ITEM 1. BUSINESS
Background
CBL & Associates Properties, Inc. (“CBL”) was organized on July 13, 1993, as a Delaware corporation, to acquire substantially all of the real estate properties owned by CBL & Associates, Inc., which was formed by Charles B. Lebovitz in 1978, and by certain of its related parties. On November 3, 1993, CBL completed an initial public offering (the “Offering”). Simultaneously with the completion of the Offering, CBL & Associates, Inc., its shareholders and affiliates and certain senior officers of the Company (collectively, “CBL’s Predecessor”) transferred substantially all of their interests in its real estate properties to CBL & Associates Limited Partnership (the “Operating Partnership”) in exchange for common units of limited partner interest in the Operating Partnership. The interests in the Operating Partnership contain certain conversion rights that are more fully described in Note 9
to the consolidated financial statements. The terms “we,” “us” and “our” refer to the Company or the Company and the Operating Partnership collectively, as the context requires.
The Company’s Business
We are a self-managed, self-administered, fully integrated REIT. We own, develop, acquire, lease, manage, and operate regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers, office and other properties. Our Properties are located in 26 states, but are primarily in the southeastern and midwestern United States. We have elected to be taxed as a REIT for federal income tax purposes.
We conduct substantially all of our business through CBL & Associates Limited Partnership (the "Operating Partnership"), which is a variable interest entity ("VIE"). We are 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, 2019, CBL Holdings I, Inc. owned a 1.0% general partner interest and CBL Holdings II, Inc. owned an 86.0% limited partner interest in the Operating Partnership, for a combined interest held by us of 87.0%.
See Note 1
to the consolidated financial statements for information on our Properties as of December 31, 2019. As of December 31, 2019, we owned mortgages on four Properties, each of which is collateralized by either a first mortgage, a second mortgage or by assignment of 100% of the ownership interests in the underlying real estate and related improvements (the “Mortgages”). The Malls, All Other Properties ("Associated Centers, Community Centers, Office Buildings and Self-storage Facilities"), Properties under development ("Construction Properties") and Mortgages are collectively referred to as the “Properties” and individually as a “Property.”
We conduct our 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 "Internal Revenue Code"). The Operating Partnership owns 100% of the Management Company’s outstanding preferred stock and common stock.
The Management Company manages all but 14 of the Properties. Governor’s Square and Governor’s Square Plaza in Clarksville, TN, Kentucky Oaks Mall in Paducah, KY, Fremaux Town Center in Slidell, LA, Ambassador Town Center in Lafayette, LA, EastGate Mall - Self-Storage in Cincinnati, OH, Mid Rivers - Self-Storage in St. Peters, MO, Hamilton Place - Self-Storage in Chattanooga, TN, Parkdale - Self-Storage in Beaumont, TX, The Outlet Shoppes at El Paso in El Paso, TX, The Outlet Shoppes at Atlanta in Woodstock, GA and The Outlet Shoppes of the Bluegrass in Simpsonville, KY are all owned by unconsolidated joint ventures and are managed by a property manager that is affiliated with the third-party partner, which receives a fee for its services. The third-party partner of each of these Properties controls the cash flow distributions, although our approval is required for certain major decisions. The Outlet Shoppes at Gettysburg in Gettysburg, PA and The Outlet Shoppes at Laredo in Laredo, TX are owned by consolidated joint ventures and managed by a property manager that is affiliated with the third-party partner, which receives a fee for its services.
Rental revenues are primarily derived from leases with retail tenants and generally include fixed minimum rents, percentage rents based on tenants’ sales volumes and reimbursements from tenants for expenditures related to real estate taxes, insurance, common area maintenance ("CAM") and other recoverable operating expenses, as well as certain capital expenditures. We also generate revenues from management, leasing and development fees, sponsorships, sales of peripheral land at the Properties and from sales of operating real estate assets when it is determined that we can realize an appropriate value for the assets. Proceeds from such sales are generally used to retire related indebtedness or reduce outstanding balances on our credit facility.
The following terms used in this Annual Report on Form 10-K will have the meanings described below:
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GLA - refers to gross leasable area of space in square feet, including Anchors and Mall tenants.
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Anchor - refers to a department store, other large retail store, non-retail space or theater greater than or equal to 50,000 square feet.
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Junior Anchor - retail store, non-retail space or theater comprising more than 20,000 square feet and less than 50,000 square feet.
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Freestanding - Property locations that are not attached to the primary complex of buildings that comprise the mall shopping center.
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Outparcel - land used for freestanding developments, such as retail stores, banks and restaurants, which are generally on the periphery of the Properties.
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2023 Notes - $450 million of senior unsecured notes issued by the Operating Partnership in November 2013 that bear interest at 5.25% and mature on December 1, 2023.
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2024 Notes - $300 million of senior unsecured notes issued by the Operating Partnership in October 2014 that bear interest at 4.60% and mature on October 15, 2024.
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2026 Notes - $625 million of senior unsecured notes issued by the Operating Partnership in December 2016 and September 2017 that bear interest at 5.95% and mature on December 15, 2026 (and, collectively with the 2023 Notes and 2024 Notes, the "Notes"). See
Note 8
to the consolidated financial statements for additional information on the Notes.
Significant Markets and Tenants
Top Five Markets
Our top five markets, based on percentage of total revenues, were as follows for the year ended December 31, 2019:
Top 25 Tenants
Our top 25 tenants based on percentage of total revenues were as follows for the year ended December 31, 2019:
(1)
Includes the Company's proportionate share of revenues from unconsolidated affiliates based on the Company's ownership percentage in the respective joint venture and any other applicable terms.
(2)
L Brands, Inc. operates Bath & Body Works, PINK, Victoria's Secret and White Barn Candle.
(3)
Signet Jewelers Limited operates Belden Jewelers, Jared Jewelers, JB Robinson, Kay Jewelers, LeRoy's Jewelers, Marks & Morgan, Osterman's Jewelers, Peoples, Piercing Pagoda, Rogers Jewelers, Shaw's Jewelers, Ultra Diamonds and Zales.
(4)
Dick's Sporting Goods, Inc. operates Dick's Sporting Goods, Field & Stream and Golf Galaxy.
(5)
Ascena Retail Group, Inc. operates Ann Taylor, Catherines, Justice, Lane Bryant, LOFT and Lou & Grey. Ascena closed all Dress Barn stores as of December 31, 2019.
(6)
Genesco Inc. operates Clubhouse, Hat Shack, Hat Zone, Johnston & Murphy, Journey's, Shi by Journey's and Underground by Journeys. Genesco sold all Lids, Lids Locker Room and Lids Sports Group stores in February 2019.
(7)
Luxottica Group, S.P.A. operates Lenscrafters, Pearle Vision and Sunglass Hut.
(8)
JC Penney Company, Inc. owns 29 of these stores.
(9)
PSEB Group operates Eddie Bauer and PacSun.
(10)
Macy's, Inc. owns 20 of these stores
Operating Strategy
Our objective is to achieve stabilization in same-center net operating income ("NOI") and reduce our overall cost of debt and equity by maximizing total earnings before income taxes, depreciation and amortization for real estate ("EBITDA re ") and cash flows through a variety of methods as further discussed below.
Same-center NOI is a non-GAAP measure. For a description of same-center NOI, a reconciliation from net income (loss) to same-center NOI, and an explanation of why we believe this is a useful performance measure, see Non-GAAP Measure - Same-center Net Operating Income in “Results of Operations.”
Leasing, Management and Marketing
Our objective is to maximize cash flows from our existing Properties through:
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aggressive leasing that seeks to increase occupancy and facilitate an optimal merchandise mix,
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originating and renewing leases at higher gross rents per square foot compared to the previous lease,
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merchandising, marketing, sponsorship and promotional activities and
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actively controlling operating costs.
Redevelopments
Redevelopments represent situations where we capitalize on opportunities to increase the productivity of previously occupied space through aesthetic upgrades, retenanting and/or changing the use of the space. We may use all or only a portion of the prior-tenant square footage. Many times, redevelopments result from acquiring or regaining possession of Anchor space (such as former Sears and Bon-Ton stores) and subdividing it into multiple spaces.
Renovations
Renovations usually include remodeling and upgrading existing facades, uniform signage, new entrances and floor coverings, updating interior décor, resurfacing parking areas and improving the lighting of interiors and parking areas. Renovations can result in attracting new retailers, increased rental rates, sales and occupancy levels and maintaining the Property's market dominance.
Shadow Redevelopment Pipeline
We are continually pursuing redevelopment opportunities and have projects in various stages of pre-development. Our shadow pipeline consists of projects for Properties on which we have completed initial analysis and design but which have not commenced construction as of December 31, 2019.
See "Liquidity and Capital Resources"
section for information on the projects completed during 2019 and under construction at December 31, 2019.
Acquisitions
We believe there is opportunity for growth through acquisitions of retail centers and anchor stores that complement our portfolio. We selectively acquire properties we believe can appreciate in value by increasing NOI through our development, leasing and management expertise. However, our primary focus at this time is on opportunities to acquire anchors at our Properties for future redevelopment uses.
Environmental Matters
A discussion of the current effects and potential impacts on our business and Properties of compliance with federal, state and local environmental regulations is presented in Item 1A
Item 1A
of this Annual Report on Form 10-K under the subheading “Risks Related to Real Estate Investments.”
Competition
The Properties compete with various shopping facilities in attracting retailers to lease space. In addition, retailers at our Properties face competition from discount shopping centers, outlet centers, wholesale clubs, direct mail, television shopping networks, the internet and other retail shopping developments. The extent of the retail competition varies from market to market. We work aggressively to attract customers through marketing promotions and social media campaigns. Many of our retailers have adopted an omni-channel approach which leverages sales through both digital and traditional retailing channels.
Seasonality
The shopping center business is, to some extent, seasonal in nature with tenants typically achieving the highest levels of sales during the fourth quarter due to the holiday season, which generally results in higher percentage rent income in the fourth quarter. Additionally, the Malls earn most of their “temporary” rents (rents from short-term tenants) during the holiday period. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of our fiscal year.
Equity
Common Stock and Common Units
Our authorized common stock consists of 350,000,000 shares at $0.01 par value per share. We had 174,115,111 and 172,656,458 shares of common stock issued and outstanding as of December 31, 2019 and 2018, respectively. The Operating Partnership had 200,189,077 and 199,414,863 common units outstanding as of December 31, 2019 and 2018, respectively.
Preferred Stock
Our authorized preferred stock consists of 15,000,000 shares at $0.01 par value per share. See Note 9
to the consolidated financial statements for a description of our outstanding cumulative redeemable preferred stock.
Financial Information about Segments
See Note 12
to the consolidated financial statements for information about our reportable segments.
Employees
CBL does not have any employees other than its statutory officers. Our Management Company had 493 full-time and 101 part-time employees as of December 31, 2019. None of our employees are represented by a union.
Corporate Offices
Our principal executive offices are located at CBL Center, 2030 Hamilton Place Boulevard, Suite 500, Chattanooga, Tennessee, 37421 and our telephone number is (423) 855-0001.
Available Information
There is additional information about us on our web site at cblproperties.com . Electronic copies of our 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 “invest” section of our web site. These reports are posted as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. The information on our web site is not, and should not be considered, a part of this Form 10-K.
ITEM 1A. RISK FACTORS
Set forth below are certain factors that may adversely affect our business, financial condition, results of operations and cash flows. Any one or more of the following factors may cause our actual results for various financial reporting periods to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. See “Cautionary Statement Regarding Forward-Looking Statements” contained herein on .
RISKS RELATED TO REAL ESTATE INVESTMENTS
Real property investments are subject to various risks, many of which are beyond our control, which could cause declines in the operating revenues and/or the underlying value of one or more of our Properties.
A number of factors may decrease the income generated by a retail shopping center property, including:
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national, regional and local economic climates, which may be negatively impacted by loss of jobs, production slowdowns, adverse weather conditions, natural disasters, acts of violence, war or terrorism, declines in residential real estate activity and other factors which tend to reduce consumer spending on retail goods;
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pandemic outbreaks, or the threat of pandemic outbreaks, which could cause customers of our tenants to avoid public places where large crowds are in attendance, such as shopping centers and related entertainment, hotel, office or restaurant properties operated by our tenants;
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adverse changes in levels of consumer spending, consumer confidence and seasonal spending (especially during the holiday season when many retailers generate a disproportionate amount of their annual profits);
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local real estate conditions, such as an oversupply of, or reduction in demand for, retail space or retail goods, and the availability and creditworthiness of current and prospective tenants;
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increased operating costs, such as increases in repairs and maintenance, real property taxes, utility rates and insurance premiums;
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delays or cost increases associated with the opening of new properties or redevelopment and expansion of properties, due to higher than estimated construction costs, cost overruns, delays in receiving zoning, occupancy or other governmental approvals, lack of availability of materials and labor, weather conditions, and similar factors which may be outside our ability to control;
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perceptions by retailers or shoppers of the safety, convenience and attractiveness of the shopping center; and
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the convenience and quality of competing retail properties and other retailing options, such as the internet and the adverse impact of online sales.
In addition, other factors may adversely affect the value of our Properties without affecting their current revenues, including:
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adverse changes in governmental regulations, such as local zoning and land use laws, environmental regulations or local tax structures that could inhibit our ability to proceed with development, expansion or renovation activities that otherwise would be beneficial to our Properties;
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potential environmental or other legal liabilities that reduce the amount of funds available to us for investment in our Properties;
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any inability to obtain sufficient financing (including construction financing, permanent debt, unsecured notes issuances, lines of credit and term loans), or the inability to obtain such financing on commercially favorable terms, to fund repayment of maturing loans, new developments, acquisitions, and property redevelopments, expansions and renovations which otherwise would benefit our Properties; and
•
an environment of rising interest rates, which could negatively impact both the value of commercial real estate such as retail shopping centers and the overall retail climate.
Illiquidity of real estate investments could significantly affect our ability to respond to adverse changes in the performance of our Properties and harm our financial condition.
Substantially all of our consolidated assets consist of investments in real properties. Because real estate investments are relatively illiquid, our ability to quickly sell one or more Properties in our portfolio in response to changing economic, financial and investment conditions is limited. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand for space, that are beyond our control. We cannot predict whether we will be able to sell any Property for the price or on the terms we set, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a Property. In addition, current economic and capital market conditions might make it more difficult for us to sell Properties or might adversely affect the price we receive for Properties that we do sell, as prospective buyers might experience increased costs of debt financing or other difficulties in obtaining debt financing.
Moreover, there are some limitations under federal income tax laws applicable to REITs that limit our ability to sell assets. In addition, because many of our Properties are mortgaged to secure our debts, we may not be able to obtain a release of a lien on a mortgaged Property without the payment of the associated debt and/or a substantial prepayment penalty, or transfer of debt to a buyer, which restricts our ability to dispose of a Property, even though the sale might otherwise be desirable. Furthermore, the number of prospective buyers interested in purchasing shopping centers is limited. Therefore, if we want to sell one or more of our Properties, we may not be able to dispose of it in the desired time period and may receive less consideration than we originally invested in the Property.
Before a Property can be sold, we may be required to make expenditures to correct defects or to make improvements. We cannot assure you that we will have funds available to correct those defects or to make those improvements, and if we cannot do so, we might not be able to sell the Property, or might be required to sell the Property on unfavorable terms. In acquiring a property, we might agree to provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as limitations on the amount of debt that can be placed or repaid on
that property. These factors and any others that would impede our ability to respond to adverse changes in the performance of our Properties could adversely affect our financial condition and results of operations.
We may elect not to proceed with certain developments, redevelopments or expansion projects once they have been undertaken, resulting in charges that could have a material adverse effect on our results of operations for the period in which the charge is taken.
We intend to pursue developments, redevelopments and expansion activities as opportunities arise. In connection with any developments, redevelopments or expansion, we will incur various risks, including the risk that developments, redevelopments or expansion opportunities explored by us may be abandoned for various reasons including, but not limited to, credit disruptions that require the Company to conserve its cash until the capital markets stabilize or alternative credit or funding arrangements can be made. Developments, redevelopments or expansions also include the risk that construction costs of a project may exceed original estimates, possibly making the project unprofitable. Other risks include the risk that we may not be able to refinance construction loans which are generally with full recourse to us, the risk that occupancy rates and rents at a completed project will not meet projections and will be insufficient to make the project profitable, and the risk that we will not be able to obtain Anchor, mortgage lender and property partner approvals for certain expansion activities.
When we elect not to proceed with a development opportunity, the development costs ordinarily are charged against income for the then-current period. Any such charge could have a material adverse effect on our results of operations for the period in which the charge is taken.
Certain of our Properties are subject to ownership interests held by third parties, whose interests may conflict with ours and thereby constrain us from taking actions concerning these Properties which otherwise would be in the best interests of the Company and our stockholders.
We own partial interests in 13 malls, 7 associated centers, 6 community centers, 2 office buildings, a hotel development, a residential development and 4 self-storage facilities. We have interests in 5 malls, 1 associated center, 2 community centers and four self-storage facilities that are all owned by unconsolidated joint ventures and are managed by a property manager that is affiliated with the third-party partner, which receives a fee for its services. The third-party partner of each of these Properties controls the cash flow distributions, although our approval is required for certain major decisions. We have interests in two malls that are owned by consolidated joint ventures and managed by a property manager that is affiliated with the third-party partner, which receives a fee for its services.
Where we serve as managing general partner (or equivalent) of the entities that own our Properties, we may have certain fiduciary responsibilities to the other owners of those entities. In certain cases, the approval or consent of the other owners is required before we may sell, finance, expand or make other significant changes in the operations of such Properties. To the extent such approvals or consents are required, we may experience difficulty in, or may be prevented from, implementing our plans with respect to expansion, development, financing or other similar transactions with respect to such Properties.
With respect to those Properties for which we do not serve as managing general partner (or equivalent), we do not have day-to-day operational control or control over certain major decisions, including leasing and the timing and amount of distributions, which could result in decisions by the managing entity that do not fully reflect our interests. This includes decisions relating to the requirements that we must satisfy in order to maintain our status as a REIT for tax purposes. However, decisions relating to sales, expansion and disposition of all or substantially all of the assets and financings are subject to approval by the Operating Partnership.
Bankruptcy of joint venture partners could impose delays and costs on us with respect to the jointly owned retail Properties.
In addition to the possible effects on our joint ventures of a bankruptcy filing by us, the bankruptcy of one of the other investors in any of our jointly owned shopping centers could materially and adversely affect the relevant Property or Properties. Under the bankruptcy laws, we would be precluded from taking some actions affecting the estate of the other investor without prior approval of the bankruptcy court, which would, in most cases, entail prior notice to other parties and a hearing in the bankruptcy court. At a minimum, the requirement to obtain court approval may delay the actions we would or might want to take. If the relevant joint venture through which we have invested in a Property has incurred recourse obligations, the discharge in bankruptcy of one of the other investors might result in our ultimate liability for a greater portion of those obligations than we would otherwise bear.
We may be unable to lease space in our properties on favorable terms, or at all.
Our results of operations depend on our ability to continue to lease space in our properties, including vacant space and re-leasing space in properties where leases are expiring, optimizing our tenant mix, or leasing properties on economically favorable terms. Because we have leases expiring annually, we are continually focused on leasing our properties. Similarly, we are pursuing a strategy of replacing expiring short-term leases with long-term leases. For more information on lease expirations see Mall Lease Expirations
and
Other Property Type Lease Expirations
.
There can be no assurance that our leases will be renewed or that vacant space will be re-let at rates equal to or above the current average net effective rental rates or that substantial rent abatements, tenant improvements, early termination rights or below market renewal options will not be offered to attract new tenants or retain existing tenants. If the rental rates decrease, if our existing tenants do not renew their leases or if we do not re-let a significant portion of our available space and space for which leases will expire, our financial condition and results of operations could be adversely affected.
We may incur significant costs related to compliance with environmental laws, which could have a material adverse effect on our results of operations, cash flows and the funds available to us to pay dividends.
Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the costs of removal or remediation of petroleum, certain hazardous or toxic substances on, under or in such real estate. Such laws typically impose such liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such substances. The costs of remediation or removal of such substances may be substantial. The presence of such substances, or the failure to promptly remove or remediate such substances, may adversely affect the owner's or operator's ability to lease or sell such real estate or to borrow using such real estate as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, regardless of whether such facility is owned or operated by such person. Certain laws also impose requirements on conditions and activities that may affect the environment or the impact of the environment on human health. Failure to comply with such requirements could result in the imposition of monetary penalties (in addition to the costs to achieve compliance) and potential liabilities to third parties. Among other things, certain laws require abatement or removal of friable and certain non-friable asbestos-containing materials in the event of demolition or certain renovations or remodeling. Certain laws regarding asbestos-containing materials require building owners and lessees, among other things, to notify and train certain employees working in areas known or presumed to contain asbestos-containing materials. Certain laws also impose liability for release of asbestos-containing materials into the air and third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with asbestos-containing materials. In connection with the ownership and operation of properties, we may be potentially liable for all or a portion of such costs or claims.
All of our Properties (but not properties for which we hold an option to purchase but do not yet own) have been subject to Phase I environmental assessments or updates of existing Phase I environmental assessments. Such assessments generally consisted of a visual inspection of the Properties, review of federal and state environmental databases and certain information regarding historic uses of the Property and adjacent areas and the preparation and issuance of written reports. Some of the Properties contain, or contained, underground storage tanks used for storing petroleum products or wastes typically associated with automobile service or other operations conducted at the Properties. Certain Properties contain, or contained, dry-cleaning establishments utilizing solvents. Where believed to be warranted, samplings of building materials or subsurface investigations were undertaken. At certain Properties, where warranted by the conditions, we have developed and implemented an operations and maintenance program that establishes operating procedures with respect to asbestos-containing materials. The cost associated with the development and implementation of such programs was not material. We have also obtained environmental insurance coverage at certain of our Properties.
We believe that our Properties are in compliance in all material respects with all federal, state and local ordinances and regulations regarding the handling, discharge and emission of hazardous or toxic substances. As of December 31, 2019, we have recorded in our consolidated financial statements a liability of $3.0 million related to potential future asbestos abatement activities at our Properties which are not expected to have a material impact on our financial condition or results of operations. We have not been notified by any governmental authority, and are not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances in connection with any of our present or former Properties. Therefore, we have not recorded any liability related to hazardous or toxic substances. Nevertheless, it is possible that the environmental assessments available to us do not reveal all potential environmental liabilities. It is also possible that subsequent investigations will identify material contamination, that adverse environmental conditions have arisen subsequent to the performance of the environmental assessments, or that there are material environmental liabilities of which management is unaware. Moreover, no assurances can be given that (i) future laws, ordinances or regulations will
not impose any material environmental liability or (ii) the current environmental condition of the Properties has not been or will not be affected by tenants and occupants of the Properties, by the condition of properties in the vicinity of the Properties or by third parties unrelated to us, the Operating Partnership or the relevant Property's partnership.
Possible terrorist activity or other acts of violence could adversely affect our financial condition and results of operations.
Future terrorist attacks in the United States, and other acts of violence, including terrorism or war, might result in declining consumer confidence and spending, which could harm the demand for goods and services offered by our tenants and the values of our Properties, and might adversely affect an investment in our securities. A decrease in retail demand could make it difficult for us to renew or re-lease our Properties at lease rates equal to or above historical rates and, to the extent our tenants are affected, could adversely affect their ability to continue to meet obligations under their existing leases. Terrorist activities also could directly affect the value of our Properties through damage, destruction or loss. Furthermore, terrorist acts might result in increased volatility in national and international financial markets, which could limit our access to capital or increase our cost of obtaining capital.
We face possible risks associated with climate change.
We cannot determine with certainty whether global warming or cooling is occurring and, if so, at what rate. To the extent climate change causes changes in weather patterns, our properties in certain markets and regions could experience increases in storm intensity and rising sea levels. Over time, these conditions could result in volatile or decreased demand for retail space at certain of our Properties or, in extreme cases, our inability to operate the Properties at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) insurance on favorable terms and increasing the cost of energy and snow removal at our Properties. Moreover, compliance with new laws or regulations related to climate change, including compliance with "green" building codes, may require us to make improvements to our existing Properties or increase taxes and fees assessed on us or our Properties. At this time, there can be no assurance that climate change will not have a material adverse effect on us.
RISKS RELATED TO OUR BUSINESS AND THE MARKET FOR OUR STOCK
The loss of one or more significant tenants, due to bankruptcies or as a result of consolidations in the retail industry, could adversely affect both the operating revenues and value of our Properties.
We could be adversely affected by the bankruptcy, early termination, sales performance, or closing of tenants and Anchors. Certain of our lease agreements include co-tenancy and/or sales-based kick-out provisions which allow a tenant to pay a reduced rent amount and, in certain instances, terminate the lease, if we fail to maintain certain occupancy levels or retain specified named Anchors, or if the tenant does not achieve certain specified sales targets. If occupancy or tenant sales do not meet or fall below certain thresholds, rents we are entitled to receive from our retail tenants could be reduced. The bankruptcy of a tenant could result in the termination of its lease, which would lower the amount of cash generated by that Property. Replacing tenants with better performing, emerging retailers may take longer than our historical experience of re-tenanting due to their lack of infrastructure and limited experience in opening stores as well as the significant competition for such emerging brands. In addition, if a department store operating as an Anchor at one of our Properties were to cease operating, we may experience difficulty and delay and incur significant expense in replacing the Anchor, re-tenanting, or otherwise re-merchandising the use of the Anchor space. This difficulty could be exacerbated if the Anchor space is owned by a third party and we are not able to acquire the space, if the third party’s plans to lease or redevelop the space do not align with our interests or the third party does not act in a timely manner to lease or redevelop the space. In addition, the Anchor’s closing may lead to reduced customer traffic and lower mall tenant sales. As a result, we may also experience difficulty or delay in leasing spaces in areas adjacent to the vacant Anchor space. The early termination or closing of tenants or Anchors for reasons other than bankruptcy could have a similar impact on the operations of our Properties, although in the case of early terminations we may benefit in the short-term from lease termination income.
Most recently, certain traditional department stores have experienced challenges including limited opportunities for new investment/openings, declining sales, and store closures. Department stores' market share is declining, and their ability to drive traffic has substantially decreased. Despite our Malls traditionally being driven by department store Anchors, in the event of a need for replacement, it has become necessary to consider non-department store Anchors. Certain of these non-department store Anchors may demand higher allowances than a standard mall tenant due to the nature of the services/products they provide.
Clauses in leases with certain tenants in our properties frequently may include inducements, such as reduced rent and tenant allowance payments, which can reduce our rents and Funds From Operations (“FFO”) , and adversely impact our financial condition and results of operation.
The leases for a number of the tenants in our properties have co-tenancy clauses that allow those tenants to pay reduced rent until occupancy at the respective property regains certain thresholds and/or certain named co-tenants open stores at the respective property. Additionally, some tenants may have rent abatement clauses that delay rent commencement for a prolonged period of time after initial occupancy. The effect of these clauses reduces our rents and FFO while they are applicable. We expect to continue to offer co-tenancy and rent abatement clauses in the future to attract tenants to our properties. As a result, our financial condition and results of operations may be adversely impacted.
Additionally, the prevalence and volume of such leases is likely to increase at an unpredictable rate in light of the recent proliferation of bankruptcy filings and closures by retailers occupying “big box”, anchor or other traditionally large spaces which can have an adverse impact on our financial condition and results of operations.
We may not be able to raise capital through financing activities.
Many of our assets are encumbered by property-level indebtedness; therefore, we may be limited in our ability to raise additional capital through property level or other financings. In addition, our ability to raise additional capital could be limited to refinancing existing secured mortgages before their maturity date which may result in yield maintenance or other prepayment penalties to the extent that the mortgage is not open for prepayment at par.
The market price of our common stock or other securities may fluctuate significantly.
The market price of our common stock or other securities may fluctuate significantly in response to many factors, including:
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actual or anticipated variations in our operating results, FFO, cash flows or liquidity;
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changes in our earnings estimates or those of analysts;
•
changes in our dividend policy (including, without limitation, our current suspension of dividends on our outstanding common and preferred stock, as well as distributions to holders of outstanding units of limited partnership in the Operating Partnership);
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impairment charges affecting the carrying value of one or more of our Properties or other assets;
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publication of research reports about us, the retail industry or the real estate industry generally;
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increases in market interest rates that lead purchasers of our securities to seek higher dividend or interest rate yields;
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changes in market valuations of similar companies;
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adverse market reaction to the amount of our outstanding debt at any time, the amount of our maturing debt in the near and medium term and our ability to refinance such debt and the terms thereof or our plans to incur additional debt in the future;
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additions or departures of key management personnel;
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actions by institutional security holders;
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proposed or adopted regulatory or legislative changes or developments;
•
speculation in the press or investment community;
•
changes in our credit ratings;
•
the occurrence of any of the other risk factors included in, or incorporated by reference in, this report; and
•
general market and economic conditions.
Many of the factors listed above are beyond our control. Those factors may cause the market price of our common stock or other securities to decline significantly, regardless of our financial performance and condition and prospects. It is impossible to provide any assurance that the market price of our common stock or other securities will not fall in the future, and it may be difficult for holders to sell such securities at prices they find attractive, or at all.
We are in a competitive business.
There are numerous shopping facilities that compete with our Properties in attracting retailers to lease space. Our ability to attract tenants to our Properties and lease space is important to our success, and difficulties in doing so can materially impact our Properties' performance. The existence of competing shopping centers could have a material adverse impact on our ability to develop or operate Properties, lease space to desirable Anchors and tenants, and on the level of rents that can be achieved. In addition, retailers at our Properties face continued competition from shopping through various means and channels, including via the internet, lifestyle centers, value and outlet centers, wholesale and discount shopping clubs, and television shopping networks. Competition of this type could adversely affect our revenues and cash available for distribution to shareholders.
As new technologies emerge, the relationship among customers, retailers, and shopping centers are evolving on a rapid basis and we may not be able to adapt to such new technologies and relationships on a timely basis. Our relative size may limit the capital and resources we are willing to allocate to invest in strategic technology to enhance the mall experience, which may make our Malls relatively less desirable to anchors, mall tenants, and consumers. Additionally, a small but increasing number of tenants utilize our Malls as showrooms or as part of an omni-channel strategy (allowing customers to shop seamlessly through various sales channels). As a result, customers may make purchases through other sales channels during or immediately after visiting our Malls, with such sales not being captured currently in our tenant sales figures or monetized in our minimum or overage rents.
We compete with other major real estate investors with significant capital for attractive investment opportunities. These competitors include other REITs, investment banking firms, and private and institutional investors, some of whom have greater financial resources or have different investment criteria than we do. In particular, there is competition to acquire, develop, or redevelop highly productive retail properties. This could become even more severe as competitors gain size and economies of scale as a result of merger and consolidation activity. This competition may impair our ability to acquire, develop, or redevelop suitable properties, and to attract key retailers, on favorable terms in the future.
Increased operating expenses, decreased occupancy rates and tenants converting to gross leases may not allow us to recover the majority of our CAM, real estate taxes and other operating expenses from our tenants, which could adversely affect our financial position, results of operations and funds available for future distributions.
Energy costs, repairs, maintenance and capital improvements to common areas of our Properties, janitorial services, administrative, property and liability insurance costs and security costs are typically allocable to our Properties' tenants. Our lease agreements typically provide that the tenant is liable for a portion of the CAM and other operating expenses. While historically our lease agreements provided for variable CAM provisions, the majority of our current leases require an equal periodic tenant reimbursement amount for our cost recoveries which serves to fix our tenants' CAM contributions to us. In these cases, a tenant will pay a fixed amount, or a set expense reimbursement amount, subject to annual increases, regardless of the actual amount of operating expenses. The tenant's payment remains the same regardless of whether operating expenses increase or decrease, causing us to be responsible for any excess amounts or to benefit from any declines. As a result, the CAM and tenant reimbursements that we receive may or may not allow us to recover a substantial portion of these operating costs.
There is also a trend of more tenants moving to gross leases, which provide that the tenant pays a single specified amount, with no additional payments for reimbursements of the tenant's portion of operating expenses. As a result, we are responsible for any increases in operating expenses, and benefit from any decreases in operating expenses.
Additionally, in the event that our Properties are not fully occupied, we would be required to pay the portion of any operating, redevelopment or renovation expenses allocable to the vacant space(s) that would otherwise typically be paid by the residing tenant(s).
Our Properties may be subject to impairment charges, which could impact our compliance with certain debt covenants and could otherwise adversely affect our financial results.
We monitor events or changes in circumstances that could indicate the carrying value of a long-lived asset may not be recoverable. When indicators of potential impairment are present that suggest that the carrying amounts of a long-lived asset may not be recoverable, we assess the recoverability of the asset by determining whether the asset’s carrying value will be recovered through the estimated undiscounted future cash flows expected from our probability weighted use of the asset and its eventual disposition. In the event that such undiscounted future cash flows do not exceed the carrying value, we adjust the carrying value of the long-lived asset to its estimated fair value and recognize an impairment loss. The estimated fair value is calculated based on the following information, in order of preference, depending upon availability: (Level 1) recently quoted market prices, (Level 2) market prices for comparable properties, or (Level 3) the present value of
future cash flows, including estimated salvage value. Certain of our long-lived assets may be carried at more than an amount that could be realized in a current disposition transaction. Projections of expected future operating cash flows require that we estimate future market rental income amounts subsequent to expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the Property, and the number of years the Property is held for investment, among other factors. As these assumptions are subject to economic and market uncertainties, they are difficult to predict and are subject to future events that may alter the assumptions used or management’s estimates of future possible outcomes. Therefore, the future cash flows estimated in our impairment analyses may not be achieved. Further, while the Company has not experienced any non-compliance with debt covenants as a result of the impairment analyses described above, it is possible that future reductions in the carrying value of our assets as a result of such analyses could impact our continued compliance with certain of our debt covenants that require us to maintain specified ratios of total debt to total assets, secured debt to total assets and unencumbered assets to unsecured debt. During 201 , we recorded a loss on impairment of real estate totaling $ 239.5 million, which primarily related to six malls and one community center . See
Note 16
to the consolidated financial statements for further details.
Inflation or deflation may adversely affect our financial condition and results of operations.
Increased inflation could have a pronounced negative impact on our mortgage and debt interest and general and administrative expenses, as these costs could increase at a rate higher than our rents. Also, inflation may cause operating expenses to rise and adversely affect tenant leases with stated rent increases, which could be lower than the increase in inflation at any given time. Inflation could also have an adverse effect on consumer spending which could impact our tenants' sales and, in turn, our percentage rents, where applicable.
Deflation can result in a decline in general price levels, often caused by a decrease in the supply of money or credit. The predominant effects of deflation are high unemployment, credit contraction and weakened consumer demand. Restricted lending practices could impact our ability to obtain financings or refinancings for our Properties and our tenants' ability to obtain credit. Decreases in consumer demand can have a direct impact on our tenants and the rents we receive.
We have experienced cybersecurity attacks that, to date, have not had a material impact on our financial results, but it is not possible to predict the impact of future incidents that may involve security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology ("IT") networks and related systems, which could harm our business by disrupting our operations and compromising or corrupting confidential information, which could adversely impact our financial condition.
We rely on IT systems and network infrastructure, including the Internet, to process, transmit and store electronic information and to manage or support a variety of our business processes, including financial transactions and maintenance of records. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our IT networks and related systems and infrastructure are essential to the operation of our business and our ability to perform day-to-day operations (including managing our building systems) and, in some cases, may be critical to the operations of certain of our tenants. Cyber-attacks targeting our infrastructure could result in a full or partial disruption of our operations, as well as those of our tenants. Certain of these resources are provided to us and/or maintained on our behalf by third-party service providers pursuant to agreements that specify to varying degrees certain security and service level standards. Although we and our service providers have implemented processes, procedures and controls to help mitigate these risks, there can be no assurance that these measures, as well as our increased awareness of the risk of cyber incidents, will be effective or that attempted or actual security incidents, breaches or system disruptions that could be damaging to us or others will not occur. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.
A security incident, breach or other significant disruption involving our IT networks and related systems could occur due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption or failure or error or poor product or vendor/developer selection (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources. Such occurrences could disrupt the proper functioning of our networks and systems; result in disruption of business operations and loss of service to our tenants and customers; result in significantly decreased revenues; result in increased costs associated in obtaining and maintaining cybersecurity investigations and testing, as well as implementing protective measures and systems; result in
increased insurance premiums and operating costs; result in misstated financial reports and/or missed reporting deadlines; result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT; result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; result in our inability to maintain the building systems relied upon by our tenants for the efficient use of their leased space; require significant management attention and resources to remedy any damages that result; subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; subject us to regulatory investigations and actions; cause harm to our competitive position and business value; and damage our reputation among our tenants and investors generally. Moreover, cyber-attacks perpetrated against our Anchors and tenants, including unauthorized access to customers’ credit card data and other confidential information, could subject us to significant litigation, liability and costs, adversely impact our reputation, or diminish consumer confidence and consumer spending and negatively impact our business.
Certain agreements with prior owners of Properties that we have acquired may inhibit our ability to enter into future sale or refinancing transactions affecting such Properties, which otherwise would be in the best interests of the Company and our stockholders.
Certain Properties that we originally acquired from third parties had unrealized gain attributable to the difference between the fair market value of such Properties and the third parties' adjusted tax basis in the Properties immediately prior to their contribution of such Properties to the Operating Partnership pursuant to our acquisition. For this reason, a taxable sale by us of any of such Properties, or a significant reduction in the debt encumbering such Properties, could result in adverse tax consequences to the third parties who contributed these Properties in exchange for interests in the Operating Partnership. Under the terms of these transactions, we have generally agreed that we either will not sell or refinance such an acquired Property for a number of years in any transaction that would trigger adverse tax consequences for the parties from whom we acquired such Property, or else we will reimburse such parties for all or a portion of the additional taxes they are required to pay as a result of the transaction. Accordingly, these agreements may cause us not to engage in future sale or refinancing transactions affecting such Properties, which otherwise would be in the best interests of the Company and our stockholders, or may increase the costs to us of engaging in such transactions.
Declines in economic conditions, including increased volatility in the capital and credit markets, could adversely affect our business, results of operations and financial condition.
An economic recession can result in extreme volatility and disruption of our capital and credit markets. The resulting economic environment may be affected by dramatic declines in the stock and housing markets, increases in foreclosures, unemployment and costs of living, as well as limited access to credit. This economic situation can, and most often will, impact consumer spending levels, which can result in decreased revenues for our tenants and related decreases in the values of our Properties. A sustained economic downward trend could impact our tenants' ability to meet their lease obligations due to poor operating results, lack of liquidity, bankruptcy or other reasons. Our ability to lease space and negotiate rents at advantageous rates could also be affected in this type of economic environment. Additionally, access to capital and credit markets could be disrupted over an extended period, which may make it difficult to obtain the financing we may need for future growth and/or to meet our debt service obligations as they mature. Any of these events could harm our business, results of operations and financial condition.
Uninsured losses could adversely affect our financial condition, and in the future our insurance may not include coverage for acts of terrorism.
We carry a comprehensive blanket policy for general liability, property casualty (including fire, earthquake and flood) and rental loss covering all of the Properties, with specifications and insured limits customarily carried for similar properties. However, even insured losses could result in a serious disruption to our business and delay our receipt of revenue. Furthermore, there are some types of losses, including lease and other contract claims, as well as some types of environmental losses, that generally are not insured or are not economically insurable. If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a Property, as well as the anticipated future revenues from the Property. If this happens, we, or the applicable Property's partnership, may still remain obligated under guarantees provided to the lender for any mortgage debt or other financial obligations related to the Property.
The general liability and property casualty insurance policies on our Properties currently include coverage for losses resulting from acts of terrorism, as defined by TRIPRA. While we believe that the Properties are adequately insured in accordance with industry standards, the cost of general liability and property casualty insurance policies that include coverage for acts of terrorism has risen significantly subsequent to September 11, 2001. The cost of coverage for acts of terrorism is currently mitigated by the Terrorism Risk Insurance Act (“TRIA”). In January 2015, Congress reinstated TRIA under the Terrorism Risk Insurance Program Reauthorization Act of 2015 ("TRIPRA") and extended the program through December 31, 2020. Under TRIPRA, the amount of terrorism-related insurance losses triggering the federal insurance threshold will be raised from $180 million in 2019 to $200 million in 2020. Additionally, the bill increases insurers'
co-payments for losses exceeding their deductibles, in annual steps, from 19% in 2019 to 20% in 2020. Each of these changes may have the effect of increasing the cost to insure against acts of terrorism for property owners, such as the Company, notwithstanding the other provisions of TRIPRA. In December 2019, Congress further extended TRIPRA through December 31,
2027.
I f TRIPRA is not continued beyond 202 or is significantly modified, we may incur higher insurance costs and experience greater difficulty in obtaining insurance that covers terrorist-related damages. Our tenants may also have similar difficulties.
RISKS RELATED TO DEBT AND FINANCIAL MARKETS
A deterioration of the capital and credit markets could adversely affect our ability to access funds and the capital needed to refinance debt or obtain new debt.
We are significantly dependent upon external financing to fund the growth of our business and ensure that we meet our debt servicing requirements. Our access to financing depends on the willingness of lending institutions to grant credit to us and conditions in the capital markets in general. An economic recession may cause extreme volatility and disruption in the capital and credit markets. We rely upon our credit facility as a source of funding for numerous transactions. Our access to these funds is dependent upon the ability of each of the participants to the credit facility to meet their funding commitments. When markets are volatile, access to capital and credit markets could be disrupted over an extended period of time and many financial institutions may not have the available capital to meet their previous commitments. The failure of one or more significant participants to our credit facility to meet their funding commitments could have an adverse effect on our financial condition and results of operations. This may make it difficult to obtain the financing we may need for future growth and/or to meet our debt service obligations as they mature. Although we have successfully obtained debt for refinancings and retirement of our maturing debt, acquisitions and the construction of new developments and redevelopments in the past, we cannot make any assurances as to whether we will be able to obtain debt in the future, or that the financing options available to us will be on favorable or acceptable terms.
Our indebtedness is substantial and could impair our ability to obtain additional financing.
At December 31, 2019, our pro-rata share of consolidated and unconsolidated debt outstanding was approximately $4,231.5 million. Our total share of consolidated and unconsolidated debt maturing in 2020, 2021 and 2022 giving effect to all maturity extensions that are available at our election, was approximately $173.4 million, $500.9 million and $604.1 million, respectively. Additionally, we had $92.2 million of debt, at our share, which matured in 2019, related to two non-recourse loans that were in default. See Note 7
and
Note 8
to the consolidated financial statements for more information. Our leverage could have important consequences. For example, it could:
•
result in the acceleration of a significant amount of debt for non-compliance with the terms of such debt or, if such debt contains cross-default or cross-acceleration provisions, other debt;
•
result in the loss of assets due to foreclosure or sale on unfavorable terms, which could create taxable income without accompanying cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Internal Revenue Code;
•
materially impair our ability to borrow unused amounts under existing financing arrangements or to obtain additional financing or refinancing on favorable terms or at all;
•
require us to dedicate a substantial portion of our cash flow to paying principal and interest on our indebtedness, reducing the cash flow available to fund our business, to pay dividends, including those necessary to maintain our REIT qualification, or to use for other purposes;
•
increase our vulnerability to an economic downturn;
•
limit our ability to withstand competitive pressures; or
•
reduce our flexibility to respond to changing business and economic conditions.
If any of the foregoing occurs, our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected, and the trading price of our common stock or other securities could decline significantly.
Rising interest rates could both increase our borrowing costs, thereby adversely affecting our cash flows and the amounts available for distributions to our stockholders, and decrease our stock price, if investors seek higher yields through other investments.
An environment of rising interest rates could lead holders of our securities to seek higher yields through other investments, which could adversely affect the market price of our stock. As noted above, we currently have suspended all distributions on our outstanding common and preferred stock, as well as on outstanding Operating Partnership Units, which
will magnify such adverse impacts. One of the factors that has likely influence d the price of our stock in public markets during prior periods when we were making such distributions is the annual distribution rate we pa id as compared with the yields on alternative investments. Further, n umerous other factors, such as governmental regulatory action and tax laws, could have a significant impact on the future market price of our stock. In addition, increases in market interest rates could result in increased borrowing costs for us, which could be expected to adversely affect our cash flow and the amounts available for distributions to our stockholders and the Operating Partnership’s unitholders .
As of December 31, 2019, our total share of consolidated and unconsolidated variable-rate debt was $951.7 million. Increases in interest rates will increase our cash interest payments on the variable-rate debt we have outstanding from time to time. If we do not have sufficient cash flow from operations, we might not be able to make all required payments of principal and interest on our debt, which could result in a default or have a material adverse effect on our financial condition and results of operations, and which might have further adverse effects on our cash flow and our ability to make distributions to shareholders. These significant debt payment obligations might also require us to use a significant portion of our cash flow from operations to make interest and principal payments on our debt rather than for other purposes such as working capital, capital expenditures or any resumption of distributions to holders of our equity securities.
We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined.
It is also important to note that our variable-rate debt uses LIBOR as a benchmark for establishing the rate. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable-rate debt.
In July 2017, the Financial Conduct Authority, the authority that regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (ARRC) has proposed that the Secured Overnight Financing Rate (SOFR) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. There is no guarantee that a transition from LIBOR to an alternative will not result in financial market disruptions, significant increases in benchmark rates, or financing costs to borrowers. We have material contracts that are indexed to USD-LIBOR and we are monitoring this activity and evaluating the related risks.
Adverse changes in our credit ratings could negatively affect our borrowing costs and financing ability.
As of December 31, 2019, we had credit ratings of B2 from Moody's Investors Service ("Moody’s"), B from Standard & Poor's Rating Services ("S&P") and CCC+ from Fitch Ratings ("Fitch"), which are based on credit ratings for the Operating Partnership's unsecured long-term indebtedness. There can be no assurance that we will be able to maintain these ratings.
In January 2019, we replaced our unsecured credit facilities and unsecured term loans, which included certain interest rate provisions based on our credit ratings, with a new $1.185 billion secured facility with 16 banks, comprised of a $685 million secured line of credit and a $500 million secured term loan, which bear interest at a variable rate of LIBOR plus 225 basis points. The interest rate of the new facility is not dependent on our credit ratings. See Liquidity and Capital Resources
section and
Note 8
to the consolidated financial statements for additional information.
Our hedging arrangements might not be successful in limiting our risk exposure, and we might be required to incur expenses in connection with these arrangements or their termination that could harm our results of operations or financial condition.
From time to time, we use interest rate hedging arrangements to manage our exposure to interest rate volatility, but these arrangements might expose us to additional risks, such as requiring that we fund our contractual payment obligations under such arrangements in relatively large amounts or on short notice. Developing an effective interest rate risk strategy is complex, and no strategy can completely insulate us from risks associated with interest rate fluctuations. We cannot assure you that our hedging activities will have a positive impact on our results of operations or financial condition. We might be subject to additional costs, such as transaction fees or breakage costs, if we terminate these arrangements. In addition, although our interest rate risk management policy establishes minimum credit ratings for counterparties, this does not eliminate the risk that a counterparty might fail to honor its obligations.
The covenants in our secured credit facilit y and in the Notes might adversely affect us.
Our secured credit facility, as well as the terms of the Notes, require us to satisfy certain affirmative and negative covenants and to meet numerous financial tests, and also contain certain default and cross-default provisions as described in more detail in Liquidity and Capital Resources
.
The financial covenants under the secured credit facility and the Notes also require, among other things, that our debt to total assets, as defined in the indenture governing the Notes, be less than 60%, that our ratio of total unencumbered assets to unsecured indebtedness, as defined, be greater than 150%, and that our ratio of consolidated income available for debt service to annual debt service charges, as defined, be greater than 1.5. For the 2023 Notes and the 2024 Notes, the financial covenants require that our ratio of secured debt to total assets, as defined, be less than 45% (40% on and after January 1, 2020). The financial covenants require that our ratio of secured debt to total assets, as defined, be less than 40% for the 2026 Notes. Compliance with each of these ratios is dependent upon our financial performance.
If any future failure to comply with one or more of these covenants resulted in the loss of the secured credit facility or a default under the Notes and we were unable to obtain suitable replacement financing, such loss could have a material, adverse impact on our financial position and results of operations.
Pending litigation could distract our officers from attending to the Company’s business and could have a material adverse effect on our business, financial condition and results of operation.
The Company and certain of its officers and directors have been named as defendants in a consolidated putative securities class action lawsuit (“Securities Class Action Litigation”) and certain of its former and current directors have been named as defendants in eight shareholder derivative lawsuits (“Derivative Litigation”).
The complaint filed in the Securities Class Action Litigation alleges violations of the securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions regarding the Company’s contingent liabilities, business, operations, and prospects. The plaintiffs seek compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the amount of damages sought. The complaints filed in the Derivative Litigation allege, among other things, breaches of fiduciary duties, unjust enrichment, waste of corporate assets, and violations of the federal securities laws. The factual allegations upon which these claims are based are similar to the factual allegations made in the Securities Class Action Litigation described above. The complaints filed in the Derivative Litigation seek, among other things, unspecified damages and restitution for the Company from the individual defendants, the payment of costs and attorneys’ fees, and that the Company be directed to reform certain governance and internal procedures. See Item 3. Legal Proceedings
for more information on both the Securities Class Action Litigation and Derivative Litigation.
We cannot assure you as to the outcome of these legal proceedings, including the amount of costs or other liabilities that will be incurred in connection with defending these claims or other claims that may arise in the future. To the extent that we incur material costs in connection with defending or pursuing these claims, or become subject to liability as a result of an adverse judgment or settlement of these claims, our results of operations and liquidity position could be materially and adversely affected. In addition, ongoing litigation may divert management’s attention and resources from the day-to-day operation of our business and cause reputational harm to us, either of which could have a material adverse effect on our business, financial condition and results of operations.
RISKS RELATED TO THE OPERATING PARTNERSHIP'S NOTES
CBL has no significant operations and no material assets other than its indirect investment in the Operating Partnership; therefore, the limited guarantee of the Notes does not provide material additional credit support.
The limited guarantee provides that the Notes are guaranteed by CBL for any losses suffered by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates. However, CBL has no significant operations and no material assets other than its indirect investment in the Operating Partnership. Furthermore, the limited guarantee of the Notes is effectively subordinated to all existing and future liabilities and preferred equity of the Company's subsidiaries (including the Operating Partnership (except as to the Notes) and any entity the Company accounts for under the equity method of accounting) and any of the Company's secured debt, to the extent of the value of the assets securing any such indebtedness. Due to the narrow scope of the limited guarantee, the lack of significant operations or assets at CBL other than its indirect investment in the Operating Partnership and the structural subordination of the limited guarantee to the liabilities and any preferred equity of the Company's subsidiaries, the limited guarantee does not provide material additional credit support.
Our substantial indebtedness could materially and adversely affect us and the ability of the Operating Partnership to meet its debt service obligations under the Notes.
Our level of indebtedness and the limitations imposed on us by our debt agreements could have significant adverse consequences to holders of the Notes, including the following:
•
our cash flow may be insufficient to meet our debt service obligations with respect to the Notes and our other indebtedness, which would enable the lenders and other debtholders to accelerate the maturity of their indebtedness, or be insufficient to fund other important business uses after meeting such obligations;
•
we may be unable to borrow additional funds as needed or on favorable terms;
•
we may be unable to refinance our indebtedness at maturity or earlier acceleration, if applicable, or the refinancing terms may be less favorable than the terms of our original indebtedness or otherwise be generally unfavorable;
•
because a significant portion of our debt bears interest at variable rates, increases in interest rates could materially increase our interest expense;
•
increases in interest rates could also materially increase our interest expense on future fixed rate debt;
•
we may be forced to dispose of one or more of our Properties, possibly on disadvantageous terms;
•
we may default on our other unsecured indebtedness;
•
we may default on our secured indebtedness and the lenders may foreclose on our Properties or our interests in the entities that own the Properties that secure such indebtedness and receive an assignment of rents and leases; and
•
we may violate restrictive covenants in our debt agreements, which would entitle the lenders and other debtholders to accelerate the maturity of their indebtedness.
If any one of these events were to occur, our business, financial condition, liquidity, results of operations and prospects, as well as the Operating Partnership's ability to satisfy its obligations with respect to the Notes, could be materially and adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, a circumstance which could hinder the Company's ability to meet the REIT distribution requirements imposed by the Internal Revenue Code.
The structural subordination of the Notes may limit the Operating Partnership's ability to meet its debt service obligations under the Notes.
The Notes are the Operating Partnership's unsecured and unsubordinated indebtedness and rank equally with the Operating Partnership's existing and future unsecured and unsubordinated indebtedness, and are effectively junior to all liabilities and any preferred equity of the Operating Partnership's subsidiaries and to all of the Operating Partnership's indebtedness that is secured by the Operating Partnership's assets, to the extent of the value of the assets securing such indebtedness. While the indenture governing the Notes limits our ability to incur additional secured indebtedness in the future, it will not prohibit us from incurring such indebtedness if we are in compliance with certain financial ratios and other requirements at the time of its incurrence. In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding with respect to us, the holders of any secured indebtedness will, subject to obtaining relief from the automatic stay under section 362 of the Bankruptcy Code, be entitled to proceed directly against the collateral that secures the secured indebtedness. Therefore, such collateral generally will not be available for satisfaction of any amounts owed under our unsecured indebtedness, including the Notes, until such secured indebtedness is satisfied in full.
The Notes also are effectively subordinated to all liabilities, whether secured or unsecured, and any preferred equity of the subsidiaries of the Operating Partnership. In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding with respect to any such subsidiary, the Operating Partnership, as an equity owner of such subsidiary, and therefore holders of our debt, including the Notes, will be subject to the prior claims of such subsidiary's creditors, including trade creditors, and preferred equity holders. Furthermore, while the indenture governing the Notes limits the ability of our subsidiaries to incur additional unsecured indebtedness in the future, it does not prohibit our subsidiaries from incurring such indebtedness if such subsidiaries are in compliance with certain financial ratios and other requirements at the time of its incurrence.
We may not be able to generate sufficient cash flow to meet our debt service obligations.
Our ability to meet our debt service obligations on, and to refinance, our indebtedness, including the Notes, and to fund our operations, working capital, acquisitions, capital expenditures and other important business uses, depends on our ability to generate sufficient cash flow in the future. To a certain extent, our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other factors, many of which are beyond our control.
We cannot be certain that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us in an amount sufficient to enable us to meet our debt service obligations on our indebtedness, including the Notes, or to fund our other important business uses. Additionally, if we incur additional indebtedness in connection with future acquisitions or development projects or for any other purpose, our debt service obligations could increase significantly and our ability to meet those obligations could depend, in large part, on the returns from such acquisitions or projects, as to which no assurance can be given.
We may need to refinance all or a portion of our indebtedness, including the Notes, at or prior to maturity. Our ability to refinance our indebtedness or obtain additional financing will depend on, among other things:
•
our financial condition, liquidity, results of operations and prospects and market conditions at the time; and
•
restrictions in the agreements governing our indebtedness.
As a result, we may not be able to refinance any of our indebtedness, including the Notes, on favorable terms, or at all.
If we do not generate sufficient cash flow from operations, and additional borrowings or refinancings are not available to us, we may be unable to meet all of our debt service obligations, including payments on the Notes. As a result, we would be forced to take other actions to meet those obligations, such as selling Properties, raising equity or delaying capital expenditures, any of which could have a material adverse effect on us. Furthermore, we cannot be certain that we will be able to effect any of these actions on favorable terms, or at all.
Despite our substantial outstanding indebtedness, we may still incur significantly more indebtedness in the future, which would exacerbate any or all of the risks described above.
We may be able to incur substantial additional indebtedness in the future. Although the agreements governing our revolving credit facility, term loans and certain other indebtedness do, and the indenture governing the Notes does, limit our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. To the extent that we incur substantial additional indebtedness in the future, the risks associated with our substantial leverage described above, including our inability to meet our debt service obligations, would be exacerbated.
Federal and state statutes allow courts, under specific circumstances, to void guarantees and require holders of indebtedness and lenders to return payments received from guarantors.
Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee, such as the limited guarantee provided by CBL or any future guarantee of the Notes issued by any subsidiary of the Operating Partnership, could be voided and required to be returned to the guarantor, or to a fund for the benefit of the creditors of the guarantor, if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee (i) received less than reasonably equivalent value or fair consideration for the incurrence of the guarantee and (ii) one of the following was true with respect to the guarantor:
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the guarantor was insolvent or rendered insolvent by reason of the incurrence of the guarantee;
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the guarantor was engaged in a business or transaction for which the guarantor's remaining assets constituted unreasonably small capital; or
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the guarantor intended to incur, or believed that it would incur, debts beyond its ability to pay those debts as they mature.
In addition, any claims in respect of a guarantee could be subordinated to all other debts of that guarantor under principles of "equitable subordination," which generally require that the claimant must have engaged in some type of inequitable conduct, the misconduct must have resulted in injury to the creditors of the debtor or conferred an unfair advantage on the claimant, and equitable subordination must not be inconsistent with other provisions of the U.S. Bankruptcy Code.
The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if:
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the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;
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the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they became absolute and mature; or
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it could not pay its debts as they become due.
The court might also void such guarantee, without regard to the above factors, if it found that a guarantor entered into its guarantee with actual or deemed intent to hinder, delay, or defraud its creditors.
A court would likely find that a guarantor did not receive reasonably equivalent value or fair consideration for its guarantee unless it benefited directly or indirectly from the issuance or incurrence of such indebtedness. This risk may be increased if any subsidiary of the Operating Partnership guarantees the Notes in the future, as no additional consideration would be received at the time such guarantee is issued. If a court voided such guarantee, holders of the indebtedness and lenders would no longer have a claim against such guarantor or the benefit of the assets of such guarantor constituting collateral that purportedly secured such guarantee. In addition, the court might direct holders of the indebtedness and lenders to repay any amounts already received from a guarantor.
The indenture governing the Notes contains restrictive covenants that may restrict our ability to expand or fully pursue certain of our business strategies.
The indenture governing the Notes contains financial and operating covenants that, among other things, restrict our ability to take specific actions, even if we believe them to be in our best interest, including, subject to various exceptions, restrictions on our ability to:
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consummate a merger, consolidation or sale of all or substantially all of our assets; and
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incur secured and unsecured indebtedness.
In addition, our secured credit facility, secured term loan and certain other debt agreements require us to meet specified financial ratios and the indenture governing the Notes requires us to maintain at all times a specified ratio of unencumbered assets to unsecured debt. These covenants may restrict our ability to expand or fully pursue our business strategies. Our ability to comply with these and other provisions of the indenture governing the Notes, our revolving credit facility and certain other debt agreements may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events beyond our control.
The breach of any of these covenants could result in a default under our indebtedness, which could result in the acceleration of the maturity of such indebtedness. If any of our indebtedness is accelerated prior to maturity, we may not be able to repay such indebtedness or refinance such indebtedness on favorable terms, or at all.
There is no prior public market for the Notes, so if an active trading market does not develop or is not maintained for the Notes, holders of the Notes may not be able to resell them on favorable terms when desired, or at all.
Prior to the offering of each of the 2023 Notes, the 2024 Notes and the 2026 Notes, there was no public market for such Notes and we cannot be certain that an active trading market will ever develop for the Notes or, if one develops, will be maintained. Furthermore, we do not intend to apply for listing of the Notes on any securities exchange or for the inclusion of the Notes on any automated dealer quotation system. The underwriters informed us that they intend to make a market in the Notes. However, the underwriters may cease their market making at any time without notice to or the consent of existing holders of the Notes. The lack of a trading market could adversely affect a holder's ability to sell the Notes when desired, or at all, and the price at which a holder may be able to sell the Notes. The liquidity of the trading market, if any, and future trading prices of the Notes will depend on many factors, including, among other things, prevailing interest rates, our financial condition, liquidity, results of operations and prospects, the market for similar securities and the overall securities market, and may be adversely affected by unfavorable changes in these factors. It is possible that the market for the Notes will be subject to disruptions which may have a negative effect on the holders of the Notes, regardless of our financial condition, liquidity, results of operations or prospects.
RISKS RELATED TO DIVIDENDS AND OUR COMMON STOCK
We have suspended paying dividends on our common stock and preferred stock and we cannot assure you of our ability to pay dividends in the future or the amount of any dividends.
Our board of directors has determined to suspend paying a dividend on our common stock and preferred stock, as well as distributions to the Operating Partnership’s outstanding common units, preferred units, Series S special common units (the “S-SCUs”), Series L special common units (the “L-SCUs”) and Series K special common units (the “K-SCUs”) (collectively, the “OP Units”). Our board of directors currently expects to continue to review and determine the dividends on our common stock, preferred stock and OP Units on a quarterly basis, but we cannot provide you with any assurances that we will resume paying dividends on our common stock, preferred stock or OP Units. Our board of directors determines the amount and timing of any distributions. In making this determination, our board of directors considered a variety of relevant factors, including, without limitations, REIT minimum distribution requirements, the amount of cash available for distribution, restrictions under Delaware law, capital expenditures and reserve requirements and general operational requirements. We cannot assure you that we will be able to make distributions in the future. Any of the foregoing could adversely affect the market price of our publicly traded securities. If dividends on our outstanding preferred stock is in arrears for six or more quarterly periods, those preferred stockholders, voting as a single class, would be entitled to elect a total of two additional directors to our board of directors, which could have an adverse impact on our governance and on the interests of our stockholders other than the holders of our preferred stock if these additional directors focus primarily on pursuing strategies to benefit holders of our preferred stock.
The dividend arrearage created by our board of directors’ decision to suspend the dividends that continue to accrue on our outstanding preferred stock (and the Operating Partnership’s distributions to its preferred units of limited partnership underlying our outstanding preferred shares) also will require that we not resume any payment of dividends on our common stock unless full cumulative dividends accrued with respect to our preferred stock (and such underlying preferred units) for all past quarters and the then-current quarter are first declared and paid in cash, or declared with a sum sufficient for the payment thereof having been set apart for such payment in cash. In addition, for so long as this distribution suspension results in the existence of a distribution shortfall (as described in the Partnership Agreement of the Operating Partnership) with respect to any of the S-SCUs, the L-SCUs or the K-SCUs (an “SCU Distribution Shortfall”), we (i) may not cause the Operating Partnership to resume distributions to holders of its outstanding common units of limited partnership until all holders of SCUs have received distributions sufficient to satisfy the SCU Distribution Shortfall for all prior quarters and the then-current quarter (which effectively also prevents the resumption of common stock dividends, since our common stock dividends are funded by distributions the Company receives on the underlying common units it holds in the Operating Partnership) and (ii) may not elect to settle any exchange requested by a holder of common units of the Operating Partnership in cash, and may only settle any such exchange through the issuance of shares of common stock or other Units of the Operating Partnership ranking junior to any such units as to which a distribution shortfall exists. Our board of directors has prospectively approved that, to the extent any partners exercise any or all of their exchange rights while the existence of the SCU Distribution Shortfall requires an exchange to be settled through the issuance of shares of common stock or other units of the Operating Partnership, the consideration paid shall be in the form of shares of common stock.
We may change the dividend policy for our common stock in the future.
Even if our board of directors should, in the future, determine based on the factors described in the preceding Risk Factor and in the paragraph below, that we are able to resume paying distributions on the outstanding equity securities of the Company and the Operating Partnership, depending upon our liquidity needs, we will still reserve the right to pay any or all of a dividend in a combination of cash and shares of common stock, to the extent permitted by any applicable revenue procedures of the Internal Revenue Service ("IRS"). In the event that we should pay a portion of any future dividends in shares of our common stock pursuant to such procedures, taxable U.S. stockholders would be required to pay tax on the entire amount of the dividend, including the portion paid in shares of common stock, in which case such stockholders may have to use cash from other sources to pay such tax. If a U.S. stockholder sells any common stock it receives as a dividend in order to pay its taxes, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold federal tax with respect to any future dividends, including any dividends that are paid in common stock. In addition, if a significant number of our stockholders sell shares of our common stock in order to pay taxes owed on any future dividends, such sales would put downward pressure on the market price of our common stock.
The decision to declare and pay dividends on our common stock in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our Board of Directors and will depend on our earnings, taxable income, FFO, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our indebtedness, secured credit facility and preferred stock, the annual distribution requirements under
the REIT provisions of the Internal Revenue Code, Delaware law and such other factors as our Board of Directors deems relevant. Any dividends payable will be determined by our Board of Directors based upon the circumstances at the time of declaration. Any change in our dividend policy could have a material adverse effect on the market price of our common stock.
The recent declines in our common stock price, and the potential for our common stock to be delisted from the NYSE, could have materially adverse effects on our business.
The price of our common stock has declined significantly in recent periods. This reduction in stock price could have materially adverse effects on our business, including reducing our ability to use our common stock as compensation or to otherwise provide incentives to employees and by reducing our ability to generate capital through stock sales or otherwise use our stock as currency with third parties.
The average closing price of our common stock has been less than $1.00 over a consecutive 30 trading-day period, and as a result, our stock could be delisted from the NYSE. The threat of delisting and/or a delisting of our common stock could have adverse effects by, among other things:
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reducing the liquidity and market price of our common stock;
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reducing the number of investors willing to hold or acquire our common stock, thereby further restricting our ability to obtain equity financing;
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causing an event of default or noncompliance under certain of our debt facilities and other agreements; and
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reducing our ability to retain, attract and motivate our directors, officers and employees.
Since we conduct substantially all of our operations through our Operating Partnership, our ability to pay dividends on our common and preferred stock depends on the distributions we receive from our Operating Partnership.
Because we conduct substantially all of our operations through our Operating Partnership, our ability to service our debt obligations, as well as our ability to pay any future dividends on our common and preferred stock will depend almost entirely upon the earnings and cash flows of the Operating Partnership and the ability of the Operating Partnership to make distributions to us on our ownership interests in our Operating Partnership. Under the Delaware Revised Uniform Limited Partnership Act, the Operating Partnership is prohibited from making any distribution to us to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the Operating Partnership (other than some non-recourse liabilities and some liabilities to the partners) exceed the fair value of the assets of the Operating Partnership. Further, as described above, the currently existing dividend arrearage with respect to our outstanding shares of preferred stock (and the underlying preferred units of the Operating Partnership), as well as the Operating Partnership’s existing SCU Distribution Shortfall, effectively preclude the Operating Partnership from resuming any distributions to holders of its common units (including distributions with respect to common units held by the Company, which fund our common stock dividend) until such preferred dividend arrearage and SCU Distribution Shortfall have been satisfied through the cash payment of all accumulated amounts due to the holders of such securities.
Additionally, the terms of our secured credit facility provide generally that distributions the Operating Partnership makes to us and the other partners in the Operating Partnership (i) may not exceed the greater of the amount necessary to maintain our status as a REIT or 95% of FFO, so long as there is no event of default (as defined), (ii) in the event of a default, may be restricted to the minimum amount necessary to maintain our status as a REIT and (iii) in the event of default for nonpayment of amounts due under the facility, the Operating Partnership may be prohibited from making any distributions. This in turn may limit our ability to make some types of payments, including payment of dividends to our stockholders. Any inability to make cash distributions from the Operating Partnership could jeopardize our ability to pay any future dividends to our stockholders for one or more dividend periods which, in turn, could jeopardize our ability to maintain qualification as a REIT.
RISKS RELATED TO GEOGRAPHIC CONCENTRATIONS
Since our Properties are located principally in the southeastern and midwestern United States, our financial position, results of operations and funds available for distribution to shareholders are subject generally to economic conditions in these regions and, in particular, to adverse economic developments affecting the operating results of Properties in our five largest markets.
Our Properties are located principally in the southeastern and midwestern United States. Our Properties located in the southeastern United States accounted for approximately 49.5% of our total revenues from all Properties for the year ended December 31, 2019 and currently include 27 malls, 12 associated centers, 6 community centers and 3 office buildings. Our Properties located in the midwestern United States accounted for approximately 25.5% of our total revenues from all Properties for the year ended December 31, 2019 and currently include 17 malls, 2 associated centers and 2 self-storage facilities. Further, the Properties located in our five largest metropolitan area markets - St. Louis, MO; Chattanooga, TN; Laredo, TX; Lexington, KY; and Madison, WI - accounted for approximately 6.8%, 5.2%, 4.2%, 4.1% and 3.1%, respectively, of our total revenues for the year ended December 31, 2019. No other market accounted for more than 3.0% of our total revenues for the year ended December 31, 2019.
Our results of operations and funds available for distribution to shareholders therefore will be impacted generally by economic conditions in the southeastern and midwestern United States, and particularly by the results experienced at Properties located in our five largest market areas. While we already have Properties located in six states across the southwestern, northeastern and western regions, we will continue to look for opportunities to geographically diversify our portfolio in order to minimize dependency on any particular region; however, the expansion of the portfolio through both acquisitions and developments is contingent on many factors including consumer demand, competition and economic conditions.
RISKS RELATED TO FEDERAL INCOME TAX LAWS
We conduct a portion of our business through taxable REIT subsidiaries, which are subject to certain tax risks.
We have established several taxable REIT subsidiaries including our Management Company. Despite our qualification as a REIT, our taxable REIT subsidiaries must pay income tax on their taxable income. In addition, we must comply with various tests to continue to qualify as a REIT for federal income tax purposes, and our income from and investments in our taxable REIT subsidiaries generally do not constitute permissible income and investments for these tests. While we will attempt to ensure that our dealings with our taxable REIT subsidiaries will not adversely affect our REIT qualification, we cannot provide assurance that we will successfully achieve that result. Furthermore, we may be subject to a 100% penalty tax, or our taxable REIT subsidiaries may be denied deductions, to the extent our dealings with our taxable REIT subsidiaries are not deemed to be arm's length in nature.
If we fail to qualify as a REIT in any taxable year, our funds available for distribution to stockholders will be reduced.
We intend to continue to operate so as to qualify as a REIT under the Internal Revenue Code. Although we believe that we are organized and operate in such a manner, no assurance can be given that we currently qualify and, in the future, will continue to qualify as a REIT. Such qualification involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify. In addition, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to qualification or its corresponding federal income tax consequences. Any such change could have a retroactive effect.
If in any taxable year we were to fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to federal income tax on our taxable income at regular corporate rates. Unless entitled to relief under certain statutory provisions, we also would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. As a result, the funds available for distribution to our stockholders would be reduced for each of the years involved. This would likely have a significant adverse effect on the value of our securities and our ability to raise additional capital. In addition, we would no longer be required to make distributions to our stockholders. We currently intend to operate in a manner designed to qualify as a REIT. However, it is possible that future economic, market, legal, tax or other considerations may cause our Board of Directors, with the consent of a majority of our stockholders, to revoke the REIT election.
Any issuance or transfer of our capital stock to any person in excess of the applicable limits on ownership necessary to maintain our status as a REIT would be deemed void ab initio, and those shares would automatically be transferred to a non-affiliated charitable trust.
To maintain our status as a REIT under the Internal Revenue Code, not more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) at any time during the last half of a taxable year. Our certificate of incorporation generally prohibits ownership of more than 6% of the outstanding shares of our capital stock by any single stockholder determined by vote, value or number of shares (other than Charles Lebovitz, Executive Chairman of our Board of Directors and our former Chief Executive Officer, David Jacobs, Richard Jacobs and their affiliates under the Internal Revenue Code's attribution rules). The affirmative vote of 66 2/3% of our outstanding voting stock is required to amend this provision.
Our Board of Directors may, subject to certain conditions, waive the applicable ownership limit upon receipt of a ruling from the IRS or an opinion of counsel to the effect that such ownership will not jeopardize our status as a REIT. Historically, our Board of Directors has granted such waivers to certain institutional investors based upon the receipt of such opinions from the Company’s tax counsel. In connection with the previously disclosed Standstill Agreement entered into effective November 1, 2019 between the Company, Exeter Capital Investors, L.P., Exeter Capital GP LLC, WEM Exeter LLC, and Michael L. Ashner (collectively, the “Exeter Group”), pursuant to which Michael L. Ashner and Carolyn B. Tiffany also were appointed to the Company’s Board of Directors, the Board (following receipt of an appropriate opinion of tax counsel) approved the granting to the Exeter Group of a similar waiver (the “Exeter Ownership Limitation Waiver”) to enable the Exeter Group to beneficially own up to 9.8% of the Company’s outstanding common stock, subject to the terms of the Exeter Ownership Limitation Waiver. Exeter Capital Investors, L.P. is a single purpose entity controlled by Michael Ashner to acquire common shares in CBL. Absent any such waiver, however, any issuance or transfer of our capital stock to any person in excess of the applicable ownership limit or any issuance or transfer of shares of such stock which would cause us to be beneficially owned by fewer than 100 persons, will be null and void and the intended transferee will acquire no rights to the stock. Instead, such issuance or transfer with respect to that number of shares that would be owned by the transferee in excess of the ownership limit provision would be deemed void ab initio and those shares would automatically be transferred to a trust for the exclusive benefit of a charitable beneficiary to be designated by us, with a trustee designated by us, but who would not be affiliated with us or with the prohibited owner. Any acquisition of our capital stock and continued holding or ownership of our capital stock constitutes, under our certificate of incorporation, a continuous representation of compliance with the applicable ownership limit.
In order to maintain our status as a REIT and avoid the imposition of certain additional taxes under the Internal Revenue Code, we must satisfy minimum requirements for distributions to shareholders, which may limit the amount of cash we might otherwise have been able to retain for use in growing our business.
To maintain our status as a REIT under the Internal Revenue Code, we generally will be required each year to distribute to our stockholders at least 90% of our taxable income after certain adjustments. However, to the extent that we do not distribute all of our net capital gains or distribute at least 90% but less than 100% of our REIT taxable income, as adjusted, we will be subject to tax on the undistributed amount at regular corporate tax rates, as the case may be. Also, our cash flows from operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of income and the payment of expenses and the recognition of income and expenses for federal income tax purposes, or the effect of nondeductible expenditures, such as capital expenditures, payments of compensation for which Section 162(m) of the Code denies a deduction, interest expense deductions limited by Section 163(j) of the Code, the creation of reserves or required debt service or amortization payments. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by us during each calendar year are less than the sum of 85% of our ordinary income for such calendar year, 95% of our capital gain net income for the calendar year and any amount of such income that was not distributed in prior years. In the case of property acquisitions, including our initial formation, where individual Properties are contributed to our Operating Partnership for Operating Partnership units, we have assumed the tax basis and depreciation schedules of the entities contributing Properties. The relatively low tax basis of such contributed Properties may have the effect of increasing the cash amounts we are required to distribute as dividends, thereby potentially limiting the amount of cash we might otherwise have been able to retain for use in growing our business. This low tax basis may also have the effect of reducing or eliminating the portion of distributions made by us that are treated as a non-taxable return of capital.
Complying with REIT requirements might cause us to forego otherwise attractive opportunities.
In order to qualify as a REIT for U.S. federal income tax purposes, we must satisfy tests concerning, among other things, our sources of income, the nature of our assets, the amounts we distribute to our shareholders and the ownership of our stock. We may also be required to make distributions to our shareholders at disadvantageous times or when we do not
have funds readily available for distribution. Thus, compliance with REIT requirements may cause us to forego opportunities we would otherwise pursue. In addition, the REIT provisions of the Internal Revenue Code impose a 100% tax on income from “prohibited transactions.” “Prohibited transactions” generally include sales of assets that constitute inventory or other property held for sale in the ordinary course of business, other than foreclosure property. This 100% tax could impact our desire to sell assets and other investments at otherwise opportune times if we believe such sales could be considered “prohibited transactions.”
Holders of common units and special common units in the Operating Partnership may have income tax liability attributable to their ownership of such units in excess of cash distributions .
It is possible that income taxes payable on taxable income allocated to a holder of common units or special common units in the Operating Partnership will exceed the cash distributions attributable thereto. This may occur because funds received by the Operating Partnership may be taxable income to the Operating Partnership (and thus allocated to holders of Operating Partnership units), while the Operating Partnership may use such funds for nondeductible operating or capital expenses of the Operating Partnership. This also could occur as a result of the voluntary or involuntary sale or other disposition (including a foreclosure sale) of one or more Properties owned by the Operating Partnership or subsidiaries of the Operating Partnership, or the retirement of any of the Operating Partnership’s or its subsidiaries’ debt at a discount. Thus, there may be years in which the tax liability attributable to the allocation of taxable income to holders of the Operating Partnership’s common units or special common units exceeds the cash distributions from the Operating Partnership attributable to such units. This is particularly true at the present time, as the Operating Partnership currently has suspended all distributions on its common units and special common units until further notice. In such a case, holders of such units would be required to fund (from other sources of funds) any resulting income tax liability on such taxable income allocations in excess of distributions from the Operating Partnership to the holders of such units. Allocations of income or loss to holders of the Operating Partnership’s common units or special common units continue while such holder owns such Operating Partnership units. If a holder of units exercises its right to exchange its Operating Partnership common units or special common units to Company stock (or the cash equivalent thereof, at the Company’s election), gain or loss may be triggered to such exercising holder on such exchange transaction, but such holder will not be allocated taxable income or loss attributable to such units with respect to any time period after the closing of such exchange except as otherwise required under the applicable tax rules.
Partnership tax audit rules could have a material adverse effect on us.
The Bipartisan Budget Act of 2015 changed the rules applicable to U.S. federal income tax audits of partnerships. Under the rules, among other changes and subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and any partner's distributive share thereof) is determined, and taxes, interest, or penalties attributable thereto could be assessed and collected, at the partnership level. Absent available elections, it is possible that a partnership in which we directly or indirectly invest, could be required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a direct or indirect partner of these partnerships, could be required to bear the economic burden of those taxes, interest, and penalties even though we may not otherwise have been required to pay additional taxes had we owned the assets of the partnership directly. The partnership tax audit rules apply to the Operating Partnership and its subsidiaries that are classified as partnerships for U.S. federal income tax purposes. The changes created by these rules are sweeping and, accordingly, there can be no assurance that these rules will not have a material adverse effect on us.
Recent legislation substantially modified the taxation of REITs and their shareholders, and the effects of such legislation and related regulatory action are uncertain.
As a result of all of the changes to U.S. federal tax laws implemented by the December 2017 Tax Cuts and Jobs Act (the “TCJA”), our taxable income and the amount of distributions to our stockholders required under the law to maintain our REIT status, and our relative tax advantage as a REIT, may significantly change. The long-term impact of the TCJA on the overall economy, government revenues, our tenants, CBL, and the rest of the real estate industry cannot be reliably predicted at this early stage of the new law’s implementation. The TCJA is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury Department and IRS, any of which could lessen or increase the impact of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. Furthermore, the TCJA may negatively impact certain of our tenants’ operating results, financial condition and future business plans. There can be no assurance that the TCJA will not negatively impact our operating results, financial condition and future business operations.
Future changes to tax laws may adversely affect us either directly through changes to the taxation of the Company, our subsidiaries or our stockholders or indirectly through changes which adversely affect our tenants. These changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. Not all states automatically conform to changes in the Internal Revenue Code. Some states use the legislative process to decide whether it is in their best interest to conform or not to various provisions of the Internal Revenue Code. This could increase the complexity of our efforts, increase compliance costs, and may subject us to additional taxes and audit risk.
RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE
The ownership limit described above, as well as certain provisions in our amended and restated certificate of incorporation, amended and restated bylaws, and certain provisions of Delaware law, may hinder any attempt to acquire us.
There are certain provisions of Delaware law, our amended and restated certificate of incorporation, our Third Amended and Restated Bylaws (the "Bylaws"), and other agreements to which we are a party that may have the effect of delaying, deferring or preventing a third party from making an acquisition proposal for us. These provisions may also inhibit a change in control that some, or a majority, of our stockholders might believe to be in their best interest or that could give our stockholders the opportunity to realize a premium over the then-prevailing market prices for their shares. These provisions and agreements are summarized as follows:
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The Ownership Limit - As described above, to maintain our status as a REIT under the Internal Revenue Code, not more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year. Our amended and restated certificate of incorporation generally prohibits ownership of more than 6% of the outstanding shares of our capital stock by any single stockholder determined by value (other than Charles Lebovitz, David Jacobs, Richard Jacobs and their affiliates under the Internal Revenue Code's attribution rules), subject to the ability of the Board of Directors to grant waivers in appropriate circumstances, such as the Exeter Ownership Limitation Waiver. In addition to preserving our status as a REIT, the ownership limit may have the effect of precluding an acquisition of control of us without the approval of our Board of Directors.
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Supermajority Vote Required for Removal of Directors - Our governing documents provide that stockholders can remove directors with or without cause, but only by a vote of 75% of the outstanding voting stock. This provision makes it more difficult to change the composition of our Board of Directors and may have the effect of encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our Board of Directors rather than pursue non-negotiated takeover attempts.
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Advance Notice Requirements for Stockholder Proposals - Our Bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures generally require advance written notice of any such proposals, containing prescribed information, to be given to our Secretary at our principal executive offices not less than 90 days nor more than 120 days prior to the anniversary date of the prior year’s annual meeting. Alternatively, a stockholder (or group of stockholders) seeking to nominate candidates for election as directors pursuant to the proxy access provisions set forth in Section 2.8 of our Bylaws generally must provide advance written notice to our Secretary, containing information prescribed in the proxy access bylaw, not less than 120 days nor more than 150 days prior to the anniversary date of the prior year’s annual meeting.
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Vote Required to Amend Bylaws - A vote of 66 2 / 3 % of our outstanding voting stock (in addition to any separate approval that may be required by the holders of any particular class of stock) is necessary for stockholders to amend our Bylaws.
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Delaware Anti-Takeover Statute - We are a Delaware corporation and are subject to Section 203 of the Delaware General Corporation Law. In general, Section 203 prevents an “interested stockholder” (defined generally as a person owning 15% or more of a company's outstanding voting stock) from engaging in a “business combination” (as defined in Section 203) with us for three years following the date that person becomes an interested stockholder unless:
(a)
before that person became an interested holder, our Board of Directors approved the transaction in which the interested holder became an interested stockholder or approved the business combination;
(b)
upon completion of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owns 85% of our voting stock outstanding at the time the transaction commenced (excluding stock held by directors who are also officers and by employee stock plans that do
not provide employees with the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or
(c)
following the transaction in which that person became an interested stockholder, the business combination is approved by our Board of Directors and authorized at a meeting of stockholders by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock not owned by the interested stockholder. Under Section 203, these restrictions also do not apply to certain business combinations proposed by an interested stockholder following the announcement or notification of certain extraordinary transactions involving us and a person who was not an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of our directors, if that extraordinary transaction is approved or not opposed by a majority of the directors who were directors before any person became an interested stockholder in the previous three years or who were recommended for election or elected to succeed such directors by a majority of directors then in office.
Certain ownership interests held by members of our senior management may tend to create conflicts of interest between such individuals and the interests of the Company and our Operating Partnership.
•
Tax Consequences of the Sale or Refinancing of Certain Properties - Since certain of our Properties had unrealized gain attributable to the difference between the fair market value and adjusted tax basis in such Properties immediately prior to their contribution to the Operating Partnership, a taxable sale of any such Properties, or a significant reduction in the debt encumbering such Properties, could cause adverse tax consequences to the members of our senior management who owned interests in our predecessor entities. As a result, members of our senior management might not favor a sale of a Property or a significant reduction in debt even though such a sale or reduction could be beneficial to us and the Operating Partnership. Our Bylaws provide that any decision relating to the potential sale of any Property that would result in a disproportionately higher taxable income for members of our senior management than for us and our stockholders, or that would result in a significant reduction in such Property's debt, must be made by a majority of the independent directors of the Board of Directors. The Operating Partnership is required, in the case of such a sale, to distribute to its partners, at a minimum, all of the net cash proceeds from such sale up to an amount reasonably believed necessary to enable members of our senior management to pay any income tax liability arising from such sale.
•
Interests in Other Entities; Policies of the Board of Directors - Certain Property tenants are affiliated with members of our senior management. Our Bylaws provide that any contract or transaction between us or the Operating Partnership and one or more of our directors or officers, or between us or the Operating Partnership and any other entity in which one or more of our directors or officers are directors or officers or have a financial interest, must be approved by our disinterested directors or stockholders after the material facts of the relationship or interest of the contract or transaction are disclosed or are known to them. Our code of business conduct and ethics also contains provisions governing the approval of certain transactions involving the Company and employees (or immediate family members of employees, as defined therein) that are not subject to the provision of the Bylaws described above. Such transactions are also subject to the Company's related party transactions policy in the manner and to the extent detailed in the proxy statement filed with the SEC for the Company's 2019 annual meeting. Nevertheless, these affiliations could create conflicts between the interests of these members of senior management and the interests of the Company, our shareholders and the Operating Partnership in relation to any transactions between us and any of these entities.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7
for additional information pertaining to the Properties’ performance.
Malls
We owned a controlling interest in 53 Malls and non-controlling interests in 10 Malls as of December 31, 2019. The Malls are primarily located in middle markets and generally have strong competitive positions because they are the only, or the dominant, regional mall in their respective trade areas. The Malls are generally anchored by two or more anchors or junior anchors and a wide variety of mall stores. Anchor and junior anchor tenants own or lease their stores and non-anchor stores lease their locations.
We classify our regional Malls into three categories:
(1)
Stabilized Malls - Malls that have completed their initial lease-up and have been open for more than three complete calendar years.
(2)
Non-stabilized Malls - Malls that are in their initial lease-up phase. After three complete calendar years of operation, they are reclassified on January 1 of the fourth calendar year to the Stabilized Mall category. The Outlet Shoppes at Laredo was classified as a Non-stabilized Mall as of December 31, 2019 and 2018.
(3)
Excluded Malls - We exclude Malls from our core portfolio if they fall in the following categories, for which operational metrics are excluded:
a.
Lender Malls - Properties for which we are working or intend to work with the lender on a restructure of the terms of the loan secured by the Property or convey the secured Property to the lender. Hickory Point Mall and Greenbrier Mall were classified as Lender Malls as of December 31, 2019. Acadiana Mall, Cary Towne Center and Triangle Town Center were classified as Lender Malls as of December 31, 2018. In January 2019, Acadiana Mall was returned to the lender and Cary Towne Center was sold. In July 2019, Triangle Town Center was returned to the lender. Lender Malls are excluded from our same-center pool as decisions made while in discussions with the lender may lead to metrics that do not provide relevant information related to the condition of these Properties or they may be under cash management agreements with the respective servicers.
b.
Repositioning Malls - Malls that are currently being repositioned or where we have determined that the current format of the Property no longer represents the best use of the Property and we are in the process of evaluating alternative strategies for the Property. This may include major redevelopment or an alternative retail or non-retail format, or after evaluating alternative strategies for the Property, we may determine that the Property no longer meets our criteria for long-term investment. The steps taken to reposition these Properties, such as signing tenants to short-term leases, which are not included in occupancy percentages, or leasing to regional or local tenants, which typically do not report sales, may lead to metrics which do not provide relevant information related to the condition of these Properties. Therefore, traditional performance measures, such as occupancy percentages and leasing metrics, exclude Repositioning Malls. Hickory Point Mall was classified as a Repositioning Mall as of December 31, 2018 until its reclassification as a Lender Mall in 2019.
We own the land underlying each Mall in fee simple interest, except for Brookfield Square, Cross Creek Mall, Dakota Square Mall, EastGate Mall, Meridian Mall, St. Clair Square, Stroud Mall and WestGate Mall. We lease all or a portion of the land at each of these Malls subject to long-term ground leases.
The following table sets forth certain information for each of the Malls as of December 31, 2019 (dollars in thousands except for sales per square foot amounts):
* Non-stabilized Mall - Mall Store Sales per Square Foot metrics are excluded from Mall Store Sales per Square Foot totals by tier and Mall portfolio totals. The Outlet Shoppes at Laredo is a non-stabilized Mall.
(1)
Total center square footage includes square footage of attached shops, immediately adjacent Anchor and Junior Anchor locations and leased immediately adjacent freestanding locations immediately adjacent to the center.
(2)
Excludes tenants 20,000 square feet and over.
(3)
Totals represent weighted averages.
(4)
Includes tenants under 20,000 square feet with leases in effect as of December 31, 2019.
(5)
Anchors and Junior Anchors listed are immediately adjacent to the Malls or are in freestanding locations immediately adjacent to the Malls.
(6)
This Property is owned in an unconsolidated joint venture.
(7)
Coastal Grand Mall - Dick’s Sporting Goods will relocate to a new building near Dillard’s, which will include the addition of Golf Galaxy. Flip N Fly will then open a 53,000-square-foot family entertainment venue in the former Dick’s Sporting Goods location. Construction on the new Dick’s Sporting Goods/Golf Galaxy store will begin in early 2020.
( )
Cross Creek Mall - Redevelopment plans for this space include Dave & Buster’s, a to-be announced box user and restaurants. Construction is expected to start in 2020.
( )
Hamilton Place - Redevelopment plans for the former Sears space include Dave & Buster's, Dick's Sporting Goods, a hotel and offices. Construction is ongoing and expected to open in spring 2020.
(10)
Hanes Mall - The former Sears was purchased in 2019 by Novant Health, which has indicated plans to redevelop this space for future medical office with the construction start and opening to be determined.
(11)
Imperial Valley Mall - Hobby Lobby is executed in the former Sears space, with the construction start and opening to be determined.
( )
Mall del Norte - Main Event is scheduled to open in 2020 in a portion of the former Forever 21 space.
(1 )
Richland Mall - Dillard’s is expected to relocate into the former Sears space in 2020.
(1 )
St. Clair Square - We are the lessee under a ground lease for 20 acres. Assuming the exercise of available renewal options, at our election, the ground lease expires January 31, 2073. The rental amount is $41 per year. In addition to base rent, the landlord receives 0.25% of Dillard's sales in excess of $16,200.
(1 )
EastGate Mall - Ground rent for the Dillard's parcel that extends through January 2022 is $24 per year.
(16)
Kirkwood Mall - The former Herberger’s space will be partially demolished in 2020 for the addition of restaurants.
(1 )
Pearland Town Center is a mixed-use center which combines retail, office and residential components. For segment reporting purposes, the retail portion of the center is classified in Malls and the office and residential portions are classified as All Other.
(1 )
Post Oak Mall - Redevelopment plans for the former Sears location include the addition of Conn’s HomePlus, which is expected to open in 2020.
(1 )
South County Center - Redevelopment plan s for the former Sears include the addition of Round1 Bowling & Entertainment . Construction schedule is yet to be determined.
( )
West Towne Mall - Von Maur is expected to open in 2021 in the former Boston Store space.
( )
WestGate Mall - We are the lessee under several ground leases for approximately 53% of the underlying land. Assuming the exercise of renewal options available, at our election, the ground lease expires October 2044. The rental amount is $130 per year. In addition to base rent, the landlord receives 20% of the percentage rents collected. We have a right of first refusal to purchase the fee interest.
( )
Westmoreland Mall - Construction for a new Stadium Casino began in 2019 in the former Bon-Ton space with the opening scheduled for 2020.
( )
York Galleria - Construction for a new Hollywood Casino began in 2019 in the former Sears space with the opening scheduled for 2020
( )
Brookfield Square - The annual ground rent for 2019 was $208.
(2 )
CherryVale Mall - Tilt Studio is under construction in the former Sears space and is expected to open in 2020.
(2 )
Meridian Mall - We are the lessee under several ground leases in effect through March 2067, with extension options. Fixed rent is $19 per year plus 3% to 4% of all rent.
(2 )
Stroud Mall - We are the lessee under a ground lease, which extends through July 2089. The current rental amount is $70 per year, increasing by $10 every ten years through 2045. An additional $100 is paid every ten years.
(2 )
Stroud Mall - Redevelopment plans for the former Sears includes EFO Furniture Outlet, which is expected to open in February 2020.
(2 )
Operational metrics are not reported for Excluded Malls.
Mall Stores
The Malls have approximately 5,255 Mall stores. National and regional retail chains (excluding local franchises) lease approximately 79.1% of the occupied Mall store GLA. Although Mall stores occupy only 34.4% of the total Mall GLA (the remaining 65.6% is occupied by Anchors and Junior Anchors and a small percentage is vacant), the Malls received 82.8% of their total revenues from Mall stores for the year ended December 31, 2019.
Mall Lease Expirations
The following table summarizes the scheduled lease expirations for mall stores as of December 31, 2019:
(1)
Total annualized gross rent, including recoverable common area expenses and real estate taxes, in effect at December 31, 2019 for expiring leases that were executed as of December 31, 2019.
(2)
Total annualized gross rent, including recoverable CAM expenses and real estate taxes, of expiring leases as a percentage of the total annualized gross rent of all leases that were executed as of December 31, 2019.
(3)
Total GLA of expiring leases as a percentage of the total GLA of all leases that were executed as of December 31, 2019.
See page
for a comparison between rents on leases that expired in the current reporting period compared to rents on new and renewal leases executed in 2019. For comparable spaces under 10,000-square-feet in the stabilized mall portfolio, we leased approximately 1.9 million square feet with stabilized mall leasing spreads averaging a decline of 8.6%, including a 9.1% increase in average gross rent per square foot for new leases compared with the prior rent and renewal spreads declining an average of 11.5%.
Mall Tenant Occupancy Costs
Occupancy cost is a tenant’s total cost of occupying its space, divided by its sales. Mall store sales represent total sales amounts received from reporting tenants with space of less than 10,000 square feet.
The following table summarizes tenant occupancy costs as a percentage of total Mall store sales, excluding license agreements, for each of the past three years:
(1)
In certain cases, we own less than a 100% interest in the Malls. The information in this table is based on 100% of the applicable amounts and has not been adjusted for our ownership share.
Debt on Malls
Please see the table entitled “Mortgage Loans Outstanding at December 31, 2019”
included herein for information regarding any liens or encumbrances related to our Malls.
Other Property Types
Other property types include the following three categories:
(1)
Associated Centers - 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 T.J. Maxx, Michaels, Target and Kohl’s. Associated Centers are located adjacent to one of our Mall properties and are managed by the staff at the Mall.
(2)
Community Centers - Designed to attract local and regional area customers and are typically anchored by a combination of supermarkets, or value-priced stores that attract shoppers to each center’s small shops. The tenants at our Community Centers typically offer necessities, value-oriented and convenience merchandise.
(3)
Office Buildings and Other
See Note 1
to the consolidated financial statements for additional information on the number of consolidated and unconsolidated Properties in each of the above categories related to our other property types. The following tables set forth certain information for each of our other property types at December 31, 2019:
(1)
Total center square footage includes square footage of attached shops, attached and immediately adjacent Anchors and Junior Anchors and leased immediately adjacent freestanding locations.
(2)
All leasable square footage, including Anchors and Junior Anchors.
(3)
Includes all leased Anchors, Junior Anchors and tenants with leases in effect as of December 31, 2019.
(4)
This Property is owned in an unconsolidated joint venture.
(5)
Owned by the tenant.
(6)
We own a 92% interest in the CBL Center office buildings, with an aggregate square footage of approximately 205,000 square feet, where our corporate headquarters is located. As of December 31, 2019, we occupied 45.3% of the total square footage of the buildings.
(7)
Owned by a third party.
Other Property Types Lease Expirations
The following table summarizes the scheduled lease expirations for tenants in occupancy at Other Property Types as of December 31, 2019:
(1)
Total annualized gross rent, including recoverable common area expenses and real estate taxes, in effect at December 31, 2019 for expiring leases that were executed as of December 31, 2019.
(2)
Total annualized gross rent, including recoverable CAM expenses and real estate taxes, of expiring leases as a percentage of the total annualized gross rent of all leases that were executed as of December 31, 2019.
(3)
Total GLA of expiring leases as a percentage of the total GLA of all leases that were executed as of December 31, 2019.
Debt on Other Property Types
Please see the table entitled “Mortgage Loans Outstanding at December 31, 2019”
included herein for information regarding any liens or encumbrances related to our Other Property Types.
Anchors and Junior Anchors
Anchors and Junior Anchors are an important factor in a Property’s successful performance. However, we believe that the number of traditional department store anchors will decline over time, providing us the opportunity to redevelop these spaces to attract new uses such as restaurants, entertainment, fitness centers, casinos, grocery stores and lifestyle retailers that engage consumers and encourage them to spend more time at our Properties. Anchors are generally a department store or, increasingly, other large format retailers, 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 Property's tenants.
Anchors and Junior Anchors may own their stores and the land underneath, as well as 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 non-anchor tenants. Total rental revenues from Anchors and Junior Anchors accounted for 1 7. % of the total revenues from our Properties in 201 . Each Anchor and Junior Anchor that owns its store has entered into an operating and reciprocal easement agreement with us covering items such as operating covenants, reciprocal easements, property operations, initial construction and future expansion.
During 2019, the following Anchors and Junior Anchors were added to our Properties, as listed below:
As of December 31, 201 , the Properties had a total of Anchors and Junior Anchors, including vacant Anchor and Junior Anchor locations, and excluding Anchors and Junior Anchors at our Excluded Malls. The Anchors and Junior Anchors and the amount of GLA leased or owned by each as of December 31, 201 is as follows:
(1)
The following Anchors/Junior Anchors are owned by third parties: the former The Bon-Ton at York Galleria, Boscov’s at York Galleria, the former Boston Store at Brookfield Square, the former Boston Store at East Towne Mall, the former Boston Store at West Towne Mall, Dillard’s for Women at Richland Mall, HomeGoods at Hamilton Crossing, Jax Outdoor Gear at Frontier Mall, JC Penney at Frontier Mall, the former JC Penney at Northgate Mall, the former Kmart at Sunrise Commons, Michaels at Hamilton Crossing, Michaels at Westmoreland Crossing, OfficeMax at West Towne Crossing, Ross Dress for Less at Frontier Square, Sportsman’s Warehouse at Southaven Towne Center, the former Stein Mart at West Towne Crossing, T.J. Maxx at Frontier Square, T.J. Maxx at Westmoreland Crossing, the former Toys “R” Us at Hamilton Crossing, the former Toys “R” Us at The Landing at Arbor Place, Von Maur at West Towne Mall and Whole Foods at Friendly Center.
(2)
The following are owned by Seritage Growth Properties: Burlington at Kentucky Oaks Mall, Burlington at Northwoods Mall, Dave & Buster’s at West Towne Mall, Ross Dress for Less at Kentucky Oaks Mall, the former Sears at Asheville Mall, the former Sears at Burnsville Center, the former Sears at Imperial Valley Mall and Total Wine and More at West Towne Mall.
(3)
The upper floor of Belk for Men at Hamilton Place Mall was formerly subleased by Belk to Forever 21 and is now vacant.
(4)
A lease is out-for-signature with a new user that is expected to open in 2020.
( )
The former Herberger’s at Kirkwood Mall will be partially demolished in 2020 for the addition of restaurants.
( )
The former Sears at Richland Mall is owned by Dillard’s.
( )
The former Sears at Hanes Mall is owned by Novant Health, Inc.
( )
The former Sears at Hamilton Place is being redeveloped into a Dave & Buster’s and Dick's Sporting Goods. The remainder remains vacant.
( )
The former Sears at South County Center is being redeveloped into a Round 1 Bowling & Entertainment.
( )
Hollywood Casino has an executed lease for the lower level of the former Sears at York Galleria. The upper level remains vacant.
( )
The former Sears at Cross Creek Mall will be demolished and replaced with Dave & Buster's and a to-be announced box user.
( )
Stadium Casino has an executed lease to fill the former Bon-Ton space at Westmoreland Mall.
( )
A portion of the Forever 21 at Mall del Norte is being redeveloped into Main Event. The remainder will still be Forever 21.
( )
The former Sears at Cherryvale Mall is being redeveloped into Tilt Studio.
(1 )
Von Maur is opening in 2020 in the former Boston Store at West Towne Mall.
(1 )
EFO Furniture Outlet will open in the former Sears space at Stroud Mall in February 2020.
Mortgages Notes Receivable
We own four mortgages, each of which is collateralized by either a first mortgage, a second mortgage or by assignment of 100% of the ownership interests in the underlying real estate and related improvements. The mortgages are more fully described on Schedule IV in Part IV of this report.
Mortgage Loans Outstanding at
December 31, 2019
(in thousands):
(1)
The amount listed includes 100% of the loan amount even though the Operating Partnership may have less than a 100% ownership interest in the Property.
(2)
Assumes extension option will be exercised, if applicable.
(3)
Prepayment premium is based on yield maintenance or defeasance.
(4)
Greenbrier Mall - The loan secured by this mall is in default as of December 31, 2019.
(5)
Hickory Point Mall - The loan secured by this mall is in default as of December 31, 2019.
(6)
The interest rate is variable at various spreads over LIBOR priced at the rates in effect at December 31, 2019. The note is prepayable at any time without prepayment penalty.
(7)
The Outlet Shoppes at Laredo - The interest rate will be reduced to LIBOR plus 2.25% once certain debt and operational metrics are met. The Operating Partnership owns less than 100% of the Property but guarantees 100% of the debt.
(8)
CBL Center consists of our two corporate office buildings.
(9)
Property type is an associated center.
(10)
Brookfield Square Anchor Redevelopment - The $29,400 construction loan closed in October 2018 to fund the redevelopment of a former Sears location at Brookfield Square. The loan is interest only at a variable rate of LIBOR plus 2.90%. The loan matures October 2021, and has a one-year extension option, at our election, which is contingent on meeting specific debt and operational metrics.
(11)
Secured credit facility - As of December 31, 2019, the variable interest rate is LIBOR plus 2.25%.
(12)
Represents bond discounts.
(13)
The Outlet Shoppes at Atlanta (Phase II) - the interest rate will be reduced to a spread of LIBOR plus 2.35% once certain debt and operational metrics are met.
(14)
The Operating Partnership owns less than 100% of the Property but guarantees 100% of the debt.
(15)
Property type is a community center.
(16)
Ambassador Town Center - The unconsolidated affiliate has an interest rate swap on a notional amount of $43,623, amortizing to $38,866 over the term of the swap, to effectively fix the interest rate on the variable-rate loan. Therefore, this amount is currently reflected as having a fixed rate. The swap terminates in June 2023.
(17)
Ambassador Town Center Infrastructure Improvements - The loan requires an annual principal payment of $690 in 2020. The joint venture has an interest rate swap on a notional amount of $10,050, amortizing to $9,360 over the term of the swap, to effectively fix the interest rate on the variable rate loan. Therefore, this amount is currently reflected as having a fixed rate. The swap terminates in August 2020. The Operating Partnership owns less than 100% of the Property but guarantees 100% of the debt.
(18)
Property type is Other.
(19)
EastGate Mall - Self-Storage Development - The loan is interest-only through November 2020. Thereafter, monthly payments of $10, in addition to interest, will be due. The interest rate will be reduced to a variable rate of LIBOR plus 2.35% once construction is complete and certain debt and operational metrics are met.
(20)
Mid Rivers Mall - Self-Storage Development - The $5,987 construction loan is interest only through May 2021.
(21)
Parkdale Mall - Self Storage Development - The $6,500 construction loan bears interest at the greater of 5.25% or LIBOR plus 2.80%.
(22)
Represents the Company's pro rata share of debt, including our share of unconsolidated affiliates' debt and excluding noncontrolling interests' share of consolidated debt on shopping center properties.
The following is a reconciliation of consolidated debt to our pro rata share of total debt, including unamortized deferred financing costs (in thousands):
Other than our property-specific mortgage or construction loans, there are no material liens or encumbrances on our Properties. See Note 7
and
Note 8
to the consolidated financial statements for additional information regarding property-specific indebtedness and construction loans.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Litigation
In April 2019, the Company entered into a settlement agreement and release with respect to the class action lawsuit filed on March 16, 2016 in the United States District Court for the Middle District of Florida by Wave Lengths Hair Salons of Florida, Inc. d/b/a Salon Adrian. The settlement agreement stated that the Company had to set aside a common fund with a monetary and non-monetary value of $90.0 million to be disbursed to class members in accordance with an agreed-upon formula that is based upon aggregate damages of $60.0 million. The Court granted final approval to the proposed settlement on August 22, 2019. Class members are comprised of past and current tenants at certain of the Company's shopping centers that it owns or formerly owned during the class period, which extended from January 1, 2011 through the date of preliminary court approval. Class members who are past tenants and made a claim pursuant to the Court's order will receive payment of their claims in cash. Class members who are current tenants will receive monthly credits against rents and future charges, beginning no earlier than January 1, 2020 and continuing for the following five years. Any amounts under the settlement allocated to tenants with outstanding amounts payable to the Company, including tenants which have declared bankruptcy or declare bankruptcy over the relevant period, will first be deducted from the amounts owed to the Company. All attorney’s fees and associated costs to be paid to class counsel (up to a maximum of $28.0 million), any incentive award to the class representative (up to a maximum of $50,000), and class administration costs (which are expected to not exceed $100,000), have or will be funded by the common fund, which has been approved by the Court. Under the terms of the settlement agreement, the Company did not pay any dividends to holders of its common shares payable in the third and fourth quarters of 2019. The settlement agreement does not restrict the Company's ability to declare dividends payable in 2020 or in subsequent years. The Company recorded an accrued liability and corresponding litigation settlement expense of $88.2 million in the three months ended March 31, 2019 related to the settlement agreement. The Company reduced the accrued liability by $26.4 million, a majority of which was related to past tenants that did not submit a claim pursuant to the terms of the settlement agreement with the remainder relating to tenants that either opted out of the lawsuit or waived their rights to their respective settlement amounts. The Company also reduced the accrued liability $23.1 million related to attorney and administrative fees that were paid pursuant to the settlement agreement (see Note 15
). The Company received document requests in the third quarter, in the form of subpoenas, from the Securities and Exchange Commission and the Department of Justice regarding the Wave Lengths Hair Salons of Florida, Inc. litigation and other related matters. The Company is continuing to cooperate in these matters.
Securities Litigation
The Company and certain of its officers and directors have been named as defendants in three putative securities class action lawsuits (collectively, the “Securities Class Action Litigation”), each filed in the United States District Court for the Eastern District of Tennessee, on behalf of all persons who purchased or otherwise acquired the Company’s securities during a specified period of time. The first such lawsuit, captioned Paskowitz v. CBL & Associates Properties, Inc., et al. , 1:19-cv-00149-JRG-CHS, was filed on May 17, 2019, and asserts claims on behalf of persons or entities that purchased CBL securities between November 8, 2017 and March 26, 2019, inclusive. The second such lawsuit, captioned Williams v. CBL & Associates Properties, Inc., et al. , 1:19-cv-00181, was filed on June 21, 2019, and asserts claims on behalf of persons or entities that purchased CBL securities between April 29, 2016 and March 26, 2019, inclusive. The third such lawsuit, captioned Merelles v. CBL & Associates Properties, Inc., et al. , 1:19-CV-00193, was filed on July 2, 2019, and asserts claims on behalf of persons or entities that purchased CBL securities between July 29, 2014 and March 26, 2019. The Court consolidated these cases on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Securities Litigation , 1:19-cv-00149-JRG-CHS. After plaintiff Laurence Paskowitz voluntarily dismissed his case on July 25, 2019, the Court re-consolidated the two remaining cases under the caption In re CBL & Associates Properties, Inc. Securities Litigation , 1:19-cv-00181-JRG-CHS, on August 2, 2019. On September 26, 2019, the Merelles complaint was voluntarily dismissed.
The complaints filed in the Securities Class Action Litigation allege violations of the securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions regarding the Company’s contingent liabilities, business, operations, and prospects during the periods of time specified above. The plaintiffs seek compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the amount of damages sought. The outcome of these legal proceedings cannot be predicted with certainty.
Certain of the Company’s current and former directors and officers have been named as defendants in eight shareholder derivative lawsuits (collectively, the “Derivative Litigation”). On June 4, 2019, a shareholder filed a putative derivative complaint captioned Robert Garfield v. Stephen D. Lebovitz et al. , 1:19-cv-01038-LPS, in the United States District Court for the District of Delaware (the “ Garfield Derivative Action”), purportedly on behalf of the Company against certain of its officers and directors. On June 24, 2019, September 5, 2019 and September 25, 2019, respectively, other shareholders filed three additional putative derivative complaints, each in the United States District Court for the District of Delaware, captioned as follows: Robert Cohen v. Stephen D. Lebovitz et al. , 1:19-cv-01185-LPS (the “ Cohen Derivative Action”); Travis Lore v. Stephen D. Lebovitz et al. , 1:19-cv-01665-LPS (the “ Lore Derivative Action”), and City of Gainesville Cons. Police Officers’ and Firefighters Retirement Plan v. Stephen D. Lebovitz et al. , 1:19-cv-01800 (the “ Gainesville Derivative Action”), each asserting substantially similar claims purportedly on behalf of the Company against similar defendants. The Court consolidated the Garfield Derivative Action and the Cohen Derivative Action on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Derivative Litigation , 1:19-cv-01038-LPS (the " Consolidated Derivative Action"). On July 25, 2019, the Court stayed proceedings in the Consolidated Derivative Action pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation. On October 14, 2019, the parties to the Gainesville Derivative Action and the Lore Derivative Action filed a joint stipulation and proposed order confirming that each of those cases is subject to the consolidation order previously entered by the Court in the Consolidated Derivative Action and that further proceedings in those cases are stayed pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation. On July 22, 2019, a shareholder filed a putative derivative complaint captioned Shebitz v. Lebovitz et al. , 1:19-cv-00213, in the United States District Court for the Eastern District of Tennessee (the “ Shebitz Derivative Action”); on January 10, 2020, a shareholder filed a putative derivative complaint captioned Chatman v. Lebovitz, et al., 2020-0011-JTL, in the Delaware Chancery Court (the “Chatman Derivative Action”); on February 12, 2020, a shareholder filed a putative derivative complaint captioned Kurup v. Lebovitz, et al., 2020-0070-JTL, in the Delaware Chancery Court (the “ Kurup Derivative Action”); and on February 26, 2020, a shareholder filed a putative derivative complaint captioned Kemmer v. Lebovitz, et al., 1:20-cv-00052, in the United States District Court for the Eastern District of Tennessee (the “ Kemmer Derivative Action”), each asserting substantially similar claims purportedly on behalf of the Company against similar defendants. On October 7, 2019, the Court stayed the Shebitz Derivative Action, pending resolution of an eventual motion to dismiss in the related Securities Class Action Litigation; the Company anticipates the Chatman, Kurup, and Kemmer Derivative Actions to be stayed as well.
The complaints filed in the Derivative Litigation allege, among other things, breaches of fiduciary duties, unjust enrichment, waste of corporate assets, and violations of the federal securities laws. The factual allegations upon which these claims are based are similar to the factual allegations made in the Securities Class Action Litigation, described above. The complaints filed in the Derivative Litigation seek, among other things, unspecified damages and restitution for the Company from the individual defendants, the payment of costs and attorneys’ fees, and that the Company be directed to reform certain governance and internal procedures. The outcome of these legal proceedings cannot be predicted with certainty.
The Company's insurance carriers have been placed on notice of these matters.
We are currently involved in certain other litigation that arises in the ordinary course of business, most of which is expected to be covered by liability insurance. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on our liquidity, results of operations, business or financial condition.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common stock of CBL & Associates Properties, Inc. is traded on the New York Stock Exchange. The stock symbol is “CBL”. There were approximately 797 shareholders of record for our common stock as of February 28, 2020.
During 2019, our board of directors suspended all future dividends with respect to the Company’s outstanding common stock and preferred stock, as well as distributions with respect to the Operating Partnership’s outstanding units of partnership interest, subject to quarterly review. Future dividend distributions are subject to our actual results of operations, taxable income, economic conditions, issuances of common stock and such other factors as our board of directors deems relevant. For additional information, see discussion presented under the subheading “Dividends - CBL” in Note 9
of this report. Our actual results of operations will be affected by a number of factors, including the revenues received from the Properties, our operating expenses, interest expense, unanticipated capital expenditures and the ability of the Anchors and tenants at the Properties to meet their obligations for payment of rents and tenant reimbursements.
See Part III
,
Item 12
contained herein for information regarding securities authorized for issuance under equity compensation plans. The following table presents information with respect to repurchases of common stock made by us during the three months ended December 31, 2019:
(1)
Represents shares surrendered to the Company by employees to satisfy federal and state income tax requirements related to the vesting of shares of restricted stock.
(2)
Represents the market value of the common stock on the vesting date for the shares of restricted stock, which was used to determine the number of shares required to be surrendered to satisfy income tax withholding requirements.
Operating Partnership Units
There is no established public trading market for the Operating Partnership’s common units. On February 28, 2020, the Operating Partnership had 26,073,966 common units outstanding (comprised of 3,269,446 special common units and 22,804,520 common units) held by 65 holders of record, excluding the 175,633,044 common units held by the Company.
During the three months ended December 31, 2019, the Operating Partnership canceled the 187 common units underlying the 187 shares of common stock that were surrendered for tax obligations in conjunction with the surrender to the Company of such shares, as described above. During 2019, the Operating Partnership elected to pay less than $0.1 million in cash, at a cost of $1.316 per unit, to a holder of 72,592 common units of limited partnership interest in the Operating Partnership upon the exercise of the holder's conversion rights.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA (C BL & Associates Properties, Inc.)
(In thousands, except per share data)
(1)
Please refer to
Notes 5
,
and
to the consolidated financial statements for a description of acquisitions, joint venture transactions and impairment charges that have impacted the comparability of the financial information presented.
(1)
Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations for the definition of FFO, which does not represent cash flows from operations as defined by accounting principles generally accepted in the United States of America ("GAAP") and is not necessarily indicative of the cash available to fund all cash requirements. A reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders is presented on page
.
ITEM 6. SELECTED FINANCIAL DATA (CBL & Associates Limited Partnership)
(In thousands, except per unit data)
(1)
Please refer to
Notes 5
,
and
to the consolidated financial statements for a description of acquisitions, joint venture transactions and impairment charges that have impacted the comparability of the financial information presented .
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. Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as defined in the notes to the consolidated financial statements.
Executive Overview
We are a self-managed, self-administered, fully integrated REIT that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers and office properties. Our shopping centers are located in 26 states, but are primarily in the southeastern and midwestern United States. We have elected to be taxed as a REIT for federal income tax purposes.
We conduct substantially all of our business through the Operating Partnership. The Operating Partnership consolidates the financial statements of all entities in which it has a controlling financial interest or where it is the primary beneficiary of a VIE. See Item 1. Business
for a description of our Properties owned and under development as of December 31, 2019.
We had a net loss for the year ended December 31, 2019 of $131.7 million as compared to a net loss of $99.2 million in the prior-year period. The operating results of our Properties declined further in 2019 due to the ongoing challenges in the retail environment that have resulted in tenant bankruptcies, store closures and rental reductions for tenants with high occupancy costs. We recognized non-cash impairment losses of $239.5 million related to six malls and one community center and $61.8 million of expense related to a litigation settlement entered into in 2019, which were partially offset by gain on investments/deconsolidation of $67.2 million related to the sale of a portion of our interests in two joint ventures and a gain on extinguishment of debt of $71.7 million related to two Malls.
Same-center NOI (see below) decreased 6.5% as compared to the prior-year period. Stabilized mall same-center sales per square foot increased to $386 for the current year from $379 for the prior-year period. Diluted earnings per share ("EPS") attributable to common shareholders was ($0.89) per diluted share for the year ended December 31, 2019 as compared to $(0.72) per diluted share for the prior-year period. FFO, as adjusted, per diluted share (see below) decreased 21.4% for the year ended December 31, 2019 to $1.36 per diluted share as compared to $1.73 per diluted share in the prior-year period.
As our results for 2019 and guidance for 2020 indicate, we are facing ongoing challenges, including heightened bankruptcy and store closure activity from retailers as they struggle to succeed in an increasingly competitive and fast-changing industry. Revenues and occupancy were significantly impacted by retailer bankruptcies, store closings, including the liquidation or reorganization of several major retailers, and rent reductions for tenants with high occupancy costs.
Average leasing spreads for comparable space under 10,000 square feet in our stabilized malls were down 8.6% for leases signed in 2019, including a 11.5% decrease in renewal lease rates and a 9.1% increase for new leases. Average annual base rents for our same-center malls also decreased to $31.85 per square foot as of December 31, 2019 compared to $32.64 per square foot for the prior-year period.
In 2019 we continued to execute our strategy to transform our properties into suburban town centers, primarily through the re-tenanting of former anchor locations as well as diversification of in-line tenancy. We also significantly extended our debt maturity schedule by replacing our unsecured credit facilities and unsecured term loans with a new $1.185 billion secured facility with 16 banks that closed in January 2019, which provides us the flexibility to execute on our operational and redevelopment goals. See Liquidity and Capital Resources
section for more information. While the industry and our Company continue to face challenges, some of which may not be in our control, we believe that the strategies in place to redevelop our Properties and diversify our tenant mix will contribute to stabilization of our portfolio and revenues in future years.
Same-center NOI and FFO are non-GAAP measures. For a description of same-center NOI, a reconciliation from net income to same-center NOI, and an explanation of why we believe this is a useful performance measure, see Non-GAAP Measure - Same-center Net Operating Income in “Results of Operations.”
For a description of FFO and FFO, as adjusted, a reconciliation from net income attributable to common shareholders to FFO allocable to Operating
Partnership common unitholders, and an explanation of why we believe this is a useful performance measure, see Non-GAAP Measure -
Funds from Operations within the
"Liquidity and Capital Resources"
section.
Results of Operations
Comparison of the Year Ended
December 31, 2019
to the Year Ended
December 31, 2018
Properties that were in operation for the entire year during both 2019 and 2018 are referred to as the “2019 Comparable Properties.” Since January 1, 2018, we have opened two self-storage facilities and one community center as follows:
( )
A 50/50 joint venture that is accounted for using the equity method of accounting and is included in equity in earnings of unconsolidated affiliates in the accompanying consolidated statements of operations.
Revenues
Rental revenues from the Comparable Properties declined primarily due to store closures and rent concessions for tenants with high occupancy cost levels, including tenants that declared bankruptcy in 2019 and 2018.
The decrease in management, development and leasing fees of $1.2 million was primarily due to terminated contracts for properties that we were managing for third-party owners.
The increase in other revenues of $3.6 million was primarily due to one-time payments from third parties to waive certain restrictions related to prior transactions.
Operating Expenses
Property operating expenses at the Comparable Properties decreased primarily due to a change in the classification of bad debt expense as a result of the adoption of ASC 842 effective January 1, 2019. Bad debt expense of $4.8 million was included in property operating expenses for the year ended December 31, 2018; however, beginning January 1, 2019, rental revenues that are estimated to be uncollectable are reflected as a decrease in rental revenues. For the year ended December 31, 2019, we recognized $3.5 million as a reduction to rental revenues for amounts that are
estimated to be uncollectable, substantially all of which was related to the Comparable Properties. The remaining decrease in property operating expenses of the Comparable Properties was primarily due to maintenance and repairs, marketing and payroll expenses. Real estate tax expense declined as a number of the Comparable Properties experienced reductions in real estate taxes in their respective markets.
The $15.0 million decrease in depreciation and amortization expense of the Comparable Properties is primarily due to write-offs of tenant improvements and intangible lease assets related to store closings in the prior year period, as well as a lower basis in depreciable assets resulting from impairments recorded in 2018 and 2019.
General and administrative expenses increased $2.7 million primarily due to higher legal expense related to litigation and adopting the new leasing standard in 2019, which resulted in discontinuing capitalizing the cost of leasing personnel for development and redevelopment projects, which were partially offset by reductions in salary and stock compensation costs.
During 2019, we recognized $239.5 million of loss on impairment of real estate to write down the book value of six malls and one community center. During 2018, we recognized $174.5 million of loss on impairment of real estate to write down the book value of five malls and undeveloped land. See Note 16
to the consolidated financial statements for additional information on these impairments.
During 2019, we recognized $61.8 million of litigation settlement expense related to the settlement of a class action lawsuit. See Note 15
to the consolidated financial statements for more information.
Other Income and Expenses
Interest and other income increased $0.9 million in 2019 compared to the prior-year period primarily due to additional interest income received related to a mortgage note receivable that was retired in the current year.
Interest expense decreased $13.8 million in 2019 compared to the prior-year period. The decrease was primarily due to a $13.5 million decrease in property-level interest expense, including default interest expense, due to dispositions of encumbered properties during 2019 and a paydown in May 2019 of a portion of the loan that is secured by The Outlet Shoppes at Laredo. This decrease was partially offset by an increase of $3.2 million in corporate-level interest expense due to higher variable rates on our corporate-level debt as compared to the prior-year, partially related to the higher interest rate on our new secured credit facility as compared with the previous credit facility, as well as increases in LIBOR.
During 2019, we recorded $71.7 million of gain on extinguishment of debt related to two malls. We transferred Acadiana Mall to the lender in satisfaction of the non-recourse debt secured by the property. We sold Cary Towne Center and used the net proceeds from the sale to satisfy a portion of the non-recourse loan that secured the property. The remaining principal balance was forgiven.
During 2019, we recorded $67.2 million of gain on deconsolidation related to The Outlet Shoppes at El Paso and The Outlet Shoppes at Atlanta. See Note 7
for more information.
The income tax provision of $3.2 million in 2019 relates to the Management Company, which is a taxable REIT subsidiary, and consists of a current tax provision of $0.5 million and a deferred tax provision of $2.7 million. The income tax benefit of $1.6 million in 2018 consists of a current tax provision of $1.3 million and a deferred tax benefit of $2.9 million.
Equity in earnings of unconsolidated affiliates decreased by $9.7 million during 2019 compared to the prior-year period. The decrease was primarily due to an increase in depreciation and amortization expense related to the retirement of certain real estate assets and decreases in rental revenues at several malls primarily due to store closures and rent concessions for tenants with high occupancy cost levels, including tenants in bankruptcy.
In 2019, we recognized $16.3 million of gain on sales of real estate assets primarily related to the sale of two centers, a hotel, an office building and seven outparcels. In 2018, we recognized a $19.0 million gain on sales of real estate assets, which included $7.5 million for the sale of four operating properties and $11.5 million related to the sale of 12 outparcels.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the year ended December 31, 2018 for a comparison of the year ended December 31, 2018 to the year ended December 31, 2017.
Non-GAAP Measure
Same-center Net Operating Income
NOI is a supplemental non-GAAP measure of the operating performance of our shopping centers and other Properties. We define NOI as property operating revenues (rental revenues, tenant reimbursements and other income) less property operating expenses (property operating, real estate taxes and maintenance and repairs).
We compute NOI based on the Operating Partnership's pro rata share of both consolidated and unconsolidated Properties. We believe that presenting NOI and same-center NOI (described below) based on our Operating Partnership’s pro rata share of both consolidated and unconsolidated Properties is useful since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the Properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in the Operating Partnership. Our definition of NOI may be different than that used by other companies, and accordingly, our calculation of NOI may not be comparable to that of other companies.
Since NOI includes only those revenues and expenses related to the operations of our shopping center Properties, we believe that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates, sales at the malls and operating costs and the impact of those trends on our results of operations. Our calculation of same-center NOI excludes lease termination income, straight-line rent adjustments, and amortization of above and below market lease intangibles in order to enhance the comparability of results from one period to another.
We include a Property in our same-center pool when we have owned all or a portion of the Property since January 1 of the preceding calendar year and it has been in operation for both the entire preceding calendar year ended December 31, 2018 and the current year ended December 31, 2019. New Properties are excluded from same-center NOI, until they meet these criteria. Properties excluded from the same-center pool, which would otherwise meet these criteria, are Properties that are being repositioned or Properties where we are considering alternatives for repositioning, where we intend to renegotiate the terms of the debt secured by the related Property or return the Property to the lender. Greenbrier Mall and Hickory Point Mall were classified as Lender Malls as of December 31, 2019.
Due to the exclusions noted above, same-center NOI should only be used as a supplemental measure of our performance and not as an alternative to GAAP operating income (loss) or net income (loss). A reconciliation of our same-center NOI to net income (loss) for the years ended December 31, 201 and 201 is as follows (in thousands):
(1)
Adjustments are based on our Operating Partnership's pro rata ownership share, including our share of unconsolidated affiliates and excluding noncontrolling interests' share of consolidated Properties.
Same-center NOI decreased $38.9 million for the year ended December 31, 2019 compared to 2018. The NOI decline of 6.5% for 2019 was driven by a decline in total revenue of $48.8 million offset by a $9.9 million decline in total operating expenses. Rental revenues declined $58.0 million during 2019 primarily due to the impact of store closures and rent concessions for tenants with high occupancy cost levels, including tenants that declared bankruptcy. The decrease in rental revenues includes the impact of $4.8 million of uncollectable revenues, which was formerly categorized as bad debt expense included in property operating expense in the prior-year period. The $9.9 million decrease in total operating expenses was primarily driven by bad debt expense of $5.0 million in the prior-year period and a decrease in real estate tax expense of $4.2 million.
Operational Review
The shopping center business is, to some extent, seasonal in nature with tenants typically achieving the highest levels of sales during the fourth quarter due to the holiday season, which generally results in higher percentage rents in the fourth quarter. Additionally, the malls earn most of their rents from short-term tenants during the holiday period. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of the fiscal year.
We derive the majority of our revenues from the Mall Properties. The sources of our revenues by property type were as follows:
Mall Store Sales
Mall store sales include reporting mall tenants of 10,000 square feet or less for Stabilized Malls and exclude license agreements, which are retail contracts that are temporary or short-term in nature and generally last more than three months but less than twelve months. The following is a comparison of our same-center sales per square foot for Mall tenants of 10,000 square feet or less:
Occupancy
Our portfolio occupancy is summarized in the following table (1):
(1)
As noted in Item 2. Properties
, excluded Properties are not included in occupancy metrics.
(2)
Represents occupancy for The Outlet Shoppes at Laredo as of December 31, 2019 and December 31, 2018.
Bankruptcy-related store closures impacted 2019 occupancy by approximately 398 basis points or 702,000 square feet.
Leasing
The following is a summary of the total square feet of leases signed in the year ended December 31, 2019 as compared to the prior-year period:
Average annual base rents per square foot are computed based on contractual rents in effect as of December 31, 201 and 201 , including the impact of any rent concessions. Average annual base rents per square foot for comparable small shop space of less than 10,000 square feet were as follows for each Property type (1) :
(1)
As noted in Item 2. Properties
, excluded Properties are not included in base rent. Average base rents for associated centers, community centers and office buildings include all leased space, regardless of size.
(2)
Represents average annual base rents for The Outlet Shoppes at Laredo as of December 31, 2019 and December 31, 2018.
Results from new and renewal leasing of comparable small shop space of less than 10,000 square feet during the year ended December 31, 2019 for spaces that were previously occupied, based on the contractual terms of the related leases inclusive of the impact of any rent concessions, are as follows:
(1)
Includes Stabilized Malls, associated centers, community centers and other.
(2)
Average gross rent does not incorporate allowable future increases for recoverable CAM expenses.
New and renewal leasing activity of comparable small shop space of less than 10,000 square feet for the year ended December 31, 2019 based on commencement date is as follows:
We are working to diversify and stabilize revenues. In recent months, we have opened 15 new tenants in former anchor locations, adding more productive, higher traffic-driving uses. Also, we have another dozen committed replacements either under construction or with planning underway. We are proactively reducing our exposure to apparel retailers with more than 76% of 2019 mall leasing completed with non-apparel tenants.
Liquidity and Ca pital Resources
In January 2019, we entered into a new $1.185 billion senior secured credit facility, which included a fully-funded $500 million term loan and a revolving line of credit with a borrowing capacity of $685 million. The facility replaced all of the Company's prior unsecured bank facilities, which included three unsecured term loans with an aggregate balance of $695 million and three unsecured revolving lines of credit with an aggregate capacity of $1.1 billion. At closing, we utilized the line of credit to reduce the principal balance of the unsecured term loans from $695 million to $500 million. The facility matures in July 2023 and bears interest at a variable rate of LIBOR plus 2.25%. The Operating Partnership is required to pay an annual facility fee on the line of credit balance, to be paid quarterly, which ranges from 0.25% to 0.35%, based on the unused capacity of the line of credit. The principal balance on the term loan will be reduced by $35 million per year in quarterly installments. The senior secured credit facility is secured by a portfolio of the Company’s Properties consisting of seventeen malls and three associated centers. The facility contains customary provisions upon which the Properties may be released from the collateral securing the Facility. The senior secured credit facility contains, among other restrictions, various restrictive covenants that are defined and computed on the same basis as the covenants required under the Notes. Such covenants relate to the Operating Partnership's and the Company's aggregate unsecured debt, aggregate secured debt, maintenance of unencumbered assets and debt service coverage. The Credit Agreement for the senior secured credit facility contains default and cross-default provisions customary for transactions of this nature (with applicable customary grace periods). Any default (i) in the payment of any recourse indebtedness greater than or equal to $50.0 million (for the Company's ownership share), or any non-recourse indebtedness greater than or equal to $150.0 million (for the Company's ownership share) or (ii) that results in the acceleration of the maturity of recourse indebtedness greater than or equal to $50.0 million (for the Company's ownership share), or any non-recourse indebtedness greater than or equal to $150.0 million (for the Company's ownership share) of the Company or the Operating Partnership will constitute an event of default under the Credit Agreement. At all times during the term of the Credit Agreement, there shall be no fewer than ten Borrowing Base Properties (as defined in the Credit Agreement) which have an aggregate occupancy rate of not less than 80% on a quarterly basis. In addition, at all times the Company shall be required to maintain a minimum debt yield of 10% for the Borrowing Base Properties based on the outstanding balance of the facility. The Credit Agreement provides that, upon the occurrence and continuation of an event of default, payment of all amounts outstanding under the facility may be accelerated and the lenders' commitments may be terminated. The Company is a limited guarantor of the Operating Partnership's obligations under the terms of the new Credit Agreement.
During 2019, we reduced our total pro rata share of debt by $409.0 million excluding debt issuance costs. In addition to scheduled amortization, we sold Cary Towne Center and transferred Acadiana Mall to the lender, which resulted in a reduction of $163.5 million. We closed on $185.7 million in gross asset sales, which consisted of $137.1 million related to the sale of properties and outparcels and $48.6 million related to the sale of a portion of our interests in two joint ventures. In conjunction with the sale of our interests in these joint ventures, our partner assumed $30.0 million of related debt. Excess proceeds from the sales were used to retire debt. See Note 6
and
Note 7
for additional information on dispositions.
In 2019, we entered into four unconsolidated construction loans totaling $38.3 million. We refinanced the loan secured by one of our consolidated malls to increase the principal balance to $50.0 million and used the net proceeds from the new loan to retire the existing $41.0 million loan. Also, we exercised an option to extend the loan secured by a consolidated mall to May 2021. In conjunction with the extension, a payment of $10.8 million was made to reduce the outstanding balance of the loan to $43.0 million, of which our joint venture partner funded its 35% share. See
Note 7
and
Note 8
to the consolidated financial statements for more information on 2019 loan activity.
In April 2019, we entered into a settlement agreement and release with respect to a class action lawsuit. Under the terms of the settlement agreement, we did not pay any dividends to holders of our common stock payable in the third and fourth quarters of 2019. Unrelated to the settlement agreement, the board of directors decided to suspend dividends in 2020, subject to quarterly review. See Note 15
to the consolidated financial statements for more information related to the settlement.
As of December 31, 2019, we had $310.9 million outstanding on our secured line of credit leaving $374.1 million of availability, after considering outstanding letters of credit of $4.8 million, as well as unrestricted cash and cash equivalents of $32.8 million. Our total pro rata share of debt at December 31, 2019 was $4.3 billion. Our consolidated unencumbered properties generated approximately 27.4% of total consolidated NOI for the year ended December 31, 2019 (excluding dispositions and Excluded Malls).
We derive the majority of our revenues from leases with retail tenants, which have historically been the primary source for funding short-term liquidity and capital needs such as operating expenses, debt service, tenant construction allowances, recurring capital expenditures, dividends and distributions. We believe that the cash flows generated from our operations, combined with our debt and equity sources, including but not limited to, the availability under our secured line
of credit , the suspension of dividends on our preferred stock and common stock and proceeds from dispositions will, for the foreseeable future, provide adequate liquidity to meet our cash needs. In addition to these factors, subject to market conditions, we have options available to us to generate additional liquidity, including but not limited to, debt and equity offerings, joint venture investments, issuances of noncontrolling interests in our Operating Partnership, and decreasing expenditures related to tenant construction allowances and other capital expenditures. We also generate revenues from sales of peripheral land at our properties and from sales of real estate assets when it is determined that we can realize an optimal value for the assets.
Cash Flows - Operating, Investing and Financing Activities
There was $59.1 million of cash, cash equivalents and restricted cash as of December 31, 2019, an increase of $1.6 million from December 31, 2018. Of this amount, $32.8 million was unrestricted cash as of December 31, 2019. Our net cash flows are summarized as follows (in thousands):
Cash Provided by Operating Activities
•
Cash provided by operating activities during 2019 decreased $103.8 million to $273.4 million from $377.2 million during 2018. The decrease in operating cash flows was primarily due to a decline in rental revenues related to store closures and rent concessions for tenants with high occupancy cost levels, including tenants in bankruptcy, properties that were disposed of and payment of amounts under the class action litigation settlement.
Cash Provided by (Used in) Investing Activities
•
Cash provided by investing activities during 2019 was $24.6 million, representing a $52.1 million difference as compared to cash used by investing activities of $27.5 million in the prior-year period. The cash inflow for 2019 was primarily related to a greater amount of proceeds from sales in the current year combined with lower cash paid for capital expenditures as we continue to focus on controlling such expenditures. These increases were partially offset by a lower amount of distributions from unconsolidated affiliates in 2019 as we received a distribution from an unconsolidated affiliate in 2018 related to excess proceeds from the refinancing of a mortgage loan.
Cash Used in Financing Activities
•
Cash flows used in financing activities during 2019 was $296.4 million as compared to $360.4 million in the prior-year period. The reduction in our common and preferred stock dividend resulted in savings in dividends and distributions paid to common and preferred shareholders and the noncontrolling interest holders in the Operating Partnership. This was partially offset by the additional principal payments on debt and the payment of deferred financing costs, which were mostly related to our new secured credit facility.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the year ended December 31, 2018 for a comparison of the year ended December 31, 2018 to the year ended December 31, 2017.
Debt of the Company
CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries, that it has a direct or indirect ownership interest in, is the borrower on all of our debt.
CBL is a limited guarantor of the Notes, as described in Note 8
to the consolidated financial statements, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates. We also provide a similar limited guarantee of the Operating Partnership's obligations with respect to our secured credit facility as of December 31, 2019.
Debt of the Operating Partnership
The following tables summarize debt based on our pro rata ownership share, including our pro rata share of unconsolidated affiliates and excluding noncontrolling investors’ share of consolidated Properties, because we believe this provides investors and lenders a clearer understanding of our total debt obligations and liquidity (in thousands):
(1 )
Weighted-average interest rate includes the effect of debt premiums and discounts, but excludes amortization of deferred financing costs.
(2)
An unconsolidated affiliate has an interest rate swap on a notional amount of $43,623 as of December 31, 2019 and $44,863 as of December 31, 2018 related to a variable-rate loan on Ambassador Town Center to effectively fix the interest rate on this loan to a fixed-rate of 3.22%.
(3)
An unconsolidated affiliate has an interest rate swap on a notional amount of $10,050 as of December 31, 2019 and $10,605 as of December 31, 2018 related to a variable-rate loan on Ambassador Town Center - Infrastructure Improvements to effectively fix the interest rate on this loan to a fixed-rate of 3.74%.
( )
The balance is net of an unamortized discount of $2,106 and $2,577 as of December 31, 2019 and 2018, respectively.
( )
The balance is net of an unamortized discount of $40 and $47 as of December 31, 2019 and 2018, respectively.
( )
The balance is net of an unamortized discount of $7,527 and $8,365 as of December 31, 2019 and 2018, respectively.
( )
We replaced our unsecured lines of credit and unsecured terms loans in January 2019 with a new secured senior credit facility.
( )
Represents a $43,716 non-recourse mortgage loan secured by Cary Towne Center that was classified on the consolidated balance sheet as liabilities related to assets held for sale.
The following table presents our pro rata share of consolidated and unconsolidated debt as of December 31, 201 , excluding debt premiums and discounts, that is scheduled to mature in 20 (in thousands):
(1)
Subsequent to December 31, 2019, we utilized our secured credit facility to retire this loan. See Note 20
to the consolidated financial statements for more information.
( )
This loan has one two-year extension option.
In addition, $92.2 million of our pro rata share of consolidated and unconsolidated debt is related to two operating property loans, Greenbrier Mall and Hickory Point Mall, which matured in 2019. We are in discussions with the lenders regarding both loans.
The weighted-average remaining term of our total share of consolidated and unconsolidated debt was 3.9 years and 4.0 years at December 31, 2019 and 2018, respectively. The weighted-average remaining term of our pro rata share of fixed-rate debt was 4.1 years and 4.8 years at December 31, 2019 and 2018, respectively.
As of December 31, 2019 and 2018, our pro rata share of consolidated and unconsolidated variable-rate debt represented 22.5% and 22.8%, respectively, of our total pro rata share of debt.
See Note 7
and
Note 8
to the consolidated financial statements for additional information concerning the amount and terms of our outstanding indebtedness as of December 31, 2019.
Credit Ratings
We had the following credit ratings as of December 31, 2019:
(1)
Based on the Operating Partnership's long-term issuer rating.
Senior Unsecured Notes
The table below presents the Company's compliance with key covenant ratios, as defined, of the Notes as of December 31, 2019.
(1)
The debt covenant compliance ratios for the secured line of credit, the secured term loan and the senior unsecured notes are defined and computed on the same basis.
(2)
Secured debt to total assets is required to be less than 40% for the 2026 Notes. Secured debt to total assets must be less than 45% for the 2023 Notes and the 2024 Notes until January 1, 2020, after which the required ratio was reduced to 40%.
Subject to the need to maintain compliance with all applicable debt covenants, the Operating Partnership, or any affiliate of the Operating Partnership, may at any time, or from time to time, repurchase outstanding Notes in the open market or otherwise. Such Notes may, at the option of the Operating Partnership or the relevant affiliate of the Operating Partnership, be held, resold or surrendered to the Trustee for cancellation.
Unencumbered Consolidated Portfolio Statistics
(1)
Represents same-center sales per square foot for mall tenants 10,000 square feet or less for stabilized malls.
(2)
Operating metrics are included for unencumbered consolidated operating properties and do not include sales or occupancy of unencumbered parcels.
(3)
Our consolidated unencumbered properties generated approximately 27.4% of total consolidated NOI of $501,171,170 (which excludes NOI related to dispositions) for the year ended December 31, 2019.
(4)
NOI is derived from unencumbered Tier One Malls, as well as unencumbered portions of Tier One Malls that are otherwise secured by a loan. The unencumbered portions include outparcels, Anchors and former Anchors that have been redeveloped.
Mortgages on Operating Properties
2019 Loan Activity
In 2019, we entered into four unconsolidated construction loans totaling $38.3 million. We refinanced the loan secured by one of our consolidated malls to increase the principal balance to $50.0 million and used the net proceeds from the new loan to retire the existing $41.0 million loan. W e repaid two fixed-rate consolidated loans totaling $35.5 million. In conjunction with our deconsolidation of two properties, our joint venture partner assumed $30.0 million of related debt. Lastly, we recognized a $71.7 million gain on extinguishment of debt related to two consolidated malls. See
Note 7
and
Note 8
to the consolidated financial statements for more information on 2019 loan activity.
Equity
At-The-Market Equity Program
We have not sold any shares under the ATM program since 2013. See Note 9
to the consolidated financial statements for a description of our ATM program.
Preferred Stock / Preferred Units
Our authorized preferred stock consists of 15,000,000 shares at $0.01 par value per share. The Operating Partnership issues an equivalent number of preferred units to CBL in exchange for the contribution of the proceeds from CBL to the Operating Partnership when CBL issues preferred stock. The preferred units generally have the same terms and economic characteristics as the corresponding series of preferred stock. See Note 9
to the consolidated financial statements for a description of our cumulative redeemable preferred stock.
In December 2019, we announced the suspension o f all future dividends on our 7.375% Series D Cumulative Redeemable Preferred Stock and 6.625% Series E Cumulative Redeemable Preferred Stock , subject to review each quarter by our Board of Directors . Unpaid dividends on the preferred stock will accrue without interest.
Dividends - CBL
CBL paid a first quarter 2019 cash dividend on its common stock of $0.075 per share on April 16th. Under the terms of the settlement agreement in a class action lawsuit discussed in Item 3 of this report, we did not pay any dividends to holders of our common stock payable in the third and fourth quarters of 2019. As noted above, we suspended all future dividends on our common stock and preferred stock, as well as distributions to all noncontrolling interest investors in our Operating Partnership (as noted below). No dividends may be paid on shares of our common stock unless (i) all accrued but unpaid dividends on our preferred stock, and any current dividend then due, have been paid in cash, or a cash sum sufficient for such payment has been set apart for payment and (ii) the SCU Distribution Shortfall created by our related suspension of distributions to noncontrolling interest investors in our Operating Partnership has likewise been remedied through the payment of distributions sufficient to satisfy such shortfall for all prior periods and the then-current period (thereby allowing the resumption of distributions on the common units in the Operating Partnership that are held by the CBL, which fund our common stock dividends). We will review taxable income on a regular basis and take measures, if necessary, to ensure that we meet the minimum distribution requirements to maintain our status as a REIT.
During the year ended December 31, 2019, we paid dividends of $59.6 million to holders of our common stock and our preferred stock, as well as $18.8 million in distributions to the noncontrolling interest investors in our Operating Partnership and other consolidated subsidiaries.
Distributions - The Operating Partnership
The Operating Partnership paid first, second and third quarter 2019 cash distributions on its redeemable common units of $0.7322 per share on April 16th, July 16th and October 16th. The Operating partnership paid first quarter cash distributions on its common units of $0.075 per share on April 16th. The Operating Partnership has suspended all future distributions until further notice.
As a publicly traded company and, as a subsidiary of a publicly traded company, we have access to capital through both the public equity and debt markets. We currently have a shelf registration statement on file with the SEC authorizing us to publicly issue senior and/or subordinated debt securities, shares of preferred stock (or depositary shares representing fractional interests therein), shares of common stock, warrants or rights to purchase any of the foregoing securities, and units consisting of two or more of these classes or series of securities and limited guarantees of debt securities issued by the Operating Partnership. This shelf registration statement also authorized the Operating Partnership to publicly issue unsubordinated debt securities. This shelf registration statement was due to expire in July 2021. However, the Company no longer qualifies as a well-known seasoned issuer under SEC rules, and we therefore are unable to use this shelf registration.
Our common and preferred stock outstanding at December 31, 2019 was as follows (in thousands, except stock prices):
(1)
Stock price for common stock and Operating Partnership units equals the closing price of our common stock on December 31, 2019. The stock prices for the preferred stock represent the liquidation preference of each respective series of preferred stock.
Contractual Obligations
The following table summarizes our significant contractual obligations as of December 31, 2019 (in thousands):
(1)
Represents principal and interest payments due under the terms of mortgage and other indebtedness, net and includes $951,338 of variable-rate debt service on one operating Property, one construction loan, the secured line of credit and the secured term loan. The secured line of credit does not require scheduled principal payments. The future interest payments are projected based on the interest rates that were in effect at December 31, 2019. See
Note 8
to the consolidated financial statements for additional information regarding the terms of long-term debt. The total consolidated debt service includes two loans, with an aggregate principal balance of $92,186 as of December 31, 2019, secured by Greenbrier Mall and Hickory Point Mall, which were in default. The Company is in discussion with the lenders.
(2)
Includes $265,256 of variable-rate debt service. Future contractual obligations have been projected using the same assumptions as used in (1) above.
(3)
Obligations where we own the buildings and improvements, but lease the underlying land under long-term ground leases. The maturities of these leases range from 2021 to 2089 and generally provide for renewal options.
(4)
Represents the remaining balance to be incurred under construction contracts that had been entered into as of December 31, 2019, but were not complete. The contracts are primarily for development of Properties.
(5)
Represents the remainder of a five year agreement for maintenance, security, and janitorial services at our Properties. We have the right to cancel the contract after October 1, 2019.
Capital Expenditures
Deferred maintenance expenditures are generally billed to tenants as CAM expense, and most are recovered over a 5 to 15-year period. Renovation expenditures are primarily for remodeling and upgrades of Malls, of which a portion is recovered from tenants over a 5 to 15-year period. We recover these costs through fixed amounts with annual increases or pro rata cost reimbursements based on the tenant’s occupied space.
The following table, which excludes expenditures for developments and expansions, summarizes these capital expenditures, including our share of unconsolidated affiliates' capital expenditures, for the year ended December 31, 201 compared to 201 (in thousands):
(1)
Tenant allowances primarily relate to new leases. Tenant allowances related to renewal leases were not material for the periods presented.
Annual capital expenditures budgets are prepared for each of our Properties that are intended to provide for all necessary recurring and non-recurring capital expenditures. We believe that property operating cash flows, which include reimbursements from tenants for certain expenses, will provide the necessary funding for these expenditures.
Developments and Redevelopments
Properties Opened During the
Year Ended December 31, 2019
(Dollars in thousands)
(1)
Total Cost is presented net of reimbursements to be received.
(2)
Cost to Date does not reflect reimbursements until they are received.
( )
Yield is based on the expected yield upon stabilization.
Redevelopments Completed During the
Year Ended December 31, 201
(Dollars in thousands)
(1)
Total Cost is presented net of reimbursements to be received.
(2)
Cost to Date does not reflect reimbursements until they are received.
(3)
The return reflected represents a pro forma incremental return as Total Cost excludes the cost related to the acquisition of the Sears (Brookfield) and Macy's (Parkdale) buildings in 2017.
We completed several Anchor redevelopments during 201 , adding in a variety of non-traditional tenants, as we continue to reinvent our Properties into suburban town centers.
Properties under Development at
December 31, 2019
(Dollars in thousands)
(1)
Total Cost is presented net of reimbursements to be received.
(2)
Cost to Date does not reflect reimbursements until they are received.
(3)
Yield is based on the expected yield upon stabilization.
(4)
The return reflected represents a pro forma incremental return as Total Cost excludes the cost related to the acquisition of the Sears (Hamilton Place) building in 2017.
Shadow Development Pipeline
at
December 31, 2019
(Dollars in thousands)
(1)
Total Cost is presented net of reimbursements to be received.
(2)
Yield is based on expected yield upon stabilization.
(3)
The return reflected represents a pro forma incremental return as Total Cost excludes the cost related to the acquisition of the Sears (Cross Creek) building in 2017
We are continually pursuing new re development opportunities and have projects in various stages of pre-development. Our shadow pipeline consists of projects for Properties on which we have completed initial project analysis and design but which have not commenced construction as of December 31, 201 . Except for the projects presented above, we did not have any other material capital commitments as of December 31, 201 .
Off-Balance Sheet Arrangements
Unconsolidated Affiliates
We have ownership interests in 28 unconsolidated affiliates as of December 31, 2019. See Note 7
to the consolidated financial statements for more information. The unconsolidated affiliates are accounted for using the equity method of accounting and are reflected in the accompanying consolidated balance sheets as investments in unconsolidated affiliates.
Guarantees
We may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on our investment in the joint venture. We may receive a fee from the joint venture for providing the guaranty. Additionally, when we issue a guaranty, the terms of the joint venture agreement typically provide that we may receive indemnification from the joint venture partner or have the ability to increase our ownership interest.
See Note 15
to the consolidated financial statements for information related to our guarantees of unconsolidated affiliates' debt as of December 31, 2019 and 2018.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. In preparing our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made and if different estimates that are reasonably likely to occur could materially impact the financial statements. Management believes that the following critical accounting policies discussed in this section reflect its more significant estimates and assumptions used in preparation of the consolidated financial statements. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee of our board of directors. See Note 2
of the Notes to Consolidated Financial Statements, included in
Item 8
of this Annual Report on Form 10-K for a discussion of our significant accounting policies.
Revenue Recognition
Minimum rental revenue from operating leases is recognized on a straight-line basis over the initial terms of the related leases. Certain tenants are required to pay percentage rent if their sales volumes exceed thresholds specified in their lease agreements. Percentage rent is recognized as revenue when the thresholds are achieved and the amounts become determinable.
We receive reimbursements from tenants for real estate taxes, insurance, CAM, 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 in accordance with underlying lease terms.
We receive management, leasing and development fees from third parties and unconsolidated affiliates. Management fees are charged as a percentage of revenues (as defined in the management agreement) and are recognized as revenue when earned. Development fees are recognized as revenue on a pro rata basis over the development period. Leasing fees are charged for newly executed leases and lease renewals and are recognized as revenue when earned. Development and leasing fees received from unconsolidated affiliates during the development period are recognized as
revenue to the extent of the third-party partners’ ownership interest. Fees to the extent of our ownership interest are recorded as a reduction to our investment in the unconsolidated affiliate.
Gains on sales of real estate assets are recognized when it is determined that the sale has been consummated, the buyer’s initial and continuing investment is adequate, our receivable, if any, is not subject to future subordination, and the buyer has assumed the usual risks and rewards of ownership of the asset. When we have an ownership interest in the buyer, gain is recognized to the extent of the third-party partner’s ownership interest and the portion of the gain attributable to our ownership interest is deferred.
Real Estate Assets
All acquired real estate assets are accounted for using the acquisition method of accounting and accordingly, the results of operations are included in the consolidated statements of operations from the respective dates of acquisition. The purchase price is allocated to (i) tangible assets, consisting of land, buildings and improvements, as if vacant, and tenant improvements and (ii) identifiable intangible assets and liabilities generally consisting of above- and below-market leases and in-place leases. We use estimates of fair value based on estimated cash flows, using appropriate discount rates, and other valuation methods to allocate the purchase price to the acquired tangible and intangible assets. Liabilities assumed generally consist of mortgage debt on the real estate assets acquired. Assumed debt with a stated interest rate that is significantly different from market interest rates is recorded at its fair value based on estimated market interest rates at the date of acquisition. Following our adoption of Accounting Standards Update 2017-01, Clarifying the Definition of a Business , on a prospective basis in January 2017, we expect our future acquisitions will be accounted for as acquisitions of assets in which related transaction costs will be capitalized.
Carrying Value of Long-Lived Assets
We monitor events or changes in circumstances that could indicate the carrying value of a long-lived asset may not be recoverable. When indicators of potential impairment are present that suggest that the carrying amounts of a long-lived asset may not be recoverable, we assess the recoverability of the asset by determining whether the asset’s carrying value will be recovered through the estimated undiscounted future cash flows expected from our probability weighted use of the asset and its eventual disposition. In the event that such undiscounted future cash flows do not exceed the carrying value, we adjust the carrying value of the long-lived asset to its estimated fair value and recognize an impairment loss. The estimated fair value is calculated based on the following information, in order of preference, depending upon availability: (Level 1) recently quoted market prices, (Level 2) market prices for comparable properties, or (Level 3) the present value of future cash flows, including estimated salvage value. Certain of our long-lived assets may be carried at more than an amount that could be realized in a current disposition transaction. The Company estimates future operating cash flows, the terminal capitalization rate and the discount rate, among other factors. As these assumptions are subject to economic and market uncertainties, they are difficult to predict and are subject to future events that may alter the assumptions used or management’s estimates of future possible outcomes. Therefore, the future cash flows estimated in our impairment analyses may not be achieved.
During the year ended December 31, 2019, we recorded a loss on impairment totaling $239.5 million, which primarily consists of six malls and one community center. During 2018, we recorded a loss on impairment totaling $174.5 million, which primarily consists of $158.4 million attributable to five malls and $16.1 million related to vacant land. During 2017, we recorded a loss on impairment totaling $71.4 million, which was primarily attributable to two malls. See Note 6
and
Note 16
to the consolidated financial statements for additional information about these impairment losses.
Investments in Unconsolidated Affiliates
On a periodic basis, we assess whether there are any indicators that the fair value of our investments in unconsolidated affiliates may be impaired. An investment is impaired only if our estimate of the fair value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the investment over the fair value of the investment. Our estimates of fair value for each investment are based on a number of assumptions such as future leasing expectations, operating forecasts, discount rates and capitalization rates, among others. These assumptions are subject to economic and market uncertainties including, but not limited to, demand for space, competition for tenants, changes in market rental rates, and operating costs. As these factors are difficult to predict and are subject to future events that may alter our assumptions, the fair values estimated in the impairment analyses may not be realized.
In 2018, an unconsolidated affiliate recognized an impairment of $89.8 million related to a mall. We recorded $1.0 million as our share of the loss on impairment, which reduced the carrying value of our investment in the joint venture to zero. See
Note 7
to the consolidated financial statements for additional information about this impairment loss. No impairments of investments in unconsolidated affiliates were incurred during 2019 and 2017.
Recent Accounting Pronouncements
See Note 2
to the consolidated financial statements for information on recently issued accounting pronouncements.
Impact of Inflation and Deflation
Deflation can result in a decline in general price levels, often caused by a decrease in the supply of money or credit. The predominant effects of deflation are high unemployment, credit contraction and weakened consumer demand. Restricted lending practices could impact our ability to obtain financings or refinancings for our Properties and our tenants’ ability to obtain credit. Decreases in consumer demand can have a direct impact on our tenants and the rents we receive.
During inflationary periods, substantially all of our tenant leases contain provisions designed to mitigate the impact of inflation. These provisions include clauses enabling us to receive percentage rent based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases are for terms of less than ten years, which may provide us the opportunity to replace existing leases with new leases at higher base and/or percentage rent if rents of the existing leases are below the then existing market rate. Most of the leases require the tenants to pay a fixed amount subject to annual increases for their share of operating expenses, including CAM, real estate taxes, insurance and certain capital expenditures, which reduces our exposure to increases in costs and operating expenses resulting from inflation.
Non-GAAP Measure
Funds from Operations
FFO is a widely used non-GAAP measure of the operating performance of real estate companies that supplements net income (loss) determined in accordance with GAAP. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) (computed in accordance with GAAP) excluding gains or losses on sales of depreciable operating properties and impairment losses of depreciable properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests. Adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests are calculated on the same basis. We define FFO as defined above by NAREIT less dividends on preferred stock of the Company or distributions on preferred units of the Operating Partnership, as applicable. Our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
We believe that FFO provides an additional indicator of the operating performance of our Properties without giving effect to real estate depreciation and amortization, which assumes the value of real estate assets declines predictably over time. Since values of real estate assets have historically risen or fallen with market conditions, we believe that FFO enhances investors’ understanding of our operating performance. The use of FFO as an indicator of financial performance is influenced not only by the operations of our Properties and interest rates, but also by our capital structure.
We present both FFO allocable to Operating Partnership common unitholders and FFO allocable to common shareholders, as we believe that both are useful performance measures. We believe FFO allocable to Operating Partnership common unitholders is a useful performance measure since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the Properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in our Operating Partnership. We believe FFO allocable to common shareholders is a useful performance measure because it is the performance measure that is most directly comparable to net income (loss) attributable to common shareholders.
In our reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders that is presented below, we make an adjustment to add back noncontrolling interest in income (loss) of our Operating Partnership in order to arrive at FFO of the Operating Partnership common unitholders. We then apply a percentage to FFO of our Operating Partnership common unitholders to arrive at FFO allocable to common shareholders. The percentage is computed by taking the weighted-average number of common shares outstanding for the period and dividing it by the sum of the weighted-average number of common shares and the weighted-average number of Operating Partnership units held by noncontrolling interests during the period.
FFO does not represent cash flows from operations as defined by GAAP, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to net income (loss) for purposes of evaluating our operating performance or to cash flow as a measure of liquidity.
We believe that it is important to identify the impact of certain significant items on our FFO measures for a reader to have a complete understanding of our results of operations. Therefore, we have also presented adjusted FFO measures excluding these significant items from the applicable periods. Please refer to the reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders below for a description of these adjustments.
FFO allocable to Operating Partnership common unitholders decreased 17.5% to $280.2 million for the year ended December 31, 2019 compared to $339.8 million for the prior year. After making the adjustments noted below, FFO of the Operating Partnership, as adjusted, decreased 21.3% for the year ending December 31, 2019 to $271.5 million compared to $345.1 million in 2018. The decline in FFO was primarily a result of dilution from asset sales, lower gains on outparcel sales and declines in Property NOI primarily related to retailer and anchor bankruptcies.
The reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders is as follows (in thousands):
(1)
The year ended December 31, 2019 is comprised of the accrued maximum expense of $88,150 recorded in the three months ended March 31, 2019 less total subsequent reductions of $26,396 pursuant to the terms of the settlement agreement related to past tenants that did not submit a claim pursuant to the terms of the settlement agreement, tenants that opted out of the lawsuit and other permissible reductions. Litigation expense and nonrecurring professional fees expense, including settlements paid, are included in general and administrative expense in the consolidated statements of operations. Nonrecurring professional fees reimbursement is included in interest and other income in the consolidated statements of operations.
(2)
The year ended December 31, 2017 includes a loss on investment related to the sale of our 25% interest in River Ridge Mall JV, LLC to our joint venture partner.
( )
The year ended December 31, 2019 includes non-cash default interest expense related to Acadiana Mall, Cary Towne Center, Greenbrier Mall and Hickory Point Mall. The year ended December 31, 2018 includes non-cash default interest expense related to Acadiana Mall, Cary Towne Center and Triangle Town Center. The year ended December 31, 2017 includes non-cash default interest expense related to Acadiana Mall, Chesterfield Mall, Midland Mall and Wausau Center.
( )
The year ended December 31, 2019 includes a gain on extinguishment of debt related to the non-recourse loan secured by Acadiana Mall, which was conveyed to the lender in the first quarter of 2019, and a gain on extinguishment of debt related to the non-recourse loan secured by Cary Towne Center, which was sold in the first quarter of 2019. The year ended December 31, 2017 includes a gain on extinguishment of debt of $39,798 related to the non-recourse loans secured by Chesterfield Mall, Midland Mall and Wausau Center which were conveyed to their respective lenders in 2017.
This gain was partially offset by a loss on extinguishment of debt from prepayment fees on the early retirement of mortgage loans, net of the noncontrolling interests' share.
The reconciliation of diluted EPS attributable to common shareholders to FFO per diluted share is as follows:
The reconciliations of FFO allocable to Operating Partnership common unitholders to FFO allocable to common shareholders, including and excluding the adjustments noted above are as follows (in thousands):
(1)
Represents the weighted-average number of common shares outstanding for the period divided by the sum of the weighted-average number of common shares and the weighted-average number of Operating Partnership units held by noncontrolling interests during the period.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risk exposures, including interest rate risk. The following discussion regarding our risk management activities includes forward-looking statements that involve risk and uncertainties. Estimates of future performance and economic conditions are reflected assuming certain changes in interest rates. Caution should be used in evaluating our overall market risk from the information presented below, as actual results may differ. We employ various derivative programs to manage certain portions of our market risk associated with interest rates. See Note 16
of the notes to consolidated financial statements for further discussions of the qualitative aspects of market risk, regarding derivative financial instrument activity.
Interest Rate Risk
Based on our proportionate share of consolidated and unconsolidated variable-rate debt at December 31, 2019, a 0.5% increase or decrease in interest rates on variable rate debt would decrease or increase annual cash flows by approximately $42.8 million and $33.3 million, respectively and increase or decrease annual interest expense, after the effect of capitalized interest, by approximately $4.8 million.
Based on our proportionate share of total consolidated and unconsolidated debt at December 31, 2019, a 0.5% increase in interest rates would decrease the fair value of debt by approximately $41.4 million, while a 0.5% decrease in interest rates would increase the fair value of debt by approximately $42.7 million.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index to Financial Statements and Schedules contained in Item 15
on page 79.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUN TANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Controls and Procedures with Respect to the Company
Conclusion Regarding Effectiveness of Disclosure Controls and Procedures
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of its effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, these officers concluded that the Company's disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and is accumulated and communicated to our management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The Company assessed the effectiveness of its internal control over financial reporting, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and concluded that, as of December 31, 2019, the Company maintained effective internal control over financial reporting, as stated in its report which is included herein.
Report of Management on Internal Control over Financial Reporting
Management of CBL & Associates Properties, Inc. and its consolidated subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Management recognizes that there are inherent limitations in the effectiveness of internal control over financial reporting, including the potential for human error or the circumvention or overriding of internal controls. Accordingly, even effective internal control over financial reporting cannot provide absolute assurance with respect to financial statement preparation. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. In addition, any projection of the evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the polices or procedures may deteriorate.
Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and concluded that, as of December 31, 2019, the Company maintained effective internal control over financial reporting.
Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has audited the Company's internal control over financial reporting as of December 31, 2019, as stated in their report which is included below.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of CBL & Associates Properties, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of CBL & Associates Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated March 9, 2020, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 9, 2020
Controls and Procedures with Respect to the Operating Partnership
Conclusion Regarding Effectiveness of Disclosure Controls and Procedures
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of its effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, whose subsidiary CBL Holdings I is the sole general partner of the Operating Partnership, the Operating Partnership has evaluated the effectiveness of its disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, these officers concluded that the Operating Partnership's disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Operating Partnership in the reports that the Operating Partnership files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and is accumulated and communicated to management of the Company, acting on behalf of the Operating Partnership in its capacity as the general partner of the Operating Partnership, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
Management of the Company, acting on behalf of the Operating Partnership in its capacity as the general partner of the Operating Partnership, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The Operating Partnership assessed the effectiveness of its internal control over financial reporting, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and concluded that, as of December 31, 2019, the Operating Partnership maintained effective internal control over financial reporting, as stated in its report which is included herein.
Report of Management on Internal Control over Financial Reporting
Management of CBL & Associates Limited Partnership and its consolidated subsidiaries (the “Operating Partnership”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Operating Partnership’s internal control over financial reporting is a process designed under the supervision of the Operating Partnership’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Management recognizes that there are inherent limitations in the effectiveness of internal control over financial reporting, including the potential for human error or the circumvention or overriding of internal controls. Accordingly, even effective internal control over financial reporting cannot provide absolute assurance with respect to financial statement preparation. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. In addition, any projection of the evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the polices or procedures may deteriorate.
The Company's management, whose subsidiary CBL Holdings I is the sole general partner of the Operating Partnership, conducted an assessment of the effectiveness of the Operating Partnership’s internal control over financial reporting based on the framework established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and concluded that, as of December 31, 2019, the Operating Partnership maintained effective internal control over financial reporting.
Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has audited the Operating Partnership's internal control over financial reporting as of December 31, 2019, as stated in their report which is included below.
Changes in Internal Control over Financial Reporting
There were no changes in the Operating Partnership's internal control over financial reporting during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Operating Partnership's internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Unit Holders of CBL & Associates Limited Partnership
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of CBL & Associates Limited Partnership and subsidiaries (the “Partnership”) as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Partnership and our report dated March 9, 2020, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A partnership's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A partnership's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the partnership; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the partnership are being made only in accordance with authorizations of management and directors of the partnership; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the partnership's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 9, 2020
ITEM 9B.
ITEM 9B. OTHE R INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated herein by reference to the sections entitled “ELECTION OF DIRECTORS-General,” “ELECTION OF DIRECTORS-Director Nominees," " ELECTION OF DIRECTORS-Additional Executive Officers,” “-CORPORATE GOVERNANCE MATTERS-Code of Business Conduct and Ethics,” “CORPORATE GOVERNANCE MATTERS-Board of Directors’ Meetings and Committees - The Audit Committee,” and “Delinquent Section 16(a) Reports” in our definitive proxy statement filed with the SEC with respect to our Annual Meeting of Stockholders to be held on May 7, 2020.
Our Board of Directors has determined that each of A. Larry Chapman, an independent director and chairman of the audit committee, and Matthew S. Dominski, Richard J. Lieb and Carolyn B. Tiffany, each, an independent director and member of the audit committee, qualifies as an “audit committee financial expert” as such term is defined by the rules of the Commission.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the sections entitled “DIRECTOR COMPENSATION,” “EXECUTIVE COMPENSATION,” “REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS” and “Compensation Committee Interlocks and Insider Participation” in our definitive proxy statement filed with the Commission with respect to our Annual Meeting of Stockholders to be held on May 7, 2020.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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, 2019”, in our definitive proxy statement filed with the Commission with respect to our Annual Meeting of Stockholders to be held on May 7, 2020.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated herein by reference to the sections entitled “CORPORATE GOVERNANCE MATTERS-Director Independence” and “CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS”, in our definitive proxy statement filed with the Commission with respect to our Annual Meeting of Stockholders to be held on May 7, 2020.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated herein by reference to the section entitled “Independent Registered Public Accountants’ Fees and Services” under “RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS” in our definitive proxy statement filed with the Commission with respect to our Annual Meeting of Stockholders to be held on May 7, 2020.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
None.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of CBL & Associates Properties, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CBL & Associates Properties, Inc. and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations, equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 9, 2020
We have served as the Company's auditor since 2002.
CBL & Associates Properties, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
(1)
As of December 31, 2019, includes $ 370,629 of assets related to consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and $ 177,506 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Company. See Note 10 .
The accompanying notes are an integral part of these consolidated statements.
CBL & Associates Properties, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
The accompanying notes are an integral part of these consolidated statements.
CBL & Associates Properties, Inc.
Consolidated Statements of Equity
(in thousands, except share data)
CBL & Associates Properties, Inc.
Consolidated Statements of Equity
(Continued)
(in thousands, except share data)
The accompanying notes are an integral part of these consolidated statements.
CBL & Associates Properties, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(1)
Included in intangible lease assets and other assets in the consolidated balance sheets
The accompanying notes are an integral part of these consolidated statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Unit Holders of CBL & Associates Limited Partnership
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CBL & Associates Limited Partnership and subsidiaries (the "Partnership") as of December 31, 2019 and 2018, the related consolidated statements of operations, capital, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Partnership's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2020, expressed an unqualified opinion on the Partnership’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the Partnership's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 9, 2020
We have served as the Partnership's auditor since 2013.
CBL & Associates Limited Partnership
Consolidated Balance Sheets
(In thousands)
(1)
As of December 31, 2019, includes $ 370,629 of assets related to consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and $ 177,506 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Operating Partnership. See Note 10 .
The accompanying notes are an integral part of these consolidated statements.
CBL & Associates Limited Partnership
Consolidated Statements of Operations
(In thousands, except per unit data)
The accompanying notes are an integral part of these consolidated statements.
CBL & Associates Limited Partnership
Consolidated Statements of Capital
(in thousands)
CBL & Associates Limited Partnership
Consolidated Statements of Capital
(Continued)
(in thousands)
The accompanying notes are an integral part of these consolidated statements.
CBL & Associates Limited Partnership
Consolidated Statements of Cash Flows
(In thousands)
(1)
Included in intangible lease assets and other assets in the consolidated balance sheets
The accompanying notes are an integral part of these consolidated statements.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(In thousands, except share and unit data)
NOTE 1. ORGANIZATION
CBL & Associates Properties, Inc. ("CBL"), a Delaware corporation, is a self-managed, self-administered, fully-integrated real estate investment trust ("REIT") that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers, office buildings and other properties. Its Properties are located in 26 states, but are primarily in the southeastern and midwestern United States.
CBL conducts substantially all of its business through CBL & Associates Limited Partnership (the "Operating Partnership"), which is a variable interest entity ("VIE"). The Operating Partnership consolidates the financial statements of all entities in which it has a controlling financial interest or where it is the primary beneficiary of a VIE. As of December 31, 2019, the Operating Partnership owned interests in the following Properties:
(1)
Category consists of regional malls, open-air centers and outlet centers (including one mixed-use center) (the "Malls").
(2)
Includes CBL's two corporate office buildings.
(3)
The Operating Partnership accounts for these investments using the equity method because one or more of the other partners have substantive participating rights.
At December 31, 2019, the Operating Partnership had an interest in two self-storage facilities that were under development (the "Construction Properties"). See Note 7
for more information on these developments, which are owned by unconsolidated affiliates.
The Malls, All Other Properties ("Associated Centers, Community Centers, Office Buildings and Other") and the Construction Properties are collectively referred to as the “Properties” and individually as a “Property.”
CBL is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At December 31, 2019, CBL Holdings I, Inc., the sole general partner of the Operating Partnership, owned a 1.0% general partner interest in the Operating Partnership and CBL Holdings II, Inc. owned an 86.0% limited partner interest for a combined interest held by CBL of 87.0%.
As used herein, the term "Company" includes CBL & Associates Properties, Inc. and its subsidiaries, including CBL & Associates Limited Partnership and its subsidiaries, unless the context indicates otherwise. The term "Operating Partnership" refers to CBL & Associates Limited Partnership and its subsidiaries.
On November 3, 1993, CBL completed an initial public offering (the “Offering”). Simultaneously with the completion of the Offering, CBL & Associates, Inc., its shareholders and affiliates and certain senior officers of the Company (collectively, “CBL’s Predecessor”) transferred substantially all of their interests in certain real estate properties to CBL & Associates Limited Partnership (the “Operating Partnership”) in exchange for common units of limited partner interest in the Operating Partnership. At December 31, 2019, CBL’s Predecessor owned a 9.1% limited partner interest and third parties owned a 3.9% limited partner interest in the Operating Partnership. CBL’s Predecessor also owned 4.3 million shares of the Company's common stock at December 31, 2019, for a total combined effective interest of 11.2% in the Operating Partnership.
The Operating Partnership conducts the Company's property management and development activities through its wholly owned subsidiary, CBL & Associates Management, Inc. (the “Management Company"), to comply with certain requirements of the Internal Revenue Code.
Reclassifications
Certain reclassifications have been made to amounts in the Company's prior-year financial statements to conform to the current period presentation.
T he Company reclassified minimum rents of $ 588,007 and $ 624,161 , percentage rents of $ 11,759 and $ 11,874 , other rents of $ 12,034 and $ 19,008
and tenant reimbursements of $ 217,313 and $ 254,552 into one line item, rental revenues, for the years ended December 31, 2018 and December 31, 2017 , respectively, related to the adoption of ASC 842.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This Form 10-K provides separate consolidated financial statements for the Company and the Operating Partnership. Due to the Company's ability as general partner to control the Operating Partnership, the Company consolidates the Operating Partnership within its consolidated financial statements for financial reporting purposes. The notes to consolidated financial statements apply to both the Company and the Operating Partnership, unless specifically noted otherwise.
The accompanying consolidated financial statements include the consolidated accounts of the Company, the Operating Partnership and their wholly owned subsidiaries, as well as entities in which the Company has a controlling financial interest or entities where the Company is deemed to be the primary beneficiary of a VIE. For entities in which the Company has less than a controlling financial interest or entities where the Company is not deemed to be the primary beneficiary of a VIE, the entities are accounted for using the equity method of accounting. Accordingly, the Company's share of the net earnings or losses of these entities is included in consolidated net income (loss). The accompanying consolidated financial statements have been prepared in accordance with GAAP. All intercompany transactions have been eliminated.
Accounting Guidance Adopted
Accounting Guidance Not Yet Effective
Real Estate Assets
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 amount of time applicable personnel work on the development project. Ordinary repairs and maintenance are expensed as incurred. Major replacements and improvements are capitalized and depreciated over their estimated useful lives.
All acquired real estate assets have been accounted for using the acquisition method of accounting and accordingly, the results of operations are included in the consolidated statements of operations from the respective dates of acquisition. The Company allocates the purchase price to (i) tangible assets, consisting of land, buildings and improvements, as if vacant, and tenant improvements, and (ii) identifiable intangible assets and liabilities, generally consisting of above-market leases, in-place leases and tenant relationships, which are included in intangible lease assets and other assets, and below-market leases, which are included in accounts payable and accrued liabilities. The Company uses estimates of fair value based on estimated cash flows, using appropriate discount rates, and other valuation techniques to allocate the purchase price to the acquired tangible and intangible assets. Liabilities assumed generally consist of mortgage debt on the real estate assets acquired. Assumed debt is recorded at its fair value based on estimated market interest rates at the date of acquisition. The Company expects its future acquisitions will be accounted for as acquisitions of assets in which related transaction costs will be capitalized.
Depreciation is computed on a straight-line basis over estimated lives of 40 years for buildings,
10 - 20 years
for certain improvements and
7 - 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 generally amortized over the remaining terms of the related leases. The amortization of above- and below-market leases is recorded as an adjustment to rental revenue, while the amortization of all other lease-related intangibles is recorded as amortization expense. Any difference between the face value of the debt assumed and its fair value is amortized to interest expense over the remaining term of the debt using the effective interest method.
The Company’s intangibles and their balance sheet classifications as of December 31, 2019 and 2018, are summarized as follows:
These intangibles are related to specific tenant leases. Should a termination occur earlier than the date indicated in the lease, the related unamortized intangible assets or liabilities, if any, related to the lease are recorded as expense or income, as applicable. The total net amortization expense of the above intangibles was $ 4,506, $ 13,282 and $ 13,256 in 2019, 2018 and 2017, respectively. The estimated total net amortization expense for the next five succeeding years is $ 1,848 in 2020, $ 1,256 in 2021, $ 1,003 in 2022, $ 804 in 2023 and $ 786 in 2024.
Total interest expense capitalized was $ 2,504, $ 3,225 and $ 2,314 in 2019, 2018 and 2017, respectively.
Carrying Value of Long-Lived Assets
The Company monitors events or changes in circumstances that could indicate the carrying value of a long-lived asset may not be recoverable. When indicators of potential impairment are present that suggest that the carrying amounts of a long-lived asset may not be recoverable, the Company assesses the recoverability of the asset by determining whether the asset’s carrying value will be recovered through the estimated undiscounted future cash flows expected from the Company’s probability weighted use of the asset and its eventual disposition. In the event that such undiscounted future cash flows do not exceed the carrying value, the Company adjusts the carrying value of the long-lived asset to its estimated fair value and recognizes an impairment loss. The estimated fair value is calculated based on the following information, in order of preference, depending upon availability: (Level 1) recently quoted market prices, (Level 2) market prices for comparable properties, or (Level 3) the present value of future cash flows, including estimated salvage value. Certain of the Company’s long-lived assets may be carried at more than an amount that could be realized in a current disposition transaction. The Company estimates future operating cash flows, the terminal capitalization rate and the discount rate, among other factors. As these assumptions are subject to economic and market uncertainties, they are difficult to predict and are subject to future events that may alter the assumptions used or management’s estimates of future possible outcomes. Therefore, the future cash flows estimated in the Company’s impairment analyses may not be achieved. See Note 16
for information related to the impairment of long-lived assets in 2019, 2018 and 2017.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less as cash equivalents.
Restricted Cash
Restricted cash of $ 26,242 and $ 32,374 was included in intangible lease assets and other assets at December 31, 2019 and 2018, respectively. Restricted cash consists primarily of cash held in escrow accounts for insurance, real estate taxes, capital expenditures and tenant allowances as required by the terms of certain mortgage notes payable.
Estimated Uncollectable Accounts
The Company periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are realizable based on factors affecting the collectability of those balances.
The Company’s estimate of the allowance for doubtful accounts prior to the adoption of ASC 842 require d management to exercise significant judgment about the timing, frequency and severity of collection losses, which affect s net income . The Company recorded provision for doubtful accounts of $ 4,817 and $ 3,782 for 2018 and 2017, respectively.
Upon adoption of ASC 842 on January 1, 2019, the Company began recognizing changes in the collectability assessment of its amounts due from tenants as a reduction of rental revenues, rather than as a property operating expense. Management is required to exercise significant judgment about the timing, frequency and severity of collection losses, which affects the net income. If a lessee’s accounts receivable balance is considered uncollectable, the Company writes off the receivable balances associated with the lease and recognizes lease income on a cash basis. The Company recognized $ 3,463
of uncollectable operating lease receivables as a reduction of rental revenues in 2019.
Investments in Unconsolidated Affiliates
The Company evaluates its joint venture arrangements to determine whether they should be recorded on a consolidated basis. The percentage of ownership interest in the joint venture, an evaluation of control and whether a VIE exists are all considered in the Company’s consolidation assessment.
Initial investments in joint ventures that are in economic substance a capital contribution to the joint venture are recorded in an amount equal to the cash contributed by the Company and the fair value of any real estate contributed. Initial investments in joint ventures that are in economic substance the sale of a portion of the Company’s interest in the real estate are accounted for as a contribution of real estate recorded in an amount equal to the fair value of the ownership interest retained and as a sale of real estate with profit recognized to the extent of the other joint venture partners’ interests in the joint venture. Profit recognition assumes the Company has no commitment to reinvest with respect to the percentage of the real estate sold and the accounting requirements of the full accrual method are met.
The Company accounts for its investment in joint ventures where it owns a noncontrolling interest or where it is not the primary beneficiary of a VIE using the equity method of accounting. Under the equity method, the Company’s cost of investment is adjusted for additional contributions to and distributions from the unconsolidated affiliate, as well as its share of equity in the earnings of the unconsolidated affiliate. Generally, distributions of cash flows from operations and capital events are first made to partners to pay cumulative unpaid preferences on unreturned capital balances and then to the partners in accordance with the terms of the joint venture agreements.
On a periodic basis, the Company assesses whether there are any indicators that the fair value of the Company's investments in unconsolidated affiliates may be impaired. An investment is impaired only if the Company’s estimate of the fair value of the investment is less than the carrying value of the investment and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the investment over the estimated fair value of the investment. The Company's estimates of fair value for each investment are based on a number of assumptions that are subject to economic and market uncertainties including, but not limited to, demand for space, competition for tenants, changes in market rental rates, and operating costs. As these factors are difficult to predict and are subject to future events that may alter the Company’s assumptions, the fair values estimated in the impairment analyses may not be realized. No impairments of investments in unconsolidated affiliates were recorded in 2019 and 2017. In 2018, the Company recorded an impairment of $ 1,022 as its share of the loss on impairment recognized by the unconsolidated joint venture. The Company recorded a gain on deconsolidation of investments of $ 67,242 in 2019. The Company recorded a loss on investment of $ 6,197 in 2017. See Note 7 for additional information.
Deferred Financing Costs
Net deferred financing costs related to the Company's lines of credit of $ 9,062 and $ 2,005 were included in intangible lease assets and other assets at December 31, 2019 and 2018, respectively. Net deferred financing costs related to the Company's other indebtedness of $ 16,148 and $ 15,963 were included in net mortgage and other indebtedness at December 31, 2019 and 2018, respectively. Deferred financing costs include fees and costs incurred to obtain financing and are amortized on a straight-line basis to interest expense over the terms of the related indebtedness. Amortization expense related to deferred financing costs was $ 7,000, $ 6,120 and $ 5,918 in 2019, 2018 and 2017, respectively. Accumulated amortization of deferred financing costs was $ 17,175 and $ 22,098 as of December 31, 2019 and 2018, respectively.
Revenue Recognition
See Note 3
for a description of the Company's revenue streams.
Gain on Sales of Real Estate Assets
Gains on the sale of real estate assets, like all non-lease related revenue, are subject to a five-step model requiring that the Company identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue upon satisfaction of the performance obligations. In circumstances where the Company contracts to sell a property with material post-sale involvement, such involvement must be accounted for as a separate performance obligation in the contract and a portion of the sales price allocated to each performance obligation. When the post-sale involvement performance obligation is satisfied, the portion of the sales price allocated to it will be recognized as gain on sale of real estate assets. Property dispositions with no continuing involvement will continue to be recognized upon closing of the sale.
Income Taxes
The Company is qualified as a REIT under the provisions of the Internal Revenue Code. To maintain qualification as a REIT, the Company is required to distribute at least 90% of its taxable income to shareholders and meet certain other requirements.
As a REIT, the Company is generally not liable for federal corporate income taxes. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal and state income taxes on its taxable income at regular corporate tax rates. Even if the Company maintains its qualification as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed income. State tax expense was $ 3,682, $ 4,147 and $ 3,772 during 2019, 2018 and 2017, respectively.
The Company has also elected taxