
|
|
|
73,616
|
|
|
56,608
|
|
Real estate taxes
|
|
|
23,855
|
|
|
20,646
|
|
Maintenance and repairs
|
|
|
17,718
|
|
|
15,291
|
|
General and administrative
|
|
|
12,531
|
|
|
10,197
|
|
Other
|
|
|
6,999
|
|
|
3,639
|
|
Total expenses
|
|
|
182,743
|
|
|
149,446
|
|
Income from operations
|
|
|
95,536
|
|
|
99,572
|
|
Interest and other income
|
|
|
2,727
|
|
|
2,745
|
|
Interest expense
|
|
|
(80,224
|
)
|
|
(66,127
|
)
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
(227
|
)
|
Gain on sales of real estate assets
|
|
|
3,076
|
|
|
3,530
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
979
|
|
|
598
|
|
Income tax provision
|
|
|
(357
|
)
|
|
(803
|
)
|
Minority interest in earnings:
|
|
|
|
|
|
|
|
Operating partnership
|
|
|
(4,742
|
)
|
|
(13,563
|
)
|
Shopping center properties
|
|
|
(6,049
|
)
|
|
(730
|
)
|
Income from continuing operations
|
|
|
10,946
|
|
|
24,995
|
|
Operating income of discontinued operations
|
|
|
680
|
|
|
103
|
|
Loss on discontinued operations
|
|
|
—
|
|
|
(55
|
)
|
Net income
|
|
|
11,626
|
|
|
25,043
|
|
Preferred dividends
|
|
|
(5,455
|
)
|
|
(7,642
|
)
|
Net income available to common
shareholders
|
|
$
|
6,171
|
|
$
|
17,401
|
|
|
|
|
|
|
|
|
|
Basic per share data:
|
|
|
|
|
|
|
|
Income from continuing operations, net of preferred
dividends
|
|
$
|
0.08
|
|
$
|
0.27
|
|
Discontinued operations
|
|
|
0.01
|
|
|
—
|
|
Net income available to common shareholders
|
|
$
|
0.09
|
|
$
|
0.27
|
|
Weighted average common shares outstanding
|
|
|
65,897
|
|
|
65,109
|
|
Diluted per share data:
|
|
|
|
|
|
|
|
Income from continuing operations, net of preferred
dividends
|
|
$
|
0.08
|
|
$
|
0.26
|
|
Discontinued operations
|
|
|
0.01
|
|
|
—
|
|
Net income available to common shareholders
|
|
$
|
0.09
|
|
$
|
0.26
|
|
Weighted average common and potential dilutive common shares
outstanding
|
|
|
66,109
|
|
|
65,886
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
0.5450
|
|
$
|
0.5050
|
|
The
accompanying notes are an integral part of these statements.
4
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,626
|
|
|
$25,043
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
44,472
|
|
|
37,302
|
|
Amortization
|
|
|
33,504
|
|
|
21,348
|
|
Net amortization of debt premiums and discounts
|
|
|
(1,975
|
)
|
|
(1,902
|
)
|
Net amortization of above and below market leases
|
|
|
(2,597
|
)
|
|
(2,930
|
)
|
Gain on sales of real estate assets
|
|
|
(3,076
|
)
|
|
(3,530
|
)
|
Loss on discontinued operations
|
|
|
—
|
|
|
55
|
|
Write-off of development projects
|
|
|
1,713
|
|
|
48
|
|
Share-based compensation expense
|
|
|
1,588
|
|
|
2,126
|
|
Income tax benefit from share-based compensation
|
|
|
1,501
|
|
|
1,139
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
227
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(979
|
)
|
|
(598
|
)
|
Distributions of earnings from unconsolidated
affiliates
|
|
|
4,163
|
|
|
891
|
|
Minority interest in earnings
|
|
|
10,791
|
|
|
14,293
|
|
Changes in:
|
|
|
|
|
|
|
|
Tenant and other receivables
|
|
|
3,013
|
|
|
7,442
|
|
Other assets
|
|
|
(5,357
|
)
|
|
(5,188
|
)
|
Accounts payable and accrued liabilities
|
|
|
(5,434
|
)
|
|
2,548
|
|
Net cash provided by operating activities
|
|
|
92,953
|
|
|
98,314
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Additions to real estate assets
|
|
|
(126,998
|
)
|
|
(118,061
|
)
|
Acquisitions of real estate assets and intangible lease
assets
|
|
|
—
|
|
|
(7,545
|
)
|
Cash placed in escrow
|
|
|
(2,640
|
)
|
|
—
|
|
Purchases of available-for-sale securities
|
|
|
—
|
|
|
(18,652
|
)
|
Proceeds from sales of real estate assets
|
|
|
6,187
|
|
|
11,581
|
|
Additions to mortgage notes receivable
|
|
|
(9,597
|
)
|
|
(2,085
|
)
|
Payments received on mortgage notes receivable
|
|
|
103,885
|
|
|
73
|
|
Additional investments in and advances to unconsolidated
affiliates
|
|
|
(33,447
|
)
|
|
(18,097
|
)
|
Distributions in excess of equity in earnings of
unconsolidated affiliates
|
|
|
13,370
|
|
|
1,205
|
|
Purchase of minority interests in shopping center
properties
|
|
|
—
|
|
|
(8,007
|
)
|
Purchase of minority interests in the Operating
Partnership
|
|
|
—
|
|
|
(8,509
|
)
|
Changes in other assets
|
|
|
674
|
|
|
4,707
|
|
Net cash used in investing activities
|
|
|
(48,566
|
)
|
|
(163,390
|
)
|
5
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
(Continued)
|
|
Three Months Ended March 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds from mortgage and other notes payable
|
|
|
217,381
|
|
|
572,994
|
|
Principal payments on mortgage and other notes
payable
|
|
|
(185,412
|
)
|
|
(421,185
|
)
|
Additions to deferred financing costs
|
|
|
(489
|
)
|
|
(1,307
|
)
|
Prepayment fees to extinguish debt
|
|
|
—
|
|
|
(227
|
)
|
Proceeds from issuance of common stock
|
|
|
86
|
|
|
81
|
|
Proceeds from exercises of stock options
|
|
|
250
|
|
|
2,139
|
|
Income tax benefit from share-based compensation
|
|
|
(1,501
|
)
|
|
(1,139
|
)
|
Contributions from minority partners
|
|
|
203
|
|
|
—
|
|
Distributions to minority interests
|
|
|
(33,465
|
)
|
|
(27,489
|
)
|
Dividends paid to holders of preferred stock
|
|
|
(5,455
|
)
|
|
(7,642
|
)
|
Dividends paid to common shareholders
|
|
|
(36,069
|
)
|
|
(33,038
|
)
|
Net cash provided by (used in) financing
activities
|
|
|
(44,471
|
)
|
|
83,187
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(84
|
)
|
|
18,111
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
65,826
|
|
|
28,700
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
65,742
|
|
$
|
46,811
|
|
SUPPLEMENTAL INFORMATION:
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts
capitalized
|
|
$
|
83,499
|
|
$
|
68,087
|
|
The
accompanying notes are an integral part of these
statements.
6
CBL & Associates Properties, Inc.
Notes to Unaudited Condensed Consolidated Financial
Statements
(Dollars in thousands, except share data)
Note
1 – Organization and Basis of Presentation
CBL & Associates Properties, Inc. (“CBL”), a Delaware
corporation, is a self-managed, self-administered, fully integrated real estate
investment trust (“REIT”) that is engaged in the ownership, development,
acquisition, leasing, management and operation of regional shopping malls, open-air
centers and community shopping centers. CBL’s shopping center properties are
located in 27 states, but are primarily in the southeastern and midwestern United
States.
CBL conducts substantially all of its business through CBL &
Associates Limited Partnership (the “Operating Partnership”).
At March 31, 2008, the Operating
Partnership owned controlling interests in 75 regional malls/open-air centers, 28
associated centers (each adjacent to a regional mall), 13 community centers and 14
office buildings, including CBL’s corporate office building. The Operating
Partnership consolidates the financial statements of all entities in which it has a
controlling financial interest or where it is the primary beneficiary of a variable
interest entity. The Operating Partnership owned non-controlling interests in nine
regional malls/open-air centers, four associated centers, three community centers and
six office buildings. Because one or more of the other partners have substantive
participating rights, the Operating Partnership does not control these partnerships and
joint ventures and, accordingly, accounts for these investments using the equity
method. The Operating Partnership had six mall expansions, two associated/lifestyle
centers (one of which is owned in a joint venture), one mixed-use center and five
community/open-air centers (four of which are owned in joint ventures) under
construction at March 31, 2008. The Operating Partnership also holds options to acquire
certain development properties owned by third parties.
CBL is the 100% owner of two qualified REIT subsidiaries, CBL Holdings
I, Inc. and CBL Holdings II, Inc. At March 31, 2008, CBL Holdings I, Inc., the sole
general partner of the Operating Partnership, owned a 1.6% general partner interest in
the Operating Partnership and CBL Holdings II, Inc. owned a 55.1% limited partner
interest for a combined interest held by CBL of 56.7%.
The minority interest in the Operating Partnership is held primarily by
CBL & Associates, Inc. and its affiliates (collectively “CBL’s
Predecessor”) and by affiliates of The Richard E. Jacobs Group, Inc.
(“Jacobs”). CBL’s Predecessor contributed their interests in certain
real estate properties and joint ventures to the Operating Partnership in exchange for
a limited partner interest when the Operating Partnership was formed in November 1993.
Jacobs contributed their interests in certain real estate properties and joint ventures
to the Operating Partnership in exchange for limited partner interests when the
Operating Partnership acquired the majority of Jacobs’ interests in 23 properties
in January 2001 and the balance of such interests in February 2002. At March 31, 2008,
CBL’s Predecessor owned a 14.9% limited partner interest, Jacobs owned a 19.6%
limited partner interest and third parties owned an 8.8% limited partner interest in
the Operating Partnership. CBL’s Predecessor also owned 7.2 million shares of
CBL’s common stock at March 31, 2008, for a total combined effective interest of
21.0% in the Operating Partnership.
The Operating Partnership conducts CBL’s property management and
development activities through CBL & Associates Management, Inc. (the
“Management Company”) to comply with certain requirements of the Internal
Revenue Code of 1986, as amended (the “Code”). The Operating Partnership
owns 100% of both of the Management Company’s preferred stock and common
stock.
CBL, the Operating Partnership and the Management Company are
collectively referred to herein as “the Company”.
The accompanying condensed consolidated financial statements are
unaudited; however, they have been prepared in accordance with accounting principles
generally accepted in the United States of America
7
(“GAAP”) for interim financial information and in
conjunction with the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the disclosures required by GAAP for complete
financial statements. In the opinion of management, all adjustments (consisting solely
of normal recurring matters) necessary for a fair presentation of the financial
statements for these interim periods have been included. Material intercompany
transactions have been eliminated. The results for the interim period ended March 31,
2008, are not necessarily indicative of the results to be obtained for the full fiscal
year.
Certain historical amounts have been reclassified to conform to the
current year presentation. The financial results of certain properties are reported as
discontinued operations in the condensed consolidated financial statements. Except
where noted, the information presented in the Notes to Unaudited Condensed Consolidated
Financial Statements excludes discontinued operations. See Note 6 for further
discussion.
These condensed consolidated financial statements should be read in
conjunction with CBL’s audited consolidated financial statements and notes
thereto included in its Annual Report on Form 10-K for the year ended December 31,
2007.
Note 2 – Recent Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting Standards
(“SFAS”) No. 161,
Disclosures about Derivative
Instruments and Hedging Activities
. SFAS No. 161 improves
financial reporting about derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on an
entity’s financial position, financial performance and cash flows. SFAS No. 161
requires disclosure of the fair values of derivative instruments and their gains and
losses in a tabular format and provides more information about an entity’s
liquidity by requiring disclosure of derivative features that are credit risk-related.
It also requires cross-referencing within footnotes to enable financial statement users
to locate important information about derivative instruments. SFAS No. 161 is effective
for financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The adoption is not expected to have an impact on the
Company’s consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements
,
an Amendment of ARB No.
51
, which requires that a noncontrolling interest in a
consolidated subsidiary be displayed in the consolidated statement of financial
position as a separate component of equity. After control is obtained, a change in
ownership interests that does not result in a loss of control should be accounted for
as an equity transaction. A change in ownership of a consolidated subsidiary that
results in a loss of control and deconsolidation is a significant event that triggers
gain or loss recognition, with the establishment of a new fair value basis in any
remaining
ownership interests.
SFAS No. 160
is effective for fiscal years beginning on or after December 15, 2008. The Company is
currently evaluating the impact of adopting SFAS No. 160 on its financial position and
results of operations.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
, which changes
certain aspects of current business combination accounting. SFAS No. 141(R) requires,
among other things, that entities generally recognize 100 percent of the fair values of
assets acquired, liabilities assumed and non-controlling interests in acquisitions of
less than a 100 percent controlling interest when the acquisition constitutes a change
in control of the acquired entity. Shares issued as consideration for a business
combination are to be measured at fair value on the acquisition date and contingent
consideration arrangements are to be recognized at their fair values on the date of
acquisition, with subsequent changes in fair value generally reflected in earnings.
Pre-acquisition gain and loss contingencies generally are to be recognized at their
fair values on the acquisition date and any acquisition-related transaction costs are
to be expensed as incurred. SFAS No. 141(R) is effective for business combination
transactions for which the acquisition date is in a fiscal year
8
beginning on or after December 15, 2008. The adoption of SFAS No. 141(R)
is not expected to have a material impact on the Company’s consolidated financial
statements.
Note
3 – Fair Value Measurements
In September 2006, FASB issued SFAS No. 157,
Fair Value Measurements
. SFAS No. 157
defines fair value, establishes a framework for measuring fair value under generally
accepted accounting principles, and expands disclosures about fair value measurements.
SFAS No. 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. In
February 2008, the FASB issued FASB Staff Position 157-2 which delays the effective
date of SFAS No. 157 for nonfinancial assets and liabilities, except for items that are
recognized or disclosed at fair value in an entity’s financial statements on a
recurring basis (at least annually), to fiscal years beginning after November 15, 2008.
The Company adopted the provisions of SFAS No. 157 for financial assets and financial
liabilities on January 1, 2008.
In accordance with SFAS No. 157, the Company has categorized its
financial assets and financial liabilities that are recorded at fair value into a
hierarchy based on whether the inputs to valuation techniques are observable or
unobservable. The fair value hierarchy, as defined by SFAS No. 157,
contains three levels of inputs that may be used to measure fair value
as follows:
Level 1
– Inputs represent quoted prices in active markets for identical assets and
liabilities as of the measurement date.
Level 2
– Inputs, other than those included in Level 1, represent observable measurements
for similar instruments in active markets, or identical or similar instruments in
markets that are not active, and observable measurements or market data for instruments
with substantially the full term of the asset or liability.
Level 3
– Inputs represent unobservable measurements, supported by little, if any, market
activity, and require considerable assumptions that are significant to the fair value
of the asset or liability. Market valuations must often be determined using discounted
cash flow methodologies, pricing models or similar techniques based on the
Company’s assumptions and best judgment.
The following table sets forth information regarding the Company’s financial
instruments that are measured at fair value in the Condensed Consolidated Balance Sheet
as of March 31, 2008:
|
|
|
|
|
|
Fair Value Measurements at Reporting Date
Using
|
|
|
|
Fair Value
At
March 31,
2008
|
|
|
|
Quoted Prices in
Active Markets
For Identical
Assets
(Level 1)
|
|
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$
|
17,882
|
|
|
|
$
|
17,882
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
Privately held debt and equity securities
|
|
|
4,875
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
4,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
9,023
|
|
|
|
$
|
—
|
|
|
|
$
|
9,023
|
|
|
|
$
|
—
|
|
Other assets in the condensed consolidated balance sheets include
marketable securities consisting of corporate equity securities that are classified as
available for sale. Unrealized gains and losses on available-for-sale securities that
are deemed to be temporary in nature are recorded as a component of accumulated other
comprehensive loss in shareholders’ equity. During the quarter ended March 31,
2008, the Company did not recognize any realized gains and losses or write-downs
related to sales or disposals of marketable securities or
9
other-than-temporary impairments. The fair value of the Company’s
available-for-sale securities is based on quoted market prices and, thus, is classified
under Level 1.
The Company uses interest rate swaps to mitigate the effect of interest
rate movements on its variable-rate debt. The interest rate swaps are accounted for in
accordance with SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities
, and related amendments.
