ITEM 1. BUSINESS
History of the Company
CBL & Associates Properties, Inc. (the "Company") was organized on July 13, 1993, as a Delaware corporation, to acquire substantially all of the real estate properties owned by CBL & Associates, Inc., and its affiliates ("CBL's Predecessor"), which was formed by Charles B. Lebovitz in 1978. On November 3, 1993, the Company completed an initial public offering (the "Offering") of 15,400,000 shares of its common stock (the "Common Stock"). Simultaneous with the completion of the Offering, CBL's Predecessor transferred substantially all of its interests in its real estate properties to CBL & Associates Limited Partnership (the "Operating Partnership") in exchange for common units of limited partnership interest in the Operating Partnership. CBL's Predecessor also acquired an additional interest in the Operating Partnership for a cash payment. The interests in the Operating Partnership contain certain conversion rights that are more fully described in Note 9 to the consolidated financial statements.
* In June 1998, the Company completed a public offering of 2,875,000 shares of 9.0% Series A Cumulative Redeemable Preferred Stock at a face value of $25.00 per share. The net proceeds of $70.0 million were used to repay variable-rate indebtedness incurred in the Company's development and acquisition programs.
* In January 2001, the Company completed the first stage of its acquisition of The Richard E. Jacobs Group, Inc.'s ("Jacobs") interests in 21 malls and two associated centers for total consideration of $1.2 billion. The purchase price consisted of the issuance of 12,056,692 special common units of the Operating Partnership with a fair value of $27.25 per unit, the assumption of $750.2 million of mortgage debt and $125.5 million of cash.
* In March 2002, the Company completed the second and final stage of its acquisition of Jacobs' interests. The total consideration of $42.5 million included the issuance of 499,730 special common units of the Operating Partnership with a fair value of $35.24 per unit, the assumption of $24.5 million of fixed rate non-recourse debt and $0.4 million of cash. Ownership interests acquired included: a 31% interest in Columbia Place, Columbia, SC; a 17% interest in East Towne Mall, West Towne Mall and West Towne Crossing in Madison, WI; and a 2% interest in Kentucky Oaks Mall in Paducah, KY.
* In January 2001, the Company issued 602,980 special common units of the Operating Partnership valued at $16.4 million and 31,008 common units of the Operating Partnership valued at $0.9 million to purchase the remaining 50% and 25% interests in Madison Square Mall and Madison Plaza in Huntsville, AL, respectively.
* In March 2002, the Company completed a follow-on offering of 3,352,770 shares of its Common Stock. The net proceeds of $114.7 million were used to repay outstanding borrowings under the Company's lines of credit and to retire term loans on several properties.
* In June 2002, the Company completed a public offering of 2,000,000 shares of 8.75% Series B Cumulative Redeemable Preferred Stock at a face value of $50.00 per share. The net proceeds were used to repay outstanding borrowings under the Company's lines of credit and to retire term loans on several properties.
* In May 2002, the Company acquired Panama City Mall, located in Panama City, FL, for a purchase price of $45.7 million. The purchase price consisted of the assumption of $40.7 million of non-recourse mortgage debt with an interest rate of 7.30%, the issuance of 118,695 common units of the Operating Partnership with a fair value of $4.5 million ($37.80 per unit) and $0.5 million in cash closing costs.
* In August 2002, the Company acquired the remaining 21% ownership interest in Columbia Place. The total consideration of $9.9 million consisted of the issuance of 61,662 common units with a fair value of $2.3 million ($36.97 per unit) and the assumption of $7.6 million of debt.
* In December 2002, the Company acquired the remaining 35% interest in East Towne Mall, West Towne Mall and West Towne Crossing. The purchase price consisted of the issuance of 932,669 common units with a fair value of $36.4 million ($39.04 per unit) and the assumption of $25.6 million of debt.
The Company's Business
The Company is a self-managed, self-administered, fully integrated real estate investment trust ("REIT") that is engaged in the development, acquisition, and operation of regional shopping malls and community centers. The Company has elected to be taxed as a REIT for federal income tax purposes. As one of the largest mall REITs in the United States, the Company owns interests in properties primarily in middle market communities in the Southeast, as well as in select markets in the Northeast and Midwest regions of the United States.
The Company conducts substantially all of its business through the Operating Partnership. The Company is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. CBL Holdings I, Inc. is the sole general partner of the Operating Partnership. At December 31, 2002, CBL Holdings I, Inc. owned a 1.7% general partnership interest and CBL Holdings II, Inc. owned a 52.0% limited partnership interest in the Operating Partnership, for a combined interest held by the Company of 53.7%.
As of December 31, 2002, the Company owns:
* interests in a portfolio of operating properties including 55 enclosed regional malls (the "Malls"), 20 associated centers (the "Associated Centers"), 63 community centers (the "Community Centers") and an office building (the "Office Building");
* interests in one regional mall, one associated center and three community centers that are currently under construction (the "Construction Properties"), as well as options to acquire certain shopping center development sites; and
* mortgages (the "Mortgages") on 11 properties that are secured by first mortgages or wrap-around mortgages on the underlying real estate and related improvements.
The Malls, Associated Centers, Community Centers, Construction Properties, Mortgages and Office Building are collectively referred to as the "Properties" and individually as a "Property".
The Operating Partnership conducts the Company's property management and development activities through CBL & Associates Management, Inc. (the "Management Company"). The Operating Partnership holds 100% of the preferred stock and owns 6% of the common stock of the Management Company. CBL's Predecessor holds the remaining 94% of the Management Company's common stock. Through its ownership of the preferred stock, the Operating Partnership receives substantially all of the cash flow and enjoys substantially all of the economic benefits of the Management Company's operations.
The Management Company manages all of the Properties except for Governor's Square and Governor's Plaza in Clarksville, TN and Kentucky Oaks Mall, in Paducah, KY. A property manager affiliated with the non-Company managing general partner performs the property management services for these Properties and receives a fee for its services. The managing partner of each of these Properties controls the cash flow distributions, although the Company's approval is required for certain major decisions.
The Properties' derive most of their income from rents received through operating leases with retail tenants. These operating leases require tenants to pay minimum rent, which is often subject to scheduled increases throughout the term of the lease. Certain tenants are required to pay percentage rent if their sales volumes exceed thresholds specified in their lease agreements. Additionally, tenant leases generally provide that the Company will be reimbursed for common area maintenance, real state taxes, insurance and other operating expenses incurred in the day-to day operation of the Properties.
The following terms used in this Annual Report on Form 10-K will have the meanings described below:
* GLA - refers to gross leasable area of retail space in square feet, including anchors and mall tenants
* Anchor - refers to a department store or other large retail store
* Freestanding - property locations that are not attached to the primary complex of buildings that comprise the mall shopping center
* Outparcel - land used for freestanding developments, such as banks and restaurants, on the periphery of the Properties
Environmental Matters
Federal, state and local laws and regulations relating to the protection of the environment may require a current or previous owner or operator of real property to investigate and clean up hazardous or toxic substances or petroleum product releases at the property, without the current owner or operator having knowledge of the presence of the contaminants. If unidentified environmental problems arise at one of the Company's Properties, substantial payments may be required to a governmental entity or third parties for property damage and for investigation and clean-up costs. Even if more than one person may have been responsible for the contamination, the Company may be held responsible for all of the clean-up costs incurred. The liability under environmental laws could adversely affect the Company's cash flow and ability to service its debt.
All of the Properties have been subject to Phase I environmental assessments, which are intended to discover information regarding, and to
evaluate the environmental condition of, the surveyed property and surrounding properties. The Phase I assessments included a historical review, a public records review, a preliminary investigation of the site and surrounding properties regarding historic uses for the preparation and issuance of written reports by independent environmental consultants. Some of the Properties contain, or contained, underground storage tanks for storing petroleum products or wastes typically associated with automobile service or other operations, as well as dry-cleaning establishments utilizing solvents. If necessary, the Company will sample building materials or conduct subsurface investigations. At certain Properties, the Company has developed and implemented operations and maintenance programs with operating procedures regarding asbestos-containing materials. Historically, costs associated with these programs have not been material.
The Phase I assessments have not revealed any environmental liabilities that the Company believes will have a material effect on its business, assets or results of operations, nor is the Company aware of any such liability. It is possible that the assessments do not reveal all environmental liabilities or that there are material liabilities of which the Company is unaware. No assurances can be given that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of the Properties will not be adversely affected by the tenants and occupants of the Properties, or by the condition of other properties in the vicinity of the Properties or by third parties unrelated to the Company. The Company has obtained environmental insurance on all the Properties acquired from Jacobs and selected others.
Geographic Concentration
The Company owns 31 Malls, 15 Associated Centers, 46 Community Centers and one Office Building that are located in the southeastern United States. These Properties accounted for 59.4% of the Company's total revenues for the year ended December 31, 2002. Therefore, the Company's results of operations and funds available for distribution to shareholders are significantly impacted by economic conditions in the southeastern United States.
The Company mitigated its dependence on the Southeast through the acquisition of Jacob's interests in 21 Malls and two Associated Centers, which are primarily located in the Midwest region of the United States. The Properties located in the Midwest accounted for 26.9% of the Company's revenues for the year ended December 31, 2002. The Company will continue to look for opportunities to geographically diversify its portfolio in order to minimize dependency on any geographical region; however, the expansion of the portfolio through both acquisitions and developments are contingent on many factors including consumer demands, competition and economic conditions.
Significant Properties
Revenues at Hanes Mall, Burnsville Center, Coolsprings Galleria and Meridian Mall accounted for 3.7%, 3.1%, 3.1% and 3.0%, respectively, of the Company's total revenues for the year ended December 31, 2002. The Company's financial position and results of operations will be somewhat affected by the results experienced at these Properties.
Significant Markets
The top six markets, in terms of revenues, where the Company's Properties are located were as follows for the year ended December 31, 2002:
Top 25 Tenants
The top 25 tenants based on percentage of the Company's total revenues were as follows for the year ended December 31, 2002:
The Company's Growth Strategy
The Company's objective is to achieve growth in funds from operations by maximizing cash flows through a variety of methods that are discussed below.
Leasing, Management and Marketing
The Company's objective is to maximize cash flows from its existing Properties through:
* aggressive leasing that seeks to increase occupancy, * originating and renewing leases at higher base rents per square foot, * merchandising, marketing and promotional activities and * aggressively controlling operating costs and tenant occupancy costs.
Expansions and Renovations
Most of the Company's Malls are designed for expansion and growth through the addition of new department stores and other large format retailers. Expansion of the Property can create additional revenue for the Company as well as protect the Property's competitive position within the market. During 2002, the Company expanded several Properties including: Meridian Mall in Lansing, MI; Springdale Mall in Mobile, AL; Westgate Mall in Spartanburg, SC; Kentucky Oaks Mall in Paducah, KY and Bonita Lakes Crossing in Meridian, MS.
Renovations usually include renovating existing facades, uniform signage, new entrances and floor coverings, updating interior decor, resurfacing parking lots and improving the lighting of parking lots. Renovations can also result in attracting new retailers, increased rental rates and occupancy levels and maintaining the Property's market dominance.
During 2002, the Company renovated six properties: Columbia Place in Columbia, SC; Hanes Mall in Winston-Salem, NC; Hickory Hollow Mall and its associated center, Courtyard at Hickory Hollow in Nashville, TN; Kentucky Oaks Mall in Paducah, KY and Stroud Mall in Stroudsburg, PA.
Development of New Retail Properties
In general, the Company seeks development opportunities in middle-market trade areas that it believes are under-served by existing retail operations. These middle-markets must also have sufficient demographic trends to provide the opportunity to effectively maintain a competitive position. The Company expects to open 770,000 square feet of new developments during 2003 including The Shoppes at Hamilton Place in Chattanooga, TN; Cobblestone Village in St. Augustine, FL; and Waterford Commons in Waterford, CT. These developments will represent an investment by the Company of $80.9 million.
Coastal Grand in Myrtle Beach, SC, is under construction and is projected to open in the spring of 2004. This 1.5 million square foot mall development is owned in a 50/50 joint venture with a third party. Wilkes-Barre Township Marketplace in Wilkes-Barre Township, PA is a 308,000 square foot community center that is under construction and projected to open in May 2004.
Acquisitions
The Company believes there is opportunity for growth through acquisitions of regional malls and other properties. The Company selectively acquires regional mall properties where it believes it can create value through its development, leasing and management expertise.
The Company acquired interest in the following Properties during 2002:
Risks Associated with the Company's Growth Strategy
As with any strategy there are risks involved with the Company's plan for growth. Risks associated with developments and expansions can include, but are not limited to: development opportunities pursued may be abandoned; construction costs may exceed estimates; construction loans with full recourse to the Company may not be refinanced; proforma objectives, such as occupancy and rental rates, may not be achieved; and the required approval by an anchor tenant, mortgage lender or property partner for certain expansion/development activities may not be obtained. An unsuccessful development project could result in a loss greater than the Company's investment.
Insurance
The Operating Partnership carries a comprehensive blanket policy for liability, fire and rental loss insurance covering all of the Properties, with specifications and insured limits customarily carried for similar properties. The events of September 11, 2001, impacted insurance programs; however, management believes the Properties are adequately insured in accordance with industry standards.
Competition
The Properties compete with various shopping alternatives attracting retailers to competing locations. Competition for both the consumer and retailer include power center developments, outlet shopping centers, discount retailers, internet venues, television shopping networks, direct mail and other retail shopping developments. The extent of the retail competition varies from market to market. The Company works aggressively to attract customers through marketing promotions and campaigns.
Qualification as a Real Estate Investment Trust (REIT)
The Company intends to continue to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, as amended (the "Code"). As such, the Company generally will not be subject to federal income tax to the extent it distributes at least 90% of its REIT ordinary taxable income to its shareholders. Failing to qualify as a REIT in any taxable year would result in the Company being subject to federal income tax on its taxable income at regular corporate rates.
Financial Information About Segments
See Note 12 to the consolidated financial statements for information about the Company's reportable segments.
Employees
The Company does not have any employees other than its statutory officers. The Management Company currently employees 624 full-time and 381 part-time employees. None of the Company's or Management Company's employees are represented by a union.
Corporate Offices
The principal executive offices are located at CBL Center, 2030 Hamilton Place Boulevard, Suite 500, Chattanooga, Tennessee, 37421 and the telephone number is (423) 855-0001.
Available Information
Additional information about the Company can be found on the Company's web site at www.cblproperties.com. Electronic copies of the Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to those reports, are available free of charge by visiting the "investor relations" section of www.cblproperties.com. These reports are posted as soon as reasonably practical after they are electronically filed with, or furnished to, the Securities and Exchange Commission. The information on the web site is not, and should not, be considered to be a part of this Form 10-K.
ITEM 2.
ITEM 2. PROPERTIES
Refer to Item 7: Management's Discussion and Analysis for additional performance measurements of the Properties.
Malls
The Company owns a controlling interest in 51 Malls and non-controlling interests in four Malls. The Company also owns a 50% interest in one Mall that is currently under construction.
The Malls are primarily located in middle markets. The Company believes the Malls have strong competitive positions because over 90% of the Malls are the only, or dominant, regional mall in their respective trade areas.
The Malls generally are anchored by three or more department stores and a wide variety of mall stores. Anchor tenants own or lease their stores and the non-anchor stores (20,000 square feet or less) lease their locations. Additional freestanding stores and restaurants are typically located along the perimeter of the Malls' parking areas.
The Company classifies its Malls into two categories - Malls that have completed their initial lease-up ("Stabilized Malls") and Malls that are in their initial lease-up phase ("Non-Stabilized Malls"). The Non-Stabilized Mall category currently includes Springdale Mall, a redevelopment project in Mobile, AL; Arbor Place in Atlanta (Douglasville), GA; The Lakes Mall in Muskegon, MI; and Parkway Place in Huntsville, AL, which is owned in a joint venture with a third party.
The land underlying each Mall is owned in fee simple in all cases except for Walnut Square, WestGate Mall, St. Clair Square, Bonita Lakes Mall, Meridian Mall, Stroud Mall, Wausau Center and Eastgate Mall. Each of these Malls is subject to long-term ground leases for all or a portion of the land.
The following table sets forth certain information for each of the Malls as of December 31,2002.
Anchors
Anchors are an important factor in a Mall's successful performance. The public's identification with a mall property typically focuses on the anchor tenants. Mall anchors are generally a department store whose merchandise appeals to a broad range of shoppers and plays a significant role in generating customer traffic and creating a desirable location for the mall shop tenants.
Anchors may own their stores in conjunction with the land underneath and sometimes the adjacent parking areas, or may enter into long-term leases with respect to their stores. Rental rates for anchor tenants are significantly lower than the rents charged to mall store tenants. Anchors account for 8.2% of the total revenues from the Company's Properties. Each anchor that owns its store has entered into a reciprocal easement agreement with the Company covering items such as operating covenants, reciprocal easements, property operations, initial construction and future expansion.
During 2002, the Company successfully added several anchors in the Malls:
The Dillard's store at Asheville Mall represents Dillard's second store at Asheville Mall. The Dillard's store at Jefferson Mall is an expansion of their existing store.
