Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per share and per unit data)
Note 1 – Organization and Basis of Presentation
Unless stated otherwise or the context otherwise requires, references to the "Company" mean CBL & Associates Properties, Inc. and its subsidiaries. References to the "Operating Partnership" mean CBL & Associates Limited Partnership and its subsidiaries.
CBL & Associates Properties, Inc. (“CBL”), a Delaware corporation, is a self-managed, self-administered, fully-integrated real estate investment trust (“REIT”) that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers and office properties. Its properties are located in
26
states, but are primarily in the southeastern and midwestern United States.
CBL conducts substantially all of its business through CBL & Associates Limited Partnership (the “Operating Partnership”), which is a variable interest entity ("VIE"). In accordance with the guidance in Accounting Standards Codification ("ASC") 810,
Consolidations,
the Company is exempt from providing further disclosures related to the Operating Partnership's VIE classification. The Operating Partnership consolidates the financial statements of all entities in which it has a controlling financial interest or where it is the primary beneficiary of a VIE. As of September 30, 2017, the Operating Partnership owned interests in the following properties:
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|
|
|
Malls
(1)
|
|
Associated
Centers
|
|
Community
Centers
|
|
Office
Buildings
|
|
Total
|
|
Consolidated properties
|
60
|
|
20
|
|
4
|
|
5
|
(2)
|
89
|
|
Unconsolidated properties
(3)
|
8
|
|
3
|
|
5
|
|
—
|
|
16
|
|
Total
|
68
|
|
23
|
|
9
|
|
5
|
|
105
|
|
|
|
|
(1)
|
Category consists of regional malls, open-air centers and outlet centers (including
one
mixed-use center).
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(2)
|
Includes CBL's
two
corporate office buildings.
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(3)
|
The Operating Partnership accounts for these investments using the equity method because one or more of the other partners have substantive participating rights.
|
At
September 30, 2017
, the Operating Partnership had interests in the following properties under development:
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Consolidated
Properties
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|
Unconsolidated
Properties
|
|
|
Malls
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|
Community
Centers
|
|
Development
|
—
|
|
1
|
|
Expansions
|
1
|
|
—
|
|
Redevelopments
|
1
|
|
—
|
CBL is the
100%
owner of
two
qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At September 30, 2017, CBL Holdings I, Inc., the sole general partner of the Operating Partnership, owned a
1.0%
general partner interest in the Operating Partnership and CBL Holdings II, Inc. owned an
84.8%
limited partner interest for a combined interest held by CBL of
85.8%
.
The noncontrolling interest in the Operating Partnership is held by CBL & Associates, Inc., its shareholders and affiliates and certain senior officers of the Company (collectively "CBL's Predecessor"), all of which contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for a limited partner interest when the Operating Partnership was formed in November 1993, and by various third parties. At
September 30, 2017
, CBL’s Predecessor owned a
9.1%
limited partner interest and third parties owned a
5.1%
limited partner interest in the Operating Partnership. CBL's Predecessor also owned
3.8 million
shares of CBL’s common stock at
September 30, 2017
, for a total combined effective interest of
11.0%
in the Operating Partnership.
The Operating Partnership conducts the Company’s property management and development activities through its wholly owned subsidiary, CBL & Associates Management, Inc. (the “Management Company”), to comply with certain requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).
The accompanying condensed consolidated financial statements are unaudited; however, they have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. All intercompany transactions have been eliminated. The results for the interim period ended
September 30, 2017
are not necessarily indicative of the results to be obtained for the full fiscal year.
These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended
December 31, 2016
.
Note 2 – Recent Accounting Pronouncements
Accounting Guidance Adopted
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09,
Improvements to Employee Share-Based Payment Accounting
("ASU 2016-09"). ASU 2016-09 identifies areas for simplification of accounting for share-based payment transactions. ASU 2016-09 allows an entity to make an accounting policy election to either (1) recognize forfeitures as they occur or (2) continue to estimate the number of awards expected to be forfeited. The Company elected to account for forfeitures of share-based payments as they occur. As the amount of the retrospective adjustment was nominal, the Company elected not to record the change. See
Note 13
for further information on the adoption of this guidance. The guidance also requires that when an employer withholds shares upon the vesting of restricted shares for the purpose of meeting tax withholding requirements, that the cash paid for withholding taxes is classified as a financing activity on the statement of cash flows. The Company previously included these amounts within operating activities. For public companies, ASU 2016-09 was effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period and was to be applied on a modified retrospective basis as a cumulative-effect adjustment to retained earnings as of the date of adoption. The Company adopted ASU 2016-09 as of January 1, 2017 and it did not have a material impact on its condensed consolidated financial statements and related disclosures. The change in the Company's condensed consolidated statements of cash flows related to the prior-year periods is as follows:
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Three Months Ended
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|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
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|
|
2016
|
|
Net cash provided by operating activities
(1)
|
|
$
|
85,777
|
|
|
$
|
128,384
|
|
|
$
|
125,464
|
|
|
$
|
128,954
|
|
|
Reclassification of cash payments for withheld shares
|
|
202
|
|
|
87
|
|
|
(69
|
)
|
|
60
|
|
|
Net cash provided by operating activities
(2)
|
|
$
|
85,979
|
|
|
$
|
128,471
|
|
|
$
|
125,395
|
|
|
$
|
129,014
|
|
|
|
|
|
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|
|
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Net cash used in financing activities
(1)
|
|
$
|
(95,505
|
)
|
|
$
|
(162,774
|
)
|
|
$
|
(89,447
|
)
|
|
$
|
(137,348
|
)
|
|
Reclassification of cash payments for withheld shares
|
|
(202
|
)
|
|
(87
|
)
|
|
69
|
|
|
(60
|
)
|
|
Net cash used in financing activities
(2)
|
|
$
|
(95,707
|
)
|
|
$
|
(162,861
|
)
|
|
$
|
(89,378
|
)
|
|
$
|
(137,408
|
)
|
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|
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|
(1)
|
Prior to adoption of ASU 2016-09.
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(2)
|
Subsequent to adoption of ASU 2016-09.
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In October 2016, the FASB issued ASU 2016-17,
Interests Held Through Related Parties That Are under Common Control,
("ASU 2016-17") which amended the consolidation guidance in ASU 2015-02,
Amendments to the Consolidation Analysis
("ASU 2015-02"), to change how a reporting entity that is a single decision maker of a VIE should consider indirect interests in a VIE held through related parties that are under common control with the entity when determining whether it is the primary beneficiary of the VIE. ASU 2016-17 simplifies the analysis to require consideration of only an entity's proportionate indirect interest in a VIE held through a party under common control. For public companies, ASU 2016-17 was effective for fiscal years beginning after December 15, 2016 including interim periods therein. The guidance was applied retrospectively to all periods in fiscal year 2016, which is the period in
which ASU 2015-02 was adopted by the Company. The Company adopted ASU 2016-17 as of January 1, 2017 and it did not have a material impact on its condensed consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01,
Clarifying the Definition of a Business
, ("ASU 2017-01"), which provides a more narrow definition of a business to be used in determining the accounting treatment of an acquisition. Under ASC 805,
Business Combinations
, the Company generally accounted for acquisitions of shopping center properties as acquisitions of a business. Under ASU 2017-01, more acquisitions are expected to be accounted for as acquisitions of assets. Transaction costs for asset acquisitions are capitalized while those related to business acquisitions are expensed. For public companies, ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods therein and is to be applied prospectively to any transactions occurring within the period of adoption. Early adoption is permitted. The Company adopted ASU 2017-01 as of January 1, 2017. The Company expects most of its future acquisitions of shopping center properties will be accounted for as acquisitions of assets in accordance with the guidance in ASU 2017-01.
In January 2017, the FASB issued ASU 2017-03,
Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings
, ("ASU 2017-03"), which provides guidance related to the disclosure of the potential impact that the adoption of ASU 2014-09,
Revenue from Contracts with Customers
("ASU 2014-09"); ASU 2016-02,
Leases
("ASU 2016-02") and ASU 2016-13,
Measurement of Credit Losses on Financial Instruments
("ASU 2016-13") could have on the Company's condensed consolidated financial statements. ASU 2017-03 was effective upon issuance and the Company has incorporated this guidance within its current disclosures.
Accounting Guidance Not Yet Effective
Revenue Recognition guidance and implementation update
In May 2014, the FASB and the International Accounting Standards Board jointly issued ASU 2014-09. The objective of this converged standard is to enable financial statement users to better understand and analyze revenue by replacing current transaction and industry-specific guidance with a more principles-based approach to revenue recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that the entity expects to be entitled to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, timing and uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other guidance such as lease and insurance contracts. In August 2015, the FASB issued ASU 2015-14,
Deferral of the Effective Date
, ("ASU 2015-14") which allows an additional one year deferral of ASU 2014-09. As a result, ASU 2014-09 is effective for annual periods beginning after December 15, 2017 and interim periods within those years using one of two retrospective application methods. Early adoption would be permitted only for annual reporting periods beginning after December 15, 2016 and interim periods within those years. As the majority of the Company's revenue is derived from real estate lease contracts, the Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements. The Company expects to adopt the guidance using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of the Company's adoption, which will be January 1, 2018. The Company has elected to apply the guidance to contracts with open performance obligations as of January 1, 2018.
The following updates, which are effective as of the same date as ASU 2014-09 as deferred by ASU 2015-14, were issued by the FASB to clarify the implementation of the revenue guidance:
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Issuance Date
|
|
Accounting Standards Update
|
|
March 2016
|
|
ASU 2016-08
|
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
|
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April 2016
|
|
ASU 2016-10
|
Identifying Performance Obligations and Licensing
|
|
May 2016
|
|
ASU 2016-11
|
Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting
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May 2016
|
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ASU 2016-12
|
Narrow Scope Improvements and Practical Expedients
|
|
December 2016
|
|
ASU 2016-20
|
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
|
|
September 2017
|
|
ASU 2017-13
|
Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments
|
The Company's revenues largely consist of income earned from leasing, which approximated
97%
of the Company's revenues for the nine months ended
September 30, 2017
. Approximately
1%
of the Company's other revenues are not in the scope of ASU 2014-09. Other revenue streams primarily include earnings from property management, leasing and development agreements with unconsolidated affiliates and third parties in addition to
marketing and other revenues. As part of the implementation process, the Company completed an initial review to ascertain which contracts are in the scope of the revenue guidance noted above. For those contracts in scope, these were evaluated using the prescribed five-step method which included the identification of the contract and performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing revenue. Based on its initial evaluation of contracts, the Company does not expect any material changes in the amount or timing of its revenues upon adoption of the guidance and expects to finalize the contract review in the next few months.
The Company has completed its initial assessment of revenues, believed to be in the scope of ASU 2014-09 for the nine months ended September 30, 2017, which approximate the following as listed below:
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Revenue stream
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|
% of Total Revenues
|
|
Management, development and leasing fees
(1)
|
|
1%
|
|
Marketing revenues
(2)
|
|
1%
|
|
Total estimated ASC 606 revenues as a percentage of total revenues
|
|
2%
|
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(1)
|
Primarily represents fees earned for certain ancillary services performed under management and other contracts for third-party properties and joint ventures. Management fees generally represent a series of performance obligations for the same tasks performed over a period of time. Development and leasing fees are typically individual performance obligations.
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(2)
|
This revenue stream consists primarily of marketing services provided to tenants as well as other contracts with customers for various services and promotions.
|
Leasing guidance and implementation update
In February 2016, the FASB issued ASU 2016-02. The objective of ASU 2016-02 is to increase transparency and comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Under ASU 2016-02, lessees will be required to recognize a right-of-use asset and corresponding lease liability on the balance sheet for all leases with terms greater than 12 months. The guidance applied by a lessor under ASU 2016-02 is substantially similar to existing GAAP. For public companies, ASU 2016-02 is effective for annual periods beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted. Lessees and lessors are required to use a modified retrospective transition method for all leases existing at, or entered into after, the date of initial application. Accordingly, they would apply the new accounting model for the earliest year presented in the financial statements. A number of practical expedients may also be elected. The Company has done a preliminary assessment and continues to evaluate the potential impact the guidance may have on its condensed consolidated financial statements and related disclosures and will adopt ASU 2016-02 as of January 1, 2019.
As a lessor, the Company expects substantially all leases will continue to be classified as operating leases under the new leasing guidance. Under the new guidance, certain common area maintenance ("CAM") recoveries must be accounted for as non-lease components under the new revenue guidance. The FASB clarified in June 2017 that entities, which do not adopt ASU 2016-02 concurrently with the new revenue recognition guidance, will only be required to evaluate CAM as a non-lease component for new leases executed after the effective date, which would be January 1, 2019 for the Company. The Company is evaluating how the bifurcation of CAM may affect the timing or recognition of certain lease revenues. Additionally, the Company expects to expense certain deferred lease costs due to the narrowed definition of indirect costs that may be capitalized. As a lessee, the Company has
11
ground lease arrangements in which the Company is the lessee for land. As of
September 30, 2017
, these ground leases have future contractual payments of approximately
$15,199
with maturity dates ranging from January 2019 through July 2089.
Other Guidance
In June 2016, the FASB issued ASU 2016-13. The objective of ASU 2016-13 is to provide financial statement users with information about expected credit losses on financial assets and other commitments to extend credit by a reporting entity. The guidance replaces the current incurred loss impairment model, which reflects credit events, with a current expected credit loss model, which recognizes an allowance for credit losses based on an entity's estimate of contractual cash flows not expected to be collected. For public companies that are SEC filers, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. Early adoption is permitted. The guidance is to be applied on a modified retrospective basis. The Company plans to adopt ASU 2016-13 as of January 1, 2020 and is evaluating the impact that this update may have on its condensed consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15,
Classification of Certain Cash Receipts and Cash Payments
("ASU 2016-15"). The objective of ASU 2016-15 is to reduce diversity in practice in the classification of certain items in the statement of cash flows, including the classification of distributions received from equity method investees. For
public companies, ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. The guidance is to be applied on a retrospective basis. The Company plans to adopt ASU 2016-15 in conjunction with the filing of its Form 10-K for the year ended December 31,2017 and does not expect the guidance to have a material impact on its condensed consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18,
Restricted Cash
, ("ASU 2016-18") to address diversity in practice related to the classification and presentation of changes in restricted cash. The update requires a reporting entity to explain the change in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents in reconciling the beginning-of-period and end-of-period total amounts on the statement of cash flows. For public companies, ASU 2016-18 is effective on a retrospective basis for fiscal years beginning after December 15, 2017, including interim periods therein. Early adoption is permitted. The Company plans to adopt the update in conjunction with the filing of its Form 10-K for the year ended December 31,2017 and does not expect ASU 2016-18 to have a material impact on its condensed consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05,
Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
("ASU 2017-05"), which will apply to the partial sale or transfer of nonfinancial assets, including real estate assets, to unconsolidated joint ventures. ASU 2017-05 requires 100% of the gain or loss to be recognized for nonfinancial assets transferred to an unconsolidated joint venture and any noncontrolling interest received in such nonfinancial assets to be measured at fair value. ASU 2017-05 has the same effective date as ASU 2014-09, as deferred by ASU 2015-14, and is effective for the Company on January 1, 2018. ASU 2017-05 is to be applied using either a full or modified retrospective transition method. This adjustment will (1 ) mark investments in unconsolidated joint ventures to fair value as of the date of contribution to the unconsolidated joint ventures, and (2) recognize the remainder of the gain or loss associated with transferring the assets to the unconsolidated joint venture. The Company expects to adopt the guidance using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of the Company's adoption, which will be January 1, 2018. The Company identified one unconsolidated affiliate, CBL/T-C, LLC, in which the Company recorded a partial sale of real estate assets in 2011 and is evaluating the impact that this update may have on its condensed consolidated financial statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09,
Scope of Modification Accounting
("ASU 2017-09") which provides guidance on the types of changes to the terms or conditions of a share-based payment award to which an entity would be required to apply modification accounting under ASC 718,
Compensation - Stock Compensation
. ASU 2017-09 is effective for public companies on a prospective basis to awards modified on or after the adoption date for fiscal years beginning after December 15, 2017, including interim periods therein. Early adoption is permitted. The Company plans to adopt the update as of January 1, 2018 and does not expect ASU 2017-09 to have a material impact on its condensed consolidated financial statements.
Note 3 – Fair Value Measurements
The Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy in accordance with ASC 820,
Fair Value Measurements and Disclosure
, ("ASC 820") based on whether the inputs to valuation techniques are observable or unobservable. The fair value hierarchy contains three levels of inputs that may be used to measure fair value as follows:
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Level 1 –
|
Inputs represent quoted prices in active markets for identical assets and liabilities as of the measurement date.
|
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|
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.
|
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Level 3 –
|
Inputs represent unobservable measurements, supported by little, if any, market activity, and require considerable assumptions that are significant to the fair value of the asset or liability. Market valuations must often be determined using discounted cash flow methodologies, pricing models or similar techniques based on the Company’s assumptions and best judgment.
|
The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under ASC 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date and under current market conditions. Valuation techniques used maximize the use of observable
inputs and minimize the use of unobservable inputs and consider assumptions such as inherent risk, transfer restrictions and risk of nonperformance.
Fair Value Measurements on a Recurring Basis
The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term nature of these financial instruments. Based on the interest rates for similar financial instruments, the carrying value of mortgage and other notes receivable is a reasonable estimate of fair value. The estimated fair value of mortgage and other indebtedness was
$4,250,556
and
$4,737,077
at
September 30, 2017
and
December 31, 2016
, respectively. The fair value was calculated using Level 2 inputs by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently. The carrying amount of net mortgage and other indebtedness was
$4,216,178
and
$4,465,294
at
September 30, 2017
and
December 31, 2016
, respectively.
Fair Value Measurements on a Nonrecurring Basis
The Company measures the fair value of certain long-lived assets on a nonrecurring basis, through quarterly impairment testing or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company considers both quantitative and qualitative factors in its impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each property such as net operating income ("NOI"), occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the property and tenant mix. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experience impairment, the Company classifies such long-lived assets under Level 3 in the fair value hierarchy. Level 3 inputs primarily consist of sales and market data, independent valuations and discounted cash flow models as noted below.
The following table sets forth information regarding the Company's assets that are measured at fair value on a nonrecurring basis and related impairment charges for the
nine
months ended
September 30, 2017
:
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Fair Value Measurements at Reporting Date Using
|
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|
Total
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
Loss on
Impairment
|
|
Long-lived assets
|
$
|
81,350
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
81,350
|
|
|
$
|
71,401
|
|
Long-lived Assets Measured at Fair Value in 2017
During the
nine
months ended
September 30, 2017
, the Company recognized impairments of real estate of
$71,401
primarily related to
two
malls, a parcel project near an outlet center and
one
outparcel. The properties were classified for segment reporting purposes as listed below (see section below for information on outparcels). See
Note 9
for segment information.
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Impairment
Date
|
|
Property
|
|
Location
|
|
Segment
Classification
|
|
Loss on
Impairment
|
|
Fair
Value
|
|
|
March
|
|
Vacant land
(1)
|
|
Woodstock, GA
|
|
Malls
|
|
$
|
3,147
|
|
|
$
|
—
|
|
(2)
|
|
June
|
|
Acadiana Mall
(3)
|
|
Lafayette, LA
|
|
Malls
|
|
43,007
|
|
|
67,300
|
|
|
|
June / September
|
|
Prior period sales adjustments
(4)
|
|
Various
|
|
Malls/Office Buildings
|
|
606
|
|
|
—
|
|
(2)
|
|
September
|
|
Hickory Point Mall
(5)
|
|
Forsyth, IL
|
|
Malls
|
|
24,525
|
|
|
14,050
|
|
|
|
|
|
|
|
|
|
|
|
$
|
71,285
|
|
|
$
|
81,350
|
|
|
|
|
|
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(1)
|
The Company wrote down the book value of its interest in a consolidated joint venture that owned land adjacent to one of its outlet malls upon the divestiture of its interests in March 2017 to a fair value of
$1,000
. In conjunction with the divestiture and assignment of the Company's interests in this consolidated joint venture, the Company was relieved of its debt obligation by the joint venture partner. See
Note 6
for more information.
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|
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(2)
|
The long-lived asset is not included in the Company's condensed consolidated balance sheets at
September 30, 2017
as the Company no longer has an interest in the property.
|
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(3)
|
In accordance with the Company's quarterly impairment review process, the Company wrote down the book value of the mall to its estimated fair value of
$67,300
in the second quarter of 2017. Management determined the fair value of Acadiana Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of
10 years
, with a sale at the end of the holding period, a capitalization rate of
15.50%
and a discount rate of
15.75%
. The mall has experienced declining tenant sales and cash flows as a result of the downturn of the economy in its market area and an anchor announced in the second quarter 2017 that it will close its store later in 2017. The loan secured by Acadiana Mall matured in April 2017. See
Note 6
for more information. The revenues of Acadiana Mall accounted for approximately
1.9%
of total consolidated revenues for the trailing twelve months ended
September 30, 2017
.
|
|
|
|
|
(4)
|
Relates to true-ups of estimated expenses to actual expenses for properties sold in prior periods.
|
|
|
|
|
(5)
|
In accordance with the Company's quarterly impairment review process, the Company wrote down the book value of the mall to its estimated fair value of
$14,050
in the third quarter of 2017. Management determined the fair value of Hickory Point Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of
10 years
, with a sale at the end of the holding period, a capitalization rate of
18.00%
and a discount rate of
19.00%
. The mall has experienced decreased occupancy and cash flows as a result of the downturn of the economy in its market area. The Company is in preliminary discussions with the lender to modify the loan secured by the mall due to the additional deterioration in its operating metrics. The revenues of Hickory Point Mall accounted for approximately
0.5%
of total consolidated revenues for the trailing twelve months ended
September 30, 2017
.
|
During the
nine
months ended
September 30, 2017
, the Company recorded an impairment of
$116
related to the sale of
one
outparcel. Outparcels are classified for segment reporting purposes in the All Other category. See
Note 9
for segment information.
Note 4 – Acquisitions and Dispositions
Asset Acquisitions
During the
nine
months ended
September 30, 2017
, the Company acquired several Sears and Macy's stores, which include land, buildings and improvements, for future redevelopment at the related malls. These transactions are accounted for as asset acquisitions in accordance with ASU 2017-01.
In January 2017, the Company purchased
five
Sears department stores and
two
Sears Auto Centers for
$72,765
in cash, which includes
$265
of capitalized transaction costs. Sears will continue to operate the department stores under new
ten
-year leases for which the Company will receive an aggregate initial annual base rent of
$5,075
. Annual base rent will be reduced by
0.25%
for the third through tenth years of the leases. Sears will be responsible for paying CAM charges, taxes, insurance and utilities under the terms of the leases. The Company has the right to terminate each Sears lease at any time (except November 15 through January 15), with
six
month's advance notice. With
six
month's advance notice, Sears has the right to terminate
one
lease after a
four
-year period and may terminate the
four
other leases after a
two
-year period. The leases on the Sears Auto Centers may be terminated by Sears after
one
year, with
six
months' advance notice.
The Company also acquired
four
Macy's stores in January 2017 for
$7,034
in cash, which includes
$34
of capitalized transaction costs.
Three
of these locations closed in March 2017. The Company entered into a lease with Macy's at the fourth store under which Macy's will continue to operate the store through March 2019 for annual base rent and fixed common area maintenance charges of
$19
per year, subject to certain operating covenants. If Macy's ceases to operate at this location, the Company will be reimbursed for the pro rata portion of the amount paid for the operating covenant based on the remaining lease term.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the respective acquisition dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sears Stores
|
|
Macy's Stores
|
|
Total
|
|
Land
|
|
$
|
45,028
|
|
|
$
|
4,635
|
|
|
$
|
49,663
|
|
|
Building and improvements
|
|
14,814
|
|
|
1,965
|
|
|
16,779
|
|
|
Tenant improvements
|
|
4,234
|
|
|
377
|
|
|
4,611
|
|
|
Above-market leases
|
|
681
|
|
|
—
|
|
|
681
|
|
|
In-place leases
|
|
8,364
|
|
|
579
|
|
|
8,943
|
|
|
Total assets
|
|
73,121
|
|
|
7,556
|
|
|
80,677
|
|
|
Below-market leases
|
|
(356
|
)
|
|
(522
|
)
|
|
(878
|
)
|
|
Net assets acquired
|
|
$
|
72,765
|
|
|
$
|
7,034
|
|
|
$
|
79,799
|
|
The intangible assets and liabilities acquired with the acquisition of the Sears and Macy's stores have weighted-average amortization periods as of the respective acquisition dates as follows (in years):
|
|
|
|
|
|
|
|
|
|
|
Sears Stores
|
|
Macy's Stores
|
|
Above-market leases
|
|
2.0
|
|
N/A
|
|
In-place leases
|
|
2.2
|
|
2.2
|
|
Below-market leases
|
|
5.4
|
|
2.2
|
Dispositions
The Company evaluates its disposals utilizing the guidance in ASU 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
. Based on its analysis, the Company determined that the dispositions described below do not meet the criteria for classification as discontinued operations and are not considered to be significant disposals based on its quantitative and qualitative evaluation. Thus, the results of operations of the shopping center properties described below, as well as any related gain or impairment loss, are included in net income for all periods presented, as applicable.
2017 Dispositions
Net proceeds realized from the 2017 dispositions were used to reduce the outstanding balances on the Company's credit facilities. The following is a summary of the Company's 2017 dispositions by sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Price
|
|
|
|
Sales Date
|
|
Property
|
|
Property Type
|
|
Location
|
|
Gross
|
|
Net
|
|
Gain
|
|
January
|
|
One Oyster Point & Two Oyster Point
(1)
|
|
Office Building
|
|
Newport News, VA
|
|
$
|
6,250
|
|
|
$
|
6,142
|
|
|
$
|
—
|
|
|
April
|
|
The Outlet Shoppes at Oklahoma City
(2)
|
|
Mall
|
|
Oklahoma City, OK
|
|
130,000
|
|
|
55,368
|
|
|
75,434
|
|
|
May
|
|
College Square Mall & Foothills Mall
(3)
|
|
Mall
|
|
Morristown, TN / Maryville, TN
|
|
53,500
|
|
|
50,566
|
|
|
546
|
|
|
|
|
|
|
|
|
|
|
$
|
189,750
|
|
|
$
|
112,076
|
|
|
$
|
75,980
|
|
|
|
|
|
(1)
|
The Company recorded a loss on impairment of
$3,844
in the third quarter of 2016 to write down the office buildings to their estimated fair value based upon a signed contract with the third party buyer, adjusted to reflect disposition costs.
|
|
|
|
|
(2)
|
In conjunction with the sale of this
75
/
25
consolidated joint venture,
three
loans secured by the mall were retired. See
Note 6
for more information. The Company's share of the gain from the sale was approximately
$48,800
. In accordance with the joint venture agreement, the joint venture partner received a priority return of
$7,477
from the proceeds of the sale.
|
|
|
|
|
(3)
|
The Company recognized a gain of
$1,994
in the second quarter of 2017 upon the sale of the malls. This gain was partially reduced in the third quarter of 2017 due to construction costs of
$1,448
not previously considered.
|
The Company also realized a gain of
$10,924
primarily related to the sale of
eight
outparcels during the
nine
months ended
September 30, 2017
.
The Company recognized a gain on extinguishment of debt for the properties listed below, which represented the amount by which the outstanding debt balance exceeded the net book value of the property as of the transfer date. See
Note 6
for additional information.
The following is a summary of the Company's other 2017 dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
Date
|
|
Property
|
|
Property Type
|
|
Location
|
|
Balance of
Non-recourse
Debt
|
|
Gain on
Extinguishment
of Debt
|
|
January
|
|
Midland Mall
(1)
|
|
Mall
|
|
Midland. MI
|
|
$
|
31,953
|
|
|
$
|
3,760
|
|
|
June
|
|
Chesterfield Mall
(2)
|
|
Mall
|
|
Chesterfield, MO
|
|
140,000
|
|
|
29,187
|
|
|
August
|
|
Wausau Center
(3)
|
|
Mall
|
|
Wausau, WI
|
|
17,689
|
|
|
6,851
|
|
|
|
|
|
|
|
|
|
|
$
|
189,642
|
|
|
$
|
39,798
|
|
|
|
|
|
(1)
|
The mortgage lender completed the foreclosure process and received title to the mall in satisfaction of the non-recourse debt secured by the property. A loss on impairment of real estate of
$4,681
was recorded in the first quarter of 2016 to write down the book value of the mall to its then estimated fair value. The Company also recorded
$479
of aggregate non-cash default interest expense.
|
|
|
|
|
(2)
|
The mortgage lender completed the foreclosure process and received title to the mall in satisfaction of the non-recourse debt secured by the property. A loss on impairment of real estate of
$99,969
was recorded in the fourth quarter of 2015 to write down the book value of the mall to its then estimated fair value. The Company also recorded
$4,324
of aggregate non-cash default interest expense.
|
|
|
|
|
(3)
|
The mortgage lender completed the foreclosure process and received title to the mall in satisfaction of the non-recourse debt secured by the property. A loss on impairment of real estate of
$10,738
was recorded in the second quarter of 2016 to write down the book value of the mall to its then estimated fair value. The Company also recorded
$575
of aggregate non-cash default interest expense.
|
Note 5 – Unconsolidated Affiliates and Noncontrolling Interests
Unconsolidated Affiliates
At
September 30, 2017
, the Company had investments in the following
17
entities, which are accounted for using the equity method of accounting:
|
|
|
|
|
|
|
|
|
Joint Venture
|
|
Property Name
|
|
Company's
Interest
|
|
Ambassador Infrastructure, LLC
|
|
Ambassador Town Center - Infrastructure Improvements
|
|
65.0%
|
|
Ambassador Town Center JV, LLC
|
|
Ambassador Town Center
|
|
65.0%
|
|
CBL/T-C, LLC
|
|
CoolSprings Galleria, Oak Park Mall and West County Center
|
|
50.0%
|
|
CBL-TRS Joint Venture, LLC
|
|
Friendly Center and The Shops at Friendly Center
|
|
50.0%
|
|
El Paso Outlet Outparcels, LLC
|
|
The Outlet Shoppes at El Paso (vacant land)
|
|
50.0%
|
|
Fremaux Town Center JV, LLC
|
|
Fremaux Town Center - Phases I and II
|
|
65.0%
|
|
G&I VIII CBL Triangle LLC
|
|
Triangle Town Center and Triangle Town Commons
|
|
10.0%
|
|
Governor’s Square IB
|
|
Governor’s Square Plaza
|
|
50.0%
|
|
Governor’s Square Company
|
|
Governor’s Square
|
|
47.5%
|
|
JG Gulf Coast Town Center LLC
|
|
Gulf Coast Town Center - Phase III
|
|
50.0%
|
|
Kentucky Oaks Mall Company
|
|
Kentucky Oaks Mall
|
|
50.0%
|
|
Mall of South Carolina L.P.
|
|
Coastal Grand
|
|
50.0%
|
|
Mall of South Carolina Outparcel L.P.
|
|
Coastal Grand Crossing and vacant land
|
|
50.0%
|
|
Port Orange I, LLC
|
|
The Pavilion at Port Orange - Phase I
|
|
50.0%
|
|
Shoppes at Eagle Point, LLC
|
|
The Shoppes at Eagle Point
|
|
50.0%
|
|
West Melbourne I, LLC
|
|
Hammock Landing - Phases I and II
|
|
50.0%
|
|
York Town Center, LP
|
|
York Town Center
|
|
50.0%
|
Although the Company had majority ownership of certain joint ventures during
2017
and
2016
, it evaluated the investments and concluded that the other partners or owners in these joint ventures had substantive participating rights, such as approvals of:
|
|
|
|
•
|
the pro forma for the development and construction of the project and any material deviations or modifications thereto;
|
|
|
|
|
•
|
the site plan and any material deviations or modifications thereto;
|
|
|
|
|
•
|
the conceptual design of the project and the initial plans and specifications for the project and any material deviations or modifications thereto;
|
|
|
|
|
•
|
any acquisition/construction loans or any permanent financings/refinancings;
|
|
|
|
|
•
|
the annual operating budgets and any material deviations or modifications thereto;
|
|
|
|
|
•
|
the initial leasing plan and leasing parameters and any material deviations or modifications thereto; and
|
|
|
|
|
•
|
any material acquisitions or dispositions with respect to the project.
|
As a result of the joint control over these joint ventures, the Company accounts for these investments using the equity method of accounting.
Activity - Unconsolidated Affiliates
River Ridge Mall JV, LLC
In August 2017, the Company sold its
25%
interest in River Ridge Mall JV, LLC to its joint venture partner for
$9,000
in cash. In the second quarter of 2017, the Company recorded a
$5,843
loss on investment related to the sale of its interest and recorded an additional
$354
loss on investment upon the sale closing in August 2017. The Company's property management agreement with River Ridge Mall JV, LLC ended September 30, 2017.
Shoppes at Eagle Point, LLC
The Company formed a
50
/
50
unconsolidated joint venture, Shoppes at Eagle Point, LLC, to develop, own and operate a community center development located in Cookeville, TN. In September 2017, the land was acquired and construction began, with completion of the first phase expected in October 2018. The partners contributed aggregate initial equity of
$1,031
. See
Note 16
for more information on the construction loan secured by this development, which closed subsequent to September 30, 2017.
Condensed Combined Financial Statements - Unconsolidated Affiliates
Condensed combined financial statement information of the unconsolidated affiliates is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
September 30,
2017
|
|
December 31,
2016
|
|
Investment in real estate assets
|
$
|
2,093,950
|
|
|
$
|
2,137,666
|
|
|
Accumulated depreciation
|
(607,685
|
)
|
|
(564,612
|
)
|
|
|
1,486,265
|
|
|
1,573,054
|
|
|
Developments in progress
|
29,209
|
|
|
9,210
|
|
|
Net investment in real estate assets
|
1,515,474
|
|
|
1,582,264
|
|
|
Other assets
|
204,686
|
|
|
223,347
|
|
|
Total assets
|
$
|
1,720,160
|
|
|
$
|
1,805,611
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Mortgage and other indebtedness, net
|
$
|
1,251,994
|
|
|
$
|
1,266,046
|
|
|
Other liabilities
|
46,538
|
|
|
46,160
|
|
|
Total liabilities
|
1,298,532
|
|
|
1,312,206
|
|
|
|
|
|
|
|
OWNERS' EQUITY
|
|
|
|
|
The Company
|
216,107
|
|
|
228,313
|
|
|
Other investors
|
205,521
|
|
|
265,092
|
|
|
Total owners' equity
|
421,628
|
|
|
493,405
|
|
|
Total liabilities and owners' equity
|
$
|
1,720,160
|
|
|
$
|
1,805,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for the Three Months
Ended September 30,
|
|
|
2017
|
|
2016
|
|
Total revenues
|
$
|
57,395
|
|
|
$
|
59,104
|
|
|
Depreciation and amortization
|
(20,151
|
)
|
|
(20,227
|
)
|
|
Interest income
|
356
|
|
|
295
|
|
|
Interest expense
|
(12,907
|
)
|
|
(14,281
|
)
|
|
Operating expenses
|
(17,431
|
)
|
|
(18,216
|
)
|
|
Gain on extinguishment of debt
|
—
|
|
|
(393
|
)
|
|
Income from continuing operations before gain on sales of real estate assets
|
7,262
|
|
|
6,282
|
|
|
Gain on sales of real estate assets
|
606
|
|
|
16,854
|
|
|
Net income
(1)
|
$
|
7,868
|
|
|
$
|
23,136
|
|
|
|
|
|
(1)
|
The Company's pro rata share of net income is
$4,706
and
$10,478
for the three months ended
September 30, 2017
and
2016
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for the Nine Months
Ended September 30,
|
|
|
2017
|
|
2016
|
|
Total revenues
|
$
|
175,250
|
|
|
$
|
186,162
|
|
|
Depreciation and amortization
|
(60,276
|
)
|
|
(63,085
|
)
|
|
Interest income
|
1,186
|
|
|
963
|
|
|
Interest expense
|
(38,891
|
)
|
|
(41,951
|
)
|
|
Operating expenses
|
(52,818
|
)
|
|
(56,621
|
)
|
|
Gain on extinguishment of debt
|
—
|
|
|
62,901
|
|
|
Income from continuing operations before gain on sales of real estate assets
|
24,451
|
|
|
88,369
|
|
|
Gain on sales of real estate assets
|
529
|
|
|
158,190
|
|
|
Net income
(1)
|
$
|
24,980
|
|
|
$
|
246,559
|
|
|
|
|
|
(1)
|
The Company's pro rata share of net income is
$16,404
and
$107,217
for the
nine
months ended
September 30, 2017
and
2016
, respectively.
|
2017 Financing
The Company's unconsolidated affiliate had the following loan activity, in 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property
|
|
Stated Interest
Rate
|
|
Maturity Date
|
|
Amount
Extended
|
|
August
|
|
Ambassador Town Center - Infrastructure Improvements
(1)
|
|
LIBOR + 2.0%
|
|
August 2020
|
|
$
|
11,035
|
|
|
|
|
|
(1)
|
In August 2017, the loan was amended and modified to extend the maturity date. The loan requires annual principal payments of
$430
,
$555
and
$690
in 2018, 2019 and 2020, respectively. The Operating Partnership has guaranteed
100%
of the loan. See
Note 12
. The unconsolidated affiliate has an interest rate swap on the notional amount of the loan, amortizing to $
9,360
over the term of the swap, to effectively fix the interest rate to
3.74%
.
|
2017 Loan Repayment
The loan, secured by the related unconsolidated property, was retired in 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property
|
|
Interest
Rate at
Repayment Date
|
|
Scheduled
Maturity Date
|
|
Principal
Balance
Repaid
(1)
|
|
July
|
|
Gulf Coast Town Center - Phase III
(1)
|
|
3.13%
|
|
July 2017
|
|
$
|
4,118
|
|
|
|
|
|
(1)
|
The Company loaned the unconsolidated affiliate, JG Gulf Coast Town Center, LLC, the amount necessary to retire the loan and received a mortgage note receivable in return. See
Note 8
for more information.
|
All of the debt on the properties owned by the unconsolidated affiliates listed above is non-recourse, except for debt secured by Ambassador Infrastructure, Hammock Landing and The Pavilion at Port Orange. See
Note 12
for a description of guarantees the Company has issued related to certain unconsolidated affiliates.
Redeemable Interests of the Operating Partnership
Redeemable common units of
$13,076
and
$17,996
at
September 30, 2017
and
December 31, 2016
, respectively, include a partnership interest in the Operating Partnership for which the partnership agreement includes redemption provisions that may require the Operating Partnership to redeem the partnership interest for real property.
Noncontrolling Interests of the Operating Partnership
Noncontrolling interests include the aggregate noncontrolling ownership interest in the Operating Partnership's consolidated subsidiaries that is held by third parties and for which the related partnership agreements either do not include redemption provisions or are subject to redemption provisions that do not require classification outside of permanent equity. Total noncontrolling interests were
$10,626
and
$12,103
, as of
September 30, 2017
and
December 31, 2016
, respectively.
Noncontrolling Interests of the Company
The noncontrolling interests of the Company include the third party interests discussed above as well as the aggregate noncontrolling partnership interest in the Operating Partnership that is not owned by the Company and for which each of the noncontrolling limited partners has the right to exchange all or a portion of its partnership interests for shares of the Company’s common stock or, at the Company’s election, their cash equivalent. As of September 30, 2017, the Company's total noncontrolling interests of
$98,565
consisted of noncontrolling interests in the Operating Partnership and in other consolidated subsidiaries of
$87,939
and
$10,626
, respectively. The Company's total noncontrolling interests at
December 31, 2016
of
$112,138
consisted of noncontrolling interests in the Operating Partnership and in other consolidated subsidiaries of
$100,035
and
$12,103
, respectively.
In September 2017, the Operating Partnership elected to pay
$63
to
one
holder of
7,084
common units in the Operating Partnership upon the exercise of the holder's conversion rights.
In April 2017, the Operating Partnership elected to pay
$59
to
one
holder of
6,424
common units in the Operating Partnership upon the exercise of the holder's conversion rights. In June 2017, the Operating Partnership elected to pay
$471
to
two
holders of
59,480
common units in the Operating Partnership upon the exercise of their conversion rights.
Variable Interest Entities
In accordance with the guidance in ASU 2015-02 and ASU 2016-17, as discussed in
Note 2
, the Operating Partnership and certain of its subsidiaries are deemed to have the characteristics of a VIE primarily because the limited partners of these entities do not collectively possess substantive kick-out or participating rights. The Company adopted ASU 2015-02 as of January 1, 2016 and ASU 2016-17 was adopted as of January 1, 2017 on a modified retrospective basis. The adoption of ASU 2016-17 did not change any of the Company's consolidation conclusions made under ASU 2015-02 and did not change amounts within the condensed consolidated financial statements.
The Company consolidates the Operating Partnership, which is a VIE, for which the Company is the primary beneficiary. The Company, through the Operating Partnership, consolidates all VIEs for which it is the primary beneficiary. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership is considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether the Company is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of the Company's investment; the obligation or likelihood for the Company or other investors to provide financial support; and the similarity with and significance to the Company's business activities and the business activities of the other investors.
The table below lists the Company's consolidated VIEs as of
September 30, 2017
:
|
|
|
|
|
|
|
Consolidated VIEs:
|
|
Property Name
|
|
Atlanta Outlet Outparcels, LLC
|
|
The Outlet Shoppes at Atlanta (vacant land)
|
|
Atlanta Outlet JV, LLC
|
|
The Outlet Shoppes at Atlanta
|
|
CBL Terrace LP
|
|
The Terrace
|
|
El Paso Outlet Center Holding, LLC
|
|
The Outlet Shoppes at El Paso
|
|
El Paso Outlet Center II, LLC
|
|
The Outlet Shoppes at El Paso - Phase II
|
|
Gettysburg Outlet Center Holding, LLC
|
|
The Outlet Shoppes at Gettysburg
|
|
Gettysburg Outlet Center, LLC
|
|
The Outlet Shoppes at Gettysburg (vacant land)
|
|
High Point Development LP II
|
|
Oak Hollow - Barnes & Noble
|
|
Jarnigan Road LP
|
|
CBL Center, CBL Center II, The Shoppes at Hamilton Place and Regal Cinema
|
|
Laredo Outlet JV, LLC
|
|
The Outlet Shoppes at Laredo
|
|
Lebcon Associates
|
|
Hamilton Place and outparcel, Hamilton Corner, Hamilton Place - Sears Parcel
|
|
Lebcon I, Ltd
|
|
Hamilton Crossing and Hamilton Crossing - Expansion
|
|
Lee Partners
|
|
One Park Place
|
|
|
|
|
|
|
|
Consolidated VIEs:
|
|
Property Name
|
|
Louisville Outlet Outparcels, LLC
|
|
The Outlet Shoppes of the Bluegrass (vacant land)
|
|
Louisville Outlet Shoppes, LLC
|
|
The Outlet Shoppes of the Bluegrass
|
|
Madison Grandview Forum, LLC
|
|
The Forum at Grandview
|
|
The Promenade at D'Iberville
|
|
The Promenade
|
|
Statesboro Crossing, LLC
|
|
Statesboro Crossing
|
The table below lists the Company's unconsolidated VIEs as of
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated VIEs:
|
|
Investment in Real
Estate Joint
Ventures and
Partnerships
|
|
Maximum
Risk of Loss
|
|
Ambassador Infrastructure, LLC
(1)
|
|
$
|
—
|
|
|
$
|
11,035
|
|
|
Shoppes at Eagle Point, LLC
(2)
|
|
14,754
|
|
|
14,754
|
|
|
G&I VIII CBL Triangle LLC
|
|
1,464
|
|
|
1,464
|
|
|
|
|
|
(1)
|
The debt is guaranteed by the Operating Partnership at
100%
. See
Note 12
for more information.
|
|
|
|
|
(2)
|
The Company formed a
50
/
50
joint venture, Shoppes at Eagle Point, LLC, to develop, own and operate The Shoppes at Eagle Point in Cookeville, TN. See more information above. The Company began construction in September 2017 and closed on a construction loan subsequent to September 30, 2017. See
Note 16
. The Company determined that the unconsolidated affiliate represents an interest in a VIE based upon the criteria noted above.
|
Variable Interest Entities - Reconsideration Events
Woodstock GA, Investments, LLC
In the first quarter of 2017, the Company divested its interests in the
75
/
25
consolidated joint venture and was relieved of its funding obligation related to the loan secured by the vacant land owned by the joint venture. See
Note 3
and
Note 6
for more information.
Foothills Mall Associates
The Company held a
95%
interest in this consolidated joint venture, which represented an interest in a VIE. The property was sold in the second quarter of 2017. See
Note 4
for more information.
Village at Orchard Hills, LLC
The joint venture completed the sale of its outparcels, distributed the cash in the second quarter of 2017 and no longer has any assets.
Note 6 – Mortgage and Other Indebtedness, Net
Debt of the Company
CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries, that it has a direct or indirect ownership interest in, is the borrower on all of the Company's debt. CBL is a limited guarantor of the
5.25%
,
4.60%
, and
5.95%
senior unsecured notes (collectively, the "Notes"), issued by the Operating Partnership, as described below, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates. The Company also provides a similar limited guarantee of the Operating Partnership's obligations with respect to its unsecured credit facilities and
three
unsecured term loans as of
September 30, 2017
.
Debt of the Operating Partnership
Mortgage and other indebtedness, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
Amount
|
|
Weighted-
Average
Interest
Rate
(1)
|
|
Amount
|
|
Weighted-
Average
Interest
Rate
(1)
|
|
Fixed-rate debt:
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating properties
|
$
|
1,807,519
|
|
|
5.34%
|
|
$
|
2,453,628
|
|
|
5.55%
|
|
Senior unsecured notes due 2023
(2)
|
446,868
|
|
|
5.25%
|
|
446,552
|
|
|
5.25%
|
|
Senior unsecured notes due 2024
(3)
|
299,944
|
|
|
4.60%
|
|
299,939
|
|
|
4.60%
|
|
Senior unsecured notes due 2026
(4)
|
615,669
|
|
|
5.95%
|
|
394,260
|
|
|
5.95%
|
|
Total fixed-rate debt
|
3,170,000
|
|
|
5.37%
|
|
3,594,379
|
|
|
5.48%
|
|
Variable-rate debt:
|
|
|
|
|
|
|
|
|
|
|
Non-recourse term loans on operating properties
|
10,868
|
|
|
3.04%
|
|
19,055
|
|
|
3.13%
|
|
Recourse term loans on operating properties
|
89,612
|
|
|
3.87%
|
|
24,428
|
|
|
3.29%
|
|
Construction loan
(5)
|
—
|
|
|
—%
|
|
39,263
|
|
|
3.12%
|
|
Unsecured lines of credit
|
79,970
|
|
|
2.43%
|
|
6,024
|
|
|
1.82%
|
|
Unsecured term loans
|
885,000
|
|
|
2.69%
|
|
800,000
|
|
|
2.04%
|
|
Total variable-rate debt
|
1,065,450
|
|
|
2.77%
|
|
888,770
|
|
|
2.15%
|
|
Total fixed-rate and variable-rate debt
|
4,235,450
|
|
|
4.72%
|
|
4,483,149
|
|
|
4.82%
|
|
Unamortized deferred financing costs
|
(19,272
|
)
|
|
|
|
(17,855
|
)
|
|
|
|
Total mortgage and other indebtedness, net
|
$
|
4,216,178
|
|
|
|
|
$
|
4,465,294
|
|
|
|
|
|
|
|
(1)
|
Weighted-average interest rate includes the effect of debt premiums and discounts, but excludes amortization of deferred financing costs.
|
|
|
|
|
(2)
|
The balance is net of an unamortized discount of
$3,132
and
$3,448
as of
September 30, 2017
and
December 31, 2016
, respectively.
|
|
|
|
|
(3)
|
The balance is net of an unamortized discount of
$56
and
$61
as of
September 30, 2017
and
December 31, 2016
, respectively.
|
|
|
|
|
(4)
|
The balance is net of an unamortized discount of
$9,331
and
$5,740
as of
September 30, 2017
and
December 31, 2016
, respectively. In September 2017, the Operating Partnership issued and sold an additional
$225,000
of the series of 2026 Notes. See further information below.
|
|
|
|
|
(5)
|
The Outlet Shoppes at Laredo opened in April 2017 and the construction loan balance is included in recourse term loans on operating properties as of
September 30, 2017
.
|
Senior Unsecured Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Issued
(1)
|
|
Amount
|
|
Interest Rate
(2)
|
|
Maturity Date
(3)
|
|
2026 Notes
|
|
December 2016 / September 2017
(4)
|
|
$
|
625,000
|
|
|
5.95%
|
|
December 2026
|
|
2024 Notes
|
|
October 2014
|
|
300,000
|
|
|
4.60%
|
|
October 2024
|
|
2023 Notes
|
|
November 2013
|
|
450,000
|
|
|
5.25%
|
|
December 2023
|
|
|
|
|
(1)
|
Issued by the Operating Partnership. CBL is a limited guarantor of the Operating Partnership's obligations under the Notes as described above.
|
|
|
|
|
(2)
|
Interest is payable semiannually in arrears. Interest was payable for the 2026 Notes, the 2024 Notes and the 2023 Notes
|
beginning June 15, 2017, April 15, 2015, and June 1, 2014, respectively. The interest rate for the 2024 Notes and the 2023 Notes is subject to an increase ranging from
0.25%
to
1.00%
from time to time if, on or after January 1, 2016 and prior to January 1, 2020, the ratio of secured debt to total assets of the Company, as defined, is greater than
40%
but less than
45%
. The required ratio of secured debt to total assets for the 2026 Notes is
40%
or less. As of
September 30, 2017
, this ratio was
24%
as shown below.
|
|
|
|
(3)
|
The Notes are redeemable at the Operating Partnership's election, in whole or in part from time to time, on not less than
30
days and not more than
60
days' notice to the holders of the Notes to be redeemed. The 2026 Notes, the 2024 Notes and the 2023 Notes may be redeemed prior to September 15, 2026, July 15, 2024, and September 1, 2023, respectively, for cash at a redemption price equal to the aggregate principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date and a make-whole premium calculated in accordance with the indenture. On or after the respective dates noted above, the Notes are redeemable for cash at a redemption price equal to the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest. If redeemed prior to the respective dates noted above, each issuance of Notes is redeemable at the treasury rate plus
0.50%
,
0.35%
and
0.40%
for the 2026 Notes, the 2024 Notes and the 2023 Notes, respectively.
|
|
|
|
|
(4)
|
On September 1, 2017, the Operating Partnership issued and sold an additional
$225,000
of the 2026 Notes. The first interest payment with respect to the additional issuance will occur on December 15, 2017. After deducting underwriting discounts and other offering expenses, the net proceeds from the sale were approximately
$218,913
. The Operating Partnership used the net proceeds to reduce amounts outstanding under its unsecured credit facilities and for general business purposes.
|
Unsecured Lines of Credit
The Company has
three
unsecured credit facilities that are used for retirement of secured loans, repayment of term loans, working capital, construction and acquisition purposes, as well as issuances of letters of credit.
Each facility bears interest at LIBOR plus a spread of
0.875%
to
1.55%
based on the credit ratings for the Operating Partnership's senior unsecured long-term indebtedness. As of
September 30, 2017
, the Operating Partnership's interest rate based on the credit ratings of its unsecured long-term indebtedness of Baa3 from Moody's Investors Service ("Moody's") and BBB- from Standard & Poor's ("S&P") and Fitch Ratings ("Fitch") is LIBOR plus 120 basis points. Additionally, the Company pays an annual facility fee that ranges from
0.125%
to
0.300%
of the total capacity of each facility based on the credit ratings described above. As of
September 30, 2017
, the annual facility fee was
0.25%
. The
three
unsecured lines of credit had a weighted-average interest rate of
2.43%
at
September 30, 2017
.
The following summarizes certain information about the Company's unsecured lines of credit as of
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capacity
|
|
Total
Outstanding
|
|
Maturity
Date
|
|
Extended
Maturity
Date
|
|
|
Wells Fargo - Facility A
|
|
$
|
500,000
|
|
|
$
|
—
|
|
(1)
|
|
October 2019
|
|
October 2020
|
(2)
|
|
First Tennessee
|
|
100,000
|
|
|
36,034
|
|
(3)
|
|
October 2019
|
|
October 2020
|
(4)
|
|
Wells Fargo - Facility B
|
|
500,000
|
|
|
43,936
|
|
(5)
|
|
October 2020
|
|
|
|
|
|
|
$
|
1,100,000
|
|
|
$
|
79,970
|
|
(6)
|
|
|
|
|
|
|
|
|
|
(1)
|
There was
$150
outstanding on this facility as of
September 30, 2017
for letters of credit. Up to
$30,000
of the capacity on this facility can be used for letters of credit.
|
|
|
|
|
(2)
|
The extension option is at the Company's election, subject to continued compliance with the terms of the facility, and has a one-time extension fee of
0.15%
of the commitment amount of the credit facility.
|
|
|
|
|
(3)
|
Up to
$20,000
of the capacity on this facility can be used for letters of credit.
|
|
|
|
|
(4)
|
The extension option on the facility is at the Company's election, subject to continued compliance with the terms of the facility, and has a one-time extension fee of
0.20%
of the commitment amount of the credit facility.
|
|
|
|
|
(5)
|
Up to
$30,000
of the capacity on this facility can be used for letters of credit.
|
|
|
|
|
(6)
|
See debt covenant section below for limitation on excess capacity.
|
Unsecured Term Loans
The Company has a
$350,000
unsecured term loan, which bears interest at a variable rate of LIBOR plus
1.35%
based on the credit ratings for the Operating Partnership's senior unsecured long-term indebtedness. In July 2017, the Company exercised its option to extend the maturity date to October 2018. The loan has a
one
-year extension option, subject to continued compliance with the terms of the loan agreement, for an outside maturity date of
October 2019
. At
September 30, 2017
, the outstanding borrowings of
$350,000
had an interest rate of
2.59%
.
In July 2017, the Company closed on the modification and extension of its
$400,000
unsecured term loan, with an increase in the principal balance to
$490,000
. The variable interest spread remains at LIBOR plus
1.50%
based on the credit ratings for the Operating Partnership's senior unsecured long-term indebtedness. In
July 2018
, the principal balance will be reduced to
$300,000
. The loan will mature in
July 2020
and has
two
one
-year extension options, the second of which is at the lenders' discretion, for a
July 2022
extended maturity date. At September 30, 2017, the outstanding borrowings of
$490,000
had an interest rate of
2.74%
.
In July 2017, the Company modified its
$50,000
unsecured term loan to reduce the principal balance to
$45,000
and change the interest rate to a variable rate of LIBOR plus
1.65%
. The loan matures in June 2021 and has a
one
-year extension option at the Company's election, subject to continued compliance with the terms of the loan agreement, for an outside maturity date of June 2022. At
September 30, 2017
, the outstanding borrowings of
$45,000
had a weighted-average interest rate of
2.89%
.
Covenants and Restrictions
The agreements for the unsecured lines of credit, the Notes and unsecured term loans contain, among other restrictions, certain financial covenants including the maintenance of certain financial coverage ratios, minimum unencumbered asset and interest ratios, maximum secured indebtedness ratios, maximum total indebtedness ratios and limitations on cash flow distributions. The Company believes that it was in compliance with all financial covenants and restrictions at
September 30, 2017
.
Unsecured Lines of Credit and Unsecured Term Loans
The following presents the Company's compliance with key covenant ratios, as defined, of the credit facilities and term loans as of
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
Ratio
|
|
Required
|
|
Actual
|
|
Debt to total asset value
|
|
< 60%
|
|
49
|
%
|
|
|
Unsecured indebtedness to unencumbered asset value
(1)
|
|
< 60%
|
|
46
|
%
|
(2)
|
|
Unencumbered NOI to unsecured interest expense
|
|
> 1.75x
|
|
3.3
|
x
|
|
|
EBITDA to fixed charges (debt service)
|
|
> 1.5x
|
|
2.5
|
x
|
|
|
|
|
|
(1)
|
The debt covenant was modified in the third quarter of 2017 to reduce the ratio from
62.5%
to
60.0%
. The definition of unencumbered asset value was also modified with respect to the assets that are included in the unencumbered asset pool.
|
|
|
|
|
(2)
|
The debt covenant limits the total amount of unsecured indebtedness the Company may have outstanding, which varies over time based on the ratio. Based on the Company’s outstanding unsecured indebtedness as of
September 30, 2017
, the total amount available to the Company to borrow on its lines of credit was
$329,190
less than the total capacity of the lines of credit resulting in total availability of
$690,840
as of
September 30, 2017
.
|
The agreements for the unsecured credit facilities and unsecured term loans described above contain default provisions customary for transactions of this nature (with applicable customary grace periods). Additionally, any default in the payment of any recourse indebtedness greater than or equal to
$50,000
or any non-recourse indebtedness greater than
$150,000
(for the Company's ownership share) of CBL, the Operating Partnership or any Subsidiary, as defined, will constitute an event of default under the agreements to the credit facilities. The credit facilities also restrict the Company's ability to enter into any transaction that could result in certain changes in its ownership or structure as described under the heading “Change of Control/Change in Management” in the agreements for the credit facilities.
Senior Unsecured Notes
The following presents the Company's compliance with key covenant ratios, as defined, of the Notes as of
September 30, 2017
:
|
|
|
|
|
|
|
|
|
Ratio
|
|
Required
|
|
Actual
|
|
Total debt to total assets
|
|
< 60%
|
|
52%
|
|
Secured debt to total assets
|
|
< 45%
(1)
|
|
24%
|
|
Total unencumbered assets to unsecured debt
|
|
> 150%
|
|
209%
|
|
Consolidated income available for debt service to annual debt service charge
|
|
> 1.5x
|
|
3.1x
|
|
|
|
|
(1)
|
On January 1, 2020 and thereafter, secured debt to total assets must be less than
40%
for the 2023 Notes and the 2024 Notes. The required ratio of secured debt to total assets for the 2026 Notes is
40%
or less.
|
The agreements for the Notes described above contain default provisions customary for transactions of this nature (with applicable customary grace periods). Additionally, any default in the payment of any recourse indebtedness greater than or equal to
$50,000
of the Operating Partnership will constitute an event of default under the Notes.
Other
Several of the Company’s properties are owned by special purpose entities, created as a requirement under certain loan agreements that are included in the Company’s condensed consolidated financial statements. The sole business purpose of the special purpose entities is to own and operate these properties. The real estate and other assets owned by these special purpose entities are restricted under the loan agreements in that they are not available to settle other debts of the Company. However, so long as the loans are not under an event of default, as defined in the loan agreements, the cash flows from these properties, after payments of debt service, operating expenses and reserves, are available for distribution to the Company.
Mortgages on Operating Properties
Loan Repayments
The Company repaid the following loans, secured by the related consolidated Properties, in 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property
|
|
Interest
Rate at
Repayment Date
|
|
Scheduled
Maturity Date
|
|
Principal
Balance
Repaid
(1)
|
|
January
|
|
The Plaza at Fayette
|
|
5.67%
|
|
April 2017
|
|
$
|
37,146
|
|
|
January
|
|
The Shoppes at St. Clair Square
|
|
5.67%
|
|
April 2017
|
|
18,827
|
|
|
February
|
|
Hamilton Corner
|
|
5.67%
|
|
April 2017
|
|
14,227
|
|
|
March
|
|
Layton Hills Mall
|
|
5.66%
|
|
April 2017
|
|
89,526
|
|
|
April
|
|
The Outlet Shoppes at Oklahoma City
(2)
|
|
5.73%
|
|
January 2022
|
|
53,386
|
|
|
April
|
|
The Outlet Shoppes at Oklahoma City - Phase II
(2)
|
|
3.53%
|
|
April 2019
|
|
5,545
|
|
|
April
|
|
The Outlet Shoppes at Oklahoma City - Phase III
(2)
|
|
3.53%
|
|
April 2019
|
|
2,704
|
|
|
September
|
|
Hanes Mall
(3)
|
|
6.99%
|
|
October 2018
|
|
144,325
|
|
|
September
|
|
The Outlet Shoppes at El Paso
|
|
7.06%
|
|
December 2017
|
|
61,561
|
|
|
|
|
|
|
|
|
|
|
$
|
427,247
|
|
|
|
|
|
(1)
|
The Company retired the loans with borrowings from its credit facilities unless otherwise noted.
|
|
|
|
|
(2)
|
The loan was retired in conjunction with the sale of the property which secured the loan. See
Note 4
for more information. The Company recorded an
$8,500
loss on extinguishment of debt due to a prepayment fee on the early retirement.
|
|
|
|
|
(3)
|
The Company recorded a
$371
loss on extinguishment of debt due to a prepayment fee on the early retirement.
|
The following is a summary of the Company's 2017 dispositions for which the title to the consolidated mall securing the related fixed-rate debt was transferred to the lender in satisfaction of the non-recourse debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property
|
|
Interest
Rate at
Repayment Date
|
|
Scheduled
Maturity Date
|
|
Balance of
Non-recourse
Debt
|
|
Gain on
Extinguishment
of Debt
|
|
January
|
|
Midland Mall
|
|
6.10%
|
|
August 2016
|
|
$
|
31,953
|
|
|
$
|
3,760
|
|
|
June
|
|
Chesterfield Mall
|
|
5.74%
|
|
September 2016
|
|
140,000
|
|
|
29,187
|
|
|
August
|
|
Wausau Center
|
|
5.85%
|
|
April 2021
|
|
17,689
|
|
|
6,851
|
|
|
|
|
|
|
|
|
|
|
$
|
189,642
|
|
|
$
|
39,798
|
|
Other
In conjunction with the divestiture of the Company's interests in a consolidated joint venture, the Company was relieved of its funding obligation related to the loan secured by vacant land owned by the joint venture, which had a principal balance of
$2,466
upon the disposition of its interests in the first quarter of 2017.
In the first quarter of 2017, the Company exercised an option to extend the loan secured by Statesboro Crossing to June 2018.
Scheduled Principal Payments
As of
September 30, 2017
, the scheduled principal amortization and balloon payments on all of the Company’s consolidated mortgage and other indebtedness, excluding extensions available at the Company’s option, are as follows:
|
|
|
|
|
|
|
|
|
2017
|
|
$
|
134,159
|
|
|
2018
|
|
667,320
|
|
|
2019
|
|
329,846
|
|
|
2020
|
|
551,004
|
|
|
2021
|
|
498,168
|
|
|
Thereafter
(1)
|
|
2,067,125
|
|
|
|
|
4,247,622
|
|
|
Unamortized premiums and discounts, net
|
|
(12,172
|
)
|
|
Unamortized deferred financing costs
|
|
(19,272
|
)
|
|
Total mortgage and other indebtedness, net
|
|
$
|
4,216,178
|
|
Of the
$134,159
of scheduled principal maturities in 2017,
$123,301
relates to the maturing principal balance of
one
operating property loan and
$10,858
represents scheduled principal amortization. The
$123,301
loan secured by Acadiana Mall matured in April 2017. The Company is in discussions with the lender to modify the loan and extend its maturity date.
The Company’s mortgage and other indebtedness had a weighted-average maturity of
4.7
years as of
September 30, 2017
and
4.4
years as of
December 31, 2016
.
Interest Rate Hedging Instruments
The Company recorded derivative instruments in its consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the derivative has been designated as a hedge and, if so, whether the hedge has met the criteria necessary to apply hedge accounting.
The Company’s objectives in using interest rate derivatives were to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily used interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involved the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The effective portion of changes in the fair value of derivatives that was designated as, and that qualified as, cash flow hedges was recorded in accumulated other comprehensive income (loss) ("AOCI/L") and then subsequently reclassified into earnings in the period that the hedged forecasted transaction affected earnings. Such derivatives were used to hedge the variable cash flows associated with variable-rate debt.
The Company's interest rate derivatives, that were designated as cash flow hedges of interest rate risk, matured on April 1, 2016. The following tables provide further information relating to the Company’s interest rate derivatives that were designated as cash flow hedges of interest rate risk in 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
Recognized in OCI/L
(Effective Portion)
|
|
Location of
Losses
Reclassified
from AOCI into
Earnings
(Effective
Portion)
|
|
Loss Recognized in
Earnings (Effective
Portion)
|
|
Location of
Gain
Recognized in
Earnings
(Ineffective
Portion)
|
|
Gain Recognized
in Earnings
(Ineffective
Portion)
|
|
Hedging
Instrument
|
|
Nine Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
|
Interest rate contracts
|
|
$
|
—
|
|
|
$
|
434
|
|
|
Interest
Expense
|
|
$
|
—
|
|
|
$
|
(443
|
)
|
|
Interest
Expense
|
|
$
|
—
|
|
|
$
|
—
|
|
Note 7 – Comprehensive Income
Accumulated Other Comprehensive Income (Loss) of the Company
Comprehensive income (loss) of the Company includes all changes in redeemable noncontrolling interests and total equity during the period, except those resulting from investments by shareholders and partners, distributions to shareholders and partners and redemption valuation adjustments. OCI/L includes changes in unrealized gains (losses) on interest rate hedge agreements.
The Company did not have any changes in AOCI/L for the three months or
nine
months ended
September 30, 2017
. There were also no changes in AOCI/L for the three months ended
September 30, 2016
.
The changes in the components of AOCI for the
nine
months ended
September 30, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Noncontrolling
Interests
|
|
The Company
|
|
Noncontrolling
Interests
|
|
|
|
|
Unrealized Gains (Losses) - Hedging Agreements
|
|
Total
|
|
Beginning balance, January 1, 2016
|
$
|
433
|
|
|
$
|
1,935
|
|
|
$
|
(2,802
|
)
|
|
$
|
(434
|
)
|
|
OCI before reclassifications
|
3
|
|
|
814
|
|
|
60
|
|
|
877
|
|
|
Amounts reclassified from AOCI
(1)
|
(436
|
)
|
|
(2,749
|
)
|
|
2,742
|
|
|
(443
|
)
|
|
Net current year-to-date period OCI
|
(433
|
)
|
|
(1,935
|
)
|
|
2,802
|
|
|
434
|
|
|
Ending balance, September 30, 2016
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
(1)
|
Reclassified
$443
of interest on cash flow hedges to Interest Expense in the condensed consolidated statement of operations. The cash flow hedges matured April 1, 2016.
|
Accumulated Other Comprehensive Income (Loss) of the Operating Partnership
Comprehensive income (loss) of the Operating Partnership includes all changes in redeemable common units and partners' capital during the period, except those resulting from investments by unitholders, distributions to unitholders and redemption valuation adjustments. OCI/L includes changes in unrealized gains (losses) on interest rate hedge agreements.
The Operating Partnership did not have any changes in AOCI/L for the
three
months or
nine
months ended
September 30, 2017
. There were also no changes in AOCI/L for the three months ended
September 30, 2016
.
The changes in the components of AOCI/L for the
nine
months ended
September 30, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Common
Units
|
|
Partners'
Capital
|
|
|
|
|
Unrealized Gains (Losses) - Hedging Agreements
|
|
Total
|
|
Beginning balance, January 1, 2016
|
$
|
434
|
|
|
$
|
(868
|
)
|
|
$
|
(434
|
)
|
|
OCI before reclassifications
|
3
|
|
|
874
|
|
|
877
|
|
|
Amounts reclassified from AOCI
(1)
|
(437
|
)
|
|
(6
|
)
|
|
(443
|
)
|
|
Net current quarterly period OCI/L
|
(434
|
)
|
|
868
|
|
|
434
|
|
|
Ending balance, September 30, 2016
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
(1)
|
Reclassified
$443
of interest on cash flow hedges to Interest Expense in the condensed consolidated statement of operations. The cash flow hedges matured April 1, 2016.
|
Note 8 – Mortgage and Other Notes Receivable
Each of the Company’s mortgage notes receivable is collateralized by either a first mortgage, a second mortgage, or by an assignment of
100%
of the partnership interests that own the real estate assets. Other notes receivable include amounts due from tenants or government-sponsored districts and unsecured notes received from third parties as whole or partial consideration for property or investments. The Company believes that its mortgage and other notes receivable balance is collectable as of
September 30, 2017
.
Mortgage and other notes receivable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017
|
|
As of December 31, 2016
|
|
|
|
Maturity
Date
|
|
Interest
Rate
|
|
Balance
|
|
Interest
Rate
|
|
Balance
|
|
Mortgages:
|
|
|
|
|
|
|
|
|
|
|
|
Columbia Place Outparcel
|
|
Feb 2022
|
|
5.00%
|
|
$
|
307
|
|
|
5.00%
|
|
$
|
321
|
|
|
Gulf Coast Town Center - Phase III
(1)
|
|
Jan 2018
|
|
5.00%
|
|
4,118
|
|
|
—%
|
|
—
|
|
|
The Landing at Arbor Place Outparcel
(2)
|
|
N/A
|
|
—%
|
|
—
|
|
|
—%
|
|
—
|
|
|
One Park Place
|
|
May 2022
|
|
5.00%
|
|
1,044
|
|
|
5.00%
|
|
1,194
|
|
|
Village Square
|
|
Mar 2018
|
|
4.00%
|
|
1,608
|
|
|
3.75%
|
|
1,644
|
|
|
Other
(3)
|
|
Dec 2016 - Jan 2047
|
|
6.25% - 9.50%
|
|
2,512
|
|
|
3.27% - 9.50%
|
|
2,521
|
|
|
|
|
|
|
|
|
9,589
|
|
|
|
|
5,680
|
|
|
Other Notes Receivable:
|
|
|
|
|
|
|
|
|
|
|
|
ERMC
|
|
Sep 2021
|
|
4.00%
|
|
3,018
|
|
|
4.00%
|
|
3,500
|
|
|
Horizon Group
(4)
|
|
N/A
|
|
—%
|
|
—
|
|
|
7.00%
|
|
300
|
|
|
RED Development Inc.
|
|
Oct 2023
|
|
5.00%
|
|
5,979
|
|
|
5.00%
|
|
6,588
|
|
|
Southwest Theaters
|
|
Apr 2026
|
|
5.00%
|
|
693
|
|
|
5.00%
|
|
735
|
|
|
|
|
|
|
|
|
9,690
|
|
|
|
|
11,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,279
|
|
|
|
|
$
|
16,803
|
|
|
|
|
|
(1)
|
In July 2017, the Company received a mortgage note receivable in return for loaning
$4,118
to an unconsolidated affiliate to retire the loan secured by phase three of Gulf Coast Town Center, which was scheduled to mature in July 2017. See
Note 5
. Payments due are interest-only through the maturity date.
|
|
|
|
|
(2)
|
In the second quarter of 2017, the Company received a
$1,802
mortgage note receivable as partial consideration for the sale of an outparcel at an associated center. The note was paid off in August 2017.
|
|
|
|
|
(3)
|
The
$1,100
note for The Promenade at D'Ilberville with a maturity date of December 2016 is in default.
|
|
|
|
|
(4)
|
In January 2017, the maturity date was extended to July 2017. The loan was paid off in May 2017.
|
Note 9 – Segment Information
The Company measures performance and allocates resources according to property type, which is determined based on certain criteria such as type of tenants, capital requirements, economic risks, leasing terms, and short and long-term returns on capital. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments. Information on the Company’s reportable segments is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
|
Malls
|
|
Associated
Centers
|
|
Community
Centers
|
|
All Other
(1)
|
|
Total
|
|
Revenues
|
|
$
|
205,020
|
|
|
$
|
9,720
|
|
|
$
|
4,023
|
|
|
$
|
5,887
|
|
|
$
|
224,650
|
|
|
Property operating expenses
(2)
|
|
(59,602
|
)
|
|
(2,643
|
)
|
|
(843
|
)
|
|
(1,034
|
)
|
|
(64,122
|
)
|
|
Interest expense
|
|
(28,922
|
)
|
|
(43
|
)
|
|
(89
|
)
|
|
(24,859
|
)
|
|
(53,913
|
)
|
|
Other expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(132
|
)
|
|
(132
|
)
|
|
Gain (loss) on sales of real estate assets
|
|
(1,994
|
)
|
|
—
|
|
|
—
|
|
|
3,377
|
|
|
1,383
|
|
|
Segment profit (loss)
|
|
$
|
114,502
|
|
|
$
|
7,034
|
|
|
$
|
3,091
|
|
|
$
|
(16,761
|
)
|
|
107,866
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
(71,732
|
)
|
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
(13,568
|
)
|
|
Interest and other income (loss)
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
6,452
|
|
|
Loss on impairment
|
|
|
|
|
|
|
|
|
|
(24,935
|
)
|
|
Loss on investment
|
|
|
|
|
|
|
|
|
|
(354
|
)
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
1,064
|
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
4,706
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
9,299
|
|
|
Capital expenditures
(3)
|
|
$
|
47,246
|
|
|
$
|
594
|
|
|
$
|
331
|
|
|
$
|
110
|
|
|
$
|
48,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
Malls
|
|
Associated
Centers
|
|
Community
Centers
|
|
All Other
(1)
|
|
Total
|
|
Revenues
|
|
$
|
228,918
|
|
|
$
|
9,997
|
|
|
$
|
4,776
|
|
|
$
|
8,030
|
|
|
$
|
251,721
|
|
|
Property operating expenses
(2)
|
|
(68,189
|
)
|
|
(2,311
|
)
|
|
(1,149
|
)
|
|
805
|
|
|
(70,844
|
)
|
|
Interest expense
|
|
(35,915
|
)
|
|
(1,424
|
)
|
|
(858
|
)
|
|
(16,095
|
)
|
|
(54,292
|
)
|
|
Other expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,576
|
)
|
|
(5,576
|
)
|
|
Gain on sales of real estate assets
|
|
273
|
|
|
—
|
|
|
—
|
|
|
4,653
|
|
|
4,926
|
|
|
Segment profit (loss)
|
|
$
|
125,087
|
|
|
$
|
6,262
|
|
|
$
|
2,769
|
|
|
$
|
(8,183
|
)
|
|
125,935
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71,794
|
)
|
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,222
|
)
|
|
Interest and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451
|
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
Loss on impairment
|
|
|
|
|
|
|
|
|
|
(53,558
|
)
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,386
|
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
10,478
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
670
|
|
|
Capital expenditures
(3)
|
|
$
|
64,085
|
|
|
$
|
61
|
|
|
$
|
1,452
|
|
|
$
|
32,420
|
|
|
$
|
98,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
Malls
|
|
Associated
Centers
|
|
Community
Centers
|
|
All Other
(1)
|
|
Total
|
|
Revenues
|
|
$
|
632,830
|
|
|
$
|
28,704
|
|
|
$
|
12,459
|
|
|
$
|
17,903
|
|
|
$
|
691,896
|
|
|
Property operating expenses
(2)
|
|
(182,926
|
)
|
|
(6,723
|
)
|
|
(2,394
|
)
|
|
(2,872
|
)
|
|
(194,915
|
)
|
|
Interest expense
|
|
(93,481
|
)
|
|
(1,269
|
)
|
|
(247
|
)
|
|
(70,182
|
)
|
|
(165,179
|
)
|
|
Other expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,151
|
)
|
|
(5,151
|
)
|
|
Gain on sales of real estate assets
|
|
75,434
|
|
|
—
|
|
|
—
|
|
|
11,470
|
|
|
86,904
|
|
|
Segment profit (loss)
|
|
$
|
431,857
|
|
|
$
|
20,712
|
|
|
$
|
9,818
|
|
|
$
|
(48,832
|
)
|
|
413,555
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(225,461
|
)
|
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,402
|
)
|
|
Interest and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,235
|
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
30,927
|
|
|
Loss on impairment
|
|
|
|
|
|
|
|
|
|
(71,401
|
)
|
|
Loss on investment
|
|
|
|
|
|
|
|
|
|
(6,197
|
)
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,784
|
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
16,404
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
118,444
|
|
|
Capital expenditures
(3)
|
|
$
|
126,290
|
|
|
$
|
1,678
|
|
|
$
|
1,036
|
|
|
$
|
2,874
|
|
|
$
|
131,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
Malls
|
|
Associated
Centers
|
|
Community
Centers
|
|
All Other
(1)
|
|
Total
|
|
Revenues
|
|
$
|
700,407
|
|
|
$
|
30,096
|
|
|
$
|
14,747
|
|
|
$
|
24,514
|
|
|
$
|
769,764
|
|
|
Property operating expenses
(2)
|
|
(208,975
|
)
|
|
(7,010
|
)
|
|
(3,552
|
)
|
|
6,805
|
|
|
(212,732
|
)
|
|
Interest expense
|
|
(105,797
|
)
|
|
(4,557
|
)
|
|
(321
|
)
|
|
(52,035
|
)
|
|
(162,710
|
)
|
|
Other expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,313
|
)
|
|
(20,313
|
)
|
|
Gain on sales of real estate assets
|
|
489
|
|
|
478
|
|
|
3,239
|
|
|
10,297
|
|
|
14,503
|
|
|
Segment profit (loss)
|
|
$
|
386,124
|
|
|
$
|
19,007
|
|
|
$
|
14,113
|
|
|
$
|
(30,732
|
)
|
|
388,512
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,505
|
)
|
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,865
|
)
|
|
Interest and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,062
|
|
|
Loss on impairment
|
|
|
|
|
|
|
|
|
|
(116,736
|
)
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,974
|
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
107,217
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115,659
|
|
|
Capital expenditures
(3)
|
|
$
|
125,406
|
|
|
$
|
3,158
|
|
|
$
|
2,420
|
|
|
$
|
49,554
|
|
|
$
|
180,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
Malls
|
|
Associated
Centers
|
|
Community
Centers
|
|
All Other
(1)
|
|
Total
|
|
September 30, 2017
|
|
$
|
5,086,855
|
|
|
$
|
243,840
|
|
|
$
|
235,680
|
|
|
$
|
177,381
|
|
|
$
|
5,743,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
5,383,937
|
|
|
$
|
259,966
|
|
|
$
|
215,917
|
|
|
$
|
244,820
|
|
|
$
|
6,104,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The All Other category includes mortgage and other notes receivable, office buildings, the Management Company and, prior to the redemption of the Company's redeemable noncontrolling interests during the fourth quarter of 2016, the Company’s former consolidated subsidiary that provided security and maintenance services to third parties.
|
|
|
|
|
(2)
|
Property operating expenses include property operating, real estate taxes and maintenance and repairs.
|
|
|
|
|
(3)
|
Amounts include acquisitions of real estate assets and investments in unconsolidated affiliates. Developments in progress are included in the All Other category.
|
Note 10 – Equity and Capital
At-The-Market Equity Program
On March 1, 2013, the Company entered into separate controlled equity offering sales agreements (collectively, the "Sales Agreements") with a number of sales agents to sell shares of CBL's common stock, having an aggregate offering price of up to
$300,000
, from time to time in "at-the-market" equity offerings (as defined in Rule 415 of the Securities Act of 1933, as amended) or in negotiated transactions (the "ATM program"). In accordance with the Sales Agreements, the Company sets the parameters for the sales of shares, including the number of shares to be issued, the time period during which sales are to be made and any minimum price below which sales may not be made. The Sales Agreements provide that the sales agents are entitled to compensation for their services at a mutually agreed commission rate not to exceed
2.0%
of the gross proceeds from the sales of shares sold through the ATM program. For each share of common stock issued by CBL, the Operating Partnership issues a corresponding number of common units of limited partnership interest to CBL in exchange for the contribution of the proceeds from the stock issuance. The Company includes only share issuances that have settled in the calculation of shares outstanding at the end of each period.
The Company has not sold any shares under the ATM program since 2013. Since the commencement of the ATM program, CBL has issued
8,419,298
shares of common stock, at a weighted-average sales price of
$25.12
per share, and approximately
$88,507
remains available that may be sold under this program as of
September 30, 2017
. Actual future sales under this program, if any, will depend on a variety of factors including but not limited to market conditions, the trading price of CBL's common stock and the Company's capital needs. The Company has no obligation to sell the remaining shares available under the ATM program.
Note 11 – Earnings per Share and Earnings per Unit
Earnings per Share of the Company
Basic earnings per share (“EPS”) is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS assumes the issuance of common stock for all potential dilutive common shares outstanding. The limited partners’ rights to convert their noncontrolling interests in the Operating Partnership into shares of common stock are not dilutive.
There were no potential dilutive common shares and there were
no
anti-dilutive shares for the three and
nine
month periods ended
September 30, 2017
and
2016
.
Earnings per Unit of the Operating Partnership
Basic earnings per unit (“EPU”) is computed by dividing net income attributable to common unitholders by the weighted-average number of common units outstanding for the period. Diluted EPU assumes the issuance of common units for all potential dilutive common units outstanding.
There were no potential dilutive common units and there were
no
anti-dilutive units for the three and
nine
month periods ended
September 30, 2017
and
2016
.
Note 12 – Contingencies
Litigation
The Company is currently involved in certain litigation that arises in the ordinary course of business, most of which is expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.
Environmental Contingencies
The Company evaluates potential loss contingencies related to environmental matters using the same criteria
described above related to litigation matters. Based on current information, an unfavorable outcome concerning such environmental matters, both individually and in the aggregate, is considered to be reasonably possible. However, the Company believes its maximum potential exposure to loss would not be material to its results of operations or financial condition. The Company has a master insurance policy that provides coverage through
2022
for certain environmental claims up to
$10,000
per occurrence and up to
$50,000
in the aggregate, subject to deductibles and certain exclusions. At certain locations, individual policies are in place.
Guarantees
The Operating Partnership may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on the Operating Partnership’s investment in the joint venture. The Operating Partnership may receive a fee from the joint venture for providing the guaranty. Additionally, when the Operating Partnership issues a guaranty, the terms of the joint venture agreement typically provide that the Operating Partnership may receive indemnification from the joint venture partner or have the ability to increase its ownership interest. The guarantees expire upon repayment of the debt, unless noted otherwise.
The following table represents the Operating Partnership's guarantees of unconsolidated affiliates' debt as reflected in the accompanying condensed consolidated balance sheets as of
September 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017
|
|
Obligation recorded to
reflect guaranty
|
|
Unconsolidated
Affiliate
|
|
Company's
Ownership
Interest
|
|
Outstanding
Balance
|
|
Percentage
Guaranteed
by the
Operating
Partnership
|
|
Maximum
Guaranteed
Amount
|
|
Debt
Maturity
Date
(1)
|
|
9/30/2017
|
|
12/31/2016
|
|
West Melbourne I, LLC - Phase I
(2)
|
|
50%
|
|
$
|
42,397
|
|
|
20%
|
|
$
|
8,479
|
|
|
Feb-2018
|
(3)
|
|
$
|
86
|
|
|
$
|
86
|
|
|
West Melbourne I, LLC - Phase II
(2)
|
|
50%
|
|
16,377
|
|
|
20%
|
|
3,275
|
|
|
Feb-2018
|
(3)
|
|
33
|
|
|
33
|
|
|
Port Orange I, LLC
|
|
50%
|
|
57,298
|
|
|
20%
|
|
11,460
|
|
|
Feb-2018
|
(3)
|
|
116
|
|
|
116
|
|
|
Ambassador Infrastructure, LLC
|
|
65%
|
|
11,035
|
|
|
100%
|
|
11,035
|
|
|
Aug-2020
|
(4)
|
|
177
|
|
|
177
|
|
|
|
|
|
|
|
|
Total guaranty liability
|
|
|
$
|
412
|
|
|
$
|
412
|
|
|
|
|
|
(1)
|
Excludes any extension options.
|
|
|
|
|
(2)
|
The loan is secured by Hammock Landing - Phase I and Hammock Landing - Phase II, respectively.
|
|
|
|
|
(3)
|
The loan has a
one
-year extension option, which is at the unconsolidated affiliate's election, for an outside maturity date of February 2019.
|
|
|
|
|
(4)
|
The loan was modified and extended in August 2017. See
Note 5
for further information.
|
The Company has guaranteed the lease performance of York Town Center, LP ("YTC"), an unconsolidated affiliate in which the Company owns a
50%
interest, under the terms of an agreement with a third party that owns property as part of York Town Center. Under the terms of that agreement, YTC is obligated to cause performance of the third party’s obligations as landlord under its lease with its sole tenant, including, but not limited to, provisions such as co-tenancy and exclusivity requirements. Should YTC fail to cause performance, then the tenant under the third party landlord’s lease may pursue certain remedies ranging from rights to terminate its lease to receiving reductions in rent. The Company has guaranteed YTC’s performance under this agreement up to a maximum of
$22,000
, which decreases by
$800
annually until the guaranteed amount is reduced to
$10,000
. The guaranty expires on December 31, 2020. The maximum guaranteed obligation was
$14,000
as of
September 30, 2017
. The Company entered into an agreement with its joint venture partner under which the joint venture partner has agreed to reimburse the Company
50%
of any amounts it is obligated to fund under the guaranty. The Company did not include an obligation for this guaranty because it determined that the fair value of the guaranty was not material as of
September 30, 2017
and December 31, 2016.
Performance Bonds
The Company has issued various bonds that it would have to satisfy in the event of non-performance. The total amount outstanding on these bonds was
$21,372
and
$21,446
at
September 30, 2017
and
December 31, 2016
, respectively.
Note 13 – Share-Based Compensation
As of
September 30, 2017
, there was
one
share-based compensation plan under which the Company has outstanding awards, the CBL & Associates Properties, Inc. 2012 Stock Incentive Plan ("the 2012 Plan"), which was approved by the Company's shareholders in May 2012. The 2012 Plan permits the Company to issue stock options and common stock to selected officers, employees and non-employee directors of the Company up to a total of
10,400,000
shares. As the primary operating subsidiary of the Company, the Operating Partnership participates in and bears the compensation expense associated with the Company's share-based compensation plans.
The Company adopted ASU 2016-09 effective January 1, 2017 as described in
Note 2
. In accordance with the provisions of ASU 2016-09, which are designed to simplify the accounting for share-based payments transactions, the Company elected to account for forfeitures of share-based payments as they occur rather than continuing to estimate them in advance. The Company elected not to record a cumulative effect adjustment as the impact of estimated forfeitures on the Company's cumulative share-based compensation expense recorded through December 31, 2016 was nominal.
Restricted Stock Awards
The Company may make restricted stock awards to independent directors, officers and its employees under the 2012 Plan. These awards are generally granted based on the performance of the Company and its employees. None of these awards have performance requirements other than a service condition of continued employment, unless otherwise provided. Compensation expense is recognized on a straight-line basis over the requisite service period.
Share-based compensation expense related to the restricted stock awards was
$812
and
$886
for the
three
months ended
September 30, 2017
and
2016
, respectively, and
$3,175
and
$2,834
for the
nine
months ended
September 30, 2017
and
2016
, respectively. Share-based compensation cost capitalized as part of real estate assets was
$94
and
$83
for the
three
months ended
September 30, 2017
and
2016
, respectively, and
$308
and
$274
for the
nine
months ended
September 30, 2017
and
2016
, respectively.
A summary of the status of the Company’s nonvested restricted stock awards as of
September 30, 2017
, and changes during the
nine
months ended
September 30, 2017
, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Nonvested at January 1, 2017
|
602,162
|
|
|
$
|
15.41
|
|
|
Granted
|
326,424
|
|
|
$
|
10.75
|
|
|
Vested
|
(247,729
|
)
|
|
$
|
14.78
|
|
|
Forfeited
|
(6,870
|
)
|
|
$
|
13.04
|
|
|
Nonvested at September 30, 2017
|
673,987
|
|
|
$
|
13.41
|
|
As of
September 30, 2017
, there was
$6,788
of total unrecognized compensation cost related to nonvested stock awards granted under the plans, which is expected to be recognized over a weighted-average period of
2.7
years.
Long-Term Incentive Program
In 2015, the Company adopted a long-term incentive program ("LTIP") for its named executive officers, which consists of performance stock unit ("PSU") awards and annual restricted stock awards, that may be issued under the 2012 Plan. The number of shares related to the PSU awards that each named executive officer may receive upon the conclusion of a
three
-year performance period is determined based on the Company's achievement of specified levels of long-term total stockholder return ("TSR") performance relative to the National Association of Real Estate Investment Trusts ("NAREIT") Retail Index, provided that at least a "Threshold" level must be attained for any shares to be earned.
Annual Restricted Stock Awards
Under the LTIP, annual restricted stock awards consist of shares of time-vested restricted stock awarded based on a qualitative evaluation of the performance of the Company and the named executive officer during the fiscal year. Annual restricted stock awards under the LTIP vest
20%
on the date of grant with the remainder vesting in
four
equal annual installments.
Performance Stock Units
The Company granted the following PSUs in the first quarter of the respective years as follows:
|
|
|
|
|
|
|
|
|
|
|
|
PSUs granted
|
|
Weighted-Average
Grant Date
Fair Value
|
|
2015 PSUs
|
138,680
|
|
|
$
|
15.52
|
|
|
2016 PSUs
|
282,995
|
|
|
$
|
4.98
|
|
|
2017 PSUs
|
277,376
|
|
|
$
|
6.86
|
|
Shares earned pursuant to the PSU awards vest
60%
at the conclusion of the performance period while the remaining
40%
of the PSU award vests
20%
on each of the first two anniversaries thereafter.
Compensation cost is recognized on a tranche-by-tranche basis using the accelerated attribution method. The resulting expense is recorded regardless of whether any PSU awards are earned as long as the required service period is met. Share-based compensation expense related to the PSUs was
$386
and
$258
for the three months ended
September 30, 2017
and
2016
, respectively. Share-based compensation expense related to the PSUs was
$1,115
and
$774
for the nine months ended September 30, 2017 and
2016
respectively. Unrecognized compensation costs related to the PSUs was
$2,548
as of September 30, 2017.
The following table summarizes the assumptions used in the Monte Carlo simulation pricing model related to the 2017 PSUs and the 2016 PSUs:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 PSUs
|
|
2016 PSUs
|
|
Grant date
|
February 7, 2017
|
|
February 10, 2016
|
|
Fair value per share on valuation date
(1)
|
$
|
6.86
|
|
|
$
|
4.98
|
|
|
Risk-free interest rate
(2)
|
1.53
|
%
|
|
0.92
|
%
|
|
Expected share price volatility
(3)
|
32.85
|
%
|
|
30.95
|
%
|
|
|
|
|
(1)
|
The value of the PSU awards is estimated on the date of grant using a Monte Carlo Simulation model. The valuation consisted of computing the fair value using CBL's simulated stock price as well as TSR over a
three
-year performance period. The award is modeled as a contingent claim in that the expected return on the underlying shares is risk-free and the rate of discounting the payoff of the award is also risk-free. The weighted-average fair value per share related to the 2017 PSUs consists of
115,082
shares at a fair value of
$5.62
per share and
162,294
shares at a fair value of
$7.74
per share.
|
|
|
|
|
(2)
|
The risk-free interest rate was based on the yield curve on zero-coupon U.S. Treasury securities in effect as of the valuation date.
|
|
|
|
|
(3)
|
The computation of expected volatility was based on a blend of the historical volatility of CBL's shares of common stock based on annualized daily total continuous returns over a
three
-year period and implied volatility data based on the trailing month average of daily implied volatilities implied by stock call option contracts that were both closest to the terms shown and closest to the money.
|
Note 14 – Noncash Investing and Financing Activities
The Company’s noncash investing and financing activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
Accrued dividends and distributions payable
|
$
|
54,375
|
|
|
$
|
54,313
|
|
|
Additions to real estate assets accrued but not yet paid
|
12,204
|
|
|
16,495
|
|
|
Capital contribution of note receivable to joint venture
|
—
|
|
|
5,280
|
|
|
Capital contribution from noncontrolling interest to joint venture
|
—
|
|
|
155
|
|
|
Write-off of notes receivable
|
—
|
|
|
1,846
|
|
|
Mortgage debt assumed by buyer of real estate assets
|
—
|
|
|
38,237
|
|
|
Deconsolidation upon assignment of interests in joint venture:
(1)
|
|
|
|
|
Decrease in real estate assets
|
(9,131
|
)
|
|
—
|
|
|
Decrease in mortgage and other indebtedness
|
2,466
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
Decrease in operating assets and liabilities
|
1,286
|
|
|
—
|
|
|
Decrease in noncontrolling interest and joint venture interest
|
2,232
|
|
|
—
|
|
|
Transfer of real estate assets in settlement of mortgage debt obligation:
(2)
|
|
|
|
|
Decrease in real estate assets
|
(149,722
|
)
|
|
—
|
|
|
Decrease in mortgage and other indebtedness
|
189,642
|
|
|
—
|
|
|
Decrease in operating assets and liabilities
|
(122
|
)
|
|
—
|
|
|
Deconsolidation upon formation of joint venture:
|
|
|
|
|
Decrease in real estate assets
|
—
|
|
|
(14,025
|
)
|
|
Increase in investment in unconsolidated affiliate
|
—
|
|
|
14,030
|
|
|
Decrease in accounts payable and accrued liabilities
|
—
|
|
|
(5
|
)
|
Note 15 – Income Taxes
The Company is qualified as a REIT under the provisions of the Internal Revenue Code. To maintain qualification as a REIT, the Company is required to distribute at least
90%
of its taxable income to shareholders and meet certain other requirements.
As a REIT, the Company is generally not liable for federal corporate income taxes. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal and state income taxes on its taxable income at regular corporate tax rates and it may not be able to qualify as a REIT for four subsequent years. Even if the Company maintains its qualification as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed income. State tax expense was
$1,053
and
$700
during the
three
months ended
September 30, 2017
and
2016
, respectively, and
$2,882
and
$2,724
during the
nine
months ended
September 30, 2017
and
2016
, respectively.
The Company has also elected taxable REIT subsidiary status for some of its subsidiaries. This enables the Company to receive income and provide services that would otherwise be impermissible for REITs. For these entities, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for deferred tax assets is provided if the Company believes all or some portion of the deferred tax asset may not be realized. An increase or decrease in the valuation allowance resulting from changes in circumstances that may affect the realizability of the related deferred tax asset is included in income or expense, as applicable.
The Company recorded an income tax benefit as follows for the three and
nine
month periods ended
September 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Current tax benefit
|
$
|
225
|
|
|
$
|
927
|
|
|
$
|
7,695
|
|
|
$
|
1,194
|
|
|
Deferred tax benefit (provision)
|
839
|
|
|
1,459
|
|
|
(2,911
|
)
|
|
1,780
|
|
|
Income tax benefit
|
$
|
1,064
|
|
|
$
|
2,386
|
|
|
$
|
4,784
|
|
|
$
|
2,974
|
|
The Company had a net deferred tax asset of
$9,954
and
$5,841
at
September 30, 2017
and December 31, 2016, respectively. The net deferred tax asset is included in intangible lease assets and other assets. These balances primarily consisted of operating expense accruals and differences between book and tax depreciatio
n.
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 condensed consolidated statements 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 and
nine
month periods ended September 30, 2017 and
2016
, respectively.
Note 16 – Subsequent Events
In October 2017, the unconsolidated
50
/
50
joint venture, Shoppes at Eagle Point, LLC, closed on a construction loan for the development of The Shoppes at Eagle Point, a community center located in Cookeville, TN. The Operating Partnership has guaranteed
100%
of the loan. The maximum amount of the construction loan is
$36,400
, and bears interest at a variable rate of LIBOR plus
275
basis points. The loan has an initial maturity date of October 2020 and has
one
two
-year extension option available at the joint venture's election.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and accompanying notes that are included in this Form 10-Q. Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as defined in the notes to the condensed consolidated financial statements. In this discussion, the terms “we,” “us” and “our” refer to the Company or the Company and the Operating Partnership collectively, as the text requires.
Certain statements made in this section or elsewhere in this report may be deemed “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical fact should be considered to be forward-looking statements. In many cases, these forward-looking statements may be identified by the use of words such as “will,” “may,” “should,” “could,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “projects,” “goals,” “objectives,” “targets,” “predicts,” “plans,” “seeks,” and variations of these words and similar expressions. Any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this report.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained. It is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties. In addition to the risk factors described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2016
, such known risks and uncertainties include, without limitation:
|
|
|
|
•
|
general industry, economic and business conditions;
|
|
|
|
|
•
|
interest rate fluctuations;
|
|
|
|
|
•
|
costs and availability of capital and capital requirements;
|
|
|
|
|
•
|
costs and availability of real estate;
|
|
|
|
|
•
|
inability to consummate acquisition opportunities and other risks associated with acquisitions;
|
|
|
|
|
•
|
competition from other companies and retail formats;
|
|
|
|
|
•
|
changes in retail demand and rental rates in our markets;
|
|
|
|
|
•
|
shifts in customer demands;
|
|
|
|
|
•
|
tenant bankruptcies or store closings;
|
|
|
|
|
•
|
changes in vacancy rates at our properties;
|
|
|
|
|
•
|
changes in operating expenses;
|
|
|
|
|
•
|
changes in applicable laws, rules and regulations;
|
|
|
|
|
•
|
sales of real property;
|
|
|
|
|
•
|
cyber-attacks or acts of cyber-terrorism;
|
|
|
|
|
•
|
changes in the credit ratings of the Operating Partnership's senior unsecured long-term indebtedness;
|
|
|
|
|
•
|
the ability to obtain suitable equity and/or debt financing and the continued availability of financing, in the amounts and on the terms necessary to support our future refinancing requirements and business; and
|
|
|
|
|
•
|
other risks referenced from time to time in filings with the SEC and those factors listed or incorporated by reference into this report
|
This list of risks and uncertainties is only a summary and is not intended to be exhaustive. We disclaim any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information.
EXECUTIVE OVERVIEW
We are a self-managed, self-administered, fully integrated REIT that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers and office properties. Our properties are located in
26
states, but are primarily in the southeastern and midwestern United States. We have elected to be taxed as a REIT for federal income tax purposes.
We conduct substantially all of our business through the Operating Partnership. The Operating Partnership consolidates the financial statements of all entities in which it has a controlling financial interest or where it is the primary beneficiary of a VIE.
As of
September 30, 2017
, we owned interests in the following properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Malls
(1)
|
|
Associated
Centers
|
|
Community
Centers
|
|
Office
Buildings
|
|
Total
|
|
Consolidated properties
|
60
|
|
20
|
|
4
|
|
5
|
|
(2)
|
|
89
|
|
Unconsolidated properties
(3)
|
8
|
|
3
|
|
5
|
|
—
|
|
16
|
|
Total
|
68
|
|
23
|
|
9
|
|
5
|
|
105
|
|
|
|
|
(1)
|
Category consists of regional malls, open-air centers and outlet centers (including
one
mixed-use center).
|
|
|
|
|
(2)
|
Includes our two corporate office buildings.
|
|
|
|
|
(3)
|
We account for these investments using the equity method because one or more of the other partners have substantive participating rights.
|
At
September 30, 2017
, we had interests in the following properties under development:
|
|
|
|
|
|
|
|
|
Consolidated
Properties
|
|
Unconsolidated
Properties
|
|
|
Malls
|
|
Community
Centers
|
|
Development
|
—
|
|
1
|
|
Expansions
|
1
|
|
—
|
|
Redevelopments
|
1
|
|
—
|
Net income for the
three
and nine months ended
September 30, 2017
was
$9.3 million
and
$118.4 million
compared to
$0.7 million
and
$115.7 million
in the prior-year period. We recorded a net loss attributable to common shareholders of
$2.3 million
for the
three
months ended
September 30, 2017
as compared to a net loss of
$10.2 million
in the prior-year period. For the
nine
months ended
September 30, 2017
, net income attributable to common shareholders was
$50.8 million
compared to
$70.4 million
for the
nine
months ended
September 30, 2016
.
In order to maximize available cash flow for investing in our properties and debt reduction, our Board of Directors made the decision to reduce our common stock dividend in the fourth quarter of 2017 to an annualized rate of $0.80 per share from $1.06 per share. Based on our updated projections of taxable income, which have been impacted by dilution of properties sold in prior periods as well as the impact from the high level of tenant bankruptcies which occurred during the year, the common dividend is being re-set to a rate that will preserve an estimated $50 million of additional cash on an annual basis. We expect to use this enhanced liquidity to help in funding value-adding redevelopment activity and debt reduction.
Retailer bankruptcies and a difficult retail environment continue to impact our quarterly and year-to-date results. Flat consumer spending and the dilution from asset sales lowered revenues for the period but efficiencies in property operating costs partially offset these adverse variances. We are shifting our tenant mix in response to evolving market conditions, but this strategy takes time to execute and in the interim, the challenging environment for retailers is putting pressure on our operations. Year-to-date, only approximately 25% of new leasing has been executed with pure-apparel retailers as we execute our strategy to reinvent our malls into suburban town centers which bring more diverse products and services such as fitness, healthcare, beauty and culinary offerings to the market. Same-center NOI (see below) decreased 2.6% for the quarter and 1.6% for the
nine
months ended
September 30, 2017
, primarily due to revenue declines driven by lower occupancy, rent concessions, lower renewal leasing spreads and flat tenant sales, which were partially offset by lower property operating and maintenance and repairs expense.
Earnings (loss) per share attributable to common shareholders were
$(0.01)
and
$0.30
per share for the
three
and
nine
months ended
September 30, 2017
, respectively, as compared to
$(0.06)
and
$0.41
per share for the same periods in
2016
. FFO per diluted share (see below) decreased to
$0.52
and
$1.63
for the
three
and
nine
months ended
September 30, 2017
, respectively, as compared to
$0.56
and
$1.97
for the
three
and
nine
months ended September 30, 2016. FFO was negatively impacted by approximately $0.10 per share of dilution from asset sales completed in the prior year and current year-to-date periods and the revenue declines noted above, although an increase in average annual base rents and operating cost efficiencies helped partially offset some of these unfavorable variances.
Third quarter results reflect the challenges we face as a result of the difficult retail climate. Retailer bankruptcies and store closings have been unusually high and it is having a short-term impact on our operating metrics as noted above. Occupancy for our total portfolio declined 40 basis points to 93.1% as of
September 30, 2017
as compared to 93.5% in the prior-year period while occupancy for our same-center malls was down 120 basis points as compared to the same period in the prior year. However, compared to the prior quarter ended June 30, 2017, occupancy for same center malls increased 120 basis points in the current quarter as we progress in replacing underperforming tenants and negotiate lease terms with others to minimize store closings. For leases signed in the
third
quarter of 2017, leasing spreads for comparable space under 10,000 square feet declined approximately 13.7% on average for our stabilized malls, which included an increase of 0.3% in new lease spreads and a decrease of 16.1% in renewal lease spreads. Year-to-date, we experienced an overall decline of 4.0% in leasing spreads for our total portfolio. Average annual base rents per square foot for our same-center stabilized malls increased slightly to $32.69 as compared to $32.46 in the prior-year period. For the trailing twelve months ended
September 30, 2017
, stabilized mall same-center sales decreased 1.8% to $373 per square foot as compared to $380 per square foot in the prior-year period. Comparing September 30, 2017 to the prior quarter ended June 30, 2017, sales were flat at $373 per square foot in both periods.
We recognized a $6.9 million gain on extinguishment of debt in August 2017 upon the foreclosure of Wausau Center in settlement of the non-recourse debt that it secured. We also retired three operating property loans with an aggregate principal balance of $210.0 million, extended and modified two unsecured term loans and exercised an option to extend our $350.0 million term loan to October 2018. We also issued and sold an additional $225.0 million principal amount of the series of 2026 Notes. The growth in our unencumbered pool and strong credit metrics well-position us with the financial flexibility to execute our business plan. We began construction on a new joint venture community center development, The Shoppes at Eagle Point, in September 2017 and are progressing in our plans for anchor redevelopments related to the Sears and Macy's stores that were acquired earlier in the year.
Same-center NOI and FFO are non-GAAP measures. For a description of same-center NOI, a reconciliation from net income to same-center NOI, and an explanation of why we believe this is a useful performance measure, see
Non-GAAP Measure - Same-center Net Operating Income
in “
Results of Operations
.” For a description of FFO, a reconciliation from net income attributable to common shareholders to FFO allocable to Operating Partnership common unitholders, and an explanation of why we believe this is a useful performance measure, see
"Non-GAAP Measure - Funds from Operations."
RESULTS OF OPERATIONS
Properties that were in operation for the entire year during
2016
and the
nine
months ended September 30, 2017 are referred to as the “Comparable Properties.” Since January 1, 2016, we have opened one community center development and one outlet center development as follows:
|
|
|
|
|
|
|
|
|
Property
|
|
Location
|
|
Date
Opened
|
|
New Developments:
|
|
|
|
|
|
Ambassador Town Center
(1)
|
|
Lafayette, LA
|
|
April 2016
|
|
The Outlet Shoppes at Laredo
(2)
|
|
Laredo, TX
|
|
April 2017
|
|
|
|
|
(1)
|
Ambassador Town Center is a 65/35 joint venture that is accounted for using the equity method of accounting and is included in equity in earnings of unconsolidated affiliates in the accompanying condensed consolidated statements of operations.
|
|
|
|
|
(2)
|
The Outlet Shoppes at Laredo is a 65/35 joint venture, which is included in the accompanying condensed consolidated statements of operations on a consolidated basis.
|
Of these properties, The Outlet Shoppes at Laredo is included in our operations on a consolidated basis and is referred to as the "New Property." The transactions related to the New Property impact the comparison of results of operations for the
three
and
nine
months ended
September 30, 2017
to the results of operations for the
three
and
nine
months ended
September 30, 2016
.
See
Note 4
to the condensed consolidated financial statements for information on 2017 acquisitions and dispositions.
Comparison of the Three Months Ended September 30, 2017 to the Three Months Ended September 30, 2016
Revenues
Total revenues decreased
$27.1 million
for the three months ended
September 30, 2017
compared to the prior-year period. Rental revenues and tenant reimbursements declined by
$20.3 million
due to decreases of $15.3 million related to dispositions and $7.0 million attributable to the Comparable Properties, which was partially offset by an increase of $2.0 million attributable to the New Property. The $7.0 million decrease in revenues at the Comparable Properties was primarily due to a decrease of $6.1 million at our core properties and a $0.9 million decrease related to non-core properties and those in redevelopment. The decline in revenues at our core properties continues due to the challenging retail environment, including a decrease in base rents due to lower occupancy as a result of retailer bankruptcies, as well as lower tenant reimbursements in addition to straight-line rent write-offs due to lower rent from renewed leases.
Our cost recovery ratio for the quarter ended
September 30, 2017
was 98.3% compared with 98.1% for the prior-year period.
The decrease of
$1.5 million
in management, development and leasing fees was primarily attributable to decreases in management fees as a result of terminated contracts for two malls owned by third parties that were sold to new owners, which the Company had been managing, and two leasing agreements, which ended subsequent to June 30, 2016. Additionally, we received $0.5 million in development fees primarily related to a redevelopment project at CoolSprings Galleria in the prior-year period and $0.3 million in the prior-year period from financing fees related to the loan secured by Hamilton Place.
Other revenues decreased
$5.3 million
primarily due to the divestiture, in the fourth quarter of 2016, of our joint venture interest in the consolidated subsidiary that provided security and maintenance services to third parties.
Operating Expenses
Total operating expenses decreased
$40.5 million
for the three months ended
September 30, 2017
compared to the three months ended
September 30, 2016
primarily due to incurring $28.6 million less in losses on impairment of real estate during the three months ended
September 30, 2017
and a decrease of $5.6 million related to the divestiture, in the fourth quarter of 2016, of our joint venture interest in the consolidated subsidiary that provided security and maintenance services to third parties, as well as a decrease of $6.7 million in property operating expenses, including real estate taxes and maintenance and repairs. The $6.7 million decrease was attributable to decreases of $7.2 million from dispositions, and $0.7 million related to the Comparable Properties, which was partially offset by an increase of $1.2 million related to the New Property.
The decrease in depreciation and amortization expense of
$0.1 million
primarily resulted from a decrease of $5.9 million related to dispositions, which was partially offset by increases of $4.8 million attributable to the Comparable Properties and $1.1 million related to the New Property. The $4.8 million increase related to the Comparable Properties includes an increase of $2.5 million in depreciation expense related to capital expenditures for renovations, redevelopments and deferred maintenance as well as $1.0 million of tenant improvement and in-place lease write-offs. The remaining increase is primarily due to amortization of tenant relationship assets related to several anchor redevelopment projects.
General and administrative expenses increased
$0.3 million
primarily due to an increase in payroll and related expenses, which was partially offset by a decrease in consulting and legal fees.
In the
third
quarter of
2017
, we recognized impairment of real estate of
$24.9 million
which was primarily to write down the book value of a mall. See
Note 3
to the condensed consolidated financial statements for additional information. In the
third
quarter of 2016, we recognized an impairment of real estate of
$53.6 million
to write down the book value of three malls, one community center and three office buildings.
Other expenses decreased
$5.4 million
primarily due to the divestiture of our interest, in the fourth quarter of 2016, in our consolidated subsidiary that provided security and maintenance services to third parties.
Other Income and Expenses
Interest and other income decreased
$0.7 million
for the three months ended
September 30, 2017
compared to the prior-year period. The decrease was primarily due to adjustments related to insurance proceeds and litigation settlements.
Interest expense decreased
$0.4 million
for the three months ended
September 30, 2017
compared to the prior-year period. The $0.4 million decrease consists of a decrease of $4.8 million related to dispositions, which was partially offset by increases of $3.6 million attributable to the Comparable Properties and $0.8 million related to the
New Property. The $3.6 million increase in interest expense of the Comparable Properties was primarily due to increases of $7.2 million from the 2026 Notes, of which $400.0 million were issued in the fourth quarter of 2016 and $225.0 million were issued in the third quarter of 2017, $1.9 million in default interest related to Acadiana Mall and $1.8 million related to the $490.0 million unsecured term loan that was increased and modified in July 2017. These increases were partially offset by a $6.2 million decrease in interest expense related to property-level debt that was retired and a decrease of $1.1 million related to lower balances on our unsecured lines of credit.
During the three months ended
September 30, 2017
, we recorded a
$6.5 million
gain on extinguishment of debt which primarily consisted of a $6.9 million gain, related to the conveyance of a mall to the lender in satisfaction of the non-recourse debt secured by the property, which was partially offset by a $0.4 million loss related to prepayment fees for the early retirement of debt. See
Note 4
and
Note 6
to the condensed consolidated financial statements for more information.
During the three months ended
September 30, 2017
, we recognized a
$0.4 million
loss on investment related to the disposition of our 25% interest in an unconsolidated joint venture, which closed in the third quarter of 2017. See
Note 5
to the condensed consolidated financial statements for additional information.
Equity in earnings of unconsolidated affiliates decreased by
$5.8 million
during the
third
quarter of
2017
compared to the prior-year period. The decrease is due to a $29.4 million gain related to the sale of an unconsolidated affiliate in the second quarter of 2016 as well as a gain of $29.2 million recognized in the second quarter of 2016 related to the foreclosure of Gulf Coast Town Center (owned in a 50/50 joint venture).
The income tax benefit of
$1.1 million
for the three months ended
September 30, 2017
relates to the Management Company, which is a taxable REIT subsidiary, and consists of a current tax benefit of
$0.2 million
and a deferred tax benefit of over
$0.8 million
. During the three months ended
September 30, 2016
, we recorded an income tax benefit of
$2.4 million
, consisting of a current and deferred tax benefit of
$0.9 million
and
$1.5 million
, respectively.
In the
third
quarter of
2017
, we recognized a
$1.4 million
gain on sales of real estate assets, primarily related to the sale of two outparcels. We recognized a
$4.9 million
gain on sales of real estate assets in the
third
quarter of
2016
, which primarily related to the sale of six outparcels.
Comparison of the Nine Months Ended September 30, 2017 to the Nine Months Ended September 30, 2016
Revenues
Total revenues decreased
$77.9 million
for the
nine
months ended
September 30, 2017
compared to the prior-year period. Rental revenues and tenant reimbursements declined by
$60.5 million
due to decreases of $44.0 million related to dispositions and $20.9 million attributable to the Comparable Properties, which were partially offset by an increase of $4.4 million attributable to the New Property. The $20.9 million decrease in revenues at the Comparable Properties was primarily due to a decrease of $18.3 million at our core properties and a $2.6 million decrease related to non-core properties and those in redevelopment. Revenues were down throughout the portfolio due to lower sales and retailer bankruptcies, which drove decreases in rental revenues and tenant reimbursements.
Our cost recovery ratio for the
nine
months ended
September 30, 2017
was 98.8% compared with 100.1% for the prior-year period.
The decrease of
$2.1 million
in in management, development and leasing fees was primarily attributable to decreases in management fees as a result of terminated contracts for three malls owned by third parties that were sold to new owners, which the Company had been managing, and two leasing agreements, which ended subsequent to the prior-year period. Additionally, we received $1.0 million in the prior-year period from financing fees related to the loans secured by two malls and two community centers. These decreases were partially offset by an increase in corporate sponsorship income.
Other revenues decreased
$15.3 million
primarily due to the divestiture, in the fourth quarter of 2016, of our joint venture interest in the consolidated subsidiary that provided security and maintenance services to third parties.
Operating Expenses
Total operating expenses decreased
$74.8 million
for the
nine
months ended
September 30, 2017
compared to the nine months ended
September 30, 2016
primarily due to incurring $45.3 million less in losses on impairment of real estate during the nine months ended
September 30, 2017
and $5.1 million in abandoned projects expenses, which were partially offset by a decrease of $20.3 million related to the divestiture, in the fourth quarter of 2016, of our joint venture interest in the consolidated subsidiary that provided security and maintenance services to third parties. Property operating expenses, including real estate taxes and maintenance and repairs, decreased $17.8 million primarily due to a $20.8 million decrease attributable to dispositions, which was partially offset by increases of $2.3 million attributable
to the New Property and $0.7 million related to the Comparable Properties. The $0.7 million increase at the Comparable Properties was primarily driven by an increase in real estate taxes.
The increase in depreciation and amortization expense of
$5.0 million
primarily resulted from increases of $19.2 million attributable to our core properties and $2.1 million from the New Property, which were partially offset by a decrease of $16.4 million related to dispositions. The $19.2 million increase includes $7.3 million of tenant improvement write-offs and $8.9 million of depreciation and amortization expense related to the acquired Sears and Macy's buildings.
General and administrative expenses decreased
$1.5 million
primarily due to a decrease in consulting and legal fees and an increase in capitalized overhead related to development projects. These decreases were partially offset by increases in information technology and payroll and related expenses.
In the
nine
months ended
September 30, 2017
, we recognized impairment of real estate of
$71.4 million
primarily to write down the book value of two malls, a parcel project near an outlet center and one outparcel. See
Note 3
to the condensed consolidated financial statements for additional information. In the
nine
months ended September 30, 2016, we recognized an impairment of real estate of
$116.7 million
to write down the book value of nine malls, an associated center, a community center, three office buildings and three outparcels.
Other expenses decreased
$15.2 million
due to a $20.3 million decrease from the divestiture of our interest, in the fourth quarter of 2016, in our consolidated subsidiary that provided security and maintenance services to third parties, which was partially offset by a $5.1 million increase in abandoned projects expense.
Other Income and Expenses
Interest and other income increased
$0.2 million
for the
nine
months ended
September 30, 2017
compared to the prior-year period primarily due to $0.9 million received in the current year as an insurance reimbursement for nonrecurring professional fees expense (which represent one-time expenses that are not part of our normal operations) related to the SEC investigation that occurred in 2016. This increase was partially offset by a $0.7 million decrease in interest income.
Interest expense increased
$2.5 million
for the
nine
months ended
September 30, 2017
compared to the prior-year period. The $2.5 million increase consists of increases of $7.2 million attributable to the Comparable Properties and $1.5 million related to the New Property, which were partially offset by a decrease of $6.2 million related to dispositions. The $7.2 million increase primarily consists of an increase of $20.0 million from the issuance of the 2026 Notes, of which $400.0 million were issued in the fourth quarter of 2016 and $225.0 million were issued in the third quarter of 2017, and $1.9 million of default interest related to Acadiana Mall, which was partially offset by a decrease of $15.8 million related to property-level debt that was retired.
During the
nine
months ended
September 30, 2017
, we recorded a
$30.9 million
gain on extinguishment of debt which primarily consisted of a $39.8 million gain related to the conveyance of three malls to the respective lenders in satisfaction of the non-recourse debt secured by the properties. This was partially offset by an $8.9 million loss related to prepayment fees for the early retirement of debt on mortgage loans secured by two malls. See
Note 4
and
Note 6
to the condensed consolidated financial statements for more information.
During the
nine
months ended
September 30, 2017
, we recognized a
$6.2 million
loss on investment related to the disposition of our 25% interest in an unconsolidated joint venture, which closed in the third quarter of 2017. See
Note 5
to the condensed consolidated financial statements for additional information.
Equity in earnings of unconsolidated affiliates decreased by
$90.8 million
during the
nine
months ended
September 30, 2017
compared to the prior-year period. The decrease is primarily due to a gain of $29.3 related to the foreclosure of Gulf Coast Town Center (owned in a 50/50 joint venture) million and $62.4 million from the sale of three unconsolidated affiliates in 2016.
The income tax benefit of
$4.8 million
for the
nine
months ended
September 30, 2017
relates to the Management Company, which is a taxable REIT subsidiary, and consists of a current tax benefit of
$7.7 million
and a deferred tax provision of $2.9 million. During the
nine
months ended
September 30, 2016
, we recorded an income tax benefit of
$3.0 million
, consisting of a current and deferred tax benefit of
$1.2 million
and
$1.8 million
, respectively.
During the
nine
months ended
September 30, 2017
, we recognized an
$86.9 million
gain on sales of real estate assets, primarily related to the sale of an outlet center and eight outparcels. We recognized a
$14.5 million
gain on sales of real estate assets during the
nine
months ended
September 30, 2016
, which consisted primarily of $12.3 million related to the sale of a community center and eight outparcels and $2.2 million related to a parking deck project.
Non-GAAP Measure
Same-center Net Operating Income
NOI is a supplemental non-GAAP measure of the operating performance of our shopping centers and other properties. We define NOI as property operating revenues (rental revenues, tenant reimbursements and other income) less property operating expenses (property operating, real estate taxes and maintenance and repairs).
We compute NOI based on the Operating Partnership's pro rata share of both consolidated and unconsolidated properties. We believe that presenting NOI and same-center NOI (described below) based on our Operating Partnership’s pro rata share of both consolidated and unconsolidated properties is useful since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in the Operating Partnership. Our definition of NOI may be different than that used by other companies, and accordingly, our calculation of NOI may not be comparable to that of other companies.
Since NOI includes only those revenues and expenses related to the operations of our shopping center properties, we believe that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates, sales at the malls and operating costs and the impact of those trends on our results of operations. Our calculation of same-center NOI excludes lease termination income, straight-line rent adjustments, and amortization of above and below market lease intangibles in order to enhance the comparability of results from one period to another.
We include a property in our same-center pool when we have owned all or a portion of the property since January 1 of the preceding calendar year and it has been in operation for both the entire preceding calendar year and current year-to-date period. New Properties are excluded from same-center NOI, until they meet this criteria. Properties excluded from the same-center pool that would otherwise meet this criteria are properties which are being repositioned or properties where we are considering alternatives for repositioning and those in which we own a noncontrolling interest of 25% or less. Properties that we are currently repositioning are Cary Towne Center and Hickory Point Mall at
September 30, 2017
. We own a noncontrolling interest of 10% in Triangle Town Center at
September 30, 2017
.
Due to the exclusions noted above, same-center NOI should only be used as a supplemental measure of our performance and not as an alternative to GAAP operating income (loss) or net income (loss). A reconciliation of our same-center NOI to net income for the
three
and
nine
month periods ended
September 30, 2017
and
2016
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Net income
|
$
|
9,299
|
|
|
$
|
670
|
|
|
$
|
118,444
|
|
|
$
|
115,659
|
|
|
Adjustments:
(1)
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
79,195
|
|
|
80,313
|
|
|
247,203
|
|
|
242,910
|
|
|
Interest expense
|
58,573
|
|
|
58,632
|
|
|
178,834
|
|
|
177,371
|
|
|
Abandoned projects expense
|
132
|
|
|
11
|
|
|
5,151
|
|
|
44
|
|
|
Gain on sales of real estate assets
|
(1,610
|
)
|
|
(12,944
|
)
|
|
(60,454
|
)
|
|
(107,843
|
)
|
|
Loss on investment
|
354
|
|
|
—
|
|
|
6,197
|
|
|
—
|
|
|
Gain on extinguishment of debt
|
(6,452
|
)
|
|
6
|
|
|
(33,902
|
)
|
|
—
|
|
|
Loss on impairment
|
24,935
|
|
|
53,558
|
|
|
71,401
|
|
|
116,736
|
|
|
Income tax benefit
|
(1,064
|
)
|
|
(2,386
|
)
|
|
(4,784
|
)
|
|
(2,974
|
)
|
|
Lease termination fees
|
(879
|
)
|
|
(857
|
)
|
|
(1,990
|
)
|
|
(2,202
|
)
|
|
Straight-line rent and above- and below-market lease amortization
|
(637
|
)
|
|
(464
|
)
|
|
(3,685
|
)
|
|
(4,006
|
)
|
|
Net (income) loss attributable to noncontrolling interests in other consolidated subsidiaries
|
(415
|
)
|
|
(983
|
)
|
|
(25,266
|
)
|
|
449
|
|
|
General and administrative expenses
|
13,568
|
|
|
13,222
|
|
|
45,402
|
|
|
46,865
|
|
|
Management fees and non-property level revenues
|
(2,762
|
)
|
|
(1,379
|
)
|
|
(10,312
|
)
|
|
(12,429
|
)
|
|
Operating Partnership's share of property NOI
|
172,237
|
|
|
187,399
|
|
|
532,239
|
|
|
570,580
|
|
|
Non-comparable NOI
|
(4,513
|
)
|
|
(15,169
|
)
|
|
(22,766
|
)
|
|
(52,998
|
)
|
|
Total same-center NOI
|
$
|
167,724
|
|
|
$
|
172,230
|
|
|
$
|
509,473
|
|
|
$
|
517,582
|
|
|
|
|
|
(1)
|
Adjustments are based on our Operating Partnership's pro rata ownership share, including our share of unconsolidated affiliates and excluding noncontrolling interests' share of consolidated properties.
|
Same-center NOI decreased 2.6% for the three months ended
September 30, 2017
as compared to the prior-year period. The $4.5 million decrease for the three month period ended
September 30, 2017
compared to the same period in 2016 consisted of a $4.2 million decrease in revenues and an increase of $0.4 million in operating expenses. The $0.4 million increase in operating expenses on a same-center basis was primarily due to an increase of $2.1 million in real estate taxes, which was partially offset by a decrease of $1.0 million in maintenance and repairs expense and $0.7 million in property operating expense.
The 1.6% decrease in same-center NOI for the
nine
months ended
September 30, 2017
as compared to the prior-year period includes a $10.6 million decrease in revenues, primarily due to an $11.2 million decrease in revenues from rent revenues and tenant reimbursements, which was partially offset by an increase of $0.7 million in other revenue. Operating expenses on a same-center basis for the
nine
months ended
September 30, 2017
decreased $2.4 million primarily due to decreases of $3.6 million in maintenance and repairs expense and $1.2 million in property operating expenses, which were partially offset by an increase of $2.5 million in real estate taxes.
The decline in revenues for the three and
nine
months ended
September 30, 2017
was impacted by a decrease of 1.2% in occupancy in our same-center mall portfolio. Tenant bankruptcies and rent concessions contributed to the revenue declines. These decreases were partially offset by an increase of 0.7% in average annual base rents for our same-center stabilized malls as of
September 30, 2017
as compared to the prior-year period.
Operational Review
The shopping center business is, to some extent, seasonal in nature with tenants typically achieving the highest levels of sales during the fourth quarter due to the holiday season, which generally results in higher percentage rents in the fourth quarter. Additionally, the malls earn most of their rents from short-term tenants during the holiday period. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of the fiscal year.
We classify our regional malls into three categories:
|
|
|
|
(1)
|
Stabilized Malls – Malls that have completed their initial lease-up and have been open for more than three complete calendar years.
|
|
|
|
|
(2)
|
Non-stabilized Malls - Malls that are in their initial lease-up phase. After three complete calendar years of operation, they are reclassified on January 1 of the fourth calendar year to the stabilized mall category. The Outlet Shoppes at Laredo and The Outlet Shoppes of the Bluegrass were classified as non-stabilized malls as of
September 30, 2017
. The Outlet Shoppes of the Bluegrass and The Outlet Shoppes at Atlanta were classified as non-stabilized malls as of
September 30, 2016
.
|
|
|
|
|
(3)
|
Excluded Malls - We exclude malls from our core portfolio if they fall in the following categories, for which operational metrics are excluded:
|
|
|
|
|
a.
|
Lender Malls - Malls for which we are working or intend to work with the lender on a restructure of the terms of the loan secured by the property or convey the secured property to the lender. As of
September 30, 2017
, we had no malls in this category as the foreclosure of Wausau Center was complete in August 2017. As of
September 30, 2016
, Chesterfield Mall, Midland Mall and Wausau Center were classified as Lender Malls. The foreclosures of Midland Mall and Chesterfield Mall were complete in the first quarter and second quarter of 2017, respectively. Lender Malls are excluded from our same-center pool as decisions made while in discussions with the lender may lead to metrics that do not provide relevant information related to the condition of these properties or they may be under cash management agreements with the respective servicers.
|
|
|
|
|
b.
|
Repositioning Malls - Malls that are currently being repositioned or where we have determined that the current format of the mall no longer represents the best use of the mall and we are in the process of evaluating alternative strategies for the mall. This may include major redevelopment or an alternative retail or non-retail format, or after evaluating alternative strategies for the mall, we may determine that the mall no longer meets our criteria for long-term investment. The steps taken to reposition these malls, such as signing tenants to short-term leases, which are not included in occupancy percentages, or leasing to regional or local tenants, which typically do not report sales, may lead to metrics which do not provide relevant information related to the condition of these malls. Therefore, traditional performance measures, such as occupancy percentages and leasing metrics, exclude Repositioning Malls. Cary Towne Center and Hickory Point Mall were classified as Repositioning Malls as of
September 30, 2017
and
September 30, 2016
.
|
|
|
|
|
c.
|
Minority Interest Malls - Malls in which we have a 25% or less ownership interest. As of September 30, 2017 and
September 30, 2016
, Triangle Town Center was classified as a Minority Interest Mall. The Company divested its interests in River Ridge Mall in August 2017. Triangle Town Place was also classified as a Minority Interest property as of
September 30, 2016
until its sale in the fourth quarter of 2016.
|
We derive the majority of our revenues from the mall properties. The sources of our revenues by property type were as follows:
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
Malls
|
91.5%
|
|
91.0%
|
|
Associated centers
|
4.1%
|
|
3.9%
|
|
Community centers
|
1.8%
|
|
1.9%
|
|
Mortgages, office buildings and other
|
2.6%
|
|
3.2%
|
Mall Store Sales
Mall store sales include reporting mall tenants of 10,000 square feet or less for stabilized malls and exclude license agreements, which are retail contracts that are temporary or short-term in nature and generally last more than three months but less than twelve months. The following is a comparison of our same-center sales per square foot for mall tenants of 10,000 square feet or less:
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended September 30,
|
|
|
|
|
2017
|
|
2016
|
|
% Change
|
|
Stabilized mall same-center sales per square foot
|
$373
|
|
$380
|
|
(1.8)%
|
Occupancy
Our portfolio occupancy is summarized in the following table
(1)
:
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
2017
|
|
2016
|
|
Total portfolio
|
93.1%
|
|
93.5%
|
|
Total mall portfolio
|
91.6%
|
|
92.6%
|
|
Same-center malls
|
91.8%
|
|
93.0%
|
|
Stabilized malls
|
91.7%
|
|
92.5%
|
|
Non-stabilized malls
(2)
|
87.9%
|
|
93.6%
|
|
Associated centers
|
98.2%
|
|
96.1%
|
|
Community centers
|
98.2%
|
|
97.5%
|
|
|
|
|
(1)
|
As noted above, excluded properties are not included in occupancy metrics.
|
|
|
|
|
(2)
|
Represents occupancy for The Outlet Shoppes at Laredo and The Outlet Shoppes of the Bluegrass as of
September 30, 2017
and occupancy for The Outlet Shoppes of the Bluegrass and The Outlet Shoppes at Atlanta as of
September 30, 2016
.
|
Mall occupancy was negatively impacted 190 basis points or 367,000-square-feet by tenant bankruptcy closures as of the third quarter of 2017 as compared to the prior-year period.
Leasing
The following is a summary of the total square feet of leases signed in the three and
nine
month periods ended
September 30, 2017
as compared to the respective prior-year periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Operating portfolio:
|
|
|
|
|
|
|
|
|
New leases
|
178,332
|
|
|
334,006
|
|
|
916,442
|
|
|
1,155,870
|
|
|
Renewal leases
|
678,304
|
|
|
429,350
|
|
|
1,765,682
|
|
|
1,863,460
|
|
|
Development portfolio:
|
|
|
|
|
|
|
|
|
New leases
|
131,744
|
|
|
28,701
|
|
|
258,746
|
|
|
538,769
|
|
|
Total leased
|
988,380
|
|
|
792,057
|
|
|
2,940,870
|
|
|
3,558,099
|
|
Average annual base rents per square foot are based on contractual rents in effect as of
September 30, 2017
and
2016
, including the impact of any rent concessions. Average annual base rents per square foot for comparable small shop space of less than 10,000 square feet were as follows for each property type
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
2017
|
|
2016
|
|
Same-center stabilized malls
|
$
|
32.69
|
|
|
$
|
32.46
|
|
|
Stabilized malls
|
32.83
|
|
|
32.18
|
|
|
Non-stabilized malls
(2)
|
26.25
|
|
|
26.48
|
|
|
Associated centers
|
13.85
|
|
|
13.91
|
|
|
Community centers
|
15.65
|
|
|
15.28
|
|
|
Office buildings
|
19.12
|
|
|
20.01
|
|
|
|
|
|
(1)
|
As noted above, excluded properties are not included in base rent. Average base rents for associated centers, community centers and office buildings include all leased space, regardless of size.
|
|
|
|
|
(2)
|
Represents average annual base rents for The Outlet Shoppes at Laredo and The Outlet Shoppes of the Bluegrass as of
September 30, 2017
and average annual base rents for The Outlet Shoppes of the Bluegrass and The Outlet Shoppes at Atlanta as of
September 30, 2016
.
|
Results from new and renewal leasing of comparable small shop space of less than 10,000 square feet during the three and
nine
month periods ended
September 30, 2017
for spaces that were previously occupied, based on the contractual terms of the related leases inclusive of the impact of any rent concessions, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type
|
|
Square
Feet
|
|
Prior
Gross
Rent PSF
|
|
New
Initial
Gross
Rent PSF
|
|
% Change
Initial
|
|
New
Average
Gross
Rent PSF
(1)
|
|
% Change
Average
|
|
Quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Property Types
(2)
|
|
529,055
|
|
|
$
|
40.50
|
|
|
$
|
34.46
|
|
|
(14.9
|
)%
|
|
$
|
35.00
|
|
|
(13.6
|
)%
|
|
Stabilized malls
|
|
493,779
|
|
|
41.92
|
|
|
35.66
|
|
|
(14.9
|
)%
|
|
36.19
|
|
|
(13.7
|
)%
|
|
New leases
|
|
60,159
|
|
|
51.65
|
|
|
49.79
|
|
|
(3.6
|
)%
|
|
51.78
|
|
|
0.3
|
%
|
|
Renewal leases
|
|
433,620
|
|
|
40.58
|
|
|
33.70
|
|
|
(17.0
|
)%
|
|
34.03
|
|
|
(16.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Property Types
(2)
|
|
1,590,088
|
|
|
$
|
41.45
|
|
|
$
|
38.96
|
|
|
(6.0
|
)%
|
|
$
|
39.81
|
|
|
(4.0
|
)%
|
|
Stabilized malls
|
|
1,485,284
|
|
|
42.55
|
|
|
39.95
|
|
|
(6.1
|
)%
|
|
40.80
|
|
|
(4.1
|
)%
|
|
New leases
|
|
306,343
|
|
|
42.78
|
|
|
45.27
|
|
|
5.8
|
%
|
|
47.23
|
|
|
10.4
|
%
|
|
Renewal leases
|
|
1,178,941
|
|
|
42.49
|
|
|
38.56
|
|
|
(9.2
|
)%
|
|
39.13
|
|
|
(7.9
|
)%
|
|
|
|
|
(1)
|
Average gross rent does not incorporate allowable future increases for recoverable common area expenses.
|
|
|
|
|
(2)
|
Includes stabilized malls, associated centers, community centers and office buildings.
|
Spreads on new leases were relatively flat. Excluding one unusually negative lease, spreads on new leases would have increased approximately 4%. Renewal leasing activity was negatively impacted by the restructuring of higher occupancy cost leases with certain apparel retailers.
New and renewal leasing activity of comparable small shop space of less than 10,000 square feet for the
nine
month period ended
September 30, 2017
based on the lease commencement date is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Leases
|
|
Square
Feet
|
|
Term
(in years)
|
|
Initial
Rent
PSF
|
|
Average
Rent
PSF
|
|
Expiring
Rent
PSF
|
|
Initial Rent
Spread
|
|
Average Rent
Spread
|
|
Commencement 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
|
156
|
|
|
420,187
|
|
|
7.85
|
|
|
$
|
44.56
|
|
|
$
|
47.54
|
|
|
$
|
40.30
|
|
|
$
|
4.26
|
|
|
10.6
|
%
|
|
$
|
7.24
|
|
|
18.0
|
%
|
|
Renewal
|
457
|
|
|
1,245,753
|
|
|
3.47
|
|
|
39.01
|
|
|
39.60
|
|
|
41.29
|
|
|
(2.28
|
)
|
|
(5.5
|
)%
|
|
(1.69
|
)
|
|
(4.1
|
)%
|
|
Commencement 2017 Total
|
613
|
|
|
1,665,940
|
|
|
4.58
|
|
|
$
|
40.41
|
|
|
$
|
41.61
|
|
|
$
|
41.04
|
|
|
$
|
(0.63
|
)
|
|
(1.5
|
)%
|
|
$
|
0.57
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commencement 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
|
12
|
|
|
39,198
|
|
|
8.48
|
|
|
$
|
53.17
|
|
|
$
|
55.04
|
|
|
$
|
48.05
|
|
|
$
|
5.12
|
|
|
10.7
|
%
|
|
$
|
6.99
|
|
|
14.5
|
%
|
|
Renewal
|
111
|
|
|
350,183
|
|
|
3.63
|
|
|
34.75
|
|
|
35.34
|
|
|
39.12
|
|
|
(4.37
|
)
|
|
(11.2
|
)%
|
|
(3.78
|
)
|
|
(9.7
|
)%
|
|
Commencement 2018 Total
|
123
|
|
|
389,381
|
|
|
4.10
|
|
|
$
|
36.60
|
|
|
$
|
37.32
|
|
|
$
|
40.02
|
|
|
$
|
(3.42
|
)
|
|
(8.5
|
)%
|
|
$
|
(2.70
|
)
|
|
(6.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2017/2018
|
736
|
|
|
2,055,321
|
|
|
4.50
|
|
|
$
|
39.69
|
|
|
$
|
40.79
|
|
|
$
|
40.85
|
|
|
$
|
(1.16
|
)
|
|
(2.8
|
)%
|
|
$
|
(0.06
|
)
|
|
(0.1
|
)%
|
LIQUIDITY AND CAPITAL RESOURCES
As of
September 30, 2017
, we had approximately
$80.0 million
outstanding on our three unsecured credit facilities leaving approximately
$690.8 million
of availability based on the terms of the credit facilities. In the third quarter of 2017, we retired three loans with an aggregate principal balance of $210.0 million. These loans were secured by two consolidated properties, Hanes Mall and The Outlet Shoppes at El Paso, and an unconsolidated property, Gulf Coast Town Center - Phase III. Our consolidated unencumbered properties generated approximately
56.9%
of total consolidated NOI for the
nine
months ended
September 30, 2017
(excluding dispositions and Excluded Malls).
In the third quarter of 2017, we extended and modified a $450.0 million and $50.0 million unsecured term loan and exercised an option to extend our $350.0 million term loan to October 2018. We also modified our three unsecured credit facilities and $350.0 million unsecured term loan to modify a debt covenant for consistency with the modification of our $400.0 million unsecured term loan. We also issued and sold an additional
$225.0 million
of series of 2026 Notes. See
Note 6
to the condensed consolidated financial statements for details.
We reduced our common dividend in the fourth quarter of 2017 to an annualized rate of $0.80 per share from $1.06 per share. Based on our updated projections of taxable income, which have been impacted by dilution of properties sold in prior periods as well as the impact from the high level of tenant bankruptcies which occurred during the year, the common dividend is being re-set to a rate that will preserve an estimated $50 million of additional cash on an annual basis. We expect to use this enhanced liquidity to help in funding value-adding redevelopment activity and debt reduction.
We sold our remaining 25% interest in River Ridge Mall JV, LLC in August 2017 to our joint venture partner for $9.0 million in cash and recorded a
$6.2 million
loss on investment related to the disposition.
We derive a majority of our revenues from leases with retail tenants, which have historically been the primary source for funding short-term liquidity and capital needs such as operating expenses, debt service, tenant construction allowances, recurring capital expenditures, dividends and distributions. We believe that the combination of cash flows generated from our operations, combined with our debt and equity sources and the availability under our credit facilities and proceeds from dispositions will, for the foreseeable future, provide adequate liquidity to meet our cash needs. In addition to these factors, we have options available to us to generate additional liquidity, including but not limited to, debt and equity offerings, joint venture investments, issuances of noncontrolling interests in our Operating Partnership, and decreasing expenditures related to tenant construction allowances and other capital expenditures. We also generate revenues from sales of peripheral land at our properties and from sales of real estate assets when it is determined that we can realize an optimal value for the assets.