The Company currently has two interest rate swap agreements included in Accounts
Payable and Accrued Liabilities that qualify as hedging instruments and are designated
as cash flow hedges. The swaps have met the effectiveness test criteria since inception
and changes in the fair values of the swaps are, thus, reported in other comprehensive
income (loss) and will be reclassified into earnings in the same period or periods
during which the hedged item affects earnings. The Company has engaged a third party
firm to calculate the valuations for its interest rate swaps. The fair values of the
Company’s interest rate swaps, classified under Level 2, are determined using a
proprietary model which is based on prevailing market data for contracts with matching
durations, current and anticipated London Interbank Offered Rate (“LIBOR”)
rate information, consideration of the Company’s credit standing, credit risk of
the counterparties and reasonable estimates about relevant future market
conditions.
The Company holds a convertible note receivable from, and a warrant to
acquire shares of Jinsheng Group, in which the Company also holds a cost-method
investment. See Note 4 for additional information. The convertible note receivable is
non-interest bearing and is secured by shares of the private entity. Since the
convertible note receivable is non-interest bearing and there is no active market for
the entity’s debt, the Company performed an analysis on the note considering
credit risk and discounting factors to determine the fair value. The warrant was valued
using estimated share price and volatility variables in a Black Scholes model. Due to
the significant estimates and assumptions used in the valuation of the note and
warrant, the Company has classified these under Level 3. During the three months ended
March 31, 2008, there was no change in the fair value of the note and
warrant.
SFAS No. 157 requires separate disclosure of assets and liabilities
measured at fair value on a recurring basis from those measured at fair value on a
nonrecurring basis. As of March 31, 2008, no assets or liabilities were measured at
fair value on a nonrecurring basis.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities
. SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. The Company adopted SFAS No. 159 on
January 1, 2008, and has elected not to apply the fair value option.
Note
4 – Joint Ventures
Equity Method Investments
At March 31, 2008, the Company had investments in the following 19
entities, which are accounted for using the equity method of accounting:
10
Joint Venture
|
|
Property Name
|
|
Company's
Interest
|
|
Governor’s Square IB
|
|
Governor’s Plaza
|
|
50.0
|
%
|
Governor’s Square Company
|
|
Governor’s Square
|
|
47.5
|
%
|
High Pointe Commons, LP
|
|
High Pointe Commons
|
|
50.0
|
%
|
Imperial Valley Mall L.P.
|
|
Imperial Valley Mall
|
|
60.0
|
%
|
Imperial Valley Peripheral L.P.
|
|
Imperial Valley Mall (vacant land)
|
|
60.0
|
%
|
Kentucky Oaks Mall Company
|
|
Kentucky Oaks Mall
|
|
50.0
|
%
|
Mall of South Carolina L.P.
|
|
Coastal Grand—Myrtle Beach
|
|
50.0
|
%
|
Mall of South Carolina Outparcel L.P.
|
|
Coastal Grand—Myrtle Beach (vacant land)
|
|
50.0
|
%
|
Mall Shopping Center Company
|
|
Plaza del Sol
|
|
50.6
|
%
|
Parkway Place L.P.
|
|
Parkway Place
|
|
45.0
|
%
|
Triangle Town Member LLC
|
|
Triangle Town Center, Triangle Town Commons and Triangle
Town Place
|
|
50.0
|
%
|
York Town Center, LP
|
|
York Town Center
|
|
50.0
|
%
|
JG Gulf Coast Town Center
|
|
Gulf Coast Town Center
|
|
50.0
|
%
|
CBL Brazil
|
|
Plaza Macae
|
|
60.0
|
%
|
CBL—TRS Joint Venture, LLC
|
|
Friendly Center, The Shops at Friendly Center, Renaissance
Center and a portfolio of six office buildings
|
|
50.0
|
%
|
West Melbourne I, LLC
|
|
Hammock Landing Phase I
|
|
50.0
|
%
|
West Melbourne II, LLC
|
|
Hammock Landing Phase II
|
|
50.0
|
%
|
Port Orange I, LLC
|
|
The Pavilion at Port Orange Phase I
|
|
50.0
|
%
|
Port Orange II, LLC
|
|
The Pavilion at Port Orange Phase II
|
|
50.0
|
%
|
Condensed combined financial statement information for the
unconsolidated affiliates is as follows:
|
|
Total for the Three
Months Ended March 31,
|
|
|
|
Company's Share for the Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2007
|
|
Revenues
|
|
$
|
38,286
|
|
|
|
$
|
23,562
|
|
|
|
$
|
19,799
|
|
|
|
$
|
11,898
|
|
Depreciation and amortization expense
|
|
|
(13,000
|
)
|
|
|
|
(6,896
|
)
|
|
|
|
(6,677
|
)
|
|
|
|
(3,504
|
)
|
Interest expense
|
|
|
(13,006
|
)
|
|
|
|
(8,317
|
)
|
|
|
|
(6,626
|
)
|
|
|
|
(4,192
|
)
|
Other operating expenses
|
|
|
(11,343
|
)
|
|
|
|
(7,656
|
)
|
|
|
|
(5,946
|
)
|
|
|
|
(3,873
|
)
|
Gain on sales of real estate assets
|
|
|
472
|
|
|
|
|
538
|
|
|
|
|
429
|
|
|
|
|
269
|
|
Net income
|
|
$
|
1,409
|
|
|
|
$
|
1,231
|
|
|
|
$
|
979
|
|
|
|
$
|
598
|
|
Effective January 30, 2008, the Company entered into two 50/50 joint ventures, West
Melbourne I, LLC and West Melbourne II, LLC, with certain affiliates of Benchmark
Development (“Benchmark”) to develop Hammock Landing, an open-air shopping
center in West Melbourne, Florida that will be developed in two phases. The Company
obtained its 50% interests in the joint ventures by contributing cash of $9,685. The
Company will develop and manage Hammock Landing. The joint venture’s net cash
flows and income (loss) will be allocated 50/50 to Benchmark and the Company. The
Company records its investments in these joint ventures using the equity method of
accounting.
Effective January 30, 2008, the Company entered into two 50/50 joint
ventures, Port Orange I, LLC and Port Orange II, LLC, with Benchmark to develop the
Pavilion at Port Orange (the “Pavilion”), an open-air shopping center in
Port Orange, Florida that will be developed in two phases. The Company obtained its 50%
interests in the joint ventures by contributing cash of $13,812. The Company will
develop and manage the Pavilion. The joint ventures’ net cash flows and income
(loss) will be allocated 50/50 to Benchmark and the Company. The Company records its
investments in these joint ventures using the equity method of accounting.
11
During the first quarter of 2008, CBL-TRS Joint Venture, a joint venture
that the Company accounts for using the equity method of accounting, completed its
acquisition of properties from the Starmount Company when it acquired the Renaissance
Center, located in Durham, NC, for $89,639 and an anchor parcel at Friendly Center,
located in Greensboro, NC, for $5,000. The aggregate purchase price consisted of
$58,121 in cash and the assumption of $36,518 of non-recourse debt that bears interest
at a fixed interest rate of 5.61% and matures in July 2016.
Cost Method Investments
In February 2007, the Company acquired a 6.2% minority interest in
subsidiaries of Jinsheng Group (“Jinsheng”), an established mall operating
and real estate development company located in Nanjing, China, for $10,125. As of March
31, 2008, Jinsheng owns controlling interests in four home decoration shopping
centers, two general retail shopping centers and four development
sites.
Jinsheng also issued to the Company a secured convertible promissory
note in exchange for cash of $4,875. The note is secured by 16,565,534 Series 2
Ordinary Shares of Jinsheng. The secured note is non-interest bearing and matures upon
the earlier to occur of (i) January 22, 2012, (ii) the closing of the sale, transfer or
other disposition of substantially all of Jinsheng’s assets, (iii) the closing of
a merger or consolidation of Jinsheng or (iv) an event of default, as defined in the
secured note. In lieu of the Company’s right to demand payment on the maturity
date, at any time commencing upon the earlier to occur of January 22, 2010 or the
occurrence of a Final Trigger Event, as defined in the secured note, the Company may,
at its sole option, convert the outstanding amount of the secured note into 16,565,534
Series A-2 Preferred Shares of Jinsheng (which equates to a 2.275% ownership
interest).
Jinsheng also granted the Company a warrant to acquire 5,461,165 Series
A-3 Preferred Shares for $1,875. The warrant expires upon the earlier of January 22,
2010 or the date that Jinsheng distributes, as a dividend, shares of Jinsheng’s
successor should Jinsheng complete an initial public offering.
The Company accounts for its minority interest in Jinsheng using the
cost method because the Company does not exercise significant influence over Jinsheng
and there is no readily determinable market value of Jinsheng’s shares since they
are not publicly traded. The Company recorded the secured note at its estimated fair
value of $4,513, which reflects a discount of $362 due to the fact that it is
non-interest bearing. The discount is amortized to interest income over the term of the
secured note using the effective interest method. The minority interest and the secured
note are reflected as investment in unconsolidated affiliates in the accompanying
condensed consolidated balance sheets. The Company recorded the warrant at its
estimated fair value of $362, which is included in other assets in the accompanying
condensed consolidated balance sheets. There have been no significant changes to the
fair values of the secured note and warrant.
During the first quarter of 2008, the Company became aware that a lender
to Jinsheng had declared an event of default under its loan, claiming that the loan
proceeds had been improperly advanced to a related party entity owned by Jinsheng's
founder. As a result, the lender sought to exercise its rights to register ownership of
the shares of Jinsheng that were pledged as collateral for the loan. Jinsheng's founder
partially repaid the loan in April 2008 and obtained a release of a portion of the
collateral. However, because he failed to pay the balance of the loan by its maturity
date of April 30, 2008, the lender is once again seeking to exercise its rights with
respect to the remaining collateral. Due to the uncertainty surrounding the final
disposition of the pledged Jinsheng shares, the Company has determined that its
investment may be potentially impaired. The Company and its fellow investor in Jinsheng
are currently working with both the lender and Jinsheng’s founder to negotiate a
restructuring plan that would allow for the repayment of the loan and the settlement of
the related party receivable. Based on information to date, the Company believes that
implementation of a satisfactory restructuring plan will be achieved and has determined
that any potential impairment would not be other than temporary.
12
Variable Interest Entities
In October 2006, the Company entered into a loan agreement with a third
party under which the Company would loan the third party up to $18,000 to fund land
acquisition costs and certain predevelopment expenses for the purpose of developing a
shopping center. The Company determined that its loan to the third party represented a
variable interest in a variable interest entity and that the Company was the primary
beneficiary. As a result, the Company consolidated this entity.
During the first quarter of 2008, the Company agreed to receive title to
the underlying land in exchange for the full payment of the $18,000 loan. The
transaction had no impact on the Company’s condensed consolidated financial
statements.
Note 5 – Mortgage and Other Notes Payable
Mortgage and other notes payable consisted of the following at March 31,
2008 and December 31, 2007, respectively:
|
|
March 31, 2008
|
|
|
|
December 31, 2007
|
|
|
|
Amount
|
|
|
|
Weighted
Average
Interest
Rate(1)
|
|
|
|
Amount
|
|
|
|
Weighted
Average
Interest
Rate(1)
|
|
Fixed-rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating properties
|
|
$
|
4,273,477
|
|
|
|
5.93
|
%
|
|
|
$
|
4,293,515
|
|
|
|
5.93
|
%
|
Line of credit (2)
|
|
|
400,000
|
|
|
|
4.55
|
%
|
|
|
|
250,000
|
|
|
|
4.61
|
%
|
Total fixed-rate debt
|
|
|
4,673,477
|
|
|
|
5.81
|
%
|
|
|
|
4,543,515
|
|
|
|
5.85
|
%
|
Variable-rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recourse term loans on operating properties
|
|
|
118,175
|
|
|
|
4.00
|
%
|
|
|
|
81,767
|
|
|
|
6.15
|
%
|
Lines of credit
|
|
|
1,014,602
|
|
|
|
3.68
|
%
|
|
|
|
1,165,032
|
|
|
|
6.28
|
%
|
Construction loans
|
|
|
83,366
|
|
|
|
3.97
|
%
|
|
|
|
79,004
|
|
|
|
6.20
|
%
|
Total variable-rate debt
|
|
|
1,216,143
|
|
|
|
3.73
|
%
|
|
|
|
1,325,803
|
|
|
|
6.13
|
%
|
Total
|
|
$
|
5,889,620
|
|
|
|
5.38
|
%
|
|
|
$
|
5,869,318
|
|
|
|
5.92
|
%
|
|
(1)
|
Weighted-average interest rate including the effect of debt
premiums (discounts), but excluding amortization of deferred financing
costs.
|
|
(2)
|
The Company has entered into interest rate swaps on notional
amounts totaling $400,000 related to its largest secured credit facility to
effectively fix the interest rate on that portion of the line of credit.
Therefore, this amount is currently reflected in fixed-rate
debt.
|
Unsecured Line of Credit
The Company has an unsecured credit facility with total availability of
$560,000 that bears interest at LIBOR plus a margin of 0.75% to 1.20% based on the
Company’s leverage, as defined in the agreement to the facility. Additionally,
the Company pays an annual fee of 0.1% of the amount of total availability under the
unsecured credit facility. The credit facility matures in August 2008 and has three
one-year extension options, which are at the Company’s election. At March 31,
2008, the outstanding borrowings of $525,232 under the unsecured credit facility had a
weighted average interest rate of 3.56%.
The Company has an unsecured credit facility that was obtained for the
exclusive purpose of acquiring certain properties from the Starmount Company or its
affiliates. The Company completed its acquisition of these properties in February 2008
and, as a result, no further draws can be made against the facility. The unsecured
credit facility bears interest at LIBOR plus a margin of 0.95% to 1.40% based on the
Company’s leverage ratio, as defined in the agreement to the facility. Net
proceeds from a sale, or the Company’s share of excess proceeds from any
refinancings, of any of the properties originally purchased with borrowings from this
unsecured credit facility must be used to pay down any remaining outstanding balance.
The agreement to the facility contains default provisions customary for transactions of
this nature and also contains cross-default provisions for defaults of the
Company’s $560,000 unsecured credit facility and $525,000 secured
facility.
13
The
facility matures in November 2010 and has two one-year extension options, which are at
the Company’s election. At March 31, 2008, the outstanding borrowings of $264,870
under this facility had a weighted average interest rate of 3.83%.
Secured Lines of Credit
The Company has four secured lines of credit that are used for
construction, acquisition and working capital purposes, as well as issuances of letters
of credit. Each of these lines is secured by mortgages on certain of the
Company’s operating properties. Borrowings under the secured lines of credit bear
interest at LIBOR plus a margin ranging from 0.80% to 0.90% and had a weighted average
interest rate of 3.78% at March 31, 2008. The Company also pays a fee based on the
amount of unused availability under its largest secured credit facility at a rate of
0.125% of unused availability. The following summarizes certain information about the
secured lines of credit as of March 31, 2008:
Total
Available
|
|
Total
Outstanding
|
|
Maturity Date
|
|
$
|
525,000
|
|
$
|
525,000
|
|
February 2009
|
|
|
100,000
|
|
|
62,300
|
|
June 2009
|
|
|
20,000
|
|
|
20,000
|
|
March 2010
|
|
|
17,200
|
|
|
17,200
|
|
April 2010
|
|
$
|
662,200
|
|
$
|
624,500
|
|
|
|
Interest Rate Swaps
On January 2, 2008, the Company entered into a $150,000 pay
fixed/receive variable interest rate swap agreement to hedge the interest rate risk
exposure on an amount of borrowings on the Company’s largest secured credit
facility equal to the swap notional amount. This interest rate swap hedges the risk of
changes in cash flows on the Company’s designated forecasted interest payments
attributable to changes in 1-month LIBOR, the designated benchmark interest rate being
hedged, thereby reducing exposure to variability in cash flows relating to interest
payments on the variable-rate debt. The interest rate swap effectively fixes the
interest payments on the portion of debt principal corresponding to the swap notional
amount at 4.453%. The swap was valued at $(3,197) as of March 31, 2008 and matures on
December 30, 2009.
On December 31, 2007, the Company entered into a $250,000 pay
fixed/receive variable interest rate swap agreement to hedge the interest rate risk
exposure on an amount of borrowings on the Company’s largest secured credit
facility equal to the swap notional amount. The interest rate swap effectively fixes
the interest payments on the portion of debt principal corresponding to the swap
notional amount at 4.605%. The swap was valued at $(5,826) as of March 31, 2008 and
matures on December 30, 2009.
The above swaps have met the effectiveness test criteria since inception
and changes in the fair values of the swaps are, thus, reported in other comprehensive
income (loss) and will be reclassified into earnings in the same period or periods
during which the hedged item affects earnings. The swaps' total fair value of
$(9,023) as of March 31, 2008 is included in Accounts Payable and Accrued Liabilities
in the accompanying condensed consolidated balance sheet.
Letters of Credit
At March 31, 2008, the Company had additional secured and unsecured
lines of credit with a total commitment of $37,940 that can only be used for issuing
letters of credit. The letters of credit outstanding under these lines of credit
totaled $15,867 at March 31, 2008.
14
Covenants and Restrictions
Thirty-nine malls/open-air centers, nine associated centers, three
community centers and the corporate office building are owned by special purpose
entities that are included in the Company’s consolidated financial statements.
The sole business purpose of the special purpose entities is to own and operate these
properties, each of which is encumbered by a commercial-mortgage-backed-securities
loan. The real estate and other assets owned by these special purpose entities are
restricted under the loan agreements in that they are not available to settle other
debts of the Company. However, so long as the loans are not under an event of default,
as defined in the loan agreements, the cash flows from these properties, after payments
of debt service, operating expenses and reserves, are available for distribution to the
Company.
Maturities
The weighted average remaining term of the Company’s total
consolidated debt was 4.1 years at March 31, 2008 and 4.4 years at December 31, 2007.
The weighted average remaining term of the Company's consolidated fixed-rate debt was
4.7 years and 5.1 years at March 31, 2008 and December 31, 2007, respectively. The
Company has eleven loans and two lines of credit totaling $1,602,011 that are scheduled
to mature before March 31, 2009. Of the total amount scheduled to mature within the
next twelve months, the two lines of credit account for $1,050,232. The lines of credit
are the Company’s largest secured and unsecured facilities, as discussed above.
The secured facility has a one-year extension option and the unsecured facility
has three one-year extension options. Of the eleven loans scheduled to mature
within the next twelve months, three loans totaling $76,234 have extension options. The
Company expects to extend, retire or refinance the loans.
Note
6 – Discontinued Operations
As of March 31, 2008, the Company determined that 19 of the community
center and office properties originally acquired during the fourth quarter of 2007 from
the Starmount Company met the criteria to be classified as held-for-sale. Individual
sales of the properties are expected to close throughout the next twelve months. In
conjunction with their classification as held-for-sale, the results of operations from
the properties have been reclassified to discontinued operations for the three months
ended March 31, 2008.
During August 2007, the Company sold Twin Peaks Mall in Longmont, CO.
During December 2007, the Company sold The Shops at Pineda Ridge in Melbourne, FL. The
results of operations of these properties are included in discontinued operations for
the three months ended March 31, 2007.
Total revenues for the properties included in discontinued operations in
the accompanying condensed consolidated financial statements of operations were $4,555
and $1,538 for the three month periods ended March 31, 2008 and 2007,
respectively.
Note
7 – Segment Information
The Company measures performance and allocates resources according to
property type, which is determined based on certain criteria such as type of tenants,
capital requirements, economic risks, leasing terms, and short and long-term returns on
capital. Rental income and tenant reimbursements from tenant leases provide the
majority of revenues from all segments. Information on the Company’s reportable
segments is presented as follows:
15
Three Months Ended March 31, 2008
|
|
|
Malls
|
|
|
Associated
Centers
|
|
|
Community
Centers
|
|
|
All Other
(2)
|
|
|
Total
|
|
Revenues
|
|
|
$
|
253,652
|
|
|
$
|
10,950
|
|
|
$
|
3,338
|
|
|
|
10,339
|
|
|
$
|
278,279
|
|
Property operating expenses (1)
|
|
|
|
(92,256
|
)
|
|
|
(2,645
|
)
|
|
|
(1,206
|
)
|
|
|
6,510
|
|
|
|
(89,597
|
)
|
Interest expense
|
|
|
|
(63,069
|
)
|
|
|
(2,306
|
)
|
|
|
(1,135
|
)
|
|
|
(13,714
|
)
|
|
|
(80,224
|
)
|
Other expense
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,999
|
)
|
|
|
(6,999
|
)
|
Gain on sales of real estate assets
|
|
|
|
1,398
|
|
|
|
—
|
|
|
|
2
|
|
|
|
1,676
|
|
|
|
3,076
|
|
Segment profit (loss)
|
|
|
$
|
99,725
|
|
|
$
|
5,999
|
|
|
$
|
999
|
|
|
$
|
(2,188
|
)
|
|
|
104,535
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73,616
|
)
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,531
|
)
|
Interest and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,727
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
979
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(357
|
)
|
Minority interest in earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,791
|
)
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,946
|
|
Total Assets
|
|
|
$
|
6,880,765
|
|
|
$
|
348,057
|
|
|
$
|
219,173
|
|
|
$
|
580,953
|
|
|
$
|
8,028,948
|
|
Capital expenditures (3)
|
|
|
$
|
52,481
|
|
|
$
|
267
|
|
|
$
|
22,433
|
|
|
$
|
101,183
|
|
|
$
|
176,364
|
|
Three Months Ended March 31, 2007
|
|
|
Malls
|
|
|
Associated
Centers
|
|
|
Community
Centers
|
|
|
All Other
(2)
|
|
|
Total
|
|
Revenues
|
|
|
$
|
230,618
|
|
|
$
|
10,557
|
|
|
$
|
1,978
|
|
|
|
5,865
|
|
|
$
|
249,018
|
|
Property operating expenses (1)
|
|
|
|
(82,505
|
)
|
|
|
(2,606
|
)
|
|
|
(785
|
)
|
|
|
6,894
|
|
|
|
(79,002
|
)
|
Interest expense
|
|
|
|
(54,107
|
)
|
|
|
(1,856
|
)
|
|
|
(993
|
)
|
|
|
(9,171
|
)
|
|
|
(66,127
|
)
|
Other expense
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,639
|
)
|
|
|
(3,639
|
)
|
Gain on sales of real estate assets
|
|
|
|
(93
|
)
|
|
|
(10
|
)
|
|
|
(9
|
)
|
|
|
3,642
|
|
|
|
3,530
|
|
Segment profit (loss)
|
|
|
$
|
93,913
|
|
|
$
|
6,085
|
|
|
$
|
191
|
|
|
$
|
3,591
|
|
|
|
103,780
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,608
|
)
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,197
|
)
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227
|
)
|
Interest and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,745
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
598
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(803
|
)
|
Minority interest in earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,293
|
)
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,995
|
|
Total Assets
|
|
|
$
|
5,844,095
|
|
|
$
|
318,566
|
|
|
$
|
60,046
|
|
|
$
|
396,641
|
|
|
$
|
6,619,348
|
|
Capital expenditures (3)
|
|
|
$
|
62,531
|
|
|
$
|
9,992
|
|
|
$
|
7,985
|
|
|
$
|
33,979
|
|
|
$
|
114,487
|
|
(1)
|
Property operating expenses include property operating
expenses, real estate taxes and maintenance and repairs.
|
(2)
|
The All Other category includes mortgage notes receivable,
Office Buildings, the Management Company and the Company’s subsidiary
that provides security and maintenance services.
|
(3)
|
Amounts include acquisitions of real estate assets and
investments in unconsolidated affiliates. Developments in progress are
included in the All Other category.
|
Note 8 – Postretirement Benefits
Effective March 1, 2008, the Company adopted an unfunded plan to provide
medical insurance coverage for up to two years to any retirees with thirty or more
years of service and no eligibility for any other group health plan coverage or
Medicare. The Company accounts for the plan pursuant to SFAS No. 106,
Employers’ Accounting for Postretirement Benefits Other Than
Pensions
. The Company elected to account for the obligation
using the transition methodology. During the first quarter of 2008, the Company
incurred a total charge of $190 due to the adoption of the plan. Election of the
transition methodology resulted in an unrecognized transition cost of $434.
16
On March 3, 2008, the Company’s Senior Vice President and Director
of Corporate Leasing announced his retirement effective March 31, 2008. In conjunction
with his retirement, the Company agreed to the payment of certain compensation and to
the acceleration of the vesting of any outstanding restricted stock awards, among other
items. The Company incurred a total charge of $1,216 during the first quarter of 2008
related to the officer’s retirement benefits, consisting of $1,000 of base
compensation, $75 of pro rata bonus compensation, $31 of health benefits and $110 of
restricted stock accelerated vesting.
Note 9 – Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net
income available to common shareholders by the weighted-average number of unrestricted
common shares outstanding for the period. Diluted EPS assumes the issuance of common
stock for all potential dilutive common shares outstanding. The limited partners’
rights to convert their minority interest in the Operating Partnership into shares of
common stock are not dilutive. The following summarizes the impact of potential
dilutive common shares on the denominator used to compute earnings per
share:
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
Weighted average shares outstanding
|
|
66,195
|
|
|
|
65,562
|
|
Effect of nonvested stock awards
|
|
(298
|
)
|
|
|
(453
|
)
|
Denominator – basic earnings per share
|
|
65,897
|
|
|
|
65,109
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
Stock options
|
|
134
|
|
|
|
583
|
|
Nonvested stock awards
|
|
48
|
|
|
|
157
|
|
Deemed shares related to deferred compensation
arrangements
|
|
30
|
|
|
|
37
|
|
Denominator – diluted earnings per share
|
|
66,109
|
|
|
|
65,886
|
|
Note 10 – Comprehensive Income (Loss)
The computation of comprehensive income (loss) for the three months
ended March 31, 2008 and 2007 is as follows:
|
|
Total for the Three Months
Ended March 31,
|
|
|
|
2008
|
|
|
|
2007
|
|
Net Income
|
|
$
|
11,626
|
|
|
|
$
|
25,043
|
|
Change in unrealized loss on interest rate hedge
agreements
|
|
|
(9,023
|
)
|
|
|
|
—
|
|
Change in unrealized loss on available-for-sale
securities
|
|
|
(3,486
|
)
|
|
|
|
531
|
|
Change in foreign currency translation
adjustments
|
|
|
200
|
|
|
|
|
—
|
|
Total other comprehensive income (loss)
|
|
|
(12,309
|
)
|
|
|
|
531
|
|
Comprehensive income (loss)
|
|
$
|
(683
|
)
|
|
|
$
|
25,574
|
|
Note
11 – Contingencies
The Company is currently involved in certain litigation that arises in
the ordinary course of business. It is management’s opinion that the pending
litigation will not materially affect the financial position or results of operations
of the Company.
The Company has guaranteed 50% of the debt of Parkway Place L.P., an
unconsolidated affiliate in which the Company owns a 45% interest, which owns Parkway
Place in Huntsville, AL. The total amount outstanding at March 31, 2008, was $53,200 of
which the Company has guaranteed $26,600. The guaranty will expire when the related
debt matures in June 2008. The Company has not recorded an obligation for this guaranty
because it has determined that the fair value of the guaranty is not
material.
17
The Company has guaranteed the 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 will own property
adjacent to the shopping center property YTC is currently developing. 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 maximum guaranteed obligation was $21,200
as of March 31, 2008. The Company has entered into an agreement with its joint venture
partner under which the joint venture partner has agreed to reimburse the Company 50%
of any amounts the Company is obligated to fund under the guaranty. The Company has not
recorded an obligation for this guaranty because it has determined that the fair value
of the guaranty is not material.
The Company owns a parcel of land that it is ground leasing to a third
party developer for the purpose of developing a shopping center. The Company has
guaranteed 27% of the third party’s construction loan and bond line of credit
(the “loans”) of which the maximum guaranteed amount is $31,554. The total
amount outstanding at March 31, 2008 on the loans was $23,986 of which the Company has
guaranteed $6,476. The Company has recorded an obligation of $315 in the accompanying
condensed consolidated balance sheets as of March 31, 2008 and December 31, 2007 to
reflect the estimated fair value of the guaranty.
The Company has issued various bonds that it would have to satisfy in
the event of non-performance. At March 31, 2008, the total amount outstanding on these
bonds was $48,560.
Note
12 – Share-Based Compensation
The share-based compensation cost that was charged against income was
$1,300 and $1,263 for the three months ended March 31, 2008 and 2007. The share-based
compensation cost capitalized as part of real estate assets was $277 and $187 for the
three months ended March 31, 2008 and 2007.
The Company’s stock option activity for the three months ended
March 31, 2008 is summarized as follows:
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
Outstanding at January 1, 2008
|
|
652,030
|
|
$
|
15.71
|
|
Exercised
|
|
(19,215
|
)
|
|
13.00
|
|
Outstanding at March 31, 2008
|
|
632,815
|
|
|
15.80
|
|
Vested at March 31, 2008
|
|
632,815
|
|
|
15.80
|
|
Exercisable at March 31, 2008
|
|
632,815
|
|
|
15.80
|
|
A summary of the status of the Company’s stock awards as of March
31, 2008, and changes during the three months ended March 31, 2008, is presented
below:
|
|
Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
Nonvested at January 1, 2008
|
|
298,330
|
|
$
|
36.73
|
|
Granted
|
|
106,813
|
|
|
24.36
|
|
Vested
|
|
(14,013
|
)
|
|
24.29
|
|
Nonvested at March 31, 2008
|
|
391,130
|
|
|
33.62
|
|
18
As of March 31, 2008, there was $9,166 of total unrecognized
compensation cost related to nonvested stock options and stock awards granted under the
plan, which is expected to be recognized over a weighted average period of 3.0
years.
Note
13 – Noncash Investing and Financing Activities
The Company’s noncash investing and financing activities were as
follows for the three months ended March 31, 2008 and 2007:
|
|
Three Months Ended
March 31,
|
|
|
|
2008
|
|
2007
|
|
Accrued dividends and distributions
|
|
$
|
64,372
|
|
$
|
59,336
|
|
Additions to real estate assets accrued but not yet
paid
|
|
|
22,738
|
|
|
27,113
|
|
Reclassification of developments in progress to mortgage
notes receivable
|
|
|
—
|
|
|
6,528
|
|
Note receivable received on sale of land
|
|
|
—
|
|
|
3,735
|
|
Minority interest issued in acquisition of real estate
assets
|
|
|
—
|
|
|
330
|
|
Payable for marketable securities acquired
|
|
|
—
|
|
|
5,672
|
|
Note 14 – Income Taxes
The Company has elected taxable REIT subsidiary status for some of its
subsidiaries. This enables the Company to receive income and provide services that
would otherwise be impermissible for REITs. For these entities, deferred tax assets and
liabilities are established for temporary differences between the financial reporting
basis and the tax basis of assets and liabilities at the enacted tax rates expected to
be in effect when the temporary differences reverse. A valuation allowance for deferred
tax assets is provided if the Company believes all or some portion of the deferred tax
asset may not be realized. An increase or decrease in the valuation allowance resulting
from changes in circumstances that may affect the realizability of the related deferred
tax asset is included in income.
The Company recorded an income tax provision of $357 and $803 for the
three months ended March 31, 2008 and 2007, respectively. The income tax provision in
2008 consisted of a current income tax provision of $1,501 and a deferred income tax
benefit of $1,144. The income tax provision in 2007 consisted of a current income tax
provision of $1,139 and a deferred income tax benefit of $336.
The Company had a net deferred tax asset of $5,476 at March 31, 2008 and
$4,332 at December 31, 2007. The net deferred tax asset at March 31, 2008 and December
31, 2007 primarily consisted of operating expense accruals and differences between book
and tax depreciation.
The Company reports any income tax penalties attributable to its
properties as property operating expenses and any corporate-related income tax
penalties as general and administrative expenses in its statement of operations. In
addition, any interest incurred on tax assessments is reported as interest expense. The
Company reported nominal interest and penalty amounts for the three months ended March
31, 2008 and 2007, respectively.
Note 15 – Subsequent Events
In April 2008, the Company entered into a new, unsecured term facility
for up to $228,000. The facility has an initial term of three years with two one-year
extensions at the Company’s option. The facility bears interest at LIBOR plus a
margin of 1.50% to 1.80% based on the Company’s leverage, as defined in the
agreement to the facility. The facility was used to pay down outstanding balances on
the Company's lines of credit.
19
In April 2008, the Company completed the sale of five community centers
located in Greensboro, NC to three separate buyers for an aggregate of approximately
$24,325. The Company expects to record a $1,477 gain attributable to the sales in the
second quarter of 2008. The proceeds were used to retire a portion of the outstanding
balance on the unsecured line of credit that was originally used to purchase the
properties. These centers are included in the held-for-sale portfolio as of March
31, 2008, and their results are included in discontinued operations for the three
months ended March 31, 2008.
ITEM
2: Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis of financial condition and results
of operations should be read in conjunction with the consolidated financial statements
and accompanying notes that are included in this Form 10-Q. In this discussion, the
terms “we”, “us”, “our” and the
“Company” refer to CBL & Associates Properties, Inc. and its
subsidiaries.