As of December 31, 2002, the Malls had a total of 249 anchors and three vacant anchor locations at Arbor Place, Kentucky Oaks Mall and Meridian Mall. The vacant Dekor store at Arbor Place will be replaced by JCPenney in 2003 and the vacant Jacobson's space at Meridian Mall will be replaced by Younkers in April 2003. Subsequent to year-end, K-Mart closed at Plaza del Sol and Younkers closed at East Towne Mall. The following table lists all mall anchors, the square feet of the anchor and whether the anchor property is owned or leased:
Mall Anchor Summary Information As of December 31, 2002
Mall Stores
The Malls have approximately 7,490 mall stores. National and regional retail chains (excluding local franchises) lease approximately 80.1% of the
occupied mall store GLA. Although mall stores occupy only 33.58% of the total mall GLA, the mall properties received approximately 90.6% of their revenues from mall stores for the year ended December 31, 2002.
The following table summarizes certain information about the mall stores for the last three years.
Mall Lease Expirations
The following table summarizes the scheduled lease expirations for mall stores in occupancy as of December 31, 2002:
Mall Tenant Occupancy Costs
Occupancy cost is a tenant's total cost of occupying its space, divided by sales. The following table summarizes tenant occupancy costs as a percentage of total mall store sales for the last three years:
Associated Centers
The Company owns a controlling interest in 18 Associated Centers and non-controlling interests in two Associated Centers. The Company also owns a controlling interest in an Associated Center that is currently under construction.
Associated Centers are retail properties that are adjacent to a regional mall complex and include one or more anchors, or big box retailers, along with smaller tenants. Anchor tenants typically include tenants such as TJ Maxx, Target, Toys R Us and Goody's. Associated Centers are managed by the staff at the Mall it is adjacent to and usually benefit from the customers drawn to the Mall.
The following table summarizes certain information about the Associated Centers for the last three years.
Currently the Company has one Associated Center under construction, The Shoppes at Hamilton Place in Chattanooga, TN. All of the land underlying the Associated Centers is owned in fee simple except for Bonita Lakes Crossing, which is subject to a long-term ground lease.
Associated Centers Lease Expirations
The following table summarizes the scheduled lease expirations for Associated Center tenants in occupancy as of December 31, 2002.
The following table sets forth certain information for each of the Associated Centers as of December 31,2002:
Community Centers
The Company owns a controlling interest in 61 Community Centers and non-controlling interests in two Community Centers. The Company also owns three Community Centers that are currently under construction.
Community Centers typically have less development risk because of shorter development periods and lower costs. While Community Centers generally maintain higher occupancy levels and are more stable, they typically have slower rent growth.
Community Centers are designed to attract local and regional area customers and are typically anchored by a combination of supermarkets, discount department stores or drug stores that attract shoppers to each center's small shops. The tenants at the Company's Community Centers typically offer day-to-day necessities, value-oriented and convenience merchandise.
The following table summarizes certain information about the Community Centers for the last three years.
As of December 31, 2002, the largest tenant in the Community Centers in terms of revenue was Delhaize Group with 24 Food Lion stores. Food Lion represents 0.8% of the Company's total revenue. Twelve of these stores have closed, but continue to pay rent to the Company Five of the closed Food Lion stores have been sub-leased.
The following tables sets forth certain information for each of the Company's Community Centers at December 31, 2002:
Community Centers Lease Expirations
The following table summarizes the scheduled lease expirations for tenants in occupancy at December 31, 2002.
Mortgages
The Company owns 11 mortgages that are collateralized by first mortgages or wrap-around mortgages on the underlying real estate and related improvements.
Office Building
The Company owns a 92% interest in the 128,000 square foot office building where its corporate headquarters is located. At December 31, 2002, the Company occupied 60% of the total square footage of the building.
MORTGAGE DEBT (In thousands) Mortgage Loans Outstanding in Whole or in Part at December 31, 2002
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently involved in certain litigation that arises in the ordinary course of business. It is management's opinion that the pending litigation will not materially affect the financial position or results of operations of the Company. Additionally, management believes that, based on environmental studies completed to date, any exposure to environmental cleanup will not materially affect the financial position and results of operations of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
(a) Market Information ------------------ The principal United States market in which the Common Stock is traded is the New York Stock Exchange.
The following tables sets forth the high and low sales prices for the Common Stock for each quarter of the Company's two most recent fiscal years.
(b) Holders ------- The approximate number of shareholders of record of the Common Stock was 628 as of March 10, 2003.
(c) Dividends Declared ------------------ The following tables sets forth the frequency and amounts of dividends declared and paid on the Common Stock for each quarter of the Company's two most recent fiscal years.
Future dividend distributions are subject to the Company's actual results of operations, economic conditions and such other factors as the Board of Directors of the Company deems relevant. The Company's actual results of operations will be affected by a number of factors, including the revenues received from the Properties, the operating expenses of the Company, the Operating Partnership and the Property Partnerships, interest expense, the ability of the anchors and tenants at the Properties to meet their obligations and unanticipated capital expenditures.
(d) See Part III, Item 12.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
CBL & Associates Properties, Inc. Selected Financial Data (In thousands, except per share data)
ITEM 7:
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes that are included in this Annual Report.
Certain statements made in this section or elsewhere in this report may be deemed "forward looking statements" within the meaning of the federal securities laws. Although the Company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the Company can give no assurance that these expectations will be attained, and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Such risks and uncertainties include, without limitation, general industry, economic and business conditions, interest rate fluctuations, costs of capital and capital requirements, availability of real estate properties, inability to consummate acquisition opportunities, competition from other companies and retail formats, changes in retail rental rates in the Company's markets, shifts in customer demands, tenant bankruptcies or store closings, changes in vacancy rates at the Company's properties, changes in operating expenses, changes in applicable laws, rules and regulations, the ability to obtain suitable equity and/or debt financing and the continued availability of financing in the amounts and on the terms necessary to support the Company's future business. The Company disclaims any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information.
GENERAL BACKGROUND
CBL & Associates Properties, Inc.'s consolidated financial statements and accompanying notes reflect the consolidated financial results of CBL & Associates Limited Partnership (the "Operating Partnership") and CBL & Associates Management, Inc. (the "Management Company"). CBL & Associates Properties, Inc., the Operating Partnership and the Management Company are referred to collectively as the "Company." At December 31, 2002, the Company's portfolio of properties consisted of 51 regional malls, 18 associated centers, 61 community centers, an office building, joint venture investments in four regional malls, two associated centers and two community centers, plus 11 mortgages (the "Properties"). The Operating Partnership currently has under construction one mall, which is owned in a joint venture, one associated center and three community centers, and options to acquire certain shopping center development sites.
The Company has reclassified certain financial information in the 2001 and 2000 consolidated financial statements to conform to the 2002 presentation. A portion of the results of operations of the Company's taxable REIT subsidiary was reported on a net basis in prior years' financial information. However, due to growth of those operations, the Company has presented the taxable REIT subsidiary's results of operations on a gross basis, with revenues included in interest and other revenues and the related expenses included in the other expenses caption.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002, TO THE RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001
The following significant transactions impact the comparison of the results of operations for the year ended December 31, 2002, to the year ended December 31, 2001:
* The Company acquired ownership interests in 21 malls and two associated centers from The Richard E. Jacobs Group ("Jacobs") on January 31, 2001; therefore, the results of operations for 2002 include an additional month of operations for these properties as compared to 2001. In March 2002, the Company completed the second and final stage of the Jacobs acquisition by acquiring additional interests in four malls and one associated center.
* The Company opened or acquired nine additional properties since February 1, 2001. The new properties opened or acquired are as follows:
* Several properties were sold during 2001 and their results of operations are included in the consolidated statement of operations in 2001 through each property's respective disposal date. The results of operations for properties sold during 2002 are included in discontinued operations for all periods presented as a result of the adoption of a new accounting pronouncement (see Note 4 to the consolidated financial statements). Therefore, when comparing results for the year ended December 31, 2002, to the year ended December 31, 2001, the variances will include a reduction related to the dispositions that occurred in 2001, which are listed below:
* During the first quarter of 2002, the Company began to include Columbia Place in Columbia, SC, in its consolidated financial statements after acquiring an additional 31% interest in the property, which resulted in the Company owning a 79% controlling interest. The Company's interest in Columbia Place was previously accounted for using the equity method of accounting. In August 2002, the Company acquired the remaining 21% interest in Columbia Place.
* In February 2002, the Company contributed 90% of its interests in Pemberton Plaza, an associated center in Vicksburg, MS, and Massard Crossing and Willowbrook Plaza, community centers located in Ft. Smith, AR, and Houston, TX, respectively, to a joint venture that is accounted for using the equity method of accounting. Prior to the date of contribution, the results of operations of these properties were included in the Company's consolidated statements of operations.
The following is a comparison of the consolidated results of operations for 2002 to the results of 2001:
Revenues
The increase in revenues was primarily attributable to three factors. First, an additional month of operations in 2002 related to the Jacobs properties combined with improvements in leasing and occupancy at the Jacobs properties, contributed $21.9 million to the increase. Second, the additional nine properties opened or acquired during 2002 and 2001 contributed $30.1 million to the increase. Third, continued improvement in leasing and occupancy at existing properties contributed $5.9 million to the increase. The above increases include an increase in lease termination fees of $1.4 million to $5.5 million in 2002 compared to 4.1 million in 2001. These increases were offset by reductions in revenues of $5.0 million related to the properties sold during 2001 and $6.4 million related to the three properties that were contributed to a joint venture early in 2002.
Management, leasing and development fees increased $2.0 million in 2002 compared to 2001 primarily due to growth in management and leasing fees from unconsolidated affiliates that were acquired in the Jacobs transaction and from an unconsolidated affiliate that began operations during 2002.
Interest and other revenues increased $1.6 million due to growth in certain operations of the Company's taxable REIT subsidiaries.
Expenses
Property operating expenses increased by $4.6 million, including real estate taxes and maintenance and repairs, due to the additional month this year related to the Jacobs properties and $11.4 million related to the other nine properties opened or acquired during 2002 and 2001. These increases were offset by a total of $2.3 million related to both the properties sold during 2001 and the three properties contributed to a joint venture in 2002. The remainder of the increase was due to increases in general operating costs.
Depreciation and amortization expense increased by $2.0 million due to the additional month related to the Jacobs properties and $3.5 million related to the other nine properties opened or acquired during 2002 and 2001. These increases were offset by a total of $1.9 million related to both the properties sold during 2001 and the three properties contributed to a joint venture. The increase is also attributable to depreciation on the capital expenditures made during 2002 and 2001 in connection with the Company's ongoing renovations and expansions of existing properties to maintain their competitive positions in their respective trade areas.
General and administrative expenses increased $4.5 million, primarily due to additional salaries and benefits for the personnel added to manage the properties acquired during 2001 and 2002. Increased professional fees and the costs to move the Company to its new corporate headquarters also contributed to the increase.
Interest expense decreased $13.5 million due primarily to reductions of debt with net proceeds of $114.7 million from the March 2002 common stock offering and net proceeds of $96.4 million from the June 2002 preferred stock offering.
Gain on Sales of Real Estate Assets
The net gain on sales of $2.8 million in 2002 was related to total gains of $3.3 million on seven outparcel sales and total losses of $0.5 million on three outparcel sales. The decrease from the net gain on sales of $10.6 million in 2001 results primarily because the 2001 amount includes a net gain on sales of operating properties of $8.4 million. The net gain on sales of operating properties in 2002 is included in discontinued operations due to the adoption of a new accounting pronouncement in 2002 (see Note 4 to the consolidated financial statements).
Equity in Earnings of Unconsolidated Affiliates
The increase in equity in earnings of unconsolidated affiliates resulted from the Company's acquisition of additional partnership interests in East Towne Mall, West Towne Mall and West Towne Crossing in Madison, WI, and Kentucky Oaks Mall in Paducah, KY, in March 2002. The increase was offset by the effect of accounting for Columbia Place as a consolidated property in 2002 as compared to an unconsolidated affiliate in 2001.
Discontinued Operations
The Company sold five community centers and an office building during 2002 for a net gain of $0.4 million. Three community centers and the office building were sold for a gain and two community centers were sold at a loss. Operating income from discontinued operations decreased to $0.9 million in 2002 from $2.2 million in 2001 because the prior year included a full year of operations, while the current year only included the results of operations through the date each property was sold.
Extraordinary Loss
Extraordinary loss decreased from $13.6 million in 2001 to $3.9 million in 2002 since the Company retired less debt subject to prepayment penalties in 2002 than it did in 2001. The extraordinary loss in 2002 consisted of prepayment penalties of $2.3 million and the write-off of unamortized deferred financing costs of $1.6 million.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001, TO THE RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
The following significant transactions impact the comparison of the results of operations for the year ended December 31, 2001 to the year ended December 31, 2000.
The Company acquired or opened 26 properties during 2001 as compared to four properties during 2000. Eighteen of the properties acquired from Jacobs are included in the consolidated results of operations of the Company and five are
accounted for as unconsolidated affiliates. Therefore, the results of operations for 2001 reflect a significant increase when compared to the results of operations for 2000.
The Company disposed of six properties during 2001 and 13 properties during 2000, which offsets the increases from the acquisitions and openings discussed above.
The following is a comparison of the consolidated results of operations for 2001 to the results for 2000:
Revenues
Approximately $161.5 million of the increase was attributable to the 18 properties acquired from Jacobs that are accounted for on a consolidated basis. Approximately $25.6 million of the increase resulted from the other eight new properties opened or acquired during 2001 and 2000. These increases were offset by a decrease in revenues of $5.5 million related to the 19 properties sold during 2001 and 2000.
Improved occupancies, improved operations and increased rents in the Company's operating portfolio generated approximately $1.0 million of the increase in revenues. Additionally, lease termination fees increased by $3.3 million to $4.1 million in 2001 from $0.7 million in 2000.
Interest and other revenues increased primarily due to growth in certain operations of the Company's taxable REIT subsidiary, which contributed $5.9 million to the increase.
Expenses
Property operating expenses, including real estate taxes and maintenance and repairs, increased in 2001 as a result of the 26 new properties opened or acquired during 2001 and 2000. The Company's cost recovery ratio, not including bad debt expense of $5.9 million, was 96.6% in 2001 compared with 99.9% in 2000 due to decreases in occupancy and the bankruptcy of tenants who were replaced on a short-term basis with tenants whose recovery clauses are more restrictive.
Depreciation and amortization increased in 2001 primarily from additional depreciation and amortization on the 26 new properties opened or acquired during
2001 and 2000 and the Company's capital investment in operating properties for renovations and expansions. This was offset by a reduction related to the 19 properties that were sold during 2001 and 2000.
Interest expense increased in 2001 primarily due to additional debt related to the 26 new properties opened or acquired during 2001 and 2000, offset by reductions in interest expense related to debt retired with proceeds from the sales of properties.
General and administrative expenses increased in 2001 due to increases in general overhead to manage the properties that were acquired in January 2001. The amount of the increase in general and administrative expense was offset by a $1.0 million reduction in reserves for state taxes.
Gain on Sales of Real Estate Assets
Gain on sales includes $8.4 million of gains related to six community centers that were sold in 2001. Additional gains were generated by sales of outparcels including sales at The Lakes Mall in Muskegon, MI, which opened in August 2001.
Equity in Earnings of Unconsolidated Affiliates
The increase in equity in earnings was the result of acquiring a non-controlling interest in four malls and one associated center in three partnerships from Jacobs. All of these are accounted for using the equity method of accounting. The increase was offset by decreases resulting from the cessation of operations at Parkway Place in Huntsville, AL, while it was redeveloped, and by the acquisition of the remaining ownership interest in Madison Square Mall in Huntsville, AL. Since the Company now owns a 100% interest in Madison Square Mall, its results have been included in the consolidated financial statements since the date the remaining interest was acquired.
Extraordinary Loss
Extraordinary loss increased since the Company retired more higher interest rate debt subject to prepayment penalties in 2001 than it did in 2000. The extraordinary loss in 2001 consisted of prepayment penalties of $13.0 million and the write-off of unamortized deferred financing costs of $0.5 million.
PERFORMANCE MEASUREMENTS
The shopping center business is, to some extent, seasonal in nature with tenants achieving the highest levels of sales during the fourth quarter because of the holiday season. The malls earn most of their "temporary" rents (rents from short-term tenants), during the holiday period. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of the fiscal year.
The Company classifies its regional malls into two categories - malls that have completed their initial lease-up ("Stabilized Malls") and malls that are in their initial lease-up phase ("Non-Stabilized Malls"). The Non-Stabilized Mall category currently includes Springdale Mall, a redevelopment project in Mobile, AL; Arbor Place Mall in Atlanta (Douglasville), GA, which opened in October 1999; The Lakes Mall in Muskegon, MI, which opened in August 2001; and Parkway Place in Huntsville, AL, which opened in October 2002 and is owned in a joint venture with a third party.
The Company's revenues, including the Company's share of revenues from unconsolidated affiliates and excluding minority interests' share of revenues, were derived from the Company's three property types as follows:
Sales and Occupancy Costs
For those tenants who occupy 10,000 square feet or less and have reported sales, mall shop sales in the 50 Stabilized Malls decreased by 1.6% on a comparable per square foot basis to $293.10 per square foot for the year ended December 31, 2002, from $297.84 per square foot for the year ended December 31, 2001.
Total sales volume in the mall portfolio, including Non-Stabilized Malls, increased 0.4% to $3.017 billion for the year ended December 31, 2002, from $3.004 billion for the year ended December 31, 2001.
Occupancy costs as a percentage of sales for the years ended December 31, 2002 and 2001, for the Stabilized Malls were 12.0% and 11.3%, respectively.
Occupancy
Occupancy for the Company's portfolio was as follows:
Occupancy for Non-Stabilized Malls declined primarily due to the addition of Parkway Place to the category when it opened in October 2002. Excluding Parkway Place, occupancy was 88.2% for the Non-Stabilized Malls at December 31, 2002.
Occupancy for the community centers declined because of the vacancies resulting from the bankruptcies of Home Place at Kingston Overlook in Knoxville, TN, and Quality Stores at Sattler Square in Big Rapids, MI. The spaces at Kingston Overlook and Sattler Square have been re-leased, and the new tenants are scheduled to open during the first half of 2003.
Average Base Rents
Average base rents per square foot for the portfolio were as follows:
Renewal/Replacement Leasing
The Company achieved the following results from renewal and replacement leasing for the year ended December 31, 2002, compared to the base rent at the end of the lease term for the same spaces previously occupied:
CASH FLOWS
Cash provided by operating activities increased $60.8 million due to (i) one additional month of operations for the properties acquired from Jacobs on January 31, 2001, (ii) the addition of the nine new properties opened or acquired since February 2001 and (iii) the acquisitions of additional interests in Columbia Place during 2002. These increases were offset by reductions in results of operations related to the properties that have been sold since February 2001 and the three properties in which the Company contributed 90% of its interest to a joint venture.
Cash used in investing activities increased $73.4 million because more cash was used to acquire real estate assets in 2002 compared to 2001. The purchase prices of Richland Mall, Westmoreland Mall and Westmoreland Crossing were all cash and totaled $155.7 million. The Company also paid $38.3 million more for capital expenditures in 2002 than it paid in 2001.
Cash provided by financing activities was $3.9 million in 2002 compared to cash used in financing activities of $6.9 million in 2001. The change of $10.8 million was due to proceeds from the issuance of common and preferred stock, increased borrowings and a reduction in the amount of prepayment penalties incurred in 2002 as compared to 2001. This was offset by a significant increase in the amount of loan repayments, the purchase of preferred stock, and an increase in the amount of dividends and distributions paid.
LIQUIDITY AND CAPITAL RESOURCES
The principal uses of the Company's liquidity and capital resources historically have been for property development, expansions, renovations, acquisitions, debt repayment and distributions to shareholders. In order to maintain its qualification as a real estate investment trust for federal income tax purposes, the Company is required to distribute at least 90% of its taxable income, computed without regard to net capital gains or the dividends-paid deduction, to its shareholders.
The Company's current capital structure includes property-specific mortgages (which are generally non-recourse), construction and term loans, revolving lines of credit, common stock, preferred stock, joint venture investments and a minority interest in the Operating Partnership.
The Company anticipates that the combination of its equity and debt sources will, for the foreseeable future, provide adequate liquidity to continue its capital programs substantially as in the past and make distributions to its shareholders in accordance with the requirements applicable to real estate investment trusts.
The Company's policy is to maintain a conservative debt-to-total-market capitalization ratio in order to enhance its access to the broadest range of capital markets, both public and private. Based on the Company's share of total consolidated and unconsolidated debt and the market value of equity described below, the Company's debt-to-total-market capitalization (debt plus market-value equity) ratio was 50.6% at December 31, 2002.
Equity
As a publicly traded company, the Company has access to capital through both the public equity and debt markets. The Company has an effective shelf registration statement authorizing it to publicly issue shares of preferred stock, common stock and warrants to purchase shares of common stock with an aggregate public offering price of up to $350 million, of which approximately $62.3 million remains after the preferred stock offering on June 14, 2002.
As of December 31, 2002, the minority interest in the Operating Partnership includes the 16.0% ownership interest in the Operating Partnership held by the Company's executive and senior officers, which may be exchanged for approximately 8.9 million shares of common stock. Additionally, executive and senior officers and directors own approximately 2.1 million shares of the Company's outstanding common stock, for a combined total interest in the Operating Partnership of approximately 19.9%.
Limited partnership interests issued to acquire Jacobs' interests in shopping center properties in January 2001 and March 2002 may be exchanged for approximately 12.0 million shares of common stock, which represents a 21.5% interest in the Operating Partnership. Other third-party interests may be exchanged for approximately 4.8 million shares of common stock, which represents an 8.8% interest in the Operating Partnership.
Assuming the exchange of all limited partnership interests in the Operating Partnership for common stock, there would be approximately 55.5 million shares of common stock outstanding with a market value of approximately $2.222 billion at December 31, 2002 (based on the closing price of $40.05 per share on December 31, 2002). The Company's total market equity is $2.389 billion, which includes 2.675 million shares of Series A preferred stock ($66.9 million based on a liquidation preference of $25.00 per share) and 2.0 million shares of Series B preferred stock ($100.0 million based on a liquidation preference of $50.00 per share). The Company's executive and senior officers' and directors' ownership interests had a market value of approximately $439.8 million at December 31, 2002.
Debt
The Company's share of mortgage debt on consolidated properties, adjusted for minority investors' interests in six properties and its pro rata share of mortgage debt on seven unconsolidated properties, consisted of the following at December 31, 2002 and 2001 (in thousands):
The Company's lines of credit total $345.3 million, of which $124.0 million was available at December 31, 2002.
On February 28, 2003, the Company announced that it replaced a $130.0 million secured line of credit and a $105.3 million unsecured line of credit with a new $255.0 million secured lines of credit with a group of banks. The new line of credit matures in 2006, has a one-year extension option and bears interest at a rate of 100 basis points over the London Interbank Offered Rate. This line of credit does not require any scheduled principal payments.
As of December 31, 2002, total commitments under construction loans were $61.0 million, of which $39.1 million was available to be used for completion of construction and redevelopment projects and replenishment of working capital previously used for construction.
The Company had additional lines of credit totaling $14.6 million that are used only for issuances of letters of credit, of which $8.5 million was outstanding at December 31, 2002.
The Company has fixed the interest rate on $80.0 million of an operating property's debt at a rate of 6.95% using an interest rate swap agreement that expires in August 2003. The Company did not incur any fees for the swap agreement.
During 2002, the Company closed five variable rate loans totaling $115.4 million to be used for construction and acquisition purposes, of which $47.6 million was outstanding at December 31, 2002.
The Company also closed 12 non-recourse mortgage loans totaling $522.9 million that bear interest at fixed-rates ranging from 6.25% to 6.85%, with a weighted average of 6.56%. Nine malls, two associated centers and the office building secure these fixed-rate mortgages.
On February 28, 2003, the Company announced that it closed an $85.0 million non-recourse loan that bears interest at 5.05% for a term of 10 years. The loan is secured by Westmoreland Mall and its associated center, Westmoreland Crossing, which the Company acquired in December 2002 with borrowings from the lines of credit.
The Company expects to refinance the majority of mortgage and other notes payable maturing over the next five years with replacement loans. Taking into consideration extension options that are available to the Company, there are no debt maturities through December 31, 2003, other than normal principal amortization.
DEVELOPMENTS, EXPANSIONS, ACQUISITIONS AND DISPOSITIONS
The Company expects to continue to have access to the capital resources necessary to expand and develop its business. Future development and acquisition activities will be undertaken as suitable opportunities arise. The Company does not expect to pursue these activities unless adequate sources of financing are available and a satisfactory budget with targeted returns on investment has been internally approved.
The Company intends to fund major development, expansion and acquisition activities with traditional sources of construction and permanent debt financing as well as other debt and equity financings, including public financings and the lines of credit, in a manner consistent with its intention to operate with a conservative debt-to-total-market capitalization ratio.
Developments and Expansions
The following development projects are under construction:
The following renovation projects are under construction:
The Company has entered into a number of option agreements for the development of future regional malls and community centers. Except for the projects discussed under Developments and Expansions above and Acquisitions below, the Company does not have any other material capital commitments.
Acquisitions
The Company's acquisitions are discussed in Note 3 to the consolidated financial statements.
Dispositions
During 2002, five community centers and an office building were sold for an aggregate sales price of $36.8 million, resulting in a net gain of $0.4 million. Three community centers and the office building were sold for a gain and two community centers were sold at a loss.
In addition, the Company sold seven outparcels for gains and two outparcels and a department store building for losses, which resulted in a net gain of $2.8 million in 2002.
OTHER CAPITAL EXPENDITURES
The Company prepares an annual capital expenditure budget for each property that is intended to provide for all necessary recurring and non-recurring capital improvements. The Company believes that its operating cash flows, which include reimbursements from tenants, will provide the necessary funding for such capital improvements. These cash flows will be sufficient to cover tenant finish costs associated with renewing or replacing current tenant leases as their leases expire and capital expenditures that will not be reimbursed by tenants.
Including its share of unconsolidated affiliates' capital expenditures, the Company spent $31.6 million in 2002 for tenant allowances, which generate increased rents from these tenants over the terms of their leases. Deferred maintenance expenditures, a majority of which are recovered from the tenants,
were $19.3 million for 2002. Deferred maintenance expenditures included $10.2 million for resurfacing and improved lighting of parking lots, $8.1 million for roof repairs and replacements and $1.0 million for various other expenditures. Renovation expenditures were $57.4 million in 2002, a portion of which is recovered from tenants.
Deferred maintenance expenditures are billed to tenants as common area maintenance expense, and most are recovered over a 5- to 15-year period. Renovation expenditures are primarily for remodeling and upgrades of malls, of which approximately 30% is recovered from tenants over a 5- to 15-year period.
OTHER
The Company believes the Properties are in compliance, in all material respects, with federal, state and local ordinances and regulations regarding the handling, discharge and emission of hazardous or toxic substances. The Company has not been notified by any governmental authority, and is not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances in connection with any of its present or former properties. Therefore, the Company has not recorded any material liability in connection with environmental matters.
CRITICAL ACCOUNTING POLICIES
A critical accounting policy is one that is both important to the presentation of a company's financial condition and results of operations and requires significant judgment or complex estimation processes. The Company believes that its most significant accounting policies are those related to its accounting for the development of real estate assets and evaluating long-lived assets for impairment.
The Company capitalizes predevelopment project costs paid to third parties. All previously capitalized predevelopment costs are expensed when it is no longer probable that the project will be completed. Once development of a project commences, all direct costs incurred to construct the project, including interest and real estate taxes are capitalized. Additionally, certain general and administrative expenses are allocated to the projects and capitalized based on the personnel assigned to the development project, and the investment in the project relative to all development projects. Once a project is completed and placed in service, it is depreciated over its estimated useful life. Buildings and improvements are depreciated generally over 40 years and leasehold improvements are amortized over the lives of the applicable leases or the estimated useful life of the assets, whichever is shorter. Ordinary repairs and maintenance are expensed as incurred. Major replacements and improvements are capitalized and depreciated over their estimated useful lives.
The Company periodically evaluates its real estate assets to determine if there has been any impairment in their carrying values and records impairment losses if the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts or if there are other indicators of impairment. At December 31, 2002, the Company did not own any real estate assets that were impaired.
RECENT ACCOUNTING PRONOUNCEMENTS
As described in Note 2 to the consolidated financial statements, the Financial Accounting Standards Board has issued certain statements, which are effective beginning in 2003.
IMPACT OF INFLATION
In the last three years, inflation has not had a significant impact on the Company because of the relatively low inflation rate. Substantially all tenant leases do, however, contain provisions designed to protect the Company from the impact of inflation. These provisions include clauses enabling the Company 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 enable the Company to replace existing leases with new leases at higher base and/or percentage rent if rents of the existing leases are below the then existing market rate. Most of the leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, which reduces the Company's exposure to increases in costs and operating expenses resulting from inflation.
FUNDS FROM OPERATIONS
Funds From Operations ("FFO") is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as net income (computed in accordance with accounting principles generally accepted in the United States) excluding gains (or losses) on sales of operating properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for FFO from unconsolidated partnerships and joint ventures are calculated on the same basis. The Company defines FFO available for distribution to common shareholders as defined above by NAREIT less preferred dividends and gains or losses on outparcel sales. The Company computes FFO in accordance with the NAREIT recommendation concerning finance costs and non-real-estate depreciation. The Company's method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
The Company believes that FFO provides an additional indicator of the financial performance of the Properties. The use of FFO as an indicator of financial performance is influenced not only by the operations of the Properties and interest rates, but also by the capital structures of the Company and the Operating Partnership. Accordingly, FFO will be one of the significant factors considered by the Board of Directors in determining the amount of cash distributions the Operating Partnership will make to its partners, including the REIT.
FFO does not represent cash flow from operations as defined by accounting principles generally accepted in the United States, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to net income for purposes of evaluating the Company's operating performance or to cash flow as a measure of liquidity.
FFO increased in 2002 by $42.6 million, or 22.0%, to $236.6 million compared to $194.0 million in 2001. The increase in FFO is primarily attributable to reduced interest expense, the results of operations of the properties added to the portfolio and a full twelve months of operations for the properties acquired from Jacobs compared to eleven months in 2001. These increases were offset by reductions related to operating properties that were sold or contributed to a joint venture. Additionally, lease termination fees were $1.4 million more in 2002 as compared to 2001. FFO would have increased by $2.8 million and $10.6 million in 2002 and 2001, respectively, if the Company included outparcel sales in its computation of FFO.
The Company's calculation of FFO is as follows (in thousands):
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure to interest rate risk on its debt obligations and interest rate instruments. Based on the Company's share of consolidated and unconsolidated variable-rate debt in place at December 31, 2002, excluding debt fixed using an interest rate swap agreement, a 0.5% increase or decrease in interest rates on this variable-rate debt would increase or decrease cash flows by approximately $2.4 million and, due to the effect of capitalized interest, annual earnings by approximately $2.3 million.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the Index to Financial statements contained in Item 15 on page 53.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Information regarding the change in the Company's independent public accountants was previously reported in the Company's Current Report on Form 8-K dated May 13, 2002, filed with the Securities and Exchange Commission (the "Commission").
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated herein by reference to the section entitled "Directors and Executive Officers" in the Company's most recent definitive proxy statement filed with the Securities and Exchange Commission (the "Commission") with respect to its Annual Meeting of Stockholders to be held on May 5, 2003.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference to the section entitled "Executive Compensation" in the Company's most recent definitive proxy statement filed with the Commission with respect to its Annual Meeting of Stockholders to be held on May 5, 2003.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated herein by reference to the sections entitled "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information as of December 31, 2002", in the Company's most recent definitive proxy statement filed with the Commission with respect to its Annual Meeting of Stockholders to be held on May 5, 2003.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference to the section entitled "Certain Relationships and Related Transactions" in the Company's most recent definitive proxy statement filed with the Commission with respect to its Annual Meeting of Stockholders to be held on May 5, 2003.
ITEM 14.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this annual report, an evaluation was performed under the supervision of the Company's Chief Executive Officer and Chief Financial Officer and with the participation of the Company's management, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. No significant changes have been made in the Company's internal controls or in other factors that could significantly affect these internal controls subsequent to the date of the evaluation.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(1) Financial Statements Page Number
Independent Auditors' Report 53
CBL & Associates Properties, Inc. Consolidated 54 Balance Sheets as of December 31, 2002 and 2001
CBL & Associates Properties, Inc. Consolidated 55 Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000
CBL & Associates Properties, Inc. Consolidated 56 Statements of Shareholders' Equity for the Years Ended December 31, 2002, 2001 and 2000
CBL & Associates Properties, Inc. Consolidated 57 Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000
Notes to Financial Statements 58
(2) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts 78 Schedule III Real Estate and Accumulated Depreciation 79 Schedule IV Mortgage Loans on Real Estate 92
Financial Statement Schedules not listed herein are either not required or are not present in amounts sufficient to require submission of the schedule or the information required to be included therein is included in the Company's Consolidated Financial Statements in item 15 or are reported elsewhere.
(3) Exhibits
Exhibit Number Description
3.1 -- Amended and Restated Certificate of Incorporation of the Company, dated November 2, 1993(a)
3.2 -- Amended and Restated Bylaws of the Company, dated October 27, 1993(a)
3.3 -- Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated May 2, 1996 (p)
3.4 -- Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated January 31, 2001 (p)
4.1 -- See Amended and Restated Certificate of Incorporation of the Company, relating to the Common Stock(a)
4.2 -- Certificate of Designations, dated June 25, 1998, relating to the 9.0% Series A Cumulative Redeemable Preferred Stock (p)
4.3 -- Certificate of Designation, dated April 30, 1999, relating to the Series 1999 Junior Participating Preferred Stock (p)
4.4 -- Terms of Series J Special Common Units of the Operating Partnership, pursuant to Article 4.4 of the Second Amended and Restated Partnership Agreement of the Operating Partnership (p)
4.5 -- Certificate of Designations, dated June 11, 2002, relating to the 8.75% Series B Cumulative Redeemable Preferred Stock (r)
4.6 -- Acknowledgement Regarding Issuance of Partnership Interests and Assumption of Partnership Agreement, see page 93
10.1.1 -- Second Amended and Restated Agreement of the Operating Partnership dated June 30, 1998(l)
10.1.2 -- First Amendment to Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated January 31, 2001 (p)
10.1.3 -- Second Amendment to Second Amended and Restated Agreement of the Operating Partnership dated February 15, 2002, see page 99
10.2.1 -- Rights Agreement by and between the Company and BankBoston, N.A., dated as of April 30, 1999(m)
10.2.2 -- Amendment No. 1 to Rights Agreement by and between the Company and SunTrust Bank(successor to BankBoston), dated January 31, 2001 (p)
10.3 -- Property Management Agreement between the Operating Partnership and the Management Company(a)
10.4 -- Property Management Agreement relating to Retained Properties(a)
10.5.1 -- CBL & Associates Properties, Inc. 1993 Stock Incentive Plan(a)+
10.5.2 -- Form of Non-Qualified Stock Option Agreement for all participants+, see page 107
10.5.3 -- Form of Stock Restriction Agreement for all restricted stock awards+, see page 112
10.5.4 -- Deferred Compensation Arrangement, dated January 1, 1997, for Eric P. Snyder+, see page 115
10.6 -- Indemnification Agreements between the Company and the Management Company and their officers and directors(a)
10.7.1 -- Employment Agreement for Charles B. Lebovitz(a)+
10.7.2 -- Employment Agreement for John N. Foy(a)+
10.7.3 -- Employment Agreement for Stephen D. Lebovitz(a)+
10.8 -- Subscription Agreement relating to purchase of the Common Stock and Preferred Stock of the Management Company(a)
10.9.1 -- Option Agreement relating to certain Retained Properties(a)
10.9.2 -- Option Agreement relating to Outparcels(a)
10.10.1 -- Property Partnership Agreement relating to Hamilton Place(a)
10.10.2 -- Property Partnership Agreement relating to CoolSprings Galleria(a)
10.11.1 -- Acquisition Option Agreement relating to Hamilton Place(a)
10.11.2 -- Acquisition Option Agreement relating to the Hamilton Place Centers(a)
10.12.1 -- Revolving Credit Agreement between the Operating Partnership and First Tennessee Bank, National Association, dated as of March 2, 1994(b)
10.12.2 -- Revolving Credit Agreement, between the Operating Partnership and Wells Fargo Advisors Funding, Inc., NationsBank of Georgia, N.A. and First Bank National Association, dated July 28, 1994 (c)
10.12.3 -- Revolving Credit Agreement, between the Operating Partnership and American National Bank and Trust Company of Chattanooga (now Suntrust Bank), dated October 14, 1994 (d)
10.13 -- Amended and Restated Loan Agreement between the Operating Partnership and First Tennessee Bank National Association, dated July 12, 1995(e)
10.14 -- Second Amendment to Credit Agreement between the Operating Partnership and Wells Fargo Realty Advisors Funding, Inc., dated July 5, 1995(e)
10.15 -- Amended and Restated Credit Agreement between the Operating Partnership and Wells Fargo Bank N.A. et al., dated September 26, 1996(f)
10.16 -- Promissory Note Agreement between the Operating Partnership and Compass Bank dated, September 17, 1996 (f)
10.17.1 -- Amended and Restated Credit Agreement between the Operating Partnership and First Tennessee Bank et al., dated February 24, 1997(g)
10.17.2 -- Amended and Restated Credit Agreement between the Operating Partnership and First Tennessee Bank et al., dated July 29, 1997(h)
10.17.3 -- Second Amended and Restated Credit Agreement between the Operating Partnership and Wells Fargo Bank N.A. et al., dated June 5, 1997, effective April 1,1997(h)
10.17.4 -- First Amendment to Second Amended and Restated Credit Agreement between the Operating Partnership and Wells Fargo Bank N.A. et al., dated November 11, 1997(h)
10.18 -- Loan agreement with South Trust Bank, dated January 15 , 1998(i)
10.19 -- Loan agreement between Rivergate Mall Limited Partnership, The Village at Rivergate Limited Partnership, Hickory Hollow Mall Limited Partnership, and The Courtyard at Hickory Hollow Limited Partnership and Midland Loan Services, Inc., dated July 1, 1998(j)
10.20.1 -- Amended and restated Loan Agreement between the Company and First Tennessee Bank National Association, dated June 12, 1998(k)
10.20.2 -- First Amendment To Third Amended And Restated Credit Agreement and Third Amended And Restated Credit Agreement between the Company and Wells Fargo Bank, National Association, dated August 4, 1998(k)
10.21.1 -- Master Contribution Agreement, dated as of September 25, 2000, by and among the Company, the Operating Partnership and the Jacobs entities(n)
10.21.2 -- Amendment to Master Contribution Agreement, dated as of September 25, 2000, by and among the Company, the Operating Partnership and the Jacobs entities(o)
10.22 -- Share Ownership Agreement by and among the Company and its related parties and the Jacobs entities, dated as of January 31, 2001(o)
10.23.1 -- Registration Rights Agreement by and between the Company and the Holders of SCU's listed on Schedule 1 thereto, dated as of January 31, 2001(o)
10.23.2 -- Registration Rights Agreement by and between the Company and Frankel Midland Limited Partnership, dated as of January 31, 2001(o)
10.23.3 -- Registration Rights Agreement by and between the Company and Hess Abroms Properties of Huntsville, dated as of January 31, 2001(o)
10.24 -- Loan Agreement by and between the Operating Partnership, Wells Fargo Bank, National Association, Fleet National Bank, U.S. Bank National Association, Commerzbank AG, New York And Grand Cayman Branches, and Keybank National Association, together with certain other lenders parties thereto pursuant to Section 8.6 thereof, dated as of January 31, 2001(o)
16 -- Letter from Arthur Anderson LLP regarding dismissal as the Company's independent public accountant (q)
21 -- Subsidiaries of the Company, see page 119
23 -- Consent of Deloitte & Touche LLP, see page 126
24 -- Power of Attorney, see page 127
99.1 -- Certification pursuant to 18 U.S.C Section 1350 by the Chief Executive Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, see page 128
99.2 -- Certification pursuant to 18 U.S.C. Section 1350 by the Chief Financial Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, see page 129
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(a) Incorporated by reference to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-11 (No. 33-67372), as filed with the Commission on January 27, 1994.
(b) Incorporated herein by reference to the Company's Annual Report in Form 10-K for the fiscal year ended December 31, 1993.
(c) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
(d) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.
(e) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
(f) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.
(g) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
(h) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
(i) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
(j) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
(k) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.
(l) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
(m) Incorporated by reference to the Company's Current Report on Form 8-K, filed on May 4, 1999.
(n) Incorporated by reference from the Company's Current Report on Form 8-K, filed on October 27, 2000.
(o) Incorporated by reference from the Company's Current Report on Form 8-K, filed on February 6, 2001.
(p) Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001.
(q) Incorporated by reference from the Company's Current Report on Form 8-K, filed on May 13, 2002.
(r) Incorporated by reference from the Company's Current Report on Form 8-K, dated June 10, 2002, filed on June 17, 2002.
+ A management contract or compensatory plan or arrangement required to be filed pursuant to Item 14(c) of this report.
(b) Reports on Form 8-K
The outline from the Company's October 30, 2002 conference call with analysts regarding earnings (item 9) was filed on October 30, 2002.
The outline from the Company's February 5, 2003 conference call with analysts regarding earnings (Item 9) was filed on February 5, 2003.
CBL & Associates Properties, Inc. - 2002 Form 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CBL & ASSOCIATES PROPERTIES, INC. (Registrant)
By: /s/ Charles B. Lebovitz -------------------------------- Charles B. Lebovitz Chairman of the Board, and Chief Executive Officer Dated: March 21, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
CERTIFICATIONS
I, Charles B. Lebovitz, certify that:
(1) I have reviewed this annual report on Form 10-K of CBL & Associates Properties, Inc.;
(2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
(3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
(4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
(6) The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 21, 2003 /s/ Charles B. Lebovitz ------------------------------------ Charles B. Lebovitz, Chief Executive Officer
I, John N. Foy, certify that:
(1) I have reviewed this annual report on Form 10-K of CBL & Associates Properties, Inc.;
(2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
(3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
(4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
(5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
(6) The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
March 21, 2003 /s/ John N. Foy ------------------------------------ John N. Foy, Chief Financial Officer
Independent Auditors' Report 54
CBL & Associates Properties, Inc. Consolidated Balance Sheets as of December 31, 2002 and 2001 55
CBL & Associates Properties, Inc. Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000 56
CBL & Associates Properties, Inc. Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 57
CBL & Associates Properties, Inc. Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2002, 2001 and 2000 58
Notes to Financial Statements 59
Schedule II Valuation and Qualifying Accounts 79 Schedule III Real Estate and Accumulated Depreciation 80 Schedule IV Mortgage Loans on Real Estate 93
INDEPENDENT AUDITORS' REPORT
To CBL & Associates Properties, Inc.:
We have audited the accompanying consolidated balance sheets of CBL & Associates Properties, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CBL & Associates Properties, Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
As discussed in Note 4 to the financial statements, in 2002, the Company changed its method of accounting for discontinued operations to conform to Statement of Financial Accounting Standards No. 144.
DELOITTE & TOUCHE LLP
Atlanta, Georgia February 21, 2003
CBL & Associates Properties, Inc. Consolidated Balance Sheets (In thousands, except share data)
CBL & Associates Properties, Inc. Consolidated Statements of Operations (In thousands, except per share data)
CBL & Associates Properties, Inc. Consolidated Statement Of Shareholders Equity (In thousands, except share data)
CBL & Associates Properties, Inc. Consolidated Statements of Cash Flows (In thousands)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share data)
NOTE 1. ORGANIZATION
CBL & Associates Properties, Inc. (the "Company"), a Delaware corporation, is a self-managed, self-administered, fully integrated real estate investment trust ("REIT") that is engaged in the development, acquisition and operation of regional shopping malls and community centers. The Company's shopping center properties are located primarily in the Southeast, as well as in select markets in the Northeast and Midwest regions of the United States.
The Company conducts substantially all of its business through CBL & Associates Limited Partnership (the "Operating Partnership"). The Company is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. CBL Holdings I, Inc. is the sole general partner of the Operating Partnership. At December 31, 2002, CBL Holdings I, Inc. owned a 1.7% general partnership interest and CBL Holdings II, Inc. owned a 52.0% limited partnership interest in the Operating Partnership for a combined interest held by the Company of 53.7%.
At December 31, 2002, the Operating Partnership owns controlling interests in 51 regional malls, 18 associated centers (each adjacent to a regional shopping mall), 61 community centers and an office building. Additionally, the Operating Partnership owns non-controlling interests in four regional malls, two associated centers and two community centers. The Operating Partnership currently has under construction one mall, which is owned in a joint venture, one associated center, and three community centers and has options to acquire certain development properties owned by third parties.
The minority interest in the Operating Partnership is held primarily by CBL & Associates, Inc. and its affiliates (collectively "CBL's Predecessor") and by affiliates of The Richard E. Jacobs Group, Inc. ("Jacobs"). CBL's Predecessor contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for a limited partnership interest when the Operating Partnership was formed in November 1993. Jacobs contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for a limited partnership interest when the Operating Partnership acquired Jacobs' interests in 23 properties as discussed in Note 3. At December 31, 2002, CBL's Predecessor owned a 16.0% limited partnership interest, Jacobs owned a 21.5% limited partnership interest and third parties owned an 8.8% limited partnership interest in the Operating Partnership (Note 9). CBL's Predecessor also owned 2,135,249 shares of the Company's common stock at December 31, 2002, for a combined total interest of 19.9% in the Operating Partnership.
The Operating Partnership conducts the Company's property management and development activities through CBL & Associates Management, Inc. (the "Management Company") to comply with certain requirements of the Internal Revenue Code of 1986, as amended (the "Code"). The Operating Partnership holds 100% of the preferred stock and owns 6% of the common stock of the Management Company. CBL's Predecessor holds the remaining 94% of the Management Company's common stock. Through its ownership of the preferred stock, the Operating Partnership receives substantially all of the cash flow and enjoys substantially all of the economic benefits of the Management Company's operations.
As sole general partner, the Company controls the Operating Partnership and the Operating Partnership's rights to substantially all of the economic benefits of the Management Company. As a result, the accounts of each entity are included in the accompanying consolidated financial statements. The Company, the Operating Partnership, and the Management Company are referred to collectively as the "Company."
All significant intercompany balances and transactions have been eliminated in the consolidated presentation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Real Estate Assets
Real estate assets, including acquired assets, are stated at cost. Costs incurred for the development, construction and improvement of real estate assets are capitalized, including overhead costs directly attributable to property development. Interest costs and real estate taxes incurred during the development and construction period are capitalized and depreciated on the same basis as the related asset. Ordinary repairs and maintenance are expensed as incurred.
Depreciation is computed on a straight-line basis over estimated lives of 40 years for buildings, 10 to 20 years for certain improvements and 7 to 10 years for equipment and fixtures. Tenant improvements are capitalized and depreciated on a straight-line basis over the term of the related lease. Lease-related intangibles from acquisitions of real estate assets are amortized over the remaining terms of the related leases.
Total interest expense capitalized was $5,109, $5,860 and $6,288 in 2002, 2001 and 2000, respectively.
Long-Lived Assets
The Company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when its estimated future undiscounted cash flows are less than its carrying value. If it is determined that an impairment has occurred, the excess of the asset's carrying value over its estimated fair value will be charged to operations. There were no impairment charges in 2002, 2001 and 2000.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less as cash equivalents.
Deferred Financing Costs
Net deferred financing costs of $9,767 and $9,396 were included in other assets at December 31, 2002 and 2001, respectively. Deferred financing costs include fees and costs incurred to obtain long-term financing and are amortized to interest expense over the terms of the related notes payable. Amortization expense was $4,114, $4,766, and $2,072 in 2002, 2001 and 2000, respectively. Accumulated amortization was $4,631 and $3,700 as of December 2002 and 2001, respectively.
Revenue Recognition
Minimum rental revenue from operating leases is recognized on a straight-line basis over the initial terms of the related leases. Certain tenants are required to pay percentage rent if their sales volumes exceed thresholds specified in their lease agreements. Percentage rent is recognized as revenue when the thresholds are achieved and the amounts become determinable.
The Company receives reimbursements from tenants for real estate taxes, insurance, common area maintenance, and other recoverable operating expenses as provided in the lease agreements. Tenant reimbursements are recognized as revenue in the period the related operating expenses are incurred. Tenant reimbursements related to certain capital expenditures are billed to tenants over periods of 5 to 15 years and are recognized as revenue when billed.
The Company receives management, leasing and development fees from third parties and unconsolidated affiliates. Management fees are charged as a percentage of minimum and percentage rents and are recognized as revenue when earned. Development fees are recognized as revenue on a pro rata basis over the
development period. Leasing fees are charged for newly executed leases and recognized as revenue when earned.
Gain on Sales of Real Estate Assets
Gain on sales of real estate assets is recognized when title to the asset is transferred to the buyer, if the buyer's initial and continuing investment is adequate and the buyer assumes all future ownership risks of the asset.
Income Taxes
The Company is qualified as a REIT under the provisions of the Code. To maintain qualification as a REIT, the Company is required to distribute at least 90% of its taxable income to shareholders and meet certain other requirements.
As a REIT, the Company is generally not liable for federal corporate income taxes. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal and state income taxes on its taxable income at regular corporate tax rates. Even if the Company maintains its qualification as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed income. State income taxes were not material in 2002, 2001 and 2000.
The Company had a net deferred tax asset at December 31, 2002 and 2001, which consisted primarily of net operating loss carryforwards, that was reduced to zero by a valuation allowance because of uncertainty about the realization of the net deferred tax asset considering all available evidence.
Derivative Financial Instruments
On January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which established accounting and reporting standards for derivative instruments.
SFAS No. 133 requires an entity to recognize every derivative instrument as either an asset or liability measured at its fair value. The fair value adjustments affect either shareholders' equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. See Note 14 for more information.
Concentration of Credit Risk
The Company's tenants include national, regional and local retailers. Financial instruments that subject the Company to concentrations of credit risk consist primarily of tenant receivables. The Company generally does not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of tenants.
The Company derives a substantial portion of its rental income from various national and regional retail companies; however, no single tenant collectively accounts for more than 7.0% of the Company's total revenues.
Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income available to common shareholders by the weighted average number of unrestricted common shares outstanding for the period. Diluted EPS assumes the issuance of common stock for all potential dilutive common shares outstanding. The limited partners' rights to convert their minority interest in the Operating Partnership into shares of common stock are not dilutive (Note 9). The following summarizes the impact of potential dilutive common shares on the denominator used to compute earnings per share:
Stock-Based Compensation
The Company accounts for its stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25) and related Interpretations. No stock-based compensation expense related to stock options has been reflected in net income since all options granted had an exercise price equal to the fair value of the Company's common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to employee stock options:
The fair value of each employee stock option grant was estimated as of the date of grant using the Black-Scholes option pricing model and the following weighted average assumptions:
The per share weighted average fair value of stock options granted during 2002, 2001 and 2000 was $3.50, $1.75 and $1.54, respectively.
Comprehensive Income
Comprehensive income includes all changes in shareholders' equity during the period, except those resulting from investments by shareholders and distributions to shareholders.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations." SFAS No. 141 modified existing rules for allocating purchase price and requires that all business combinations initiated after June 30, 2001, be accounted for under the purchase method. The Company allocated a portion of the purchase price of acquired properties to leases that were in place at the date of the acquisition for properties acquired during 2002.
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections," which rescinds SFAS No. 4. As a result, gains and losses from extinguishments of debt should be classified as extraordinary items only if they meet the criteria of Accounting Principles Board Opinion No. 30 ("APB 30"). SFAS No. 145 will be effective for the Company's 2003 fiscal year. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria of APB 30 will be reclassified. The Company anticipates that all extraordinary losses in prior periods will be reclassified as an operating expense when SFAS No. 145 is adopted on January 1, 2003.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires that the costs associated with exit or disposal activity be recognized and measured at fair value when the liability is incurred. The provisions of SFAS No. 146 are effective for exit or disposal activities initiated after December 31, 2002. Since the Company typically does not engage in significant disposal activities, the implementation of SFAS No. 146 in 2003 is not expected to have a significant impact on the Company's reported financial results.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of SFAS No. 5, 57, and 107, and rescission of FASB Interpretation No. 34." The interpretation elaborates on the disclosures to be made by a guarantor in its financial statements. It also requires a guarantor to recognize a liability for the fair value of the obligation undertaken in issuing the guarantee at the inception of a guarantee. The Company adopted the disclosure provisions of FASB Interpretation No. 45 in the fourth quarter 2002. In accordance with the interpretation, the Company will adopt the remaining provisions of FASB Interpretation No. 45 effective January 1, 2003, and does not anticipate that they will have a material effect on the financial position and results of operations of the Company.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123." SFAS No. 148 provides alternative transition methods for companies that voluntarily change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation.
Effective January 1, 2003, the Company will begin recording the expense associated with stock options in accordance with the fair value provisions of SFAS No. 123. In accordance with the provisions of SFAS No. 148, the Company will apply the fair value provisions on a prospective basis for all stock options granted after January 1, 2003.
Reclassifications
Certain amounts in the 2001 and 2000 consolidated financial statements have been reclassified to conform with the current year presentation.
NOTE 3. ACQUISITIONS
The Company includes the results of operations of real estate assets acquired in the consolidated statement of operations from the date of the related acquisition.
The Company acquired Richland Mall, located in Waco, TX, in May 2002, for a cash purchase price of $43,250. In May 2002, the Company acquired Panama City Mall, located in Panama City, FL, for a purchase price of $45,700. The purchase price of Panama City Mall consisted of (i) the assumption of $40,700 of non-recourse mortgage debt with an interest rate of 7.30%, (ii) the issuance of 118,695 common units of the Operating Partnership with a fair value of $4,487 ($37.80 per unit) and (iii) $458 in cash closing costs.
The Company also entered into a ground lease in May 2002, for land adjacent to Panama City Mall. The ground lease gives the lessor the option to require the Company to purchase the land for $4,148 between August 1, 2003, and February 1, 2004.
The Company acquired the remaining 21% ownership interest in Columbia Place in Columbia, SC in August 2002. The total consideration of $9,875 consisted of the issuance of 61,662 common units with a fair value of $2,280 ($36.97 per unit) and the assumption of $7,595 of debt.
In December 2002, the Company acquired the remaining 35% interest in East Towne Mall, West Towne Mall and West Towne Crossing, which are all located in Madison, WI. The purchase price consisted of the issuance of 932,669 common units with a fair value of $36,411 ($39.04 per unit) and the assumption of $25,618 of debt.
In December 2002, the Company acquired Westmoreland Mall and its associated center, Westmoreland Crossing, located in Greensburg, PA, for a cash purchase price of $112,416.
On January 31, 2001, the Company completed the first stage of its acquisition of Jacobs' interests in 21 malls and two associated centers for total consideration of approximately $1,204,249, including the acquisition of minority interests in certain properties. The purchase price consisted of (i) $125,460 in cash, including closing costs of approximately $12,872, (ii) the assumption of $750,244 in non-recourse mortgage debt, and (iii) the issuance of 12,056,692 special common units of the Operating Partnership with a fair value of $328,545 ($27.25 per unit).
The Company closed on the second and final stage of the Jacobs' acquisition in March 2002, by acquiring additional interests in the joint ventures that own the following properties:
* West Towne Mall, East Towne Mall and West Towne Crossing in Madison, WI (17% interest) * Columbia Place in Columbia, SC (31% interest) * Kentucky Oaks Mall in Paducah, KY (2% interest)
The purchase price of $42,519 for the additional interests consisted of $422 in cash, the assumption of $24,487 of debt and the issuance of 499,730 special common units with a fair value of $17,610 (weighted average of $35.24 per unit).
The following unaudited pro forma financial information is for the years ended December 31, 2001 and 2000. It presents results for the Company as if the acquisition of the interests acquired on January 31, 2001, had occurred on January 1, 2000. The unaudited pro forma financial information does not represent what the consolidated results of operations or financial condition actually would have been if the acquisition and related transactions had occurred on January 1, 2000. The pro forma financial information also does not project the consolidated results of operations for any future period. The pro forma results are as follows:
The pro forma adjustments include additional (i) depreciation expense of $1,871 and $22,455, (ii) interest expense of $835 and $10,516, (iii) management fees from unconsolidated affiliates of $129 and $1,483 and (iv) minority interest in earnings in the Operating Partnership of $1,965 and $22,242 for the years ended December 31, 2001 and 2000, respectively.
In separate transactions during 2001, the Company issued an additional 602,980 special common units of the Operating Partnership valued at $16,431 and 31,008 common units of the Operating Partnership valued at $949 to purchase the remaining 50% and 25% interests in Madison Square Mall and Madison Plaza in Huntsville, AL, respectively.
NOTE 4. DISCONTINUED OPERATIONS
On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121 and requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (i) recognition and measurement of the impairment of long-lived assets to be held and used and (ii) measurement of long-lived assets to be disposed by sale. SFAS No. 144 broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented.
The provisions of SFAS No. 144 have been applied prospectively to dispositions that occurred after January 1, 2002. Additionally, the disposed assets' results of operations for 2001 and 2000 have been reclassified to discontinued operations to conform to the current year presentation.
During 2002, the Company sold five community centers and an office building for a total sales price of $36,800 and recognized a net gain of $372. In accordance with SFAS No. 144, the net gain is reported as a component of discontinued operations in the accompanying consolidated statement of operations. Total revenues for these properties were $2,331, $4,844 and $3,824 in 2002, 2001 and 2000, respectively.
NOTE 5. UNCONSOLIDATED AFFILIATES
At December 31, 2002, the Company has investments in the following nine partnerships and joint ventures, which are accounted for using the equity method of accounting:
In January 2001, the Company acquired a 48% interest in Kentucky Oaks Mall Company, Columbia Joint Venture and Madison Joint Venture in connection with the first stage of the Jacobs' transaction discussed in Note 3.
As discussed in Note 3, the Company discontinued the equity method of accounting for the partnership that owns Madison Square Mall after the Company acquired the remaining ownership interest in that partnership on January 31, 2001.
In February 2002, the Company contributed its interests in two community centers and one associated center to PPG Venture I Limited Partnership, a joint venture with a third party, and retained a 10% interest. The total consideration of $63,030 consisted of cash of $46,000 and the Company's retained interest. The Company deferred the gain of $10,983 from the transaction since certain restrictions included in the joint venture agreement related to the subsequent sale of the properties demonstrate the Company's continuing involvement. The deferred gain is included in accounts payable and accrued liabilities.
In March 2002, the Company acquired an additional 2% interest in Kentucky Oaks Mall Company, an additional 17% interest in Madison Joint Venture and an additional 31% interest in Columbia Mall Company as discussed in Note 3. Since the additional interest in Columbia Mall Company resulted in the Company having a 79% controlling interest in that joint venture, the Company stopped accounting for it using the equity method and began consolidating it as of the date the additional 31% interest was acquired.
During 2002, the Company entered into three joint ventures with third parties to develop two malls, Imperial Valley Mall and Coastal Grand.
Condensed combined financial statement information of the partnerships and joint ventures is presented as follows:
In general, contributions and distributions of capital or cash flows and allocations of income and expense are made on a pro rata basis in proportion to the equity interest held by each general or limited partner. All debt on these properties is non-recourse.
NOTE 6. MORTGAGE AND OTHER NOTES PAYABLE
Mortgage and other notes payable consisted of the following at December 31, 2002 and 2001:
Non-recourse and recourse loans include loans that are secured by properties owned by the Company that have a net carrying value of $2,897,526 at December 31, 2002. At December 31, 2002, the Company had $34,734 available and unfunded under recourse term loan commitments on four properties.
Non-Recourse Loans
At December 31, 2002, non-recourse loans totaling $1,867,915 bear interest at fixed rates ranging from 6.25% to 10.625%. Non-recourse loans generally provide for monthly payments of principal and/or interest and mature at various dates from May 2003 through August 2018.
Variable-Rate Loans
Recourse loans totaling $290,954 bear interest at variable interest rates indexed to the prime lending rate or London Interbank Offered Rate ("LIBOR"). At December 31, 2002, interest rates on variable-rate debt varied from 2.55% to 6.95%.
At December 31, 2002, the Company had construction loans on two properties. The total commitment under the construction loans is $61,025 of which $21,935 is outstanding at December 31, 2002. The construction loans mature in 2004 and 2005, and bear interest at variable interest rates indexed to the prime lending rate or LIBOR. Interest rates on the construction loans were 3.07% and 3.09%, respectively, at December 31, 2002.
Unsecured Line of Credit
The Company has an unsecured line of credit that is used for construction, acquisition, and working capital purposes. The total available amount on the unsecured line of credit of $105,275 was outstanding at December 31, 2002. The unsecured line of credit expires January 31, 2004, and bears interest at a rate indexed to the prime lending rate or LIBOR. Borrowings under the unsecured line of credit had a weighted average interest rate of 2.99% at December 31, 2002. Quarterly principal payments of $6,250 are due beginning February 1, 2003.
The unsecured line of credit contains three one-year extension options. During the first and second extension years, the Company is required to make quarterly principal payments of $6,250 beginning on February 1 of each extension year. If the third extension option is exercised, then quarterly payments of $18,750 are required beginning on February 1 of that extension year.
Secured Lines of Credit
The Company has four secured lines of credit that are used for construction, acquisition, and working capital purposes. Each of these lines is secured by mortgages on certain of the Company's operating properties. The following summarizes certain information about the secured lines of credit as of December 31, 2002:
Borrowings under the secured lines of credit had a weighted average interest rate of 2.43% at December 31, 2002. Additionally, the secured lines of credit are secured by 26 of the Company's properties, which had a net carrying value of $299,660 at December 31, 2002.
Letters of Credit
At December 31, 2002, the Company had additional lines of credit with a total commitment of $14,585 that can only be used for issuing letters of credit. The total outstanding under these lines of credit was $8,474 at December 31, 2002.
Covenants and Restrictions
The secured and unsecured line of credit agreements contain, among other restrictions, certain restrictive covenants including the maintenance of certain coverage ratios, minimum net worth requirements, and limitations on cash flow distributions. The Company was in compliance with all covenants and restrictions on its lines of credit at December 31, 2002.
Thirteen malls, three associated centers and the office building are owned by special purpose entities that are included in the Company's consolidated financial statements. The sole business purpose of the special purpose entities is the ownership and operation of these properties. The mortgaged 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.
Debt Maturities
As of December 31, 2002, the scheduled principal payments on all mortgage and other notes payable, including construction loans and lines of credit, are as follows:
2003 $ 433,944 2004 119,737 2005 122,612 2006 162,135 2007 202,634 Thereafter 1,361,017 ---------- Total $2,402,079 ==========
Of the $433,944 of scheduled principal payments in 2003, $390,080 is related to loans that are scheduled to mature in 2003. The Company has extension options in place for each of these loans that will extend their scheduled maturities to 2004.
NOTE 7. EXTRAORDINARY ITEMS
The extraordinary items resulted from prepayment penalties and the write-off of unamortized deferred financing costs when notes payable were retired before their scheduled maturity dates. The following are the components of the extraordinary items:
NOTE 8. SHAREHOLDERS' EQUITY
Common Stock
In March 2002, the Company completed a follow-on offering of 3,352,770 shares of its $0.01 par value common stock at $34.55 per share. The net proceeds of $114,705 were used to repay outstanding borrowings under the Company's lines of credit and to retire debt on certain operating properties.
Preferred Stock
In June 1998, the Company issued 2,875,000 shares of 9.0% Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock") with a face value of $25.00 per share in a public offering. The dividends on the Series A Preferred Stock are cumulative and accrue from the date of issue and are payable quarterly in arrears at a rate of $2.25 per share per annum. The Series A Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not redeemable prior to July 1, 2003. On or after July 1, 2003, the Company may redeem the Series A Preferred Stock, in whole or in part, for a cash redemption price of $25.00 per share, plus accrued and unpaid dividends.
In June 2002, the Company purchased 200,000 shares of the Series A Preferred Stock for $5,093.
In June 2002, the Company completed an offering of 2,000,000 shares of 8.75% Series B Cumulative Redeemable Preferred Stock ("Series B Preferred Stock"), having a par value of $.01 per share, at $50.00 per share. The net proceeds of $96,370 were used to reduce outstanding balances under the Company's lines of credit and to retire term loans on several properties.
The dividends on the Series B Preferred Stock are cumulative and accrue from the date of issue and are payable quarterly in arrears at a rate of $4.375 per share per annum. The Series B Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption, and is not convertible into any other securities of the Company. The Series B Preferred Stock cannot be redeemed by the Company prior to June 14, 2007. After that date, the Company may redeem shares, in whole or in part, at any time for a cash redemption price of $50.00 per share plus accrued and unpaid dividends.
NOTE 9. MINORITY INTERESTS
Minority interests represent (i) the aggregate partnership interest in the Operating Partnership that is not owned by the Company and (ii) the aggregate ownership interest in 11 of the Company's shopping center properties that is held by third parties.
Minority Interest in Operating Partnership
The minority interest in the Operating Partnership is represented by common units and special common units of limited partnership interest in the Operating Partnership (the "Operating Partnership Units") that the Company does not own.
The assets and liabilities allocated to the Operating Partnership's minority interest are based on their ownership percentage of the Operating Partnership at December 31, 2002 and 2001. The ownership percentage is determined by dividing the number of Operating Partnership Units held by the minority interest at December 31, 2002 and 2001 by the total Operating Partnership Units outstanding at December 31, 2002 and 2001. The minority interest ownership percentage in assets and liabilities of the Operating Partnership was 46.3% and 49.9% at December 31, 2002 and 2001, respectively.
Income is allocated to the Operating Partnership's minority interest based on their weighted average ownership during the year. The ownership percentage is determined by dividing the weighted average number of Operating Partnership Units held by the minority interest by the total weighted average number of Operating Partnership Units outstanding during the year.
A change in the number of shares of common stock or Operating Partnership Units changes the percentage ownership of both the Operating Partnership's minority interest and the Company. An Operating Partnership Unit is considered to be equivalent to a share of common stock since it generally is redeemable for cash or shares of the Company's common stock. As a result, an allocation is made between shareholders' equity and minority interest in the Operating Partnership in the accompanying balance sheet to reflect the change in ownership of the Operating Partnership's underlying equity when there is a change in the number of shares and/or Operating Partnership Units outstanding.
The total liability related to the minority interest in the Operating Partnership was $497,832 and $428,888 at December 31, 2002 and 2001, respectively.
Minority Interest in Operating Partnership-Conversion Rights
The Operating Partnership agreement gives the limited partners the right to convert their partnership interests in the Operating Partnership into shares of common stock, subject to certain limits. It also gives them the right to sell part or all of their partnership interest in the Operating Partnership to the Company in exchange for shares of common stock or their cash equivalent. The Company can elect to pay in shares of common stock or their cash equivalent, subject to the terms of the Operating Partnership agreement.
The Operating Partnership issued 13,159,407 special common units in connection with the acquisitions discussed in Notes 3 and 5. After January 31, 2004, holders of the special common units may exchange them for shares of common stock or cash. The Company has the right to elect the form of payment. The special common units receive a minimum distribution of $2.9025 per unit per year. When the distribution on the common units exceeds $2.9025 per unit per year, the special common units will receive a distribution equal to that paid on the common units.
The Operating Partnership issued 1,144,034 common units in connection with the acquisitions discussed in Notes 3 and 5. The common units issued in connection with the acquisition of Panama City Mall, which is discussed in Note 3, will receive a minimum annual dividend of $3.375 per unit until May 2012. When the distribution on the common units exceeds $3.375 per unit, these common units will receive a distribution equal to that paid on the common units. Additionally, if the annual distribution on the common units should ever be less than $2.22 per unit, the $3.375 per unit dividend will be reduced by the amount the per unit distribution is less than $2.22 per unit.
During 2002, third parties converted 446,652 common units to shares of the Company's common stock.
The Operating Partnership acquired properties from CBL's Predecessor in exchange for 1,336 common units valued at $27,000 during 2000.
Outstanding rights to convert minority interests in the Operating Partnership to common stock were held by the following parties at December 31, 2002 and 2001:
Minority Interest in Shopping Center Properties
The Company's consolidated financial statements include the assets, liabilities and results of operations of eleven properties that the Company does not wholly own. The minority interest in shopping center properties represents the aggregate ownership interest of third parties in these properties. The total liability related to the minority interests in shopping center properties was $2,681 and $2,213 at December 31, 2002 and 2001, respectively.