Cash Flows - Operating, Investing and Financing Activities
The Company had
$31.4 million
of unrestricted cash and cash equivalents as of
September 30, 2017
, an increase of
$12.4 million
from
December 31, 2016
. Our net cash flows are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
Net cash provided by operating activities
|
$
|
336,950
|
|
|
$
|
339,625
|
|
|
$
|
(2,675
|
)
|
|
Net cash used in investing activities
|
(34,151
|
)
|
|
(4,323
|
)
|
|
(29,828
|
)
|
|
Net cash used in financing activities
|
(290,399
|
)
|
|
(347,726
|
)
|
|
57,327
|
|
|
Net cash flows
|
$
|
12,400
|
|
|
$
|
(12,424
|
)
|
|
$
|
24,824
|
|
Cash Provided by Operating Activities
Cash provided by operating activities decreased
$2.7 million
primarily due to the impact of lower occupancy on revenues, partially offset by reductions in operating expenses, and the operating cash flows of the properties that were disposed of in 2016.
Cash Used in Investing Activities
Cash flows used in investing activities increased
$29.8 million
as compared to the prior-year period. In 2016, we reinvested in both our consolidated and unconsolidated properties through capital expenditures for developments and redevelopments, in addition to tenant improvements and ongoing deferred maintenance. This investment was mostly offset by proceeds from the disposition of consolidated and unconsolidated properties. In 2017, we continued to reinvest in our portfolio through developments and redevelopments, including the acquisition of Macy’s and Sears locations at several malls. The increase in cash outflows due to the acquisition of the Macy’s and Sears locations was partially offset by slightly higher proceeds from sales of real estate assets in 2017.
Cash Used in Financing Activities
Cash flows used in financing activities decreased
$57.3 million
as compared to the prior-year period. In 2017, proceeds from sales of consolidated and unconsolidated real estate assets were used to fund the acquisition of the Macy’s and Sears' locations. In 2016, a greater amount of proceeds from sales of properties were used to reduce the outstanding balances on our lines of credit, resulting in higher cash used for financing activities.
Debt
Debt of the Company
CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries, that it has a direct or indirect ownership interest in, is the borrower on all of our debt. CBL is a limited guarantor of the Notes, as described in
Note 6
to the condensed consolidated financial statements, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates. We also provide a similar limited guarantee of the Operating Partnership's obligations with respect to our unsecured credit facilities and three unsecured term loans as of
September 30, 2017
.
Debt of the Operating Partnership
The following tables summarize debt based on our pro rata ownership share, including our pro rata share of unconsolidated affiliates and excluding noncontrolling investors’ share of consolidated properties, because we believe this provides investors and lenders a clearer understanding of our total debt obligations and liquidity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Consolidated
|
|
Noncontrolling
Interests
|
|
Unconsolidated
Affiliates
|
|
Total
|
|
Weighted-
Average
Interest
Rate
(1)
|
|
Fixed-rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating
properties
(2)
|
|
$
|
1,807,519
|
|
|
$
|
(77,494
|
)
|
|
$
|
524,099
|
|
|
$
|
2,254,124
|
|
|
5.06%
|
|
Recourse term loans on operating properties
(3)
|
|
—
|
|
|
—
|
|
|
11,035
|
|
|
11,035
|
|
|
3.74%
|
|
Senior unsecured notes due 2023
(4)
|
|
446,868
|
|
|
—
|
|
|
—
|
|
|
446,868
|
|
|
5.25%
|
|
Senior unsecured notes due 2024
(5)
|
|
299,944
|
|
|
—
|
|
|
—
|
|
|
299,944
|
|
|
4.60%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Consolidated
|
|
Noncontrolling
Interests
|
|
Unconsolidated
Affiliates
|
|
Total
|
|
Weighted-
Average
Interest
Rate
(1)
|
|
Senior unsecured notes due 2026
(6)
|
|
615,669
|
|
|
—
|
|
|
—
|
|
|
615,669
|
|
|
5.95%
|
|
Total fixed-rate debt
|
|
3,170,000
|
|
|
(77,494
|
)
|
|
535,134
|
|
|
3,627,640
|
|
|
5.19%
|
|
Variable-rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse term loan on operating property
|
|
10,868
|
|
|
(5,434
|
)
|
|
—
|
|
|
5,434
|
|
|
3.04%
|
|
Recourse term loans on operating properties
(7)
|
|
89,612
|
|
|
—
|
|
|
58,692
|
|
|
148,304
|
|
|
3.62%
|
|
Unsecured lines of credit
|
|
79,970
|
|
|
—
|
|
|
—
|
|
|
79,970
|
|
|
2.43%
|
|
Unsecured term loans
|
|
885,000
|
|
|
—
|
|
|
—
|
|
|
885,000
|
|
|
2.69%
|
|
Total variable-rate debt
|
|
1,065,450
|
|
|
(5,434
|
)
|
|
58,692
|
|
|
1,118,708
|
|
|
2.79%
|
|
Total fixed-rate and variable-rate debt
|
|
4,235,450
|
|
|
(82,928
|
)
|
|
593,826
|
|
|
4,746,348
|
|
|
4.63%
|
|
Unamortized deferred financing costs
|
|
(19,272
|
)
|
|
719
|
|
|
(2,357
|
)
|
|
(20,910
|
)
|
|
|
|
Total mortgage and other indebtedness, net
|
|
$
|
4,216,178
|
|
|
$
|
(82,209
|
)
|
|
$
|
591,469
|
|
|
$
|
4,725,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Consolidated
|
|
Noncontrolling
Interests
|
|
Unconsolidated
Affiliates
|
|
Total
|
|
Weighted-
Average
Interest
Rate
(1)
|
|
Fixed-rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating properties
|
|
$
|
2,453,628
|
|
|
$
|
(109,162
|
)
|
|
$
|
530,062
|
|
|
$
|
2,874,528
|
|
|
5.29%
|
|
Senior unsecured notes due 2023
(4)
|
|
446,552
|
|
|
—
|
|
|
—
|
|
|
446,552
|
|
|
5.25%
|
|
Senior unsecured notes due 2024
(5)
|
|
299,939
|
|
|
—
|
|
|
—
|
|
|
299,939
|
|
|
4.60%
|
|
Senior unsecured notes due 2026
(6)
|
|
394,260
|
|
|
—
|
|
|
—
|
|
|
394,260
|
|
|
5.95%
|
|
Total fixed-rate debt
|
|
3,594,379
|
|
|
(109,162
|
)
|
|
530,062
|
|
|
4,015,279
|
|
|
5.30%
|
|
Variable-rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse term loans on operating properties
|
|
19,055
|
|
|
(7,504
|
)
|
|
2,226
|
|
|
13,777
|
|
|
3.18%
|
|
Recourse term loans on operating properties
|
|
24,428
|
|
|
—
|
|
|
71,037
|
|
|
95,465
|
|
|
2.80%
|
|
Construction loan
(7)
|
|
39,263
|
|
|
—
|
|
|
—
|
|
|
39,263
|
|
|
3.12%
|
|
Unsecured lines of credit
|
|
6,024
|
|
|
—
|
|
|
—
|
|
|
6,024
|
|
|
1.82%
|
|
Unsecured term loans
|
|
800,000
|
|
|
—
|
|
|
—
|
|
|
800,000
|
|
|
2.04%
|
|
Total variable-rate debt
|
|
888,770
|
|
|
(7,504
|
)
|
|
73,263
|
|
|
954,529
|
|
|
2.18%
|
|
Total fixed-rate and variable-rate debt
|
|
4,483,149
|
|
|
(116,666
|
)
|
|
603,325
|
|
|
4,969,808
|
|
|
4.70%
|
|
Unamortized deferred financing costs
|
|
(17,855
|
)
|
|
945
|
|
|
(2,806
|
)
|
|
(19,716
|
)
|
|
|
|
Total mortgage and other indebtedness, net
|
|
$
|
4,465,294
|
|
|
$
|
(115,721
|
)
|
|
$
|
600,519
|
|
|
$
|
4,950,092
|
|
|
|
|
|
|
|
(1)
|
Weighted-average interest rate includes the effect of debt premiums (discounts), but excludes amortization of deferred financing costs.
|
|
|
|
|
(2)
|
The unconsolidated affiliate has an interest rate swap on a notional amount outstanding of $46,344 as of
September 30, 2017
related to a variable-rate loan on Ambassador Town Center to effectively fix the interest rate on this loan to a fixed-rate of 3.22%.
|
|
|
|
|
(3)
|
The unconsolidated affiliate has an interest rate swap on a notional amount outstanding of $11,035 as of
September 30, 2017
related to a variable-rate loan on Ambassador Town Center - Infrastructure Improvements to effectively fix the interest rate on this loan to a fixed-rate of 3.74%. See
Note 5
to the condensed consolidated financial statements for information on this loan, which closed in August 2017.
|
|
|
|
|
(4)
|
The balance is net of an unamortized discount of
$3,132
and
$3,448
as of
September 30, 2017
and
December 31, 2016
, respectively.
|
|
|
|
|
(5)
|
The balance is net of an unamortized discount of
$56
and
$61
as of
September 30, 2017
and
December 31, 2016
, respectively.
|
|
|
|
|
(6)
|
The balance is net of an unamortized discount of
$9,331
and
$5,740
as of
September 30, 2017
and
December 31, 2016
, respectively. In September 2017, we issued and sold an additional
$225,000
of the series of 2026 Notes. See
Note 6
to the condensed consolidated financial statements for further information.
|
|
|
|
|
(7)
|
The Outlet Shoppes at Laredo opened in April 2017, and the construction loan balance is included in recourse term loans on operating properties as of
September 30, 2017
.
|
We are in discussions with the lender to modify and extend the
$123.3 million
loan secured by Acadiana Mall, which matured in April 2017.
The weighted-average remaining term of our total share of consolidated and unconsolidated debt was 4.9 years and 5.4 years at
September 30, 2017
and
December 31, 2016
, respectively. The weighted-average remaining term of our pro rata share of fixed-rate debt was 5.6 years and 3.8 years at
September 30, 2017
and
December 31, 2016
, respectively.
As of
September 30, 2017
and
December 31, 2016
, our pro rata share of consolidated and unconsolidated variable-rate debt represented
23.6%
and
19.3%
, respectively, of our total pro rata share of debt. As of September 30, 2017, our share of consolidated and unconsolidated variable-rate debt represented 15.9% of our total market capitalization (see
Equity
below) as compared to 12.1% as of
December 31, 2016
. The increase is primarily due to the decline in our stock price from $11.50 at December 30, 2016 to $8.39 at September 29, 2017.
See
Note 6
to the condensed consolidated financial statements for additional information concerning the amount and terms of our outstanding indebtedness and compliance with applicable covenants and restrictions as of
September 30, 2017
.
Mortgages on Operating Properties
Loan Refinancings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property
|
|
Consolidated/
Unconsolidated
Property
|
Stated
Interest
Rate
|
|
Maturity
Date
|
|
Amount
Extended
(1)
|
|
March
|
|
Statesboro Crossing
(1)
|
|
Consolidated
|
LIBOR + 1.8%
|
|
June 2018
|
|
$
|
10,930
|
|
|
August
|
|
Ambassador Town Center - Infrastructure Improvements
(2)
|
|
Unconsolidated
|
LIBOR + 2.0%
|
|
August 2020
|
|
11,035
|
|
|
|
|
|
(1)
|
The Company exercised its option to extend the maturity date of the loan in the first quarter of 2017.
|
|
|
|
|
(2)
|
In August 2017, the loan was amended and modified to extend the maturity date. The loan requires annual principal payments of
$430
,
$555
and
$690
in 2018, 2019 and 2020, respectively. The Operating Partnership has guaranteed 100% of the loan. See
Note 12
to the condensed consolidated financial statements for information on the Operating Partnership's guaranty. The joint venture has an interest rate swap on the notional amount of the loan, amortizing to $
9,360
over the term of the swap, to effectively fix the interest rate to
3.74%
.
|
Loan Financing
Subsequent to
September 30, 2017
, the unconsolidated
50
/
50
joint venture, Shoppes at Eagle Point, LLC, closed on a construction loan for the development of The Shoppes at Eagle Point, a community center located in Cookeville, TN. See
Note 16
to the condensed consolidated financial statements for additional information.
Loan Repayments
We repaid the following loans, secured by the related properties, in 2017 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property
|
|
Consolidated/
Unconsolidated
Property
|
Interest
Rate at
Repayment
Date
|
|
Scheduled
Maturity
Date
|
|
Principal
Balance
Repaid
(1)
|
|
January
|
|
The Plaza at Fayette
|
|
Consolidated
|
5.67%
|
|
April 2017
|
|
$
|
37,146
|
|
|
January
|
|
The Shoppes at St. Clair Square
|
|
Consolidated
|
5.67%
|
|
April 2017
|
|
18,827
|
|
|
February
|
|
Hamilton Corner
|
|
Consolidated
|
5.67%
|
|
April 2017
|
|
14,227
|
|
|
March
|
|
Layton Hills Mall
|
|
Consolidated
|
5.66%
|
|
April 2017
|
|
89,526
|
|
|
April
|
|
The Outlet Shoppes at Oklahoma City
(2)
|
|
Consolidated
|
5.73%
|
|
January 2022
|
|
53,386
|
|
|
April
|
|
The Outlet Shoppes at Oklahoma City -
Phase II
(2)
|
|
Consolidated
|
3.53%
|
|
April 2019
|
|
5,545
|
|
|
April
|
|
The Outlet Shoppes at Oklahoma City -
Phase III
(2)
|
|
Consolidated
|
3.53%
|
|
April 2019
|
|
2,704
|
|
|
July
|
|
Gulf Coast Town Center - Phase III
(3)
|
|
Unconsolidated
|
3.13%
|
|
July 2017
|
|
4,118
|
|
|
September
|
|
Hanes Mall
(4)
|
|
Consolidated
|
6.99%
|
|
October 2018
|
|
144,325
|
|
|
September
|
|
The Outlet Shoppes at El Paso
|
|
Consolidated
|
7.06%
|
|
December 2017
|
|
61,561
|
|
|
|
|
|
|
|
|
|
|
|
$
|
431,365
|
|
|
|
|
|
(1)
|
We retired the loans with borrowings from our credit facilities unless otherwise noted.
|
|
|
|
|
(2)
|
The loan was retired in conjunction with the sale of the property which secured the loan. See
Note 4
to the condensed consolidated financial statements for more information. We recorded an
$8,500
loss on extinguishment of debt due to a prepayment fee on the early retirement.
|
|
|
|
|
(3)
|
We loaned the unconsolidated affiliate, JG Gulf Coast Town Center, LLC, the amount necessary to retire the loan and received a mortgage note receivable in return. See
Note 8
to the condensed consolidated financial statements for more information.
|
|
|
|
|
(4)
|
We recorded a
$371
loss on extinguishment of debt due to a prepayment fee on the early retirement.
|
Other
The following is a summary of our 2017 dispositions for which the title to the consolidated mall securing the related fixed-rate debt was transferred to the lender in satisfaction of the non-recourse debt (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property
|
|
Interest
Rate at
Repayment
Date
|
|
Scheduled
Maturity
Date
|
|
Balance of
Non-recourse
Debt
|
|
Gain on
Extinguishment
of Debt
|
|
January
|
|
Midland Mall
|
|
6.10%
|
|
August 2016
|
|
$
|
31,953
|
|
|
$
|
3,760
|
|
|
June
|
|
Chesterfield Mall
|
|
5.74%
|
|
September 2016
|
|
140,000
|
|
|
29,187
|
|
|
August
|
|
Wausau Center
|
|
5.85%
|
|
April 2021
|
|
17,689
|
|
|
6,851
|
|
|
|
|
|
|
|
|
|
|
$
|
189,642
|
|
|
$
|
39,798
|
|
Other
In conjunction with the divestiture of our interests in a consolidated joint venture, we were relieved of our funding obligation related to the loan secured by vacant land owned by the joint venture, which had a principal balance of
$2.5 million
upon the disposition of our interests in the first quarter of 2017.
Unencumbered Portfolio Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Per Square
Foot for the Twelve
Months Ended
(1) (2)
|
|
Occupancy
(2)
|
|
% of
Consolidated
Unencumbered
NOI for the
Nine Months
Ended
9/30/17
(3)
|
|
|
09/30/17
|
|
09/30/16
|
|
09/30/17
|
|
09/30/16
|
|
|
Unencumbered consolidated properties:
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Malls
|
|
$
|
402
|
|
|
$
|
417
|
|
|
93.5
|
%
|
|
92.6
|
%
|
|
33.1
|
%
|
|
Tier 2 Malls
|
|
326
|
|
|
337
|
|
|
91.8
|
%
|
|
93.2
|
%
|
|
50.1
|
%
|
|
Tier 3 Malls
|
|
261
|
|
|
267
|
|
|
87.2
|
%
|
|
86.9
|
%
|
|
5.7
|
%
|
|
Total Malls
|
|
$
|
345
|
|
|
$
|
357
|
|
|
92.0
|
%
|
|
92.5
|
%
|
|
88.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Associated Centers
|
|
N/A
|
|
|
N/A
|
|
|
97.9
|
%
|
|
96.3
|
%
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Community Centers
|
|
N/A
|
|
|
N/A
|
|
|
98.9
|
%
|
|
98.9
|
%
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Office Buildings and Other
|
|
N/A
|
|
|
N/A
|
|
|
94.2
|
%
|
|
95.3
|
%
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unencumbered Consolidated Portfolio
|
|
$
|
345
|
|
|
$
|
357
|
|
|
93.5
|
%
|
|
93.6
|
%
|
|
100.0
|
%
|
|
|
|
|
(1)
|
Represents same-center sales per square foot for mall tenants 10,000 square feet or less for stabilized malls.
|
|
|
|
|
(2)
|
Operating metrics are included for unencumbered operating properties and do not include sales or occupancy of unencumbered outparcels.
|
|
|
|
|
(3)
|
Our consolidated unencumbered properties generated approximately
56.9%
of total consolidated NOI of
$478,614,568
(which excludes NOI related to dispositions) for the
nine
months ended
September 30, 2017
.
|
Equity
During the
nine
months ended
September 30, 2017
, we paid dividends of
$169.6 million
to holders of CBL's common stock and preferred stock, as well as
$51.9 million
in distributions to the noncontrolling interest investors in the Operating Partnership and other consolidated subsidiaries. The Operating Partnership paid distributions of
$33.7 million
and $159.6 million on the preferred units and common units, respectively, as well as distributions of $28.2 million to the noncontrolling interests in other consolidated subsidiaries.
On August 24, 2017, we announced a third quarter 2017 common stock dividend of $0.265 per share payable in cash that was paid on October 16, 2017. On June 2, 2017, we announced a second quarter 2017 common stock dividend of $0.265 per share payable in cash that was paid on July 17, 2017. On February 24, 2017, we announced a first quarter 2017 common stock dividend of $0.265 per share payable in cash that was paid on April 17, 2017. Future dividends payable will be determined by our Board of Directors based upon circumstances at the time of declaration. As noted above, the common stock dividend is being re-set to an annualized rate of $0.80 per share effective with the fourth quarter 2017 dividend. Our dividend payout ratio was
54.6%
and
54.2%
for the
three
and
nine
months ended
September 30, 2017
, respectively.
As a publicly traded company and, as a subsidiary of a publicly traded company, we have access to capital through both the public equity and debt markets. We currently have a shelf registration statement on file with the SEC authorizing us to publicly issue senior and/or subordinated debt securities, shares of preferred stock (or depositary shares representing fractional interests therein), shares of common stock, warrants or rights to purchase any of the foregoing securities, and units consisting of two or more of these classes or series of securities and limited guarantees of debt securities issued by the Operating Partnership. Pursuant to the shelf registration statement, the Operating Partnership is also authorized to publicly issue unsubordinated debt securities. There is no limit to the offering price or number of securities that we may issue under this shelf registration statement.
At-The-Market Equity Program
On March 1, 2013, we entered into Sales Agreements with a number of sales agents to sell shares of CBL's common stock, having an aggregate offering price of up to $300.0 million, from time to time through an ATM program. In accordance with the Sales Agreements, we will set the parameters for the sales of shares, including the number of shares to be issued, the time period during which sales are to be made and any minimum price below which sales may not be made. The Sales Agreements provide that the sales agents will be entitled to compensation for their services at a mutually agreed commission rate not to exceed 2.0% of the gross proceeds from the sales of shares sold through the ATM program. For each share of common stock issued by CBL, the Operating Partnership issues a corresponding number of common units of limited partnership interest to CBL in exchange for the contribution of the proceeds from the stock issuance. We include only share issuances that have settled in the calculation of shares outstanding at the end of each period.
We have not sold any shares under the ATM program since 2013. Since the commencement of the ATM program, CBL has issued
8,419,298
shares of common stock, at a weighted-average sales price of
$25.12
per share, and approximately $88.5 million remains available that may be sold under this program as of
September 30, 2017
. Actual future sales under this program, if any, will depend on a variety of factors including but not limited to market conditions, the trading price of CBL's common stock and our capital needs. We have no obligation to sell the remaining shares available under the ATM program.
Debt-To-Total Market Capitalization
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. 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 of equity) ratio was
67.4%
at
September 30, 2017
, compared to 62.3% at
September 30, 2016
. The increase in the debt-to-total-market capitalization ratio is primarily due to a decrease in CBL's stock price to $8.39 at September 29, 2017 from $12.14 at
September 30, 2016
.
Our debt-to-total-market capitalization ratio at
September 30, 2017
was computed as follows (in thousands, except stock prices):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
Stock Price
(1)
|
|
Value
|
|
Common stock and operating partnership units
|
199,316
|
|
|
$
|
8.39
|
|
|
$
|
1,672,261
|
|
|
7.375% Series D Cumulative Redeemable Preferred Stock
|
1,815
|
|
|
250.00
|
|
|
453,750
|
|
|
6.625% Series E Cumulative Redeemable Preferred Stock
|
690
|
|
|
250.00
|
|
|
172,500
|
|
|
Total market equity
|
|
|
|
|
|
|
2,298,511
|
|
|
Company’s share of total debt
|
|
|
|
|
|
|
4,746,348
|
|
|
Total market capitalization
|
|
|
|
|
|
|
$
|
7,044,859
|
|
|
Debt-to-total-market capitalization ratio
|
|
|
|
|
|
|
67.4
|
%
|
|
|
|
|
(1)
|
Stock price for common stock and Operating Partnership units equals the closing price of CBL's common stock on September 29, 2017. The stock prices for the preferred stock represent the liquidation preference of each respective series of preferred stock.
|
Capital Expenditures
Deferred maintenance expenditures are generally 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 a portion is recovered from tenants over a 5 to 15-year period. We recover these costs through fixed amounts with annual increases or pro rata cost reimbursements based on the tenant’s occupied space.