Certain statements made in this section or elsewhere in this report may
be deemed “forward looking statements” within the meaning of the federal
securities laws. Although we believe the expectations reflected in any forward-looking
statements are based on reasonable assumptions, we can give no assurance that these
expectations will be attained, and it is possible that actual results may differ
materially from those indicated by these forward-looking statements due to a variety of
risks and uncertainties. In addition to the risk factors described in Part II, Item 1A.
of this report, such risks and uncertainties include, without limitation, general
industry, economic and business conditions, interest rate fluctuations, costs of
capital and capital requirements, availability of real estate properties, inability to
consummate acquisition opportunities, competition from other companies and retail
formats, changes in retail rental rates in the Company’s markets, shifts in
customer demands, tenant bankruptcies or store closings, changes in vacancy rates at
our properties, changes in operating expenses, changes in applicable laws, rules and
regulations, the ability to obtain suitable equity and/or debt financing and the
continued availability of financing in the amounts and on the terms necessary to
support our future business. We disclaim any obligation to update or revise any
forward-looking statements to reflect actual results or changes in the factors
affecting the forward-looking information.
EXECUTIVE OVERVIEW
We are a self-managed, self-administered, fully integrated real estate
investment trust (“REIT”) that is engaged in the ownership, development,
acquisition, leasing, management and operation of regional malls and open-air and
community shopping centers. Our shopping center properties are located in 27 states,
but primarily in the southeastern and midwestern United States. We have elected to be
taxed as a REIT for federal income tax purposes.
As of March 31, 2008, we owned controlling interests in 75 regional
malls/open-air centers, 28 associated centers (each adjacent to a regional shopping
mall), 13 community centers and 14 office buildings, including our corporate office
building. We consolidate the financial statements of all entities in which we have a
controlling financial interest or where we are the primary beneficiary of a variable
interest entity. As of March 31, 2008, we owned non-controlling interests in nine
regional malls/open-air centers, four associated centers, three community centers and
six office buildings. Because one or more of the other partners have substantive
participating rights, we do not control these partnerships and joint ventures and,
accordingly, account for these investments using the equity method.
At March 31, 2008, we had six mall expansions, two associated/lifestyle
centers (one of which is owned in a joint venture), five community/open-air centers
(four of which are owned in joint ventures) and one mixed-use center under
construction.
The majority of our revenues is derived from leases with retail tenants
and generally includes base minimum rents, percentage rents based on tenants’
sales volumes and reimbursements from tenants for expenditures, including property
operating expenses, real estate taxes and maintenance and repairs, as well as certain
capital expenditures. We also generate revenues from sales of outparcel land at the
properties and from sales of operating real estate assets when it is
20
determined that we can realize the maximum value of the assets. Proceeds
from such sales are generally used to pay off related construction loans or reduce
borrowings on our credit facilities.
Despite the challenging economy, we recorded encouraging results this
quarter including increases in occupancy, strong leasing spreads and positive growth in
Funds From Operations ("FFO"). FFO is a key performance measure for real estate
companies. Please see the more detailed discussion of this measure on page 34. We are
continuing to maximize the productivity of our core portfolio through leasing and
management and through opportunistic expansions and redevelopments. We are generating
growth with a pipeline of solid new development projects that are well-positioned for
long-term success.
As a result of the tight credit markets, we are seeing an increase in
the number of projects from smaller private developers that are unable to secure
funding. Not only is this providing us with new opportunities, but it is also
encouraging retailers to sign onto projects with us due to our proven history of
established development. In April 2008, we successfully closed on a new, unsecured term
facility of $228.0 million and we have several new developments, redevelopments and
expansions in process.
Certain retailers have announced store closures or bankruptcies in 2008
and it is possible that there may be more. However, we believe that store closures and
bankruptcies provide an opportunity to enhance the overall credit quality of our
retailers and provide us with an opportunity to increase the productivity in our malls,
both in terms of rents and sales. Based on the announcements made to date, the impact
on our portfolio is not expected to be significant.
Our current quarter results are beginning to reflect the benefits from
the expansions and enhancements that we made to our existing portfolio in 2007, as well
as the properties that we acquired in the latter part of that year. Our new development
projects that are scheduled to open in 2008 should serve to maintain the positive
momentum.
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 2008 to the Three
Months Ended March 31, 2007
We have acquired or opened five malls/open-air centers, one associated
center, 13 community centers and 19 office buildings since January 1, 2007
(collectively referred to as the “New Properties”). These transactions
impact the comparison of the results of operations for the three months ended March 31,
2008 to the results of operations for the comparable period ended March 31, 2007.
Properties that were in operation as of January 1, 2007 and March 31, 2008 are referred
to as the “Comparable Properties.” We do not consider a property to be one
of the Comparable Properties until it has been owned or open for one complete calendar
year. Any reference to the New Properties in this section excludes those properties
that are accounted for using the equity method of accounting or that are included in
Discontinued Operations. The New Properties are as follows:
21
Property
|
|
Location
|
|
Date Acquired/
Opened
|
|
Acquisitions:
|
|
|
|
|
|
Chesterfield Mall
|
|
St. Louis, MO
|
|
Oct-07
|
|
Mid Rivers Mall
|
|
St. Peters, MO
|
|
Oct-07
|
|
South County Center
|
|
St. Louis, MO
|
|
Oct-07
|
|
West County Center
|
|
St. Louis, MO
|
|
Oct-07
|
|
Friendly Center and The Shops at Friendly (50/50 joint
venture) (1)
|
|
Greensboro, NC
|
|
Nov-07
|
|
Brassfield Square (2)
|
|
Greensboro, NC
|
|
Nov-07
|
|
Caldwell Court (2)
|
|
Greensboro, NC
|
|
Nov-07
|
|
Garden Square (2)
|
|
Greensboro, NC
|
|
Nov-07
|
|
Hunt Village (2)
|
|
Greensboro, NC
|
|
Nov-07
|
|
New Garden Center (2)
|
|
Greensboro, NC
|
|
Nov-07
|
|
Northwest Centre (2)
|
|
Greensboro, NC
|
|
Nov-07
|
|
Oak Hollow Square (2)
|
|
High Point, NC
|
|
Nov-07
|
|
Westridge Square (2)
|
|
Greensboro, NC
|
|
Nov-07
|
|
1500 Sunday Drive Office Building (2)
|
|
Raleigh, NC
|
|
Nov-07
|
|
Portfolio of Five Office Buildings (2)
|
|
Greensboro, NC
|
|
Nov-07
|
|
Portfolio of Two Office Buildings (2)
|
|
Chesapeake, VA
|
|
Nov-07
|
|
Portfolio of Four Office Buildings (2)
|
|
Newport News, VA
|
|
Nov-07
|
|
Portfolio of Six Office Buildings (50/50 joint venture)
(1)
|
|
Greensboro, NC
|
|
Nov-07
|
|
CBL Center II
|
|
Chattanooga, TN
|
|
Jan-08
|
|
Renaissance Center (50/50 joint venture) (1)
|
|
Durham, NC
|
|
Feb-08
|
|
|
|
|
|
|
|
New
Developments
:
|
|
|
|
|
|
The Shoppes at St. Clair Square
|
|
Fairview Heights, IL
|
|
Mar-07
|
|
Alamance Crossing East
|
|
Burlington, NC
|
|
Aug-07
|
|
York Town Center (50/50 joint venture) (1)
|
|
York, PA
|
|
Sep-07
|
|
Cobblestone Village at Palm Coast
|
|
Palm Coast, FL
|
|
Oct-07
|
|
Milford Marketplace
|
|
Milford, CT
|
|
Oct-07
|
|
(1)
|
These properties are held in entities that are accounted for
using the equity method of accounting. Therefore, the results of operations
for these properties are included in Equity in Earnings of Unconsolidated
Affiliates in the accompanying consolidated statement of
operations.
|
(2)
|
These properties are included in Discontinued Operations for
the three months ended March 31, 2008.
|
Revenues
The $25.5 million increase in rental revenues and tenant reimbursements
was attributable to an increase of $26.7 million from the New Properties, partially
offset by a decrease of $1.2 million from the Comparable Properties. The decrease in
revenues of the Comparable Properties was driven by lease termination fees of $2.6
million, below-market lease amortization of $1.2 million and percentage rents of $1.7
million, partially offset by increases in base rents of $2.9 million and tenant
reimbursements of $1.6 million. Percentage rents declined due to reduced sales. January
2008 sales numbers were impacted by the mismatched fiscal calendar which resulted in
four “retail” weeks in January this year as compared to five weeks in
January 2007.
The current quarter tenant reimbursements reflect
increases in reimbursements for real estate taxes and central utilities expenses which
had increased in the latter part of the previous fiscal year. Tenant reimbursements are
stabilizing due to the conversion of most tenants to a fixed common area maintenance
(“CAM”) fee as compared to a variable rate fee that was applicable to more
tenants in the prior year quarter. Approximately 75% of our leases have been converted
to fixed CAM.
22
Our cost recovery ratio declined to 96.3% for the quarter ended March
31, 2008 from 98.3% for the prior-year period. Due to the conversion to fixed CAM, the
recovery ratio will fluctuate during the year as seasonal items impact the ratio. The
decline in the current quarter results primarily from increases of $1.1 million in snow
removal expense and $0.6 million in bad debt expense.
The increase in management, development and leasing fees of $1.7 million
was mainly attributable to an increase of $1.4 million in development fees related
primarily to the Pavilion at Port Orange, Hammock Landing and Statesboro
Crossing.
Other revenues increased by $2.0 million primarily due to increased
income of $1.5 million related to our subsidiary that provides security and maintenance
services to third parties.
Operating Expenses
Property operating expenses, including real estate taxes and maintenance
and repairs, increased $10.6 million as a result of $7.7 million of expenses
attributable to the New Properties and $2.9 million related to the Comparable
Properties. The increase in property operating expenses of the Comparable Properties is
attributable to increases in annual compensation for property management personnel, bad
debt expense and snow removal costs. Additionally, real estate tax expense
was higher for the Comparable Properties.
The increase in depreciation and amortization expense of $17.0 million
resulted from increases of $12.0 million from the New Properties and $5.0 million from
the Comparable Properties. The increase attributable to the Comparable Properties is
due to ongoing capital expenditures for renovations, expansions, tenant allowances and
deferred maintenance and for the write-off of certain tenant allowances related to
early lease terminations.
General and administrative expenses increased $2.3 million primarily as
a result of a $1.3 million charge incurred in relation to the retirement of our Senior
Vice President and Director of Corporate Leasing during the first quarter of 2008, as
well as increases in payroll. As a percentage of revenues, general and administrative
expenses increased to 4.5% for the first quarter of 2008 compared with 4.1% for the
prior year period.
Other Income and Expenses
Interest expense increased $14.1 million primarily due to the debt on
the New Properties, the refinancings that were completed in the prior year on the
Comparable Properties and borrowings outstanding that were used to redeem our Series B
preferred stock in June 2007. While we experienced a decrease in the weighted average
fixed and variable interest rates as compared to the first quarter of 2007, the total
outstanding principal amounts have increased.
During the first quarter of 2008, we recognized gain on sales of real
estate assets of $3.1 million related to the sale of four parcels of land, while the
gain of $3.5 million in the first quarter of 2007 related to the sale of six land
parcels.
Equity in earnings of unconsolidated affiliates increased by $0.4
million during the first quarter of 2008, primarily due to the addition of CBL-TRS
Joint Venture, LLC in the fourth quarter of 2007.
23
The income tax provision of $0.4 million for the three months ended
March 31, 2008 relates to the earnings of our taxable REIT subsidiary and consists of a
provision for current income taxes of $1.5 million , partially offset by a deferred tax
benefit of $1.1 million. During the three months ended March 31, 2007, we recorded an
income tax provision of $0.8 million, consisting of a provision for current income
taxes of $1.1 million, partially offset by a deferred tax benefit of $0.3 million. We
have cumulative share-based compensation deductions that can be used to offset the
current income tax payable; therefore, the payable for current income taxes has been
reduced to zero by recognizing a portion of the benefit of the cumulative share-based
compensation deductions.
We recognized income from discontinued operations of $0.7 million during
the first quarter of 2008, compared to $0.1 million during the first quarter of 2007.
Discontinued operations for the three months ended March 31, 2008 reflect the operating
results of 19 retail and office properties that meet the criteria for held-for-sale
classification. These properties were originally acquired in the fourth quarter of
2007. Discontinued operations for the three months ended March 31, 2007 reflect the
results of operations of Twin Peaks Mall and The Shops at Pineda Ridge, plus the true
up of estimated expenses to actual amounts for properties sold during previous
years.
Operational Review
The shopping center business is, to some extent, seasonal in nature with
tenants achieving the highest levels of sales during the fourth quarter because of the
holiday season, which generally results in higher percentage rent income in the fourth
quarter. Additionally, the malls earn most of their “temporary” rents
(rents from short-term tenants) during the holiday period. Thus, occupancy levels and
revenue production are generally the highest in the fourth quarter of each year.
Results of operations realized in any one quarter may not be indicative of the results
likely to be experienced over the course of the fiscal year.
We classify our regional malls into two categories – malls that
have completed their initial lease-up are referred to as stabilized malls and malls
that are in their initial lease-up phase and have not been open for three calendar
years are referred to as non-stabilized malls. The non-stabilized malls currently
include Imperial Valley Mall in El Centro, CA, which opened in March 2005; Southaven
Towne Center in Southaven, MS, which opened in October 2005; Gulf Coast Town Center in
Ft. Myers, FL, which opened in November 2005; and Alamance Crossing East in Burlington,
NC, which opened in August 2007.
We derive a significant amount of our revenues from the mall properties.
The sources of our revenues by property type were as follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2008
|
|
2007
|
|
Malls
|
|
91.2
|
%
|
92.6
|
%
|
Associated centers
|
|
3.9
|
%
|
4.2
|
%
|
Community centers
|
|
1.2
|
%
|
0.8
|
%
|
Mortgages, office buildings and other
|
|
3.7
|
%
|
2.4
|
%
|
Mall store sales for the trailing twelve months ended March 31, 2008 on a comparable
per square foot basis were $341 per square foot compared with $350 per square foot in
the prior year period, a decline of 2.6%. January 2008 sales numbers were impacted by
the mismatched fiscal calendar which resulted in four “retail” weeks in
January this year as compared to five weeks in January 2007.
24
Occupancy
Our portfolio occupancy is summarized in the following
table:
|
|
At March 31,
|
|
|
|
2008
|
|
2007
|
|
Total portfolio occupancy
|
|
91.6
|
%
|
91.0
|
%
|
Total mall portfolio
|
|
91.3
|
%
|
91.2
|
%
|
Stabilized malls
|
|
91.4
|
%
|
91.5
|
%
|
Non-stabilized malls
|
|
89.2
|
%
|
84.7
|
%
|
Associated centers
|
|
94.9
|
%
|
92.0
|
%
|
Community centers
|
|
90.0
|
%
|
80.7
|
%
|
While bankruptcies and store closures have certainly increased, the
lasting impact to our portfolio has been minimal. Friedman’s, Bombay, The Disney
Store and Lines n' Things are the major retailers that have gone into bankruptcy
recently. While we are still working through the process, we anticipate that the
resulting store closures will have a minimal impact on our annual gross
rents.
We have 23 Friedman’s stores representing 34,000 square feet and
$2.3 million in annual gross rents. We are currently in negotiations for another
national jeweler to take approximately 25% of these locations.
Bombay entered Chapter 11 last year and closed their stores. We had 14
locations representing 59,000 square feet and $2.1 million in annual gross rents. We
have replacement tenants for over a third of the space and are receiving strong
interest on the remainder.
The operators of The Disney Store entered Chapter 11 during the quarter
and Children’s Place announced that they were in advanced discussions to sell the
unit back to The Walt Disney Company. We have 15 The Disney Stores representing 63,000
square feet and $2.7 million in annual gross rents. We anticipate that only nine stores
will close totaling 30,000 square feet and $1.1 million in annual rents.
Linens n’ Things recently filed for bankruptcy protection. We
currently have 11 locations representing $4.6 million of annual gross rents and 333,000
square feet. While we expect that three stores will close, representing annual gross
rents totaling approximately $1.1 million and 82,000 square feet, all locations are
open and operating at this time.