The assets and liabilities allocated to the minority interest in shopping center properties are based on the third parties' ownership percentages in each shopping center property at December 31, 2002 and 2001. Income is allocated to the minority interest in shopping center properties based on the third parties' weighted average ownership in each shopping center property during the year.
NOTE 10. MINIMUM RENTS
The Company receives rental income by leasing retail shopping center space under operating leases. Future minimum rents are scheduled to be received under noncancellable tenant leases at December 31, 2002, as follows:
2003 $367,191 2004 331,926 2005 290,280 2006 252,001 2007 214,485 Thereafter 818,495
Future minimum rents do not include percentage rents or tenant reimbursements that may become due.
NOTE 11. MORTGAGE NOTES RECEIVABLE
Mortgage notes receivable are collateralized by first mortgages or wrap-around mortgages on the underlying real estate and related improvements. Interest rates on notes receivable range from 2.63% to 9.5% at December 31, 2002. Maturities of notes receivable range from 2003 to 2022.
NOTE 12. SEGMENT INFORMATION
The Company measures performance and allocates resources according to property type, which is determined based on differences such as nature of tenants, capital requirements, economic risks and leasing terms. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments. The accounting policies of the reportable segments are the same as those described in Note 2. Information on the Company's reportable segments is presented as follows:
NOTE 13. OPERATING PARTNERSHIP
Condensed consolidated financial statement information for the Operating Partnership is presented as follows:
NOTE 14. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to manage its exposure to changes in interest rates. The Company does not use derivative financial instruments for speculative purposes. The Company's interest rate risk management policy requires that derivative instruments be used for hedging purposes only and that they be entered into only with major financial institutions based upon their credit ratings and other factors.
The Company's objective in using derivatives is to manage its exposure to changes in interest rates. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without the exchange of the underlying principal amount. During 2002, such derivatives were used to hedge the variable cash flows associated with variable-rate debt. Under an interest rate swap in place at December 31, 2002, the Company receives interest payments at a rate equal to LIBOR (1.44% at December 31, 2002) and pays interest at a fixed rate of 5.83%. The interest rate swap has a notional amount of $80,000 and expires August 30, 2003.
Effective January 1, 2001, the Company determined that, with the exception of two swap agreements that expired during the first quarter of 2001, the Company's derivative instruments were effective and qualified for hedge accounting in accordance with SFAS No. 133. At December 31, 2002, the interest rate swap's fair value of $2,412 was recorded in accounts payable and accrued liabilities.
The unrealized gains/losses recorded in accumulated other comprehensive loss will be reclassified to earnings as interest expense when interest payments are made. This reclassification correlates with the timing of when hedged items are recognized in earnings. The change in net unrealized gains/losses on cash flow hedges in 2002 reflects a reclassification of net unrealized gains/losses from accumulated other comprehensive loss to interest expense in the amount of $4,387. The remaining unrealized gains/losses of $2,397 will be reclassified during 2003.
The Company is exposed to credit losses if the counterparty is unable to perform under the interest rate swap agreement. However, the Company anticipates that the counterparty will be able to fully satisfy its obligations under the contract. The Company does not obtain collateral or other security to support financial instruments subject to credit risk but monitors the credit standing of counterparties.
NOTE 15. RELATED PARTY TRANSACTIONS
CBL's Predecessor and certain officers of the Company have a significant minority interest in the construction company that the Company engaged to build substantially all of the Company's properties. The Company paid approximately $96,185, $94,300 and $123,000 to the construction company in 2002, 2001, and 2000, respectively, for construction and development services. The Company had accounts payable to the construction company of $16,963 and $3,109 at December 31, 2002 and 2001, respectively.
The Management Company provides management and leasing services to the Company's unconsolidated affiliates and other affiliated partnerships. Revenues recognized for these services amounted to $2,502, $1,450 and $1,166 in 2002, 2001 and 2000, respectively.
NOTE 16. CONTINGENCIES
The Company is currently involved in certain litigation that arises in the ordinary course of business. It is management's opinion that the pending litigation will not materially affect the financial position or results of operations of the Company. Additionally, management believes that, based on environmental studies completed to date, any exposure to environmental cleanup will not materially affect the financial position and results of operations of the Company.
The Company has guaranteed all of the construction debt related to Waterford Commons, which is owned in a joint venture with a third party that owns a minority interest. The total amount of the commitment for this construction loan is $30,000, of which $7,182 was outstanding at December 31, 2002. The Company will receive a fee from the third party partner in exchange for the guaranty, which will be recognized as revenue pro rata over the term of the guaranty. The fee had not been received as of December 31, 2002.
The Company has guaranteed 50% of the debt of Parkway Place L.P., an unconsolidated affiliate in which the Company owns a 45% interest. The total amount outstanding at December 31, 2002, was $56,458, of which the Company has guaranteed $28,229.
Under the terms of the partnership agreement of Mall of South Carolina L.P., an unconsolidated affiliate in which the Company owns a 50% interest, the Company will guarantee 100% of the construction debt incurred to develop Coastal Grand. There was no construction debt outstanding at December 31, 2002. The Company will receive a fee for this guarantee.
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
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 maturity of these financial instruments. Based on the interest rates for similar financial instruments, the carrying value of mortgage notes receivable is a reasonable estimation of fair value. The fair value of mortgage and other notes payable was $2,637,219 and $2,315,472 at December 31, 2002 and 2001, respectively. The fair value was calculated by discounting future cash flows for the notes payable using estimated rates at which similar loans would be made currently.
NOTE 18. STOCK INCENTIVE PLAN
The Company maintains the CBL & Associates Properties, Inc. 1993 Stock Incentive Plan, as amended, which permits the Company to issue stock options and common stock to selected officers, employees and directors of the Company. The shares available under the plan were increased from 4,000,000 to 5,200,000 during 2002. The Compensation Committee of the Board of Directors (the "Committee") administers the plan.
Stock Options
Stock options issued under the plan allow for the purchase of common stock at the fair market value of the stock on the date of grant. Stock options granted to officers and employees vest and become exercisable in installments on each of the first five anniversaries of the date of grant and expire 10 years after the date of grant. Stock options granted to independent directors are fully vested upon grant. However, the independent directors may not sell, pledge or otherwise transfer their stock options during their board term or for one year thereafter.
The Company's stock option activity for 2002, 2001 and 2000 is summarized as follows:
The following is a summary of the stock options outstanding at December 31, 2002:
Stock Awards
Under the plan, common stock may be awarded either alone, in addition to, or in tandem with other stock awards granted under the plan. The Committee has the authority to determine eligible persons to whom common stock will be awarded, the number of shares to be awarded, and the duration of the vesting period, as defined. The Committee may also provide for the issuance of common stock under the plan on a deferred basis pursuant to deferred compensation arrangements, as described in Note 19.
During 2002, the Company issued 73,228 shares of common stock with a weighted average grant-date fair value of $35.21 per share. There were 41,516 shares that vested immediately. The remaining 31,712 shares vest at various dates from 2003 to 2007.
During 2001, the Company issued 69,735 shares of common stock with a weighted average grant-date fair value of $27.62 per share. There were 44,537 shares of common stock that vested immediately. The remaining 25,198 shares of common stock vest at various dates from 2002 to 2006.
During 2000, the Company issued 72,329 shares of common stock with a weighted average grant-date fair value of $22.59 per share. There was 36,606 shares of common stock that vested immediately. The remaining 35,723 shares of common stock vest at various dates from 2001 to 2005.
NOTE 19. EMPLOYEE BENEFIT PLANS
401 (k) Plan
The Management Company maintains a 401(k) profit sharing plan, which is qualified under Section 401(a) and Section 401(k) of the Code to cover employees of the Management Company. All employees who have attained the age of 21 and have completed at least one year of service are eligible to participate in the plan. The plan provides for employer matching contributions on behalf of each participant equal to 50% of the portion of such participant's contribution that does not exceed 2.5% of such participant's compensation for the plan year.
Additionally, the Management Company has the discretion to make additional profit-sharing-type contributions not related to participant elective contributions. Total contributions by the Management Company were $439, $391 and $323 in 2002, 2001 and 2000, respectively.
Employee Stock Purchase Plan
The Company maintains an employee stock purchase plan that allows eligible employees to acquire shares of the Company's common stock in the open market without incurring brokerage or transaction fees. Under the plan, eligible employees make payroll deductions that are used to purchase shares of the Company's common stock. The shares are purchased by the fifth business day of the month following the month when the deductions were withheld. The shares are purchased at the prevailing market price of the stock at the time of purchase.
Deferred Compensation Arrangements
The Company has entered into agreements with certain of its officers that allow the officers to defer receipt of selected salary increases and/or bonus compensation for periods ranging from 5 to 10 years.
For certain officers, the deferred compensation arrangements provide that when the salary increase or bonus compensation is earned and deferred, shares of the Company's common stock issuable under the 1993 Stock Incentive Plan are deemed set aside for the amount deferred. The number of shares deemed set aside is determined by dividing the amount of compensation deferred by the fair value of the Company's common stock on the deferral date, as defined in the arrangements. The shares set aside are deemed to receive dividends equivalent to those paid on the Company's common stock, which are then deemed to be reinvested in the Company's common stock in accordance with the Company's dividend reinvestment plan. When an arrangement terminates, the Company will issue shares of the Company's common stock to the officer equivalent to the number of shares deemed to have accumulated under the officer's arrangement. At December 31, 2002 and 2001, respectively, there were 80,532 and 65,200 shares that were deemed set aside in accordance with these arrangements.
For other officers, the deferred compensation arrangements provide that their bonus compensation is deferred in the form of a note payable to the officer. Interest accumulates on these notes at 7.0%. When an arrangement terminates, the note payable plus accrued interest is paid to the officer in cash. At December 31, 2002 and 2001, respectively, the Company had notes payable, including accrued interest, of $319 and $168 related to these arrangements.
NOTE 20. DIVIDENDS
On October 29, 2002, the Company declared a cash dividend of $0.655 per share for the quarter ended December 31, 2002. The dividend was paid on January 15, 2003, to shareholders of record as of December 27, 2002. The total dividend of $19,517 is included in accounts payable and accrued liabilities at December 31, 2002.
On January 15, 2002, the Operating Partnership paid a distribution of $17,336 to the Operating Partnership's limited partners. This distribution represented a distribution of $0.655 per unit for each common unit and $0.726 per unit for each special common unit in the Operating Partnership. The total distribution is included in accounts payable and accrued liabilities at December 31, 2002.
The allocations of dividends declared and paid for income tax purposes are as follows:
NOTE 21. QUARTERLY INFORMATION (UNAUDITED)
The following quarterly information differs from previously reported results since the results of operations of long-lived assets disposed of subsequent to each quarter end in 2002 have been reclassified to discontinued operations for all periods presented. Additionally, total revenues differs from previously reported amounts due to a reclassification made to conform to the fourth quarter and year-end presentations.
CBL & Associates Properties, Inc. Schedule II Valuation and Qualifying Accounts (in thousands)
SCHEDULE III
CBL & ASSOCIATES PROPERTIES, INC. REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION December 31, 2002 (Dollars in Thousands)
CBL & ASSOCIATES PROPERTIES, INC.
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
The changes in real estate assets and accumulated depreciation for the years ending December 31, 2002, 2001, and 2000 is set forth below: (in thousands).
SCHEDULE IV
CBL & ASSOCIATES PROPERTIES, INC. MORTGAGE LOANS ON REAL ESTATE AT DECEMBER 31, 2002 (In thousands)
The changes in mortgage notes receivable for the years ending December 31, 2002, 2001, and 2000 is set forth below: (in thousands).
Exhibit 4.6
ACKNOWLEDGEMENT REGARDING
ISSUANCE OF PARTNERSHIP INTERESTS
AND ASSUMPTION OF PARTNERSHIP AGREEMENT
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, the undersigned partnership, CBL & ASSOCIATES LIMITED PARTNERSHIP, a Delaware limited partnership having an address of CBL Center, 2030 Hamilton Place Boulevard, Suite 500, Chattanooga, Tennessee 37421 (the "Partnership"), does hereby acknowledge that there has been acquired by and issued to PANAMA CITY ASSOCIATES, L.L.C., a Michigan limited liability company having an address of 2690 Crooks Road, Suite 400, Troy, Michigan 48084 ("Contributor"), the partnership interests (collectively, the "Interests") containing the terms and characteristics and as described on Schedule A, attached hereto and made a part hereof, being interests as a limited partner in and of the Partnership on the books of the Partnership, together with any and all right, title and interest in any property, both real and personal, to which the Interests relate and any other rights, privileges and benefits appertaining thereto. The Partnership and Contributor acknowledge that the issuance of the Interests to Contributor (i) is in consideration for Contributor's contribution of certain assets to the capital of the Partnership as set forth in that certain Contribution Agreement between Contributor and the Partnership dated May 9, 2002 (the "Contribution Agreement"), and (ii) is being made in accordance with, and subject to the parties' respective representations and warranties contained in the Contribution Agreement.
Contributor further acknowledges by execution hereof that the issuance of the Interests to, and the acquisition and ownership of the Interests by, Contributor is subject to all of the terms and conditions of the Second Amended and Restated Agreement of Limited Partnership of the Partnership, dated June 30, 1998, as amended by a First Amendment, dated January 31, 2001 (appearing as Schedule B attached hereto), and as may be amended from time to time pursuant to the provisions of such Amended and Restated Agreement (the "OP Agreement"), and
Contributor, by execution of this Acknowledgement, agrees to abide by and be bound by all of the terms and conditions of the OP Agreement as a limited partner and holder of Common Units of the Partnership.
IN WITNESS WHEREOF, the Partnership and Contributor have executed this Acknowledgement as of the 31st day of May, 2002.
PARTNERSHIP:
CBL & ASSOCIATES LIMITED PARTNERSHIP By CBL Holdings I, Inc., its general partner
By: /s/ John N. Foy -------------------------
Name: John N. Foy -------------------------
Title: Vice Chairman -------------------------
ACCEPTANCE
The Contributor hereby acknowledges its acceptance of the Interests and agrees to be bound by and subject at all times to all of the terms and conditions of the OP Agreement, which Agreement is incorporated herein by reference, as a limited partner and holder of Common Units of the Partnership.
DATED as of the 31st day of May, 2002.
CONTRIBUTOR:
PANAMA CITY ASSOCIATES, L.L.C. By Panama Associates Management, Inc., its managing member
By: /s/ Robert B. Aiken -------------------------
Name: Robert B. Aiken -------------------------
Title: Chief Executive Officer -------------------------
SCHEDULE A
Description of the Interests
One Hundred and Eighteen Thousand Six Hundred and Ninety-Five (118,695) Common Units as are described more fully in, and are subject to the provisions of the OP Agreement as same may be amended from time to time.
Notwithstanding anything to the contrary contained in the OP Agreement, until the earlier to occur of (i) the tenth anniversary of the closing hereunder, or (ii) the cash distributions by the Partnership on account of its Common Units during any consecutive four calendar quarters is equal to or greater than $3.375 per Common Unit (each a "Termination Event"), if the quarterly distribution by the Partnership on account of its Common Units is less than $.84375 per Common Unit (the "Basic Distribution"), then the Partnership shall, to the extent of its available cash flow and after distributions on account of any preferred and senior securities of the Partnership and after distributions to the Series J Special Common Units but prior to any distributions to the Common Units, make a special distribution on account of the Common Units held by Contributor equal to the difference between the amount of the Basic Distribution and the amount distributed on account of all Common Units (the "Special Distribution"), provided however, that the amount of a Special Distribution shall never exceed $.28875 per Common Unit in any calendar quarter. Each Special Distribution shall be paid in conjunction with the payment of regular quarterly distributions on account of the Common Units. The foregoing amounts shall be adjusted to reflect any splits, reverse splits, distributions of Common Units or similar adjustments to the amount of the Partnership's outstanding Common Units and, prior to any Termination Event, the Common Units being received by Contributor as described herein shall be treated no differently (except for the provisions set forth above as to distributions and any special tax allocations described herein and in the Contribution Agreement as applicable to the Contributor's Common Units) than any other Common Unit (other than the Series J Special Common Units) that may exist on the date of this instrument.
Certain Income Allocations. Contributor and the Partnership agree that the Partnership shall allocate taxable income to Contributor in each fiscal year in an amount equivalent to the cash distributions made to Contributor in respect of its Partnership Interests during such fiscal year of the Partnership (i.e., "income to follow cash"). Contributor and the Partnership also agree that except for the allocations of the 704(c) Tax Items referenced in Paragraph 18.1.1(b) of the Contribution Agreement, the impact of the Code Section 754 election referenced in Paragraph 18.1.3 of the Contribution Agreement and the income allocations referenced herein and as modified by the next-following sentence, the Partnership Interests of Contributor shall be treated, for all other purposes of allocations of income, gain, loss, deduction or credit, in the same manner as the other Common Units of the Partnership as "Common Units" are defined in OP Agreement. Notwithstanding the preceding sentence but except for the allocations of the 704(c) Tax Items referenced in Paragraph 18.1.1(b) of the Contribution Agreement and the impact of the Code Section 754 election referenced in Paragraph 18.1.3 of the Contribution Agreement, Contributor shall be allocated income and/or gain for a fiscal year of the Partnership in excess of the cash distributions that Contributor has received from the Partnership for such fiscal year if and only if (i) all other Common Unit holders of the Partnership have received an income and/or gain allocation equivalent to the cash distributions that such other Common Unit holders received from the Partnership for such fiscal year, and (ii) such allocation of income and/or gain to Contributor is in an amount equivalent to Contributor's pro rata portion, based on Contributor's Partnership Interest, of the aggregate of the income and/or gain remaining after the other Common Unit holders have been allocated income and/or gain in an amount equivalent to the cash distributions that they received for such fiscal year.
By way of illustration only, the Partnership's dividend for a fiscal year is $2.50/Unit and Contributor has received $3.375/unit on its Partnership Interest but the additional income, after allocation of $3.375/unit to the Contributor, to be allocated to all Common Unit holders is $2.60/Unit. For such fiscal year, Contributor shall be allocated income equivalent to $3.375/Unit, the other Common Unit holders shall be allocated income equivalent to $2.50/unit and the balance of the income ($.10/unit) to be allocated shall then be allocated to all Common Unit holders (including Contributor) on a pro rata or per unit basis.
Concurrently with, or promptly following, the closing hereunder, the Partnership shall cause the OP Agreement to be amended to reflect the arrangements hereunder.
SCHEDULE B
Second Amended and Restated Agreement of Limited Partnership of CBL & Associates Limited Partnership, a Delaware limited partnership, dated June 30, 1998, as amended by that First Amendment, dated January 31, 2001.
Exhibit 10.1.3 SECOND AMENDMENT TO SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CBL & ASSOCIATES LIMITED PARTNERSHIP
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Dated as of February 15, 2002
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THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CBL & ASSOCIATES LIMITED PARTNERSHIP (this "Amendment") is hereby adopted by CBL Holdings, I, Inc., a Delaware corporation (the "General Partner"), as the general partner of CBL & Associates Limited Partnership, a Delaware limited partnership (the "Partnership"). For ease of reference, capitalized terms used herein and not otherwise defined have the meanings assigned to them in the Second Amended and Restated Agreement of Limited Partnership of CBL & Associates Limited Partnership as amended by that certain First Amendment to the Second Amended and Restated Agreement of Limited Partnership of CBL & Associates Limited Partnership, dated January 31, 2001 (the "Agreement").
WHEREAS, the Partnership is a party to that certain Interest Contribution and Option Agreement dated January 31, 2001, between the Partnership, JG Columbia LLC (the "Columbia Contributor"), and CBL/Columbia I, LLC ("CBL/Columbia") (the "Columbia ICOA"), pursuant to which the Columbia Contributor granted to the Partnership options to require the Columbia Contributor to contribute its remaining partnership interests in Columbia Joint Venture, an Ohio general partnership which owns that certain regional mall located in Columbia, South Carolina, and known as Columbia Mall, said remaining partnership interests consisting of a thirty-one percent (31%) general partnership interest (the "Columbia Option Interest"), to the CBL/Columbia (as the "Designated Entity" defined in the ICOA), in return for Fifty Thousand Seven Hundred Sixty-Five (50,765) Series J Special Common Units of the Operating Partnership (the "SCUs") representing certain limited interests in the Partnership and cash in the amount of Two Hundred Seventy-Three Thousand Seven Hundred Eleven and 00/100 Dollars ($273,711.00);
WHEREAS, the Partnership also is a party to that certain Interest Contribution and Option Agreement dated January 31, 2001, between the Partnership, JVJ Madison Joint Venture (the "Madison Contributor"), and CBL/Madison I, LLC ("CBL/Madison") (the "Madison ICOA"), pursuant to which the Madison Contributor granted to the Partnership options to require the Madison Contributor to contribute its remaining partnership interests in Madison Joint Venture, an Ohio general partnership which owns that certain regional malls located in Madison, Wisconsin, and known as East Towne Mall and West Towne Mall, respectively, said remaining partnership interests consisting of a seventeen percent (17%) general partnership interest (the "Madison Option Interest"), to CBL/Madison (as the "Designated Entity" defined in the Madison ICOA), in return for Four Hundred Eleven Thousand Nine Hundred Twenty-one (411,921) SCUs representing certain limited interests in the Partnership and cash in the amount of One Hundred Forty-eight Thousand Three Hundred Seventy-seven and 00/100 Dollars ($148,377.00);
WHEREAS, the Partnership is also a party to that certain Interest Contribution and Option Agreement dated January 31, 2001, between the Partnership, Paducah Development Company (the "Kentucky Oaks Contributor"), and CBL/Kentucky Oaks I, LLC (the "CBL/Kentucky Oaks") (the "Kentucky Oaks ICOA"), pursuant to which the Kentucky Oaks Contributor granted to the Partnership options to require the Kentucky Oaks Contributor to contribute its remaining partnership interests in Kentucky Oaks Mall Company, an Ohio general partnership which owns that certain regional mall located in Paducah, Kentucky, and known as Kentucky Oaks Mall, said remaining partnership interests consisting of a Two percent (2%) general partnership interest (the "Kentucky Oaks Option Interest"), to CBL/Kentucky Oaks (as the "Designated Entity" defined in the Kentucky Oaks ICOA), in return for Thirty-seven Thousand Forty-four (37,044) SCUs representing certain limited interests in the Partnership;
WHEREAS, Section 4.4(a) of the Agreement grants the General Partner authority to cause the Partnership to issue Partnership Units in the Partnership to any Person in one or more classes or series, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as may be determined by the General Partner in its sole and absolute discretion so long as the issuance does not violate Section 9.3 of the Agreement; and
WHEREAS, Sections 4.4(a) and 14.7(b) of the Agreement grant the General Partner power and authority to amend the Agreement without the consent of any of the Partnership's Limited Partners to evidence any action taken by the General Partner pursuant to Section 4.4(a); including, without limitation, to reflect the admission, substitution, termination, or withdrawal of Partners in accordance with the Agreement.
NOW, THEREFORE, the General Partner hereby amends the Agreement by deleting Exhibit "A" thereto and substituting in lieu thereof, the attached Exhibit "A" setting forth the interest of each of the aforementioned Contributors as Limited Partners of the Partnership and further evidencing the admission of each Contributor as a limited partner of the Partnership.
IN WITNESS WHEREOF, the General Partner has executed this Amendment as of the __15___ day of February, 2002.
CBL HOLDINGS I, INC,
By: \s\ John N. Foy Name: John N. Foy Title: Vice Chairman
On Acquisition of Columbia Mall Interests
EXHIBIT A TO SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CBL & ASSOCIATES LIMITED PARTNERSHIP AS AMENDED BY SECOND AMENDMENT AS OF FEBRUARY 15,2002
On Acquisition of East/West Towne Interests after Acquisition of Columbia Mall Interests
EXHIBIT A TO SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CBL & ASSOCIATES LIMITED PARTNERSHIP AS AMENDED BY SECOND AMENDMENT AS OF FEBRUARY 15,2002
On Acquisition of Kentucky Oaks Interests After Acquisition of East/West Towne and Columbia Mall Interests
EXHIBIT A TO SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CBL & ASSOCIATES LIMITED PARTNERSHIP AS AMENDED BY SECOND AMENDMENT AS OF FEBRUARY 15,2002
Exhibit 10.5.2 FORM
NON-QUALIFIED
STOCK OPTION AGREEMENT FOR EMPLOYEES
This Stock Option Agreement (the "Agreement") is made as of the __ day of ______, _____, by and between CBL & ASSOCIATES PROPERTIES, INC., a Delaware corporation (the "Company"), and _________ (the "Optionee").
WHEREAS, pursuant to the Plan (as hereinafter defined), the Company desires to afford the Optionee the opportunity to purchase shares of Common Stock, par value $.01 per share (the "Common Stock"), of the Company.
NOW, THEREFORE, in connection with the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions; Conflicts. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed thereto in the CBL & Associates Properties, Inc. 1993 Stock Incentive Plan (the "Plan"). The terms and provisions of the Plan are incorporated herein and in the event of any conflict or inconsistency between the terms and provisions of the Plan and the terms and provisions of this Agreement, the terms and provisions of the Plan shall govern and control.
2. Grant of Options. The Company hereby grants to the Optionee the right and option (the "Option") to purchase up to but not exceeding in the aggregate ________ shares of Common Stock on the terms and conditions herein set forth.
3. Purchase Price. The purchase price of each share of Common Stock covered by the Option shall be $___________ (the "Purchase Price").
4. Term of Options. The term of the Option (the "Term") shall be ten (10) years from the date hereof, subject to earlier termination as provided in Section 6 hereof.
5. Vesting of Options. The Option, subject to the terms, conditions and limitations contained herein, shall vest and become exercisable with respect to the shares of Common Stock in accordance with the following installments: 20% on the first anniversary of the date hereof, and an additional 20% on each of the succeeding four anniversaries of the date hereof; provided that, with respect to each such installment, the Optionee has remained in continuous employment with the Company from the date hereof through the date such installment is designated to vest.
6. Termination of Employment.
(a) Termination by Death. If the Optionee's employment terminates by reason of death, the Option may thereafter be exercised by the Optionee's estate or representative, to the extent then exercisable, for a period of one (1) year from the date of such death or until the expiration of the Term, whichever period is the shorter.
(b) Termination by Reason of Disability or Retirement. If the Optionee's employment terminates by reason of disability or retirement, the Option may thereafter be exercised by the Optionee or the Optionee's representative, to the extent it was exercisable at the time of termination, for a period of three (3) years from the date of such termination of employment or until the expiration of the Term, whichever period is the shorter; provided, however, that if the Optionee dies within such three-year period, the unexercised portion of the Option shall, notwithstanding the expiration of such three-year period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of one (1) year from the date of such death or until the expiration of the Term, whichever period is the shorter.
(c) Termination for Cause. In the event of termination of the Optionee's employment for "Cause", any unexercised portion of the Option shall expire immediately upon the giving to the Optionee of notice of such termination of employment. For purposes of this Agreement, "Cause" shall mean (i) the conviction of the Optionee for commission of a felony under Federal law or the law of the state in which such action occurred, (ii) dishonesty in the course of fulfilling the Optionee's employment duties or (iii) willful and deliberate failure on the part of the Optionee to perform his employment duties in any material respect.
(d) Other Termination. Unless otherwise determined by the Compensation Committee of the Company's Board of Directors, if the Optionee's employment is terminated for any reason other than death, disability, retirement or for Cause, the Option shall thereupon terminate, except that the Option, to the extent then exercisable, may be exercised by the Optionee for the lesser of one (1) year from the date of such termination of employment or the balance of the Term; provided, however, that if the Optionee dies within such one-year period, any unexercised portion of the Option shall, notwithstanding the expiration of such one-year period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of one (1) year from the date of such death or until the expiration of the Term, whichever period is the shorter.
7. No Rights as a Shareholder. The Optionee shall have no rights as a shareholder with respect to any shares of Common Stock issuable upon the exercise of the Option until the date of issuance to the Optionee of a certificate evidencing such shares of Common Stock. No adjustments, other than as provided in Section 3 of the Plan, shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions for which the record date is prior to the date the certificate for such shares of Common Stock is issued.
8. Method of Exercising Option. Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Compliance Officer at the Company's principal executive offices located at CBL Center, Suite 500, 2030 Hamilton Place Boulevard, Chattanooga, Tennessee 37421, with a copy to Jeffery V. Curry, Esquire, Shumacker Witt Gaither & Whitaker, P.C., CBL Center, Suite 210, 2030 Hamilton Place Boulevard, Chattanooga, Tennessee 37421. Such notice shall state the election to exercise the Option and the number of shares of Common Stock in respect of which the Option is being exercised, shall be signed by the person or persons so exercising the Option and shall be accompanied by payment in full of the Purchase Price for such shares of Common Stock (the "Exercise Price"). The Exercise Price shall be paid in full by Optionee's personal check payable to the order of the Company. Subject to such procedures and rules as may be adopted from time to time by the Compensation Committee of the Company's Board of Directors, the Exercise Price may also be paid by one or more of the following: (i) in the form of unrestricted Common Stock already owned by the Optionee based in any such instance on the Fair Market Value of the Common Stock on the date the Option is exercised; or (ii) by any combination of the methods of payment described in this paragraph.
The certificate for the shares of Common Stock as to which the Option shall have been so exercised shall be registered in the name of the person or persons so exercising the Option. All shares of Common Stock purchased upon the exercise of the Option as provided herein shall be fully paid and non-assessable.
9. Non-transferability of Option. The Option shall not be transferable by the Optionee other than by will or by the laws of descent and distribution. The Option shall be exercisable, during the Optionee's lifetime, only by the Optionee or by the guardian or legal representative of the Optionee, it being understood that the terms "holder" and "Optionee" include the guardian and legal representative of the Optionee and any person to whom the Option is transferred by will or the laws of descent and distribution.
10. Cashing Out of Option. On receipt of written notice of exercise, the Compensation Committee of the Board of Directors of the Company may elect to cash out all or any part of the shares of Common Stock for which the Option is being exercised by paying the Optionee an amount, in cash or Common Stock, equal to the excess of the Fair Market Value of the Common Stock over the Purchase Price times the number of shares of Common Stock for which the Option is being exercised on the effective date of such cash out.
Cash outs pursuant to this Section, provided the Optionee is actually or potentially subject to Section 16(b) of the Securities Exchange Act of 1934, shall comply with the "window period" provisions of Rule 16b-3(e), to the extent applicable.
11. No Enlargement of Employee Rights. Nothing in this Agreement shall be construed to confer upon the Optionee any right to continued employment or to restrict in any way the right of the Company or any Subsidiary or Affiliate to terminate his employment at any time.
12. Income Tax Withholding. The Company shall make such provisions and take such steps as it may deem necessary or appropriate for the withholding of all Federal, state, local and other taxes required by law to be withheld with respect to the exercise of the Option and the issuance of the shares of Common Stock, including, but not limited to, deducting the amount of any such withholding taxes from any other amounts then or thereafter payable to the Optionee by the Company or any of its Subsidiaries or Affiliates, or requiring the Optionee, or the beneficiary or legal representative of the Optionee, to pay to the Company the amount required to be withheld or to execute such documents as the Company deems necessary or desirable to enable it to satisfy its withholding obligations.
13. Non-Qualified Option. The Option granted hereunder is not intended to be an "incentive stock option" within the meaning of Section 422 of the Code.
14. Binding Effect. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto.
15. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware without reference to the principles of conflicts of laws thereof.
16. Headings. Headings are for the convenience of the parties and are not deemed to be part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above.
CBL & ASSOCIATES PROPERTIES, INC.
By: -------------------------------------------------
OPTIONEE:
By: -------------------------------------------------
CBL & Associates Properties, Inc. - 2002 Form 10-K
EXERCISE NOTICE
To: CBL & Associates Properties, Inc. CBL Center, 2030 Hamilton Place Boulevard Chattanooga, Tennessee 37421 Attention: Compliance Officer
Reference is made to that certain Stock Option Agreement, dated _______, ____ the ("Agreement"), pursuant to which CBL & Associates Properties, Inc., a Delaware corporation (the "Company"), granted to the undersigned Optionee an Option to purchase _________ shares of the Company's common stock, par value $.01 per share (the "Common Stock"). Capitalized terms used but not defined herein shall have the meanings set forth in the Agreement. Pursuant to Section 8 of the Agreement, the undersigned hereby irrevocably elects to exercise the Option with respect to shares of Common Stock. Payment by personal check of the Exercise Price, in the amount of $ , accompanies this notice or shall be made in the form of cash plus Common Stock or Common Stock.
Dated: -------------------------------------
OPTIONEE:
Name:
Date Received by the Company: --------------------------
Received by: -------------------------------------------
cc: Jeffery V. Curry, Esquire Shumacker Witt Gaither & Whitaker, P.C. CBL Center, 2030 Hamilton Place Boulevard Chattanooga, Tennessee 37421
Exhibit 10.5.3
FORM
STOCK RESTRICTION AGREEMENT FOR EMPLOYEES
This Stock Restriction Agreement (the "Agreement") is made as of the _____ day of ________, _____, by and between CBL & ASSOCIATES PROPERTIES, INC., a Delaware corporation (the "Company"), and ______________ (the "Employee").
WHEREAS, pursuant to the Plan (as hereinafter defined), the Company desires to grant the Employee _______ shares of Common Stock, par value $.01 per share (the "Common Stock"), of the Company.
NOW, THEREFORE, in connection with the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions; Conflicts. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed thereto in the CBL & Associates Properties, Inc. 1993 Stock Incentive Plan (the "Plan"). The terms and provisions of the Plan are incorporated herein and in the event of any conflict or inconsistency between the terms and provisions of the Plan and the terms and provisions of this Agreement, the terms and provisions of the Plan shall govern and control.
2. Grant of Common Stock. The Company hereby grants to the Employee all right, title and interest in ________ shares of Common Stock (the "Stock Award") on the terms and conditions herein set forth.
3. Vesting. The Common Stock Award shall vest upon the earlier to occur of (i) the events described in Paragraph 4 (a), (b) or (c) below or (ii) _____________ (the "Vesting Period"). No portion of the Stock Award shall vest until such time. As used in this Agreement, the term "vest" or "vesting" shall mean the immediate, non-forfeitable, fixed right of present or future enjoyment of the Common Stock pursuant to the Stock Award.
4. Termination of Employment.
(a) Termination by Death. If the Employee's employment terminates prior to ____________________ by reason of death, the Stock Award shall thereupon immediately vest in the Employee or his estate.
(b) Termination by Reason of Disability. If the Employee's employment terminates by reason of disability prior to _____________, the Stock Award shall thereupon vest in the Employee.
(c) Termination Without Cause. If the Employee's employment is terminated by the Company without "cause" prior to ____________, the Stock Award shall thereupon vest in the Employee. As used herein, "cause" shall mean (i) the Employee's dishonesty or (ii) the Employee's persisting in gross neglect of the duties and responsibilities attendant on such employment after written notice to cease such gross neglect; or (iii) the Employee's persistent failure to abide by such reasonable written policies, rules or standards of conduct for the Company's Employees as have been previously established by the Company, the violation of which amounts to gross disruption or obstruction of the conducting of the Company's business, after written notice to cease such violation thereof.
(d) Other Termination. Unless otherwise determined by the Compensation Committee of the Company's Board of Directors, if the Employee's employment is terminated prior to __________________ for any reason other than death or disability or by the Company without cause, the Stock Award shall thereupon be deemed forfeited and all shares of Common Stock shall be returned by the Employee to the Company and the Employee shall have no further right, title and/or interest in the Common Stock which was the subject of the Stock Award.
5. Rights as a Shareholder. The Employee shall have all of the rights as a shareholder with respect to any shares of Common Stock issued pursuant to the Stock Award subject only to the transfer restrictions set forth in Paragraph 6 below. The Employee's rights as a shareholder shall include the rights to receive all dividends on the Common Stock and to exercise any voting rights attributable to the Common Stock.
6. Non-Transferability of Stock Award. Except for transfers to an Employee's spouse, lineal descendants or ascendants, no portion of the Common Stock making up the Stock Award may be transferred by the Employee other than by will or by the laws of descent and distribution until the termination of the Vesting Period and any non-permitted attempted transfer by the Employee prior to the termination of the Vesting Period shall be null and void. The vesting provisions and forfeiture requirements outlined in Paragraphs 3 and 4 shall be applicable to any or all of a Stock Award that may be transferred in a permitted transfer as if the Employee had not transferred any portion of the Stock Award and any recipient pursuant to a permitted transfer shall be bound by and subject to said vesting provisions and forfeiture requirements.
7. Certificate Legend. All shares of Common Stock issued to the Employee pursuant to the Stock Award shall bear the legend stating that said shares are subject to and their transferability restricted by the terms and provisions of this Agreement. The Company agrees to remove said legend from the referenced shares of Common Stock in the event and at the time the Employee's right to said shares of Common Stock shall vest.
8. No Enlargement of Employee Rights. Nothing in this Agreement shall be construed to confer upon the Employee any right to continued employment or to restrict in any way the right of the Company or any Subsidiary or Affiliate to terminate his employment at any time.
9. Income Tax Withholding. The Company shall make such provisions and take such steps as it may deem necessary or appropriate for the withholding of all Federal, state, local and other taxes required by law to be withheld with respect to the shares of Common Stock issued pursuant to the Stock Award, including, but not limited to, deducting the amount of any such withholding taxes from any other amounts then or thereafter payable to the Employee by the Company or any of its Subsidiaries or Affiliates, or requiring the Employee, or the beneficiary or legal representative of the Employee, to pay to the Company the amount required to be withheld or to execute such documents as the Company deems necessary or desirable to enable it to satisfy its withholding obligations.
10. Restricted Stock. The Stock Award granted hereunder is intended to be a grant of restricted property to the Employee that is subject to a "substantial risk of forfeiture" as defined in Section 83 of the Code.
11. Binding Effect. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto.
12. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware without reference to the principles of conflicts of laws thereof.
13. Headings. Headings are for the convenience of the parties and are not deemed to be part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above.
CBL & ASSOCIATES PROPERTIES, INC.
By: --------------------------------------------------
EMPLOYEE:
-----------------------------------------------------
Exhibit 10.5.4
DEFERRED COMPENSATION ARRANGEMENT
THIS DEFERRED COMPENSATION ARRANGEMENT (the "Arrangement") is put in place this 1st day of January, 1997 by CBL & Associates Management, Inc. and its affiliated entities (collectively, "CBL"), including but not limited to CBL & Associates Properties, Inc. (the "REIT") and CBL & Associates Limited Partnership (the "Operating Partnership") and their successors and assigns, for the benefit of Eric P. Snyder ("Snyder") and his successors and assigns. The Arrangement is specifically designed and intended to be a non-funded and unsecured promise on the part of CBL to make certain payments to Snyder within the time parameters set forth herein. The Arrangement is not intended nor shall it be deemed an employee benefit plan subject to the Employee Retirement Income Security Act of 1974 ("ERISA") or a qualified retirement plan subject to provisions of the Internal Revenue Code of 1986 (the "Code").
1. Objective. The objective and purpose of the Arrangement is to allow Snyder to defer compensation which will be payable to him in the future as set forth herein. Pursuant to the elections provided to Snyder in this Arrangement, he may defer portions of his salary from CBL and certain bonuses to be paid to him to dates in the future as set forth herein.
2. Creditor Status. Snyder shall be afforded no priority by virtue of this Arrangement over the secured or unsecured creditors of CBL but shall be a general unsecured creditor of CBL as to the amounts payable to him under this Arrangement. CBL's obligations under this Arrangement are merely promises to make the payments set forth herein at a future point in time pursuant to this Arrangement. Such payments shall not be pre-funded or secured in any way and shall be payable only from the general assets of CBL.
3. Elections. Prior to the beginning of any period for which Snyder may earn compensation or bonuses from CBL, Snyder shall notify CBL of his desire to have all or any portion of said amounts deferred and paid to him pursuant to the terms of this Arrangement. Snyder has elected to defer any and all bonuses he may receive from CBL for 1997 and later years pursuant to the terms of this Arrangement. Snyder has elected to receive a base annual salary of $220,700 from CBL for the period of this Arrangement with any additional amounts to which he is or may become entitled to be paid pursuant to the terms of this Arrangement. Snyder may change or modify this election, including reducing the amount of the base salary referred to above, at any time by notice to CBL but must give such notice prior to the beginning of the period with respect to which Snyder may earn the compensation or bonuses from CBL.
4. Specific Calculation of Amounts, Vesting and Deemed Returns. (a) Salary Increases. On any specific salary increase to which Snyder may be entitled and for which Snyder has elected to defer pursuant to this Arrangement, the dollar amount of the salary increase shall be determined by CBL as of the date of Snyder's annual review by CBL. Said amount shall then be divided into 12 equal amounts which shall vest in equal monthly increments over the period beginning October 1 of any given year and terminating on September 30 of the following year (the "Vesting Period"). At the end of each month of the Vesting Period, an amount of REIT stock shall be deemed to be set aside for Snyder pursuant to this Arrangement equal to the amount of REIT stock that could have been purchased by Snyder with the amount of the salary increase that vests at the end of that particular month at the closing trading price of the REIT stock on the New York Stock Exchange ("NYSE") on the last trading day of the particular month. Over the course of the Vesting Period, there shall be added to the deemed amount of stock referred to above an amount equivalent to additional shares of REIT stock that may have been purchased by the reinvestment of dividends paid by the REIT on its stock for the Vesting Period under the REIT's Dividend Reinvestment Plan (the "DRIP") as if dividends had been paid on the stock Snyder is deemed to have received over the Vesting Period. At the end of the Vesting Period, the amount of shares of REIT stock that Snyder has been deemed to have received over the Vesting Period shall be determined and that amount of shares shall be deemed to be set aside for Snyder pursuant to this Arrangement and there shall be added to
that amount of shares an amount equivalent to additional shares of REIT stock that may have been purchased by the reinvestment of dividends paid by the REIT on its stock pursuant to the DRIP for the period of time following the Vesting Period to the termination date of this Arrangement.
(b) Bonuses. On any bonus that Snyder may be entitled to receive and for which Snyder has elected to defer pursuant to this Arrangement, the dollar amount of the bonus shall be determined by CBL as of the date of the granting of the bonus by CBL. Following that determination, an amount of REIT stock shall be deemed to be set aside for Snyder pursuant to this Arrangement equal to the amount of REIT stock that could have been purchased by Snyder with the amount of the bonus at the closing trading price of the REIT stock on the NYSE on the date the bonus is granted to Snyder. There shall be added to that amount of shares an amount equivalent to additional shares of REIT stock that may have been purchased by the reinvestment of dividends paid by the REIT on its stock pursuant to the DRIP for the period of time following the date of the granting of the bonus to the termination date of this Arrangement.
5. Termination of Arrangement. (a) This Arrangement shall be terminated and all vested amounts herein shall be due and payable to Snyder, in the form of cash and shares of registered, freely tradable, non-restricted REIT stock ("Unrestricted REIT Stock") as set forth in subsection (e) below, upon the earlier to occur of the following and on the time table set forth in subsections (b), (c) and (d), as applicable, below:
(i) The death or disability of Snyder;
(ii) The termination of Snyder's employment with CBL or a successor entity;
(iii)At Snyder's election upon the sale or disposition of all assets of CBL to a nonrelated third party or a merger or consolidation of CBL where CBL is not the surviving entity;
(iv) January 2, 2005.
(b) For terminations of this Arrangement by virtue of the occurrence of any of the events listed in subsection (a)(ii) above on or before June 30 in a given year, Snyder shall receive the Unrestricted REIT Stock payable to him immediately after such termination and shall receive the amount of cash payable to him (as set forth in subsection (e) below) within 30 days of the date of termination. For terminations of this Arrangement by virtue of the occurrence of any of the events listed in subsection (a)(ii) above on or after July 1 of a given year, then Snyder shall receive any Unrestricted REIT Stock and cash payable to him on January 1 of the year following the year of termination.
(c) For terminations of this Arrangement by virtue of the occurrence of any of the events listed in subsection (iii) above, the amounts to be paid to Snyder shall be paid to him in the form of cash and Unrestricted REIT stock, on January 1 of the calendar year following the year in which the event giving rise to the termination of this Arrangement occurred.
(d) For terminations of this Arrangement by virtue of the occurrence of any of the events listed in subsection (a)(i) and (a)(iv) above, the amounts to be paid to Snyder shall be paid to him, in the form of cash and Unrestricted REIT stock, within thirty (30) days after the occurrence of the event giving rise to the termination of this Arrangement.
(e) The amount of cash payable to Snyder under this Section 5 shall be a cash amount equal to the fair market value of the number of shares of REIT stock deemed to be set aside for Snyder as of the date of payment subject to a maximum of One Million Dollars ($1,000,000) in cash. Notwithstanding anything to the contrary provided herein, the amount of cash to be paid to Snyder shall not exceed $1,000,000.00. Any amounts due Snyder under this Agreement in excess of $1,000,000 shall be paid in the form of shares of Unrestricted REIT stock.
6. Restriction on Transfer of Snyder's Rights. During the term of this Arrangement, Snyder may not transfer, pledge, alienate, assign or otherwise dispose of all or any of his rights under this Arrangement.
7. Income Tax Recognition and Corresponding Compensation Deduction. At the termination of the Arrangement and payment of the amounts set forth herein to Snyder, Snyder shall recognize ordinary taxable income upon his receipt of same and CBL shall be entitled to a tax deduction, as compensation paid, in the same amount.
8. Accredited Investor Status; Representations. Snyder acknowledges that his interests under this Arrangement may be considered a security for purposes of the Securities Act of 1933, as amended (the "Securities Acts"), and that CBL has not filed and will not file any registration statement in respect of such interests, and that CBL is relying on Snyder's representation in this Section 8 in order to qualify the offering of such securities (if the interests are considered as securities) for exemption from registration under the Securities Act. Snyder hereby represents and warrants that he is an "Accredited Investor" within the meaning of Section 501(a) of Regulation D promulgated under the Securities Act. Snyder agrees that he will immediately notify CBL if, at any time during the term of this Agreement, he ceases to be, or has reason to believe that he does not qualify as an Accredited Investor; and, in such event, CBL may immediately terminate this Arrangement and thereupon pay all vested amounts to Snyder. Snyder (i) understands and acknowledges the risks inherent in deferring amounts pursuant to this Arrangement and having said amounts credited as if invested in REIT stock, (ii) has the financial ability to bear the economic risk of this Arrangement (including possible loss), (iii) has adequate means for providing for his current needs and personal contingencies and has no need for liquidity with respect to the amounts deferred under this Arrangement, and (iv) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of this Arrangement and has obtained, in his judgment, sufficient information from CBL to evaluate the merits and risks of this Arrangement.
9. Miscellaneous. (a) This Arrangement is not intended to be nor shall it be deemed to be an agreement of employment between Snyder and CBL.
(b) This Arrangement shall be governed by and construed under the laws of the State of Tennessee.
(c) This Arrangement shall not be construed as requiring CBL to pay any amount of salary or bonus to Snyder other than the amounts of salary increases or bonuses that Snyder has elected or may elect in the future to defer into the Arrangement.
(d) This Arrangement shall not be construed in any fashion as a guarantee or assurance by CBL of the price or value of the REIT stock and whether it shall fluctuate positively or negatively during the course of this Arrangement.
IN WITNESS WHEREOF, CBL and Snyder have executed this Arrangement to be effective as of the date first above written.
CBL & ASSOCIATES MANAGEMENT, INC. (for itself and its affiliates)
By: /s/ John N. Foy, Vice Chairman
/s/ Eric P. Snyder Eric P. Snyder
Eric P. Snyder Personal and Confidential CBL & Associates Properties, Inc. 2030 Hamilton Place Blvd. Suite 500, CBL Center Chattanooga, Tennessee 37421
Re: Clarification of Deferred Compensation Arrangement Payout Terms
Dear Eric,
This letter is to clarify Paragraph 5 of the Deferred Compensation Arrangement between you and CBL & Associates Management, Inc. and affiliates ("CBL") dated as of January 1, 1997 (the "Arrangement"). Pursuant to that Paragraph, upon the payment to you of the amount of stock deferred under the Arrangement, you are to receive the sum of $1,000,000 in cash and the balance in the form of Unrestricted REIT Stock, as defined in the Arrangement. By way of clarification as to this Paragraph 5, upon the date that amounts are to be paid out to you under the Arrangement (the "Payment Date"), CBL shall deliver or cause to be delivered to you the total number of shares of Unrestricted REIT Stock as per the Arrangement with no reduction for the $1,000,000 cash portion. At your option, you may either sell that number of shares to provide you with the $1,000,000 cash as set forth in the Arrangement or CBL will assist you in selling that number of shares so as to provide you with the $1,000,000 in cash. Whether you elect to have CBL assist you in this sale, CBL will cover the transaction costs and expenses of such sale up to a maximum of $5,000.
For purposes of the Arrangement and by our mutual execution hereof, we agree that the Arrangement shall be construed to provide that the entire amount that shall be due to you on a Payment Date is to be paid to you in CBL stock, regardless of any vagueness or contrary statement in the Arrangement and to the extent the terms of this letter agreement conflict with the terms of the Arrangement, the terms of this letter agreement shall control.
Please execute both copies of this letter agreement signifying your agreement to the clarification of the Arrangement that is set forth herein. Retain one fully-executed counterpart for your files and return the other counterpart to Jeff Curry.
Thank you for your attention and cooperation in this matter.
Sincerely,
CBL & Associates Management, Inc., for itself and affiliates
By: /s/ John N. Foy
Name: John N. Foy
Title: Vice Chairman of the Board and Chief Financial Officer
The undersigned has read this letter agreement and agrees to the terms hereof. Executed this 27 day of January, 2003.
/s/ Eric P. Snyder Eric P. Snyder
SUBSIDIARIES OF THE COMPANY Exhibit 21
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos. 33-73376, 333-04295, 333-41768, and 333-88914 on Form S-8 and Registration Statements Nos. 33-62830, 333-90395, 333-47041, and 333-97831 on Form S-3 of CBL & Associates Properties, Inc. of our report dated February 21, 2003 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the impact of the adoption of Statement of Financial Accounting Standard No.144), appearing in this Annual Report on Form 10-K of CBL & Associates Properties, Inc. for the year ended December 31, 2002.
DELOITTE & TOUCHE LLP
Atlanta, Georgia March 20, 2003
Exhibit 24 POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Charles B. Lebovitz, John N. Foy and Stephen D. Lebovitz and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report of CBL & Associates Properties, Inc. on Form 10-K for the fiscal year ended December 31, 2002, including one or more amendments to such Form 10-K, which amendments may make such changes as such person deems appropriate, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power-of-Attorney on the date set opposite his respective name.
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CBL & ASSOCIATES PROPERTIES, INC. (the "Company") on Form 10-K for the year ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles B. Lebovitz, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Charles B. Lebovitz - ------------------------------------ Charles B. Lebovitz, Chief Executive Officer
March 21, 2003 - ------------------------------------ Date
Exhibit 99.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CBL & ASSOCIATES PROPERTIES, INC. (the "Company") on Form 10-K for the year ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John N. Foy, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ John N. Foy - ------------------------------------ John N. Foy, Vice Chairman of the Board, Chief Financial Officer and Treasurer
March 21, 2003 - ------------------------------------ Date