The following table, which excludes expenditures for developments and expansions, summarizes these capital expenditures, including our share of unconsolidated affiliates' capital expenditures, for the
three
and
nine
month periods ended
September 30, 2017
compared to the same periods in
2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Tenant allowances
(1)
|
$
|
9,658
|
|
|
$
|
17,811
|
|
|
$
|
29,774
|
|
|
$
|
50,707
|
|
|
|
|
|
|
|
|
|
|
|
Renovations
|
5,190
|
|
|
6,390
|
|
|
9,255
|
|
|
11,011
|
|
|
|
|
|
|
|
|
|
|
|
Deferred maintenance:
|
|
|
|
|
|
|
|
|
Parking lot and parking lot lighting
|
4,060
|
|
|
9,171
|
|
|
8,321
|
|
|
11,936
|
|
|
Roof repairs and replacements
|
1,544
|
|
|
2,178
|
|
|
4,607
|
|
|
3,221
|
|
|
Other capital expenditures
|
5,616
|
|
|
1,464
|
|
|
15,833
|
|
|
7,292
|
|
|
Total deferred maintenance
|
11,220
|
|
|
12,813
|
|
|
28,761
|
|
|
22,449
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized overhead
|
1,370
|
|
|
1,103
|
|
|
5,661
|
|
|
4,051
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest
|
452
|
|
|
616
|
|
|
1,676
|
|
|
1,612
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
$
|
27,890
|
|
|
$
|
38,733
|
|
|
$
|
75,127
|
|
|
$
|
89,830
|
|
|
|
|
|
(1)
|
Tenant allowances primarily relate to new leases. Tenant allowances related to renewal leases were not material for the periods presented.
|
Our total investment in renovations that are scheduled for 2017 is projected to be $10.2 million, which
includes exterior and floor renovations, as well as other eco-friendly green renovations.
Annual capital expenditures budgets are prepared for each of our properties that are intended to provide for all necessary recurring and non-recurring capital expenditures. 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 tables summarize our development projects as of
September 30, 2017
.
Properties Opened During the Nine Months Ended
September 30, 2017
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBL's Share of
|
|
|
|
|
|
Property
|
|
Location
|
|
CBL
Ownership
Interest
|
|
Total
Project
Square
Feet
|
|
Total
Cost
(1)
|
|
Cost to
Date
(2)
|
|
Opening
Date
|
|
Initial
Unleveraged
Yield
|
|
Outlet Center:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Outlet Shoppes at Laredo
|
|
Laredo, TX
|
|
65%
|
|
357,755
|
|
|
$
|
69,936
|
|
|
$
|
68,968
|
|
|
April-17
|
|
9.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mall Expansions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kirkwood Mall - Lucky 13 (Lucky's Pub)
|
|
Bismarck, ND
|
|
100%
|
|
6,500
|
|
|
3,200
|
|
|
3,109
|
|
|
Sep-17
|
|
7.6%
|
|
Mayfaire Town Center - Phase I
|
|
Wilmington, NC
|
|
100%
|
|
67,766
|
|
|
19,073
|
|
|
15,112
|
|
|
Feb-17
|
|
8.4%
|
|
|
|
|
|
|
|
74,266
|
|
|
22,273
|
|
|
18,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mall Redevelopments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
College Square - Partial Belk Redevelopment
(Planet Fitness) (3)
|
|
Morristown, TN
|
|
100%
|
|
20,000
|
|
|
1,549
|
|
|
1,434
|
|
|
Mar-17
|
|
9.9%
|
|
Dakota Square Mall - Partial Miracle Mart
Redevelopment (T.J. Maxx)
|
|
Minot, ND
|
|
100%
|
|
20,755
|
|
|
1,929
|
|
|
1,584
|
|
|
May-17
|
|
12.3%
|
|
Hickory Point Mall Redevelopment (T.J. Maxx/
Shops)
|
|
Forsyth, IL
|
|
100%
|
|
50,030
|
|
|
4,070
|
|
|
2,592
|
|
|
Sep-17
|
|
8.9%
|
|
Pearland Town Center - Sports Authority
Redevelopment (Dick's Sporting Goods)
|
|
Pearland, TX
|
|
100%
|
|
48,582
|
|
|
7,069
|
|
|
6,325
|
|
|
April-17
|
|
12.2%
|
|
South County Center - DXL
|
|
St. Louis, MO
|
|
100%
|
|
6,792
|
|
|
1,266
|
|
|
1,137
|
|
|
June-17
|
|
21.1%
|
|
Stroud Mall - Beauty Academy
|
|
Stroudsburg, PA
|
|
100%
|
|
10,494
|
|
|
2,167
|
|
|
1,932
|
|
|
June-17
|
|
6.6%
|
|
Turtle Creek Mall - Ulta Beauty
|
|
Hattiesburg, MS
|
|
100%
|
|
20,782
|
|
|
3,050
|
|
|
1,763
|
|
|
April-17
|
|
6.7%
|
|
York Galleria - Partial JCP Redevelopment
(Gold's Gym/Shops)
|
|
York, PA
|
|
100%
|
|
40,832
|
|
|
5,370
|
|
|
3,849
|
|
|
July-17
|
|
12.4%
|
|
York Galleria - Partial JCP Redevelopment
(H&M/Shops)
|
|
York, PA
|
|
100%
|
|
42,672
|
|
|
5,582
|
|
|
4,377
|
|
|
April-17
|
|
7.8%
|
|
|
|
|
|
|
|
260,939
|
|
|
32,052
|
|
|
24,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associated Center Redevelopment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Landing at Arbor Place - Ollie's
|
|
Atlanta (Douglasville), GA
|
|
100%
|
|
28,446
|
|
|
1,946
|
|
|
1,813
|
|
|
Aug-17
|
|
8.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Properties Opened
|
|
|
|
|
|
721,406
|
|
|
$
|
126,207
|
|
|
$
|
113,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Total Cost is presented net of reimbursements to be received.
|
|
|
|
|
|
|
|
(2) Cost to Date does not reflect reimbursements until they are received.
|
|
|
|
|
|
|
|
(3) This property was sold in May 2017.
|
|
|
|
|
|
|
We completed several anchor redevelopments during the quarter adding in a variety of non-traditional tenants as we continue to reinvent our properties in the suburban town center concept.
Properties Under Development at
September 30, 2017
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBL's Share of
|
|
|
|
|
|
Property
|
|
Location
|
|
CBL
Ownership
Interest
|
|
Total
Project
Square
Feet
|
|
Total
Cost
(1)
|
|
Cost to
Date
(2)
|
|
Expected
Opening
Date
|
|
Initial
Unleveraged
Yield
|
|
Community Center:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Shoppes at Eagle Point
(3)
|
|
Cookeville, TN
|
|
50%
|
|
233,489
|
|
|
$
|
22,413
|
|
|
$
|
6,963
|
|
|
Fall-18
|
|
8.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mall Expansion:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parkdale Mall - Restaurant Addition
|
|
Beaumont, TX
|
|
100%
|
|
4,700
|
|
|
1,481
|
|
|
912
|
|
|
Fall-17
|
|
9.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mall Redevelopments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Towne Mall - Flix Brewhouse
|
|
Madison, WI
|
|
100%
|
|
40,795
|
|
|
9,874
|
|
|
2,147
|
|
|
Spring-18
|
|
8.5%
|
|
East Towne Mall - Lucky 13
|
|
Madison, WI
|
|
100%
|
|
7,758
|
|
|
3,014
|
|
|
1,513
|
|
|
Winter-17
|
|
6.5%
|
|
|
|
|
|
|
|
48,553
|
|
|
12,888
|
|
|
3,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Properties Under Development
|
|
|
|
|
|
286,742
|
|
|
$
|
36,782
|
|
|
$
|
11,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Total Cost is presented net of reimbursements to be received.
|
|
|
|
|
|
|
|
(2) Cost to Date does not reflect reimbursements until they are received.
|
|
|
|
|
|
|
|
(3) We will fund 100% of the required equity contribution. The remainder of the project will be funded through a construction loan with a total borrowing capacity of $36,400, which closed subsequent to September 30, 2017.
|
We began construction on The Shoppes at Eagle Point in September 2017. The development will be anchored by Publix, Academy Sports & Outdoors, Ross, PetSmart and Ulta Beauty as well as a collection of shops and restaurants including Panera Bread, Chipotle Mexican Grill, Five Guys Burgers & Fries and AT&T. The project is 87% leased or committed.
We are working on plans for the three Macy's locations which were purchased in January 2017 as well as the five Sears' stores which we gained control of in a sales-leaseback transaction. We will soon be announcing an entertainment user to replace the former Macy's at Jefferson Mall. Leases are executed or out for signature for three tenants to replace the Macy's at Parkdale Mall that closed earlier this year.
We anticipate additional anchor developments will commence construction in early 2018 as we finalize leases and construction plans. Planned redevelopments will feature a variety of uses such as entertainment, food and beverage, health and wellness, hotels, multi-family, and grocery stores among others. Many of these non-retail uses will be structured as joint ventures, ground leases or land sales, which will reduce required capital.
Except for the projects presented above, we do not have any other material capital commitments as of
September 30, 2017
.
Acquisitions and Dispositions
See
Note 4
and
Note 5
to the condensed consolidated financial statements for a description of our acquisition and disposition activity related to consolidated and unconsolidated affiliates.
Loss on Investment
In August 2017, the Company sold its
25%
interest in River Ridge Mall JV, LLC to its joint venture partner for
$9.0 million
in cash. We recorded a
$6.2 million
loss on investment related to the disposition. Our property management agreement with River Ridge Mall JV, LLC ended September 30, 2017. See
Note 5
to the condensed consolidated financial statements for additional information.
Impairment of Real Estate Assets
During the
nine
months ended
September 30, 2017
, we recorded a loss on impairment of
$71.4 million
which primarily relates to two malls, a parcel project near an outlet mall and one outparcel. See
Note 3
to the condensed consolidated financial statements for more information.
Gain on Sales of Real Estate Assets
During the
nine
months ended
September 30, 2017
, we recognized an
$86.9 million
gain on sales of real estate assets, primarily related to the sale of a mall, an outlet center and eight outparcels. See
Note 4
to the condensed consolidated financial statements for further details.
Off-Balance Sheet Arrangements
Unconsolidated Affiliates
We have ownership interests in
17
unconsolidated affiliates as of
September 30, 2017
that are described in
Note 5
to the condensed consolidated financial statements. The unconsolidated affiliates are accounted for using the equity method of accounting and are reflected in the condensed 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 or have the ability to increase our ownership interest.
The following table represents our guarantees of unconsolidated affiliates' debt as reflected in the accompanying condensed consolidated balance sheets as of
September 30, 2017
and
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017
|
|
Obligation recorded to
reflect guaranty
|
|
Unconsolidated
Affiliate
|
|
Company's
Ownership
Interest
|
|
Outstanding
Balance
|
|
Percentage
Guaranteed
by the
Operating
Partnership
|
|
Maximum
Guaranteed
Amount
|
|
Debt
Maturity
Date
(1)
|
|
9/30/2017
|
|
12/31/2016
|
|
West Melbourne I, LLC -
Phase I
(2)
|
|
50%
|
|
$
|
42,397
|
|
|
20%
|
|
$
|
8,479
|
|
|
Feb-2018
|
(3)
|
|
$
|
86
|
|
|
$
|
86
|
|
|
West Melbourne I, LLC -
Phase II
(2)
|
|
50%
|
|
16,377
|
|
|
20%
|
|
3,275
|
|
|
Feb-2018
|
(3)
|
|
33
|
|
|
33
|
|
|
Port Orange I, LLC
|
|
50%
|
|
57,298
|
|
|
20%
|
|
11,460
|
|
|
Feb-2018
|
(3)
|
|
116
|
|
|
116
|
|
|
Ambassador Infrastructure, LLC
|
|
65%
|
|
11,035
|
|
|
100%
|
|
11,035
|
|
|
Aug-2020
|
(4)
|
|
177
|
|
|
177
|
|
|
|
|
|
|
|
|
Total guaranty liability
|
|
|
$
|
412
|
|
|
$
|
412
|
|
|
|
|
|
(1)
|
Excludes any extension options.
|
|
|
|
|
(2)
|
The loan is secured by Hammock Landing - Phase I and Hammock Landing - Phase II, respectively.
|
|
|
|
|
(3)
|
The loan has a
one
-year extension option, which is at the unconsolidated affiliate's election, for an outside maturity date of February 2019.
|
|
|
|
|
(4)
|
The loan was modified and extended in August 2017. See
Note 5
to the
condensed consolidated financial statements for further information.
|
We have guaranteed the lease performance of YTC, an unconsolidated affiliate in which we own a
50%
interest, under the terms of an agreement with a third party that owns property as part of York Town Center. Under the terms of that agreement, YTC is obligated to cause performance of the third party’s obligations as landlord under its lease with its sole tenant, including, but not limited to, provisions such as co-tenancy and exclusivity requirements. Should YTC fail to cause performance, then the tenant under the third party landlord’s lease may pursue certain remedies ranging from rights to terminate its lease to receiving reductions in rent. We have guaranteed YTC’s performance under this agreement up to a maximum of
$22.0 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
$14.0 million
as of
September 30, 2017
. 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 include an obligation for this guaranty because we determined that the fair value of the guaranty was not material as of
September 30, 2017
and
December 31, 2016
.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements and disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex judgment about the effect of matters that are inherently uncertain and that may change in subsequent periods. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our Annual Report on Form 10-K for the year ended
December 31, 2016
contains a discussion of our critical accounting policies and estimates in the Management's Discussion and Analysis of Financial Condition and Results
of Operations section. There have been no material changes to these policies and estimates during the
nine
months ended
September 30, 2017
. 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, 2016
.
Recent Accounting Pronouncements
See
Note 2
to the condensed consolidated financial statements for information on recently issued accounting pronouncements.
Impact of Inflation and Deflation
Deflation can result in a decline in general price levels, often caused by a decrease in the supply of money or credit. The predominant effects of deflation are high unemployment, credit contraction and weakened consumer demand. Restricted lending practices could impact our ability to obtain financings or refinancings for our properties and our tenants’ ability to obtain credit. Decreases in consumer demand can have a direct impact on our tenants and the rents we receive.
During inflationary periods, substantially all of our tenant leases contain provisions designed to mitigate the impact of inflation. These provisions include clauses enabling us to receive percentage rent based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases are for terms of less than 10 years, which may provide us the opportunity to replace existing leases with new leases at higher base and/or percentage rent if rents of the existing leases are below the then existing market rate. Most of the leases require the tenants to pay a fixed amount, subject to annual increases, for their share of operating expenses, including common area maintenance, real estate taxes, insurance and certain capital expenditures, which reduces our exposure to increases in costs and operating expenses resulting from inflation.
Non-GAAP Measure
Funds from Operations
FFO is a widely used non-GAAP measure of the operating performance of real estate companies that supplements net income (loss) determined in accordance with GAAP. NAREIT defines FFO as net income (loss) (computed in accordance with GAAP) excluding gains or losses on sales of depreciable operating properties and impairment losses of depreciable properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests. Adjustments for unconsolidated partnerships, joint ventures and noncontrolling interests are calculated on the same basis. We define FFO as defined above by NAREIT less dividends on preferred stock of the Company or distributions on preferred units of the Operating Partnership, as applicable. Our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
We believe that FFO provides an additional indicator of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assumes the value of real estate assets declines predictably over time. Since values of well-maintained real estate assets have historically risen 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 allocable to Operating Partnership common unitholders and FFO allocable to common shareholders, as we believe that both are useful performance measures. We believe FFO allocable to Operating Partnership common unitholders is a useful performance measure since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in our Operating Partnership. We believe FFO allocable to common shareholders is a useful performance measure because it is the performance measure that is most directly comparable to net income (loss) attributable to common shareholders.
In our reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders that is presented below, we make an adjustment to add back noncontrolling interest in income (loss) of our Operating Partnership in order to arrive at FFO of the Operating Partnership common unitholders. We then apply a percentage to FFO of the Operating Partnership common unitholders to arrive at FFO allocable to common shareholders. The percentage is computed by taking the weighted-average number of common shares outstanding for the period and dividing it by the sum of the weighted-average number of common shares and the weighted-average number of Operating Partnership units held by noncontrolling interests during the period.
FFO does not represent cash flows from operations as defined by GAAP, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to net income (loss) for purposes of evaluating our operating performance.
The Company believes that it is important to identify the impact of certain significant items on its FFO measures for a reader to have a complete understanding of the Company’s results of operations. Therefore, the Company has also presented adjusted FFO measures excluding these significant items from the applicable periods. Please refer to the reconciliation of net income attributable to common shareholders to FFO allocable to Operating Partnership common unitholders below for a description of these adjustments.
FFO of the Operating Partnership decreased 7.4% to $102.9 million for the three months ended September 30, 2017 as compared to $111.1 million for the prior-year period, and decreased 17.3% to $325.5 million for the
nine
months ended
September 30, 2017
as compared to $393.7 million for the prior-year period. Excluding the adjustments noted below, FFO of the Operating Partnership, as adjusted, decreased 14.1% for the three months ended
September 30, 2017
to $98.7 million compared to $114.9 million for the same period in 2016, and decreased 12.6% for the nine months ended
September 30, 2017
to $301.4 million compared to $344.7 million for the same period in 2016. The decrease in FFO, as adjusted, was primarily driven by dilution from asset sales in the prior year and the current year-to-date period and $5.1 million of abandoned projects expense in the current year periods. FFO, as adjusted, for the current year periods was also impacted by a decline in revenues resulting from lower occupancy and tenant bankruptcies.
The reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Net income (loss) attributable to common shareholders
|
$
|
(2,258
|
)
|
|
$
|
(10,164
|
)
|
|
$
|
50,807
|
|
|
$
|
70,383
|
|
|
Noncontrolling interest in income (loss) of Operating Partnership
|
(81
|
)
|
|
(1,372
|
)
|
|
8,702
|
|
|
12,056
|
|
|
Depreciation and amortization expense of:
|
|
|
|
|
|
|
|
|
Consolidated properties
|
71,732
|
|
|
71,794
|
|
|
225,461
|
|
|
220,505
|
|
|
Unconsolidated affiliates
|
9,633
|
|
|
10,756
|
|
|
28,533
|
|
|
29,090
|
|
|
Non-real estate assets
|
(934
|
)
|
|
(838
|
)
|
|
(2,590
|
)
|
|
(2,397
|
)
|
|
Noncontrolling interests' share of depreciation and amortization
|
(2,170
|
)
|
|
(2,237
|
)
|
|
(6,791
|
)
|
|
(6,685
|
)
|
|
Loss on impairment, net of taxes
|
24,935
|
|
|
51,812
|
|
|
70,185
|
|
|
114,990
|
|
|
(Gain) loss on depreciable property, net of taxes and noncontrolling interests' share
|
1,995
|
|
|
(8,685
|
)
|
|
(48,761
|
)
|
|
(44,206
|
)
|
|
FFO allocable to Operating Partnership common unitholders
|
102,852
|
|
|
111,066
|
|
|
325,546
|
|
|
393,736
|
|
|
Litigation expenses
(1)
|
17
|
|
|
601
|
|
|
69
|
|
|
2,308
|
|
|
Nonrecurring professional fees expense (reimbursement)
(1)
|
—
|
|
|
662
|
|
|
(919
|
)
|
|
1,781
|
|
|
Loss on investment
(2)
|
354
|
|
|
—
|
|
|
6,197
|
|
|
—
|
|
|
Equity in (earnings) losses from disposals of unconsolidated affiliates
(3)
|
—
|
|
|
1,145
|
|
|
—
|
|
|
(54,485
|
)
|
|
Non-cash default interest expense
(4)
|
1,904
|
|
|
1,374
|
|
|
4,398
|
|
|
1,374
|
|
|
Gain on extinguishment of debt, net of noncontrolling interests' share
(5)
|
(6,452
|
)
|
|
6
|
|
|
(33,902
|
)
|
|
—
|
|
|
FFO allocable to Operating Partnership common unitholders, as adjusted
|
$
|
98,675
|
|
|
$
|
114,854
|
|
|
$
|
301,389
|
|
|
$
|
344,714
|
|
|
|
|
|
|
|
|
|
|
|
FFO per diluted share
|
$
|
0.52
|
|
|
$
|
0.56
|
|
|
$
|
1.63
|
|
|
$
|
1.97
|
|
|
|
|
|
|
|
|
|
|
|
FFO, as adjusted, per diluted share
|
$
|
0.50
|
|
|
$
|
0.57
|
|
|
$
|
1.51
|
|
|
$
|
1.72
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common and potential dilutive common shares outstanding with Operating Partnership units fully converted
|
199,321
|
|
|
200,004
|
|
|
199,325
|
|
|
199,992
|
|
|
|
|
|
|
|
|
|
|
|
(1) Litigation expense and nonrecurring professional fees expense are included in General and Administrative expense in the Consolidated Statements of Operations. Nonrecurring professional fees reimbursement is included in Interest and Other Income (Loss) in the Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
The three months and nine months ended September 30, 2017 represents a loss on investment related to the write down of our 25% interest in River Ridge Mall JV, LLC based on the contract price to sell such interest to the joint venture partner. The sale closed in August 2017.
|
|
(3) The three months ended September 30, 2016 includes $1,145 of equity in losses from the disposals of unconsolidated affiliates. The nine months ended September 30, 2016 also includes $26,363 related to the sale of our 50% interest in Triangle Town Center and $29,267 related to the foreclosure of the loan secured by Gulf Coast Town Center. These amounts are included in Equity in Earnings of Unconsolidated Affiliates in the Condensed Consolidated Statements of Operations.
|
|
(4) The three months and nine months ended September 30, 2017 includes default interest expense related to Acadiana Mall and Wausau Center. The nine months ended September 30, 2017 also includes default interest expense related to Chesterfield Mall and Midland Mall. The three and nine months ended September 30, 2016 includes default interest expense related to Chesterfield Mall, Midland Mall and Wausau Center.
|
|
(5) The three months ended September 30, 2017 primarily represents a $6,851 gain on extinguishment of debt related to the non-recourse loan secured by Wausau Center, which was conveyed to the lender in the third quarter of 2017, which was partially offset by a loss on extinguishment of debt related to a prepayment fee of $371 related to the early retirement of a mortgage loan. Additionally, the nine months ended September 30, 2017 also includes a gain on extinguishment of debt related to the non-recourse loan secured by Chesterfield Mall, which was conveyed to the lender in the second quarter of 2017, a loss on extinguishment of debt related to a prepayment fee on the early retirement of the loans secured by The Outlet Shoppes at Oklahoma City, which was sold in the second quarter of 2017, and a gain on extinguishment of debt related to the non-recourse loan secured by Midland Mall, which was conveyed to the lender in the first quarter of 2017.
|
The reconciliation of diluted EPS to FFO per diluted share is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Diluted EPS attributable to common shareholders
|
$
|
(0.01
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
0.30
|
|
|
$
|
0.41
|
|
|
Eliminate amounts per share excluded from FFO:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense, including amounts from consolidated properties, unconsolidated affiliates, non-real estate assets and excluding amounts allocated to noncontrolling interests
|
0.40
|
|
|
0.40
|
|
|
1.23
|
|
|
1.21
|
|
|
Loss on impairment, net of taxes
|
0.13
|
|
|
0.26
|
|
|
0.35
|
|
|
0.57
|
|
|
Gain on depreciable property, net of taxes and noncontrolling interests' share
|
—
|
|
|
(0.04
|
)
|
|
(0.25
|
)
|
|
(0.22
|
)
|
|
FFO per diluted share
|
$
|
0.52
|
|
|
$
|
0.56
|
|
|
$
|
1.63
|
|
|
$
|
1.97
|
|
The reconciliations of FFO allocable to Operating Partnership common unitholders to FFO allocable to common shareholders, including and excluding the adjustments noted above, are as follows (in thousands):