Leasing
|
Average annual base rents per square foot were as follows
for each property type:
|
|
|
At March 31,
|
|
|
|
2008
|
|
2007
|
|
Stabilized malls
|
|
$
|
29.03
|
|
$
|
27.80
|
|
Non-stabilized malls
|
|
|
25.14
|
|
|
28.23
|
|
Associated centers
|
|
|
11.75
|
|
|
11.83
|
|
Community centers
|
|
|
13.51
|
|
|
14.71
|
|
Other
|
|
|
18.11
|
|
|
19.53
|
|
During the three months ended March 31, 2008, we achieved positive
results from new and renewal leasing of comparable small shop space for spaces that
were previously occupied as summarized in the following table:
25
|
|
Square
Feet
|
|
Prior Base
Rent PSF
|
|
New Initial
Base
Rent PSF
|
|
% Change
Initial
|
|
New Average
Base
Rent PSF
|
|
% Change
Average
|
|
All Property Types (1)
|
|
872,951
|
|
$
|
35.56
|
|
$
|
39.23
|
|
10.3
|
%
|
$
|
40.08
|
|
12.7
|
%
|
Stabilized malls
|
|
820,391
|
|
|
36.66
|
|
|
40.47
|
|
10.4
|
%
|
|
41.36
|
|
12.8
|
%
|
New leases
|
|
168,762
|
|
|
44.55
|
|
|
54.16
|
|
21.6
|
%
|
|
56.40
|
|
26.6
|
%
|
Renewal leases
|
|
651,629
|
|
|
34.62
|
|
|
36.93
|
|
6.7
|
%
|
|
37.47
|
|
8.2
|
%
|
|
(1)
|
Includes stabilized malls, associated centers, community
centers and other.
|
LIQUIDITY AND CAPITAL RESOURCES
There was $65.7 million of cash and cash equivalents and $2.6 million of
cash held in escrow as of March 31, 2008, an increase of $2.5 million from December 31,
2007. Cash flows from operations are used to fund short-term liquidity and capital
needs such as tenant construction allowances, capital expenditures and payments of
dividends and distributions. For longer-term liquidity needs such as acquisitions, new
developments, renovations and expansions, we typically rely on property specific
mortgages (which are generally non-recourse), construction and term loans, revolving
lines of credit, common stock, preferred stock, joint venture investments and a
minority interest in the Operating Partnership.
Cash provided by operating activities decreased $5.4 million to $93.0
million for the three months ended March 31, 2008. The decrease was primarily
attributable to higher interest expense incurred in the current year period, partially
offset by operations of the New Properties.
Debt
The following tables summarize debt based on our pro rata ownership
share, including our pro rata share of unconsolidated affiliates and excluding minority
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):
|
|
Consolidated
|
|
Minority
Interests
|
|
Unconsolidated
Affiliates
|
|
Total
|
|
Weighted
Average
Interest
Rate(1)
|
|
March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating properties
|
|
$
|
4,273,477
|
|
$
|
(24,073
|
)
|
$
|
410,759
|
|
$
|
4,660,163
|
|
5.90
|
%
|
Line of credit (2)
|
|
|
400,000
|
|
|
—
|
|
|
—
|
|
|
400,000
|
|
4.55
|
%
|
Total fixed-rate debt
|
|
|
4,673,477
|
|
|
(24,073
|
)
|
|
410,759
|
|
|
5,060,163
|
|
5.79
|
%
|
Variable-rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recourse term loans on operating properties
|
|
|
118,175
|
|
|
(879
|
)
|
|
45,924
|
|
|
163,220
|
|
3.97
|
%
|
Construction loans
|
|
|
83,366
|
|
|
(2,164
|
)
|
|
19,949
|
|
|
101,151
|
|
4.15
|
%
|
Lines of credit
|
|
|
1,014,602
|
|
|
—
|
|
|
—
|
|
|
1,014,602
|
|
3.68
|
%
|
Total variable-rate debt
|
|
|
1,216,143
|
|
|
(3,043
|
)
|
|
65,873
|
|
|
1,278,973
|
|
3.75
|
%
|
Total
|
|
$
|
5,889,620
|
|
$
|
(27,116
|
)
|
$
|
476,632
|
|
$
|
6,339,136
|
|
5.38
|
%
|
26
|
|
Consolidated
|
|
Minority
Interests
|
|
Unconsolidated
Affiliates
|
|
Total
|
|
Weighted
Average
Interest
Rate(1)
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating properties
|
|
$
|
4,293,515
|
|
$
|
(24,236
|
)
|
$
|
335,903
|
|
$
|
4,605,182
|
|
5.85
|
%
|
Line of credit (2)
|
|
|
250,000
|
|
|
—
|
|
|
—
|
|
|
250,000
|
|
4.61
|
%
|
Total fixed-rate debt
|
|
|
4,543,515
|
|
|
(24,236
|
)
|
|
335,903
|
|
|
4,855,182
|
|
5.79
|
%
|
Variable-rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recourse term loans on operating properties
|
|
|
81,767
|
|
|
—
|
|
|
44,104
|
|
|
125,871
|
|
6.19
|
%
|
Construction loans
|
|
|
79,004
|
|
|
(2,517
|
)
|
|
5,371
|
|
|
81,858
|
|
6.28
|
%
|
Lines of credit
|
|
|
1,165,032
|
|
|
—
|
|
|
—
|
|
|
1,165,032
|
|
6.12
|
%
|
Total variable-rate debt
|
|
|
1,325,803
|
|
|
(2,517
|
)
|
|
49,475
|
|
|
1,372,761
|
|
6.14
|
%
|
Total
|
|
|
5,869,318
|
|
$
|
(26,753
|
)
|
$
|
385,378
|
|
$
|
6,227,943
|
|
5.87
|
%
|
(1)
|
Weighted average interest rate including the effect of debt
premiums (discounts), but excluding amortization of deferred financing
costs.
|
(2)
|
We have entered into interest rate swaps on notional amounts
totaling $400,000 and $250,000 as of March 31, 2008 and December 31, 2007,
respectively, related to our largest secured credit facility to effectively
fix the interest rate on that portion of the line of credit. Therefore,
this amount is currently reflected in fixed-rate debt.
|
We have four secured credit facilities with total availability of $662.2
million, of which $624.5 million was outstanding as of March 31, 2008. The secured
credit facilities bear interest at a rate of LIBOR plus a margin ranging from 0.80% to
0.90%. Borrowings under the secured lines of credit had a weighted average interest
rate of 3.78% at March 31, 2008.
We have an unsecured credit facility with total availability of $560.0
million, of which $525.2 million was outstanding as of March 31, 2008. The unsecured
credit facility bears interest at LIBOR plus a margin of 0.75% to 1.20% based on our
leverage, as defined in the agreement. Additionally, we pay an annual fee equal to 0.1%
of the amount of total availability under the unsecured credit facility. The credit
facility matures in August 2008 and has three one-year extension options, which are at
our election. At March 31, 2008, the outstanding borrowings under the unsecured credit
facility had a weighted average interest rate of 3.56%.
We have an unsecured credit facility that was obtained for the exclusive
purpose of acquiring certain properties from the Starmount Company or its affiliates.
We completed the acquisition of these properties in February 2008 and, as a result, no
further draws can be made against the facility. The unsecured credit facility bears
interest at LIBOR plus a margin of 0.95% to 1.40% based on the our leverage ratio, as
defined in the agreement to the facility. Net proceeds from a sale, or our share of
excess proceeds from any refinancings, of any of the properties originally purchased
with borrowings from this unsecured credit facility must be used to pay down any
remaining outstanding balance. The agreement to the facility contains default
provisions customary for transactions of this nature and also contains cross-default
provisions for defaults of our $560.0 million unsecured credit facility and $525.0
million secured facility. The facility matures in November 2010 and has two one-year
extension options, which are at our election. At March 31, 2008, the outstanding
borrowings of $264.9 million under this facility had a weighted average interest rate
of 3.83%.
We also have secured and unsecured lines of credit with total
availability of $37.9 million that are used only to issue letters of credit. There was
$15.9 million outstanding under these lines at March 31, 2008.
On January 2, 2008, we entered into a $150.0 million pay fixed/receive
variable interest rate swap agreement to hedge the interest rate risk exposure on an
amount of borrowings on our largest secured credit facility equal to the swap notional
amount. This interest rate swap hedges the risk of changes in cash flows on our
designated forecasted interest payments attributable to changes in 1-month LIBOR, the
designated benchmark interest rate being hedged, thereby reducing exposure to
variability in cash flows relating to interest payments on the variable-rate debt. The
interest rate swap effectively fixes the interest payments on the portion
27
of debt
principal corresponding to the swap notional amount at 4.453%. The swap was valued at
$(3.2) million as of March 31, 2008 and matures on December 30, 2009.
On December 31, 2007, we entered into a $250.0 million pay fixed/receive
variable interest rate swap agreement to hedge the interest rate risk exposure on an
amount of borrowings on our largest secured credit facility equal to the swap notional
amount. The interest rate swap effectively fixes the interest payments on the portion
of debt principal corresponding to the swap notional amount at 4.605%. The swap was
valued at $(5.8) million as of March 31, 2008 and matures on December 30,
2009.
The weighted average remaining term of our pro rata share of
total debt was 4.4 years at March 31, 2008 and 4.6 years at December 31, 2007. The
weighted average remaining term of our pro rata share of fixed-rate debt was
5.0 years and 5.3 years at March 31, 2008 and December 31, 2007, respectively. We have
15 loans and two lines of credit totaling $1.64 billion that are scheduled to mature
before March 31, 2009. Of the total amount scheduled to mature within the next twelve
months, the two lines of credit account for $1.05 billion. The lines of credit are our
largest secured and unsecured facilities. The secured facility has a one-year extension
option and the unsecured facility has three one-year extension options. Of
the 15 loans scheduled to mature within the next twelve months, four loans
totaling $102.8 million have extension options. The Company expects to extend, retire
or refinance the loans.
As of March 31, 2008, our share of consolidated and unconsolidated
variable-rate debt represented 20.2% of our total share of debt, as compared to 22.0%
as of December 31, 2007. As of March 31, 2008, our share of consolidated and
unconsolidated variable-rate debt represented 13.6% of our total market capitalization
(see Equity below) as compared to 14.7% as of December 31, 2007.
The secured and unsecured credit facilities contain, among other
restrictions, certain financial covenants including the maintenance of certain coverage
ratios, minimum net worth requirements, and limitations on cash flow distributions. We
were in compliance with all financial covenants and restrictions under our credit
facilities at March 31, 2008.
Equity
During the three months ended March 31, 2008, we received $0.3 million
in proceeds from issuances of common stock related to exercises of employee stock
options and from our dividend reinvestment plan. In addition, we paid dividends of
$41.5 million to holders of our common stock and our preferred stock, as well as $33.3
million in net distributions to the minority interest investors in our Operating
Partnership and certain shopping center properties.
As a publicly traded company, we have access to capital through both the
public equity and debt markets. We currently have a shelf registration statement on
file with the Securities and Exchange Commission authorizing us to publicly issue
shares of preferred stock, common stock and warrants to purchase shares of common
stock. There is no limit to the offering price or number of shares that we may issue
under this shelf registration statement.
We anticipate that the combination of equity and debt sources will, for
the foreseeable future, provide adequate liquidity to continue our capital programs
substantially as in the past and make distributions to our shareholders in accordance
with the requirements applicable to real estate investment trusts.
Our strategy is to maintain a conservative debt-to-total-market
capitalization ratio in order to enhance our access to the broadest range of capital
markets, both public and private. However, the ratio had increased as of March 31, 2008
due to a decline in the market price of our common stock. Based on our share of total
consolidated and unconsolidated debt and the market value of equity, our
debt-to-total-market capitalization (debt plus market value equity) ratio was as
follows at March 31, 2008 (in thousands, except stock prices):
28
|
|
Shares
Outstanding
|
|
Stock
Price (1)
|
|
Value
|
|
Common stock and operating partnership units
|
|
116,941
|
|
$
|
23.53
|
|
$
|
2,751,622
|
|
7.75% Series C Cumulative Redeemable Preferred
Stock
|
|
460
|
|
|
250.00
|
|
|
115,000
|
|
7.375% Series D Cumulative Redeemable Preferred
Stock
|
|
700
|
|
|
250.00
|
|
|
175,000
|
|
Total market equity
|
|
|
|
|
|
|
|
3,041,622
|
|
Company’s share of total debt
|
|
|
|
|
|
|
|
6,339,136
|
|
Total market capitalization
|
|
|
|
|
|
|
$
|
9,380,758
|
|
Debt-to-total-market capitalization ratio
|
|
|
|
|
|
|
|
67.6
|
%
|
(1)
|
Stock price for common stock and operating partnership units
equals the closing price of the common stock on March 31, 2008. The stock
price for the preferred stock represents the liquidation preference of each
respective series of preferred stock.
|
Capital Expenditures
We expect to continue to have access to the capital resources necessary
to expand and develop our business. Future development and acquisition activities will
be undertaken as suitable opportunities arise. We obtain construction loans for new
developments and major expansions and renovations of our existing properties. We do not
expect to pursue these activities unless adequate sources of financing are available
and a satisfactory budget with targeted returns on investment has been internally
approved.
An annual capital expenditures budget is prepared for each property that
is intended to provide for all necessary recurring and non-recurring capital
expenditures. We believe that property operating cash flows, which include
reimbursements from tenants for certain expenses, will provide the necessary funding
for these expenditures.
Developments and Expansions
|
The following table summarizes our development projects as
of March 31, 2008:
|
Properties Opened Year-to-date
Property
|
|
Location
|
|
Total
Project
Square
Feet
|
|
|
CBL's Share of
|
|
Dated
Opened
|
|
Initial
Yield(a)
|
|
Total
Cost
|
|
|
Cost
To Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mall Expansions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cary Towne Center - Mimi's Café
|
|
Cary, NC
|
|
6,674
|
|
$
|
2,243
|
|
$
|
1,043
|
|
Spring-08
|
|
15.0
|
%
|
Coastal Grand - Ulta Cosmetics
|
|
Myrtle Beach, SC
|
|
10,000
|
|
|
1,449
|
|
|
1,456
|
|
Spring-08
|
|
8.7
|
%
|
Coastal Grand - JCPenney
|
|
Myrtle Beach, SC
|
|
103,395
|
|
|
N/A
|
|
|
N/A
|
|
Spring-08
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBL Center II
|
|
Chattanooga, TN
|
|
74,598
|
|
|
17,120
|
|
|
12,825
|
|
January-08
|
|
8.6
|
%
|
|
|
|
|
194,667
|
|
$
|
20,812
|
|
$
|
15,324
|
|
|
|
|
|
29
Announced Property Renovations and Redevelopments
Property
|
|
Location
|
|
Total
Project
Square
Feet
|
|
CBL's Share of
|
|
Opening
Date
|
|
Initial
Yield(a)
|
|
Total
Cost
|
|
|
|
Cost
To Date
|
Parkdale Mall - Former Dillards (Phase I &
II)
|
|
Beaumont, TX
|
|
70,220
|
|
$
|
29,266
|
|
|
|
$
|
14,513
|
|
Jan-08/Fall-08
|
|
6.6
|
%
|
West County - Former Lord & Taylor
|
|
St. Louis, MO
|
|
90,687
|
|
|
34,149
|
|
|
|
|
9,404
|
|
Spring-09
|
|
9.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mall Renovations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookfield Square
|
|
Brookfield, WI
|
|
1,132,984
|
|
|
18,100
|
|
|
|
|
9,096
|
|
Fall-08
|
|
N/A
|
|
Georgia Square
|
|
Athens, GA
|
|
674,738
|
|
|
16,900
|
|
|
|
|
10,857
|
|
Spring-08
|
|
N/A
|
|
|
|
|
|
1,968,629
|
|
$
|
98,415
|
|
|
|
$
|
43,870
|
|
|
|
|
|
Properties Under Development at March 31, 2008
Property
|
|
Location
|
|
Total
Project
Square
Feet
|
|
CBL's Share of
|
|
Opening
Date
|
|
Initial
Yield(a)
|
|
Total
Cost
|
|
Cost
To Date
|
Asheville Mall - Barnes & Noble
|
|
Asheville, NC
|
|
35,968
|
|
$
|
12,123
|
|
$
|
783
|
|
Spring-09
|
|
5.1
|
%
|
Brookfield Square - Claim Jumpers
|
|
Brookfield, WI
|
|
12,000
|
|
|
3,430
|
|
|
707
|
|
Fall-08
|
|
11.9
|
%
|
High Pointe Commons - Christmas Tree Shops
|
|
Harrisburg, PA
|
|
34,938
|
|
|
1,741
|
|
|
985
|
|
Fall-08
|
|
9.0
|
%
|
Laural Park Place - Food Court
|
|
Detroit, MI
|
|
34,000
|
|
|
5,588
|
|
|
233
|
|
Winter-08
|
|
8.6
|
%
|
Oak Park Mall - Barnes & Noble
|
|
Kansas City, KS
|
|
35,539
|
|
|
9,657
|
|
|
1,857
|
|
Spring-09
|
|
6.7
|
%
|
Southpark Mall - Foodcourt
|
|
Colonial Heights, VA
|
|
17,150
|
|
|
4,188
|
|
|
2,019
|
|
Spring-08
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associated/Lifestyle Centers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brookfield Square - Corner Development
|
|
Brookfield, WI
|
|
19,745
|
|
|
8,372
|
|
|
1,508
|
|
Fall-08
|
|
8.0
|
%
|
Imperial Valley Commons (Phase I) (b)
|
|
El Centro, CA
|
|
610,966
|
|
|
11,471
|
|
|
25,070
|
|
Summer-09/
Summer-10
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mixed -Use Center:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pearland Town Center (Retail Portion)
|
|
Pearland, TX
|
|
694,417
|
|
|
150,016
|
|
|
109,917
|
|
Summer-08
|
|
7.8
|
%
|
Pearland Town Center (Hotel Portion)
|
|
Pearland, TX
|
|
72,500
|
|
|
17,866
|
|
|
7,213
|
|
Summer-08
|
|
8.3
|
%
|
Pearland Town Center (Residential Portion)
|
|
Pearland, TX
|
|
68,110
|
|
|
10,799
|
|
|
3,035
|
|
Summer-08
|
|
8.8
|
%
|
Pearland Town Center (Office Portion)
|
|
Pearland, TX
|
|
51,560
|
|
|
9,385
|
|
|
330
|
|
Summer-08
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community/Open-Air Centers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alamance Crossing - Theater/Shops
|
|
Burlington, NC
|
|
82,997
|
|
|
18,882
|
|
|
6,631
|
|
Spring-08
|
|
8.4
|
%
|
Hammock Landing (Phase I) (d)
|
|
West Melbourne, FL
|
|
458,126
|
|
|
77,314
|
|
|
34,198
|
|
Spring-09
|
|
7.6
|
%
|
Settlers Ridge (b)
|
|
Robinson Township, PA
|
|
508,192
|
|
|
117,105
|
|
|
33,763
|
|
Summer-09
|
|
7.8
|
%
|
Statesboro Crossing (d)
|
|
Statesboro, GA
|
|
160,238
|
|
|
20,224
|
|
|
10,817
|
|
Fall-08/
Summer-10
|
|
8.2
|
%
|
Summit Fair (c)
|
|
Lee's Summit, MO
|
|
482,051
|
|
|
22,000
|
|
|
22,000
|
|
Fall-08/
Summer-09
|
|
9.8
|
%
|
The Pavilion at Port Orange (Phase I) (d)
|
|
Port Orange, FL
|
|
505,669
|
|
|
145,795
|
|
|
35,219
|
|
Fall-09
|
|
7.5
|
%
|
|
|
|
|
3,884,166
|
|
$
|
645,956
|
|
$
|
296,285
|
|
|
|
|
|
30
(a)
|
Pro forma initial yields may be lower than actual initial
returns as they are reduced for management and development fees.
|
(b)
|
60/40 Joint Venture. Amounts shown are 100% of total costs
and cost to date as CBL has funded all costs to date. Costs to date are
gross of applicable reimbursements.
|
(c)
|
CBL's interest represent 27% of project cost.
|
(d)
|
50/50 Joint Venture.
|
|
As of March 31, 2008, there were construction loans in place for the
development costs of Pearland Town Center, Settlers Ridge, Statesboro Crossing and West
County – Former Lord & Taylor. The remaining development costs will be funded
with operating cash flows, availability on our credit facilities, and new construction
loans.
We have entered into a number of option agreements for the development
of future open-air centers, lifestyle centers and community centers. Except for the
projects discussed under Developments and Expansions above, we do not have any other
material capital commitments as of March 31, 2008.
Acquisitions
During the first quarter of 2008, CBL-TRS Joint Venture, a joint venture
that we account for using the equity method of accounting, completed its acquisition of
properties from the Starmount Company when it acquired the Renaissance Center, located
in Durham, NC, for $89.6 million and an anchor parcel at Friendly Center, located in
Greensboro, NC, for $5.0 million. The aggregate purchase price consisted of $58.1
million in cash and the assumption of $36.5 million of non-recourse debt that bears
interest at a fixed interest rate of 5.61% and matures in July 2016.
Dispositions
We received a total of $6.2 million in net cash proceeds from the sales
of four parcels of land during the three months ended March 31, 2008.
In April 2008, we completed the sale of five community centers located
in Greensboro, NC to three separate buyers for an aggregate of approximately $24.0
million. The Company expects to record a $1.5 million gain attributable to the sales in
the second quarter of 2008. The proceeds were used to retire a portion of the
outstanding balance on the unsecured line of credit that was originally used to
purchase the properties. These centers are included in the held-for-sale portfolio as
of March 31, 2008, and their results are included in discontinued operations for the
three months ended March 31, 2008.
Other Capital Expenditures
Including our share of unconsolidated affiliates’ capital
expenditures, we spent $9.6 million during the three months ended March 31, 2008 for
tenant allowances, which will generate increased rents from tenants over the terms of
their leases. Deferred maintenance expenditures were $3.3 million for the first quarter
of 2008 and included $1.0 million for resurfacing and improved lighting of parking
lots, $0.8 million for roof repairs and replacements and $1.5 million for various other
capital expenditures. Renovation expenditures were $5.3 million for the three months
ended March 31, 2008.
Deferred maintenance expenditures are billed to tenants as common area
maintenance expense, and most are recovered over a 5 to 15-year period. Renovation
expenditures are primarily for remodeling and upgrades of malls, of which approximately
30% is recovered from tenants over a 5 to 15-year period. We are recovering these costs
through fixed amounts with annual increases or pro rata cost reimbursements based on
the tenant’s occupied space.
We expect to complete the renovation of two malls for a total estimated
cost of $35.0 million and to redevelop space at an additional mall and parcel during
2008 at a total estimated cost of $63.4 million, which will be funded from operating
cash flows and availability under our credit facilities.
31
Off-Balance Sheet Arrangements
Unconsolidated Affiliates
We have ownership interests in 19 unconsolidated affiliates that are
described in Note 4 to the consolidated financial statements. The unconsolidated
affiliates are accounted for using the equity method of accounting and are reflected in
the consolidated balance sheets as “Investments in Unconsolidated
Affiliates.” 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.
|
|
•
|
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 for growth. 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.
We own a parcel of land that we are ground leasing to a third party
developer for the purpose of developing a shopping center. We have guaranteed 27% of
the third party’s construction loan and bond line of credit (the
“loans”) of which the maximum guaranteed amount is $31.6 million. The total
amount outstanding at March 31, 2008 on the loans was $24.0 million of which we have
guaranteed $6.5 million. We have recorded an obligation of $0.3 million in our
condensed consolidated balance sheet as of March 31, 2008 and December 31, 2007 to
reflect the estimated fair value of the guaranty.
We have guaranteed 50% of the debt of Parkway Place L.P., an
unconsolidated affiliate in which we own a 45% interest, which owns Parkway Place in
Huntsville, AL. The total amount outstanding at March 31, 2008 was $53.2 million of
which we have guaranteed $26.6 million. The guaranty will expire when the related debt
matures in June 2008. However, there are extension options available on the debt and,
if exercised, would extend the guaranty. We did not record an obligation for this
guaranty because we determined that the fair value of the guaranty is not
material.
We have guaranteed the performance of York Town Center, LP
(“YTC”), an unconsolidated affiliate in which we own a 50% interest, under
the terms of an agreement with a third party that will own 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. We have guaranteed YTC’s
performance under this agreement up to a maximum of $22.0
32
million, which decreases by $0.8 million annually until the guaranteed
amount is reduced to $10.0 million. The guaranty expires on December 31, 2020. The
maximum guaranteed obligation was $21.2 million as of March 31, 2008. We entered into
an agreement with our joint venture partner under which the joint venture partner has
agreed to reimburse us 50% of any amounts we are obligated to fund under the guaranty.
We did not record an obligation for this guaranty because we determined that the fair
value of the guaranty is not material.
Our guarantees and the related accounting are more fully described in
Note 11 to the condensed consolidated financial statements.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are disclosed in Note 2 to the
consolidated financial statements included in our Annual Report on Form 10-K for the
year ended December 31, 2007. The following discussion describes our most critical
accounting policies, which are those that are both important to the presentation of our
financial condition and results of operations and that require significant judgment or
use of complex estimates.
Revenue Recognition
Minimum rental revenue from operating leases is recognized on a
straight-line basis over the initial terms of the related leases. Certain tenants are
required to pay percentage rent if their sales volumes exceed thresholds specified in
their lease agreements. Percentage rent is recognized as revenue when the thresholds
are achieved and the amounts become determinable.
We receive reimbursements from tenants for real estate taxes, insurance,
common area maintenance, and other recoverable operating expenses as provided in the
lease agreements. Tenant reimbursements are recognized as revenue in the period the
related operating expenses are incurred. Tenant reimbursements related to certain
capital expenditures are billed to tenants over periods of 5 to 15 years and are
recognized as revenue when billed.
We receive management, leasing and development fees from third parties
and unconsolidated affiliates. Management fees are charged as a percentage of revenues
(as defined in the management agreement) and are recognized as revenue when earned.
Development fees are recognized as revenue on a pro rata basis over the development
period. Leasing fees are charged for newly executed leases and lease renewals and are
recognized as revenue when earned. Development and leasing fees received from
unconsolidated affiliates during the development period are recognized as revenue to
the extent of the third-party partners’ ownership interest. Fees to the extent of
our ownership interest are recorded as a reduction to our investment in the
unconsolidated affiliate.
Gains on sales of real estate assets are recognized when it is
determined that the sale has been consummated, the buyer’s initial and continuing
investment is adequate, our receivable, if any, is not subject to future subordination,
and the buyer has assumed the usual risks and rewards of ownership of the asset. When
we have an ownership interest in the buyer, gain is recognized to the extent of the
third party partner’s ownership interest and the portion of the gain attributable
to our ownership interest is deferred.
Real Estate Assets
We capitalize predevelopment project costs paid to third parties. All
previously capitalized predevelopment costs are expensed when it is no longer probable
that the project will be completed. Once development of a project commences, all direct
costs incurred to construct the project, including interest and real estate taxes, are
capitalized. Additionally, certain general and administrative expenses are allocated to
the projects and capitalized based on the amount of time applicable personnel work on
the development project. Ordinary repairs and maintenance are expensed as incurred.
Major replacements and improvements are capitalized and depreciated over their
estimated useful lives.
33
All acquired real estate assets are accounted for using the purchase
method of accounting and accordingly, the results of operations are included in the
consolidated statements of operations from the respective dates of acquisition. The
purchase price is allocated to (i) tangible assets, consisting of land, buildings and
improvements, as if vacant, and tenant improvements and (ii) identifiable intangible
assets and liabilities generally consisting of above- and below-market leases and
in-place leases. We use estimates of fair value based on estimated cash flows, using
appropriate discount rates, and other valuation methods to allocate the purchase price
to the acquired tangible and intangible assets. Liabilities assumed generally consist
of mortgage debt on the real estate assets acquired. Assumed debt with a stated
interest rate that is significantly different from market interest rates is recorded at
its fair value based on estimated market interest rates at the date of
acquisition.
Depreciation is computed on a straight-line basis over estimated lives
of 40 years for buildings, 10 to 20 years for certain improvements and 7 to 10 years
for equipment and fixtures. Tenant improvements are capitalized and depreciated on a
straight-line basis over the term of the related lease. Lease-related intangibles from
acquisitions of real estate assets are amortized over the remaining terms of the
related leases. The amortization of above- and below-market leases is recorded as an
adjustment to minimum rental revenue, while the amortization of all other lease-related
intangibles is recorded as amortization expense. Any difference between the face value
of the debt assumed and its fair value is amortized to interest expense over the
remaining term of the debt using the effective interest method.
Carrying Value of Long-Lived Assets
We periodically evaluate long-lived assets to determine if there has
been any impairment in their carrying values and record impairment losses if the
undiscounted cash flows estimated to be generated by those assets are less than their
carrying amounts or if there are other indicators of impairment. If it is determined
that an impairment has occurred, the excess of the asset’s carrying value over
its estimated fair value is charged to operations. No impairments were incurred during
the three months ended March 31, 2008 and 2007.
Recent Accounting Pronouncements
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities
. SFAS No. 161 improves financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures to
enable investors to better understand their effects on an entity’s financial
position, financial performance, and cash flows. SFAS No. 161 requires disclosure of
the fair values of derivative instruments and their gains and losses in a tabular
format and provides more information about an entity’s liquidity by requiring
disclosure of derivative features that are credit risk-related. It also requires
cross-referencing within footnotes to enable financial statement users to locate
important information about derivative instruments. SFAS No. 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The adoption is not expected to have an impact on our consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements
,
an Amendment of ARB No.
51
, which requires that a noncontrolling interest in a
consolidated subsidiary be displayed in the consolidated statement of financial
position as a separate component of equity. After control is obtained, a change in
ownership interests that does not result in a loss of control should be accounted for
as an equity transaction. A change in ownership of a consolidated subsidiary that
results in a loss of control and deconsolidation is a significant event that triggers
gain or loss recognition, with the establishment of a new fair value basis in any
remaining
ownership interests.
SFAS No. 160
is effective for fiscal years beginning on or after December 15, 2008. We are currently
evaluating the impact of adopting SFAS No. 160 on our financial position and results of
operations.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
, which changes
certain
34
aspects
of current business combination accounting. SFAS No. 141(R) requires, among other
things, that entities generally recognize 100 percent of the fair values of assets
acquired, liabilities assumed, and non-controlling interests in acquisitions of less
than a 100 percent controlling interest when the acquisition constitutes a change in
control of the acquired entity. Shares issued as consideration for a business
combination are to be measured at fair value on the acquisition date and contingent
consideration arrangements are to be recognized at their fair values on the date of
acquisition, with subsequent changes in fair value generally reflected in earnings.
Pre-acquisition gain and loss contingencies generally are to be recognized at their
fair values on the acquisition date and any acquisition-related transaction costs are
to be expensed as incurred. SFAS No. 141(R) is effective for business combination
transactions for which the acquisition date is in a fiscal year beginning on or after
December 15, 2008. The adoption of SFAS No. 141(R) is not expected to have a material
impact on our consolidated financial statements.
Impact of Inflation
During 2007, the inflation rate rose to 4.1%, primarily related to
increases in food and energy costs. Substantially all tenant leases do, however,
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 their share of, or a fixed amount subject to annual increases for,
operating expenses, including common area maintenance, real estate taxes, insurance and
certain capital expenditures which reduces our exposure to increases in costs and
operating expenses resulting from inflation.
Funds From Operations
Funds From Operations (“FFO”) is a widely used measure of
the operating performance of real estate companies that supplements net income
determined in accordance with generally accepted accounting principles
(“GAAP”). The National Association of Real Estate Investment Trusts
(“NAREIT”) defines FFO as net income (computed in accordance with GAAP)
excluding gains or losses on sales of operating properties, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint ventures
and minority interests. Adjustments for unconsolidated partnerships and joint ventures
and minority interests are calculated on the same basis. We define FFO allocable to
common shareholders as defined above by NAREIT less dividends on preferred stock. Our
method of calculating FFO allocable to common shareholders 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 with
market conditions, we believe that FFO 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 of our operating partnership and FFO allocable to
common shareholders, as we believe that both are useful performance measures. We
believe FFO of our operating partnership 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 minority
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 available to common shareholders.
In our reconciliation of net income available to common shareholders to
FFO allocable to common
35
shareholders that is presented below, we make an adjustment to add back
minority interest in earnings of our operating partnership in order to arrive at FFO of
our operating partnership. We then apply a percentage to FFO of our operating
partnership 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 outstanding 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 for purposes of evaluating our operating
performance or to cash flow as a measure of liquidity.
FFO of the Operating Partnership increased to $92.9 million during the
three months ended March 31, 2008 compared to $90.8 million in the prior year period,
representing an increase of 2.3%.
|
The reconciliation of FFO to net income available to common
shareholders is as follows (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
2008
|
|
2007
|
|
Net income available to common shareholders
|
$
|
6,171
|
|
$
|
17,401
|
|
Minority interest in earnings of operating
partnership
|
|
4,742
|
|
|
13,563
|
|
Depreciation and amortization expense of:
|
|
|
|
|
|
|
Consolidated properties
|
|
73,616
|
|
|
56,608
|
|
Unconsolidated affiliates
|
|
6,677
|
|
|
3,504
|
|
Discontinued operations
|
|
2,240
|
|
|
460
|
|
Non-real estate assets
|
|
(243
|
)
|
|
(228
|
)
|
Minority investors' share of depreciation and
amortization
|
|
(348
|
)
|
|
(606
|
)
|
Loss on discontinued operations
|
|
—
|
|
|
55
|
|
Funds from operations of the operating
partnership
|
|
92,855
|
|
|
90,757
|
|
Percentage allocable to Company shareholders (1)
|
|
56.55
|
%
|
|
56.20
|
%
|
Funds from operations allocable to Company
shareholders
|
$
|
52,510
|
|
$
|
51,005
|
|
(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 outstanding during the period.
|
ITEM
3: Quantitative and Qualitative Disclosures About Market Risk
We are exposed to interest rate risk on our debt obligations. Our
interest rate risk management policy requires that we use derivative financial
instruments for hedging purposes only and that, if we do enter into a derivative
financial instrument, the derivative financial instrument be entered into only with
major financial institutions based on their credit ratings and other
factors.
On January 2, 2008, we entered into a $150.0 million pay fixed/receive
variable interest rate swap agreement to hedge the interest rate risk exposure on an
amount of borrowings on our largest secured credit facility equal to the swap notional
amount. This interest rate swap hedges the risk of changes in cash flows on our
designated forecasted interest payments attributable to changes in 1-month LIBOR, the
designated benchmark interest rate being hedged, thereby reducing exposure to
variability in cash flows relating to interest payments on the variable-rate debt. The
interest rate swap fixes the interest payments on the portion of debt principal
corresponding to the swap notional amount at 4.453%. The swap was valued at $(3.2)
million as of March 31, 2008 and matures on December 30, 2009.
36
On December 31, 2007, we entered into a $250.0 million pay fixed/receive
variable interest rate swap agreement to hedge the interest rate risk exposure on an
amount of borrowings on our largest secured credit facility equal to the swap notional
amount. The interest rate swap effectively fixes the interest payments on the portion
of debt principal corresponding to the swap notional amount at 4.605%. The swap was
valued at $(5.8) million as of March 31, 2008 and matures on December 30,
2009.
Based on our proportionate share of consolidated and unconsolidated
variable-rate debt at March 31, 2008, a 0.5% increase or decrease in interest rates on
variable rate debt would increase or decrease annual cash flows by approximately $6.4
million and, after the effect of capitalized interest, annual earnings by approximately
$5.7 million.
Based on our proportionate share of total consolidated and
unconsolidated debt at March 31, 2008, a 0.5% increase in interest rates would decrease
the fair value of debt by approximately $95.6 million, while a 0.5% decrease in
interest rates would increase the fair value of debt by approximately $98.5
million.
ITEM
4: Controls and Procedures
Disclosure Controls and Procedures
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation
of its effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
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 effectiveness of
the design and operation of our disclosure controls and procedures pursuant to Exchange
Act Rule 13a-15. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
effective to ensure that information that we are required to disclose in the reports we
file or submit under the Exchange Act, is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission rules and
forms.
Changes in Internal Control over Financial Reporting
There have been no changes in our 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
|
The following information updates the information disclosed in
“Item 1A – Risk Factors” of our Annual Report on Form 10-K for the
year ended December 31, 2007, by providing information that is current as of March 31,
2008:
37
RISKS RELATED TO REAL ESTATE INVESTMENTS
Real property investments are subject to various risks, many of
which are beyond our control, that could cause declines in the operating revenues
and/or the underlying value of one or more of our Properties.
A number of factors may
decrease the income generated by a retail shopping center property,
including:
|
•
|
National, regional and local economic climates, which may be
negatively impacted by loss of jobs, production slowdowns, adverse weather
conditions, natural disasters, declines in residential real estate activity
and other factors which tend to reduce consumer spending on retail
goods.
|
|
•
|
Local real estate conditions, such as an oversupply of, or
reduction in demand for, retail space or retail goods, and the availability
and creditworthiness of current and prospective tenants.
|
|
•
|
Increased operating costs, such as increases in repairs and
maintenance, real property taxes, utility rates and insurance
premiums.
|
|
•
|
Delays or cost increases associated with the opening of new
or renovated properties, due to higher than estimated construction costs,
cost overruns, delays in receiving zoning, occupancy or other governmental
approvals, lack of availability of materials and labor, weather conditions,
and similar factors which may be outside our ability to control.
|
|
•
|
Perceptions by retailers or shoppers of the safety,
convenience and attractiveness of the shopping center.
|
|
•
|
The willingness and ability of the shopping center’s
owner to provide capable management and maintenance services.
|
|
•
|
The convenience and quality of competing retail properties
and other retailing options, such as the Internet.
|
In addition, other factors
may adversely affect the value of our Properties without affecting their current
revenues, including:
|
•
|
Adverse changes in governmental regulations, such as local
zoning and land use laws, environmental regulations or local tax structures
that could inhibit our ability to proceed with development, expansion, or
renovation activities that otherwise would be beneficial to our
Properties.
|
|
•
|
Potential environmental or other legal liabilities that
reduce the amount of funds available to us for investment in our
Properties.
|
|
•
|
Any inability to obtain sufficient financing (including both
construction financing and permanent debt), or the inability to obtain such
financing on commercially favorable terms, to fund new developments,
acquisitions, and property expansions and renovations which otherwise would
benefit our Properties.
|
|
•
|
An environment of rising interest rates, which could
negatively impact both the value of commercial real estate such as retail
shopping centers and the overall retail climate.
|
Illiquidity of real estate investments could significantly affect
our ability to respond to adverse changes in the performance of our properties and harm
our financial condition.
Substantially all of our total consolidated assets consist of
investments in real properties. Because real estate investments are relatively
illiquid, our ability to quickly sell one or more properties in our portfolio in
response to changing economic, financial and investment conditions is limited. The real
estate market is affected by many factors, such as general economic conditions,
availability of financing, interest rates and other factors, including supply and
demand for space, that are beyond our control. We cannot predict whether we will be
able to sell any property for the price or on the terms we set, or whether any price or
other terms offered by a prospective purchaser would be acceptable to us. We also
cannot predict the length of time needed to find a willing purchaser and to close the
sale of a property.
38
Before a property can be sold, we might be required to make expenditures
to correct defects or to make improvements. We cannot assure you that we will have
funds available to correct those defects or to make those improvements, and if we
cannot do so, we might not be able to sell the property, or might be required to sell
the property on unfavorable terms. In acquiring a property, we might agree to
provisions that materially restrict us from selling that property for a period of time
or impose other restrictions, such as limitations on the amount of debt that can be
placed or repaid on that property. These factors and any others that would impede our
ability to respond to adverse changes in the performance of our properties could
adversely affect our financial condition and results of operations.
We may elect not to proceed with certain development or expansion
projects once they have been undertaken, resulting in charges that could have a
material adverse effect on our results of operations for the period in which the charge
is taken.
We intend to pursue development and expansion activities as
opportunities arise. In connection with any development or expansion, we will incur
various risks including the risk that development or expansion opportunities explored
by us may be abandoned and the risk that construction costs of a project may exceed
original estimates, possibly making the project not profitable. Other risks include the
risk that we may not be able to refinance construction loans which are generally with
full recourse to us, the risk that occupancy rates and rents at a completed project
will not meet projections and will be insufficient to make the project profitable, and
the risk that we will not be able to obtain anchor, mortgage lender and property
partner approvals for certain expansion activities. In the event of an unsuccessful
development project, we could lose our total investment in the project.
We have in the past elected not to proceed with certain development
projects and anticipate that we will do so again from time to time in the future. If we
elect not to proceed with a development opportunity, the development costs ordinarily
will be charged against income for the then-current period. Any such charge could have
a material adverse effect on our results of operations for the period in which the
charge is taken.
Certain of our Properties are subject to ownership interests held
by third parties, whose interests may conflict with ours and thereby constrain us from
taking actions concerning these properties which otherwise would be in the best
interests of the Company and our stockholders.
We own partial interests in 22 malls, nine associated centers, five
community centers and eight office buildings. We manage all but three of these
properties. Governor’s Square, Governor’s Plaza and Kentucky Oaks are all
owned by joint ventures and are managed by a property manager that is affiliated with
the third party managing general partner. The property manager performs the property
management and leasing services for these three Properties and receives a fee for its
services. The managing partner the Properties controls the cash flow distributions,
although our approval is required for certain major decisions.
Where we serve as managing general partner of the partnerships that own
our Properties, we may have certain fiduciary responsibilities to the other partners in
those partnerships. In certain cases, the approval or consent of the other partners is
required before we may sell, finance, expand or make other significant changes in the
operations of such Properties. To the extent such approvals or consents are required,
we may experience difficulty in, or may be prevented from, implementing our plans with
respect to expansion, development, financing or other similar transactions with respect
to such Properties.
With respect to those properties for which we do not serve as managing
general partner, we do not have day-to-day operational control or control over certain
major decisions, including leasing and the timing and amount of distributions, which
could result in decisions by the managing general partner that do not fully reflect our
interests. This includes decisions relating to the requirements that we must satisfy in
order to maintain our status as a REIT for tax purposes. However, decisions relating to
sales, expansion and disposition of all or substantially all of the assets and
financings are subject to approval by the Operating Partnership.
39
We may incur significant costs related to compliance with
environmental laws, which could have a material adverse effect on our results of
operations, cash flow and the funds available to us to pay
dividends.
Under various federal, state and local laws, ordinances and regulations,
a current or previous owner or operator of real estate may be liable for the costs of
removal or remediation of petroleum, certain hazardous or toxic substances on, under or
in such real estate. Such laws typically impose such liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of such
substances. The costs of remediation or removal of such substances may be substantial.
The presence of such substances, or the failure to promptly remove or remediate such
substances, may adversely affect the owner’s or operator’s ability to lease
or sell such real estate or to borrow using such real estate as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also be
liable for the costs of removal or remediation of such substances at the disposal or
treatment facility, regardless of whether such facility is owned or operated by such
person. Certain laws also impose requirements on conditions and activities that may
affect the environment or the impact of the environment on human health. Failure to
comply with such requirements could result in the imposition of monetary penalties (in
addition to the costs to achieve compliance) and potential liabilities to third
parties. Among other things, certain laws require abatement or removal of friable and
certain non-friable asbestos-containing materials in the event of demolition or certain
renovations or remodeling. Certain laws regarding asbestos-containing materials require
building owners and lessees, among other things, to notify and train certain employees
working in areas known or presumed to contain asbestos-containing materials. Certain
laws also impose liability for release of asbestos-containing materials into the air
and third parties may seek recovery from owners or operators of real properties for
personal injury or property damage associated with asbestos-containing materials. In
connection with the ownership and operation of properties, we may be potentially liable
for all or a portion of such costs or claims.
All of our Properties (but not properties for which we hold an option to
purchase but do not yet own) have been subject to Phase I environmental assessments or
updates of existing Phase I environmental assessments. Such assessments generally
consisted of a visual inspection of the Properties, review of federal and state
environmental databases and certain information regarding historic uses of the property
and adjacent areas and the preparation and issuance of written reports. Some of the
Properties contain, or contained, underground storage tanks used for storing petroleum
products or wastes typically associated with automobile service or other operations
conducted at the Properties. Certain Properties contain, or contained, dry-cleaning
establishments utilizing solvents. Where believed to be warranted, samplings of
building materials or subsurface investigations were undertaken. At certain Properties,
where warranted by the conditions, we have developed and implemented an operations and
maintenance program that establishes operating procedures with respect to
asbestos-containing materials. The costs associated with the development and
implementation of such programs were not material. We have also obtained environmental
insurance coverage at certain of our Properties.
We believe that our Properties are in compliance in all material
respects with all federal, state and local ordinances and regulations regarding the
handling, discharge and emission of hazardous or toxic substances. We have recorded in
our financial statements a liability of $2.6 million related to potential future
asbestos abatement activities at our Properties which are not expected to have a
material impact on our financial condition or results of operations. We have not been
notified by any governmental authority, and are not otherwise aware, of any material
noncompliance, liability or claim relating to hazardous or toxic substances in
connection with any of our present or former Properties. Therefore, we have not
recorded any liability related to hazardous or toxic substances. Nevertheless, it is
possible that the environmental assessments available to us do not reveal all potential
environmental liabilities. It is also possible that subsequent investigations will
identify material contamination, that adverse environmental conditions have arisen
subsequent to the performance of the environmental assessments, or that there are
material environmental liabilities of which management is unaware. Moreover, no
assurances can be given that (i) future laws, ordinances or regulations will not
impose any material environmental liability or (ii) the current environmental
condition of the Properties has not been or will not be affected by tenants and
occupants of the Properties, by the condition of properties in the vicinity of the
Properties or by third parties unrelated to us, the Operating Partnership or the
relevant Property’s partnership.
40
RISKS RELATED TO OUR BUSINESS AND THE MARKET FOR OUR
STOCK
Competition from other retail formats could adversely affect the
revenues generated by our Properties, resulting in a reduction in funds available for
distribution to our stockholders.
There are numerous shopping facilities that compete with our Properties
in attracting retailers to lease space. In addition, retailers at our Properties face
competition for customers from:
|
•
|
Discount shopping centers
|
|
•
|
Television shopping networks
|
|
•
|
Shopping via the Internet
|
Each of these competitive factors could adversely affect the amount of
rents and tenant reimbursements that we are able to collect from our tenants, thereby
reducing our revenues and the funds available for distribution to our
stockholders.
The loss of one or more significant tenants, due to bankruptcies
or as a result of ongoing consolidations in the retail industry, could adversely affect
both the operating revenues and value of our Properties.
Regional malls are typically anchored by well-known department stores
and other significant tenants who generate shopping traffic at the mall. A decision by
an anchor tenant or other significant tenant to cease operations at one or more
Properties could have a material adverse effect on those Properties and, by extension,
on our financial condition and results of operations. The closing of an anchor or other
significant tenant may allow other anchors and/or tenants at an affected Property to
terminate their leases, to seek rent relief and/or cease operating their stores or
otherwise adversely affect occupancy at the Property. In addition, key tenants at one
or more Properties might terminate their leases as a result of mergers, acquisitions,
consolidations, dispositions or bankruptcies in the retail industry. The bankruptcy
and/or closure of one or more significant tenants, if we are not able to successfully
re-tenant the affected space, could have a material adverse effect on both the
operating revenues and underlying value of the Properties involved.
Inflation may adversely affect our financial condition and results
of operations.
Although inflation has not materially impacted our operations in the
recent past, increased inflation could have a more pronounced negative impact on our
mortgage and debt interest and general and administrative expenses, as these costs
could increase at a rate higher than our rents. Also, inflation may adversely affect
tenant leases with stated rent increases, which could be lower than the increase in
inflation at any given time. Inflation could also have an adverse effect on consumer
spending which could impact our tenants' sales and, in turn, our overage rents, where
applicable.
Certain agreements with prior owners of Properties that we have
acquired may inhibit our ability to enter into future sale or refinancing transactions
affecting such Properties, which otherwise would be in the best interests of the
Company and our stockholders.
Certain Properties that we originally acquired from third parties had
unrealized gain attributable to the difference between the fair market value of such
Properties and the third parties’ adjusted tax basis in the Properties
immediately prior to their contribution of such Properties to the Operating Partnership
pursuant to our acquisition. For this reason, a taxable sale by us of any of such
Properties, or a significant reduction in the debt
41
encumbering such Properties, could result in adverse tax consequences to
the third parties who contributed these Properties in exchange for interests in the
Operating Partnership. Under the terms of these transactions, we have generally agreed
that we either will not sell or refinance such an acquired Property for a number of
years in any transaction that would trigger adverse tax consequences for the parties
from whom we acquired such Property, or else we will reimburse such parties for all or
a portion of the additional taxes they are required to pay as a result of the
transaction. Accordingly, these agreements may cause us not to engage in future sale or
refinancing transactions affecting such Properties which otherwise would be in the best
interests of the Company and our stockholders, or may increase the costs to us of
engaging in such transactions.
Uninsured losses could adversely affect our financial condition,
and in the future our insurance may not include coverage for acts of
terrorism.
We carry a comprehensive blanket policy for general liability, property
casualty (including fire, earthquake and flood) and rental loss covering all of the
Properties, with specifications and insured limits customarily carried for similar
properties. However, even insured losses could result in a serious disruption to our
business and delay our receipt of revenue. Furthermore, there are some types of losses,
including lease and other contract claims, as well as some types of environmental
losses, that generally are not insured or are not economically insurable. If an
uninsured loss or a loss in excess of insured limits occurs, we could lose all or a
portion of the capital we have invested in a Property, as well as the anticipated
future revenue from the Property. If this happens, we, or the applicable
Property’s partnership, may still remain obligated for any mortgage debt or other
financial obligations related to the Property.
The general liability and property casualty insurance policies on our
Properties currently include coverage for loss resulting from acts of terrorism,
whether foreign or domestic. While we believe that the Properties are adequately
insured in accordance with industry standards, the cost of general liability and
property casualty insurance policies that include coverage for acts of terrorism has
risen significantly post-September 11, 2001. The cost of coverage for acts of
terrorism is currently mitigated by the Terrorism Risk Insurance Act
(“TRIA”). If TRIA is not extended beyond its current expiration date of
December 31, 2014, we may incur higher insurance costs and greater difficulty in
obtaining insurance that covers terrorist-related damages. Our tenants may also
experience similar difficulties.
The U.S. federal income tax treatment of corporate dividends may
make our stock less attractive to investors, thereby lowering our stock
price.
The maximum U.S. federal income tax rate
for dividends received by individual taxpayers has been reduced generally from 38.6% to
15.0% (currently effective from January 1, 2003 through 2010). However, dividends
payable by REITs are generally not eligible for such treatment. Although this
legislation did not have a directly adverse effect on the taxation of REITs or
dividends paid by REITs, the more favorable treatment for non-REIT dividends could
cause individual investors to consider investments in non-REIT corporations as more
attractive relative to an investment in a REIT, which could have an adverse impact on
the market price of our stock.
RISKS RELATED TO GEOGRAPHIC CONCENTRATIONS
Since our Properties are located principally in the Southeastern
and Midwestern United States, our financial position, results of operations and funds
available for distribution to shareholders are subject generally to economic conditions
in these regions.
Our Properties are located principally in the southeastern and
midwestern United States. Our Properties located in the southeastern United States
accounted for approximately 49.2% of our total revenues from all Properties for the
three months ended March 31, 2008 and currently include 44 malls, 20 associated
centers, 11 community centers and 19 office buildings. Our Properties located in the
midwestern United States accounted for approximately 33.2% of our total revenues from
all Properties for the three months ended March 31, 2008
42
and
currently include 26 malls and 4 associated centers. Our results of operations and
funds available for distribution to shareholders therefore will be subject generally to
economic conditions in the southeastern and midwestern United States. We will continue
to look for opportunities to geographically diversify our portfolio in order to
minimize dependency on any particular region; however, the expansion of the portfolio
through both acquisitions and developments is contingent on many factors including
consumer demand, competition and economic conditions.
Our financial position, results of operations and funds available
for distribution to shareholders could be adversely affected by any economic downturn
affecting the operating results at our Properties in the St. Louis, MO, Nashville,
TN,
Pittsburgh,
PA,
Kansas City, KS and Madison, WI metropolitan
areas, which are our five largest markets.
Our Properties located in the St. Louis,
MO, Nashville, TN, Pittsburgh, PA, Kansas City (Overland Park), KS and Madison, WI
metropolitan areas accounted for 6.1%, 4.6%, 3.8%, 3.1% and 2.7%, respectively, of our
total revenues for the three months ended March 31, 2008, respectively. No other market
accounted for more than 2.6% of our total revenues for the three months ended March 31,
2008. Our financial position and results of operations will therefore be affected by
the results experienced at Properties located in these metropolitan areas.
RISKS RELATED TO DEBT AND FINANCIAL MARKETS
We may not have access to the capital needed to refinance debt or
obtain new debt.
We are significantly dependent upon external financing to fund the
growth of our business and ensure that we meet our debt servicing requirements. Our
access to financing depends on the willingness of banks to lend to us, our credit
rating and conditions in the capital markets in general. We cannot make any assurances
as to whether we will be able to obtain debt for refinancings or to fund our growth, or
that financing options available to us will be on favorable or acceptable
terms.
Rising interest rates could both increase our borrowing costs,
thereby adversely affecting our cash flow and the amounts available for distributions
to our stockholders, and decrease our stock price, if investors seek higher yields
through other investments.
An environment of rising interest rates could lead holders of our
securities to seek higher yields through other investments, which could adversely
affect the market price of our stock. One of the factors that may influence the price
of our stock in public markets is the annual distribution rate we pay as compared with
the yields on alternative investments. Numerous other factors, such as governmental
regulatory action and tax laws, could have a significant impact on the future market
price of our stock. In addition, increases in market interest rates could result in
increased borrowing costs for us, which may adversely affect our cash flow and the
amounts available for distributions to our stockholders.
Certain of our credit facilities, the loss of which could have a
material, adverse impact on our financial condition and results of operations, are
conditioned upon the Operating Partnership continuing to be managed by certain members
of its current senior management and by such members of senior management continuing to
own a significant direct or indirect equity interest in the Operating
Partnership.
Certain of the Operating Partnership’s lines of credit are
conditioned upon the Operating Partnership continuing to be managed by certain members
of its current senior management and by such members of senior management continuing to
own a significant direct or indirect equity interest in the Operating Partnership
(including any shares of our common stock owned by such members of senior management).
If the failure of one or more of these conditions resulted in the loss of these credit
facilities and we were unable to obtain suitable replacement financing, such loss could
have a material, adverse impact on our financial position and results of
operations.
43
RISKS RELATED TO FEDERAL INCOME TAX LAWS
We conduct a portion of our business through taxable REIT
subsidiaries, which are subject to certain tax risks.
We have established several taxable REIT subsidiaries including our
management company. Despite our qualification as a REIT, our taxable REIT subsidiaries
must pay income tax on their taxable income. In addition, we must comply with various
tests to continue to qualify as a REIT for federal income tax purposes, and our income
from and investments in our taxable REIT subsidiaries generally do not constitute
permissible income and investments for these tests. While we will attempt to ensure
that our dealings with our taxable REIT subsidiaries will not adversely affect our REIT
qualification, we cannot provide assurance that we will successfully achieve that
result. Furthermore, we may be subject to a 100% penalty tax, or our taxable REIT
subsidiaries may be denied deductions, to the extent our dealings with our taxable REIT
subsidiaries are not deemed to be arm’s length in nature.
If we fail to qualify as a REIT in any taxable year, our funds
available for distribution to stockholders will be reduced.
We intend to continue to operate so as to qualify as a REIT under the
Internal Revenue Code. Although we believe that we are organized and operate in such a
manner, no assurance can be given that we currently qualify and in the future will
continue to qualify as a REIT. Such qualification involves the application of highly
technical and complex Internal Revenue Code provisions for which there are only limited
judicial or administrative interpretations. The determination of various factual
matters and circumstances not entirely within our control may affect our ability to
qualify. In addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not significantly change the tax
laws with respect to qualification or its corresponding federal income tax
consequences. Any such change could have a retroactive effect.
If in any taxable year we were to fail to qualify as a REIT, we would
not be allowed a deduction for distributions to stockholders in computing our taxable
income and we would be subject to federal income tax on our taxable income at regular
corporate rates. Unless entitled to relief under certain statutory provisions, we also
would be disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. As a result, the funds available for
distribution to our stockholders would be reduced for each of the years involved. This
would likely have a significant adverse effect on the value of our securities and our
ability to raise additional capital. In addition, we would no longer be required to
make distributions to our stockholders. We currently intend to operate in a manner
designed to qualify as a REIT. However, it is possible that future economic, market,
legal, tax or other considerations may cause our board of directors, with the consent
of a majority of our stockholders, to revoke the REIT election.
Any issuance or transfer of our capital stock to any person in
excess of the applicable limits on ownership necessary to maintain our status as a REIT
would be deemed void ab initio, and those shares would automatically be transferred to
a non-affiliated charitable trust.
To maintain our status as a REIT under the Internal Revenue Code, not
more than 50% in value of our outstanding capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to
include certain entities) during the last half of a taxable year. Our certificate of
incorporation generally prohibits ownership of more than 6% of the outstanding shares
of our capital stock by any single stockholder determined by vote, value or number of
shares (other than Charles Lebovitz, our Chief Executive Officer, David Jacobs, Richard
Jacobs and their affiliates under the Internal Revenue Code’s attribution rules).
The affirmative vote of 66
2
/
3
% of our outstanding voting
stock is required to amend this provision.
44
Our board of directors may, subject to certain conditions, waive the
applicable ownership limit upon receipt of a ruling from the IRS or an opinion of
counsel to the effect that such ownership will not jeopardize our status as a REIT.
Absent any such waiver, however, any issuance or transfer of our capital stock to any
person in excess of the applicable ownership limit or any issuance or transfer of
shares of such stock which would cause us to be beneficially owned by fewer than 100
persons, will be null and void and the intended transferee will acquire no rights to
the stock. Instead, such issuance or transfer with respect to that number of shares
that would be owned by the transferee in excess of the ownership limit provision would
be deemed void
ab initio
and those
shares would automatically be transferred to a trust for the exclusive benefit of a
charitable beneficiary to be designated by us, with a trustee designated by us, but who
would not be affiliated with us or with the prohibited owner. Any acquisition of our
capital stock and continued holding or ownership of our capital stock constitutes,
under our certificate of incorporation, a continuous representation of compliance with
the applicable ownership limit.
In order to maintain our status as a REIT and avoid the imposition
of certain additional taxes under the Internal Revenue Code, we must satisfy minimum
requirements for distributions to shareholders, which may limit the amount of cash we
might otherwise have been able to retain for use in growing our
business.
To maintain our status as a REIT under the Internal Revenue Code, we
generally will be required each year to distribute to our stockholders at least 90% of
our taxable income after certain adjustments. However, to the extent that we do not
distribute all of our net capital gain or distribute at least 90% but less than 100% of
our REIT taxable income, as adjusted, we will be subject to tax on the undistributed
amount at ordinary and capital gains corporate tax rates, as the case may be. In
addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by
which certain distributions paid by us during each calendar year are less than the sum
of 85% of our ordinary income for such calendar year, 95% of our capital gain net
income for the calendar year and any amount of such income that was not distributed in
prior years. In the case of property acquisitions, including our initial formation,
where individual Properties are contributed to our Operating Partnership for Operating
Partnership units, we have assumed the tax basis and depreciation schedules of the
entities’ contributing Properties. The relatively low tax basis of such
contributed Properties may have the effect of increasing the cash amounts we are
required to distribute as dividends, thereby potentially limiting the amount of cash we
might otherwise have been able to retain for use in growing our business. This low tax
basis may also have the effect of reducing or eliminating the portion of distributions
made by us that are treated as a non-taxable return of capital.
RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE
The ownership limit described above, as well as certain provisions
in our amended and restated certificate of incorporation and bylaws, our stockholder
rights plan, and certain provisions of Delaware law may hinder any attempt to acquire
us.
There are certain provisions of Delaware law, our amended and restated
certificate of incorporation, our bylaws, and other agreements to which we are a party
that may have the effect of delaying, deferring or preventing a third party from making
an acquisition proposal for us. These provisions may also inhibit a change in control
that some, or a majority, of our stockholders might believe to be in their best
interest or that could give our stockholders the opportunity to realize a premium over
the then-prevailing market prices for their shares. These provisions and agreements are
summarized as follows:
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•
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The Ownership Limit
– As
described above, to maintain our status as a REIT under the Internal
Revenue Code, not more than 50% in value of our outstanding capital stock
may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Internal Revenue Code to include certain entities) during
the last half of a taxable year. Our certificate of incorporation generally
prohibits ownership of more than 6% of the outstanding shares of our
capital stock by any single stockholder determined by value (other than
Charles Lebovitz, David Jacobs, Richard Jacobs and their
affiliates
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45
under the Internal Revenue Code’s attribution rules). In addition
to preserving our status as a REIT, the ownership limit may have the effect of
precluding an acquisition of control of us without the approval of our board of
directors.
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•
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Classified Board of Directors; Removal for
Cause
– Our certificate of incorporation
provides for a board of directors divided into three classes, with one
class elected each year to serve for a three-year term. As a result, at
least two annual meetings of stockholders may be required for the
stockholders to change a majority of our board of directors. In addition,
our stockholders can only remove directors for cause and only by a vote of
75% of the outstanding voting stock. Collectively, these provisions make it
more difficult to change the composition of our board of directors and may
have the effect of encouraging persons considering unsolicited tender
offers or other unilateral takeover proposals to negotiate with our board
of directors rather than pursue non-negotiated takeover
attempts.
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•
|
Advance Notice Requirements for Stockholder
Proposals
– Our bylaws establish advance
notice procedures with regard to stockholder proposals relating to the
nomination of candidates for election as directors or new business to be
brought before meetings of our stockholders. These procedures generally
require advance written notice of any such proposals, containing prescribed
information, to be given to our Secretary at our principal executive
offices not less than 60 days nor more than 90 days prior to the
meeting.
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•
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Vote Required to Amend Bylaws
– A vote of 66
2
/
3
% of the
outstanding voting stock is necessary to amend our bylaws.
|
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•
|
Stockholder Rights Plan
–
We have a stockholder rights plan, which may delay, deter or prevent a
change in control unless the acquirer negotiates with our board of
directors and the board of directors approves the transaction. The rights
plan generally would be triggered if an entity, group or person acquires
(or announces a plan to acquire) 15% or more of our common stock. If such
transaction is not approved by our board of directors, the effect of the
stockholder rights plan would be to allow our stockholders to purchase
shares of our common stock, or the common stock or other merger
consideration paid by the acquiring entity, at an effective 50%
discount.
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•
|
Delaware Anti-Takeover Statute
– We are a Delaware corporation and are subject to
Section 203 of the Delaware General Corporation Law. In general, Section
203 prevents an “interested stockholder” (defined generally as
a person owning 15% or more of a company’s outstanding voting stock)
from engaging in a “business combination” (as defined in
Section 203) with us for three years following the date that person becomes
an interested stockholder unless:
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(a)
before that person
became an interested holder, our board of directors approved the transaction in which
the interested holder became an interested stockholder or approved the business
combination;
(b)
upon completion of
the transaction that resulted in the interested stockholder becoming an interested
stockholder, the interested stockholder owns 85% of our voting stock outstanding at the
time the transaction commenced (excluding stock held by directors who are also officers
and by employee stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a tender or
exchange offer); or
(c)
following the
transaction in which that person became an interested stockholder, the business
combination is approved by our board of directors and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least two-thirds of our
outstanding voting stock not owned by the interested stockholder.
46
Under Section 203, these restrictions also do not apply to certain
business combinations proposed by an interested stockholder following the announcement
or notification of certain extraordinary transactions involving us and a person who was
not an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of our directors, if that
extraordinary transaction is approved or not opposed by a majority of the directors who
were directors before any person became an interested stockholder in the previous three
years or who were recommended for election or elected to succeed such directors by a
majority of directors then in office.
Certain ownership interests held by members of our senior
management may tend to create conflicts of interest between such individuals and the
interests of the Company and our Operating Partnership.
•
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Tax Consequences of the Sale or Refinancing of Certain
Properties
– Since certain of our
Properties had unrealized gain attributable to the difference between the
fair market value and adjusted tax basis in such Properties immediately
prior to their contribution to the Operating Partnership, a taxable sale of
any such Properties, or a significant reduction in the debt encumbering
such Properties, could cause adverse tax consequences to the members of our
senior management who owned interests in our predecessor entities. As a
result, members of our senior management might not favor a sale of a
property or a significant reduction in debt even though such a sale or
reduction could be beneficial to us and the Operating Partnership. Our
bylaws provide that any decision relating to the potential sale of any
property that would result in a disproportionately higher taxable income
for members of our senior management than for us and our stockholders, or
that would result in a significant reduction in such property’s debt,
must be made by a majority of the independent directors of the board of
directors. The Operating Partnership is required, in the case of such a
sale, to distribute to its partners, at a minimum, all of the net cash
proceeds from such sale up to an amount reasonably believed necessary to
enable members of our senior management to pay any income tax liability
arising from such sale.
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•
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Interests in Other Entities; Policies of the Board of
Directors
– Certain entities owned in whole
or in part by members of our senior management, including the construction
company that built or renovated most of our properties, may continue to
perform services for, or transact business with, us and the Operating
Partnership. Furthermore, certain property tenants are affiliated with
members of our senior management. Accordingly, although our bylaws provide
that any contract or transaction between us or the Operating Partnership
and one or more of our directors or officers, or between us or the
Operating Partnership and any other entity in which one or more of our
directors or officers are directors or officers or have a financial
interest, must be approved by our disinterested directors or stockholders
after the material facts of the relationship or interest of the contract or
transaction are disclosed or are known to them, these affiliations could
nevertheless create conflicts between the interests of these members of
senior management and the interests of the Company, our shareholders and
the Operating Partnership in relation to any transactions between us and
any of these entities.
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ITEM 2:
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Unregistered Sales of Equity Securities and Use of
Proceeds
|
None
ITEM 3:
|
Defaults Upon Senior Securities
|
47
ITEM
4:
Submission of Matters to a Vote of Security Holders
ITEM 5:
|
Other Information
|
None
The Exhibit Index attached to this report is incorporated by reference
into this Item 6.
48
SIGNATURE
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/
John N. Foy
_____________________________________
John
N. Foy
Vice
Chairman of the Board, Chief Financial
Officer and Treasurer
(Authorized Officer and Principal Financial Officer)
Date: May 8, 2008
49
INDEX TO EXHIBITS
Exhibit
Number
|
Description
|
10.7.9
|
Letter Agreement, dated March 3, 2008, between the Company
and Eric P. Snyder.
|
12.1
|
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Dividends
|
31.1
|
Certification pursuant to Securities Exchange Act Rule
13a-14(a) by the Chief Executive Officer, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification pursuant to Securities Exchange Act Rule
13a-14(a) by the Chief Financial Officer, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification pursuant to Securities Exchange Act Rule
13a-14(b) by the Chief Executive Officer, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification pursuant to Securities Exchange Act Rule
13a-14(b) by the Chief Financial Officer as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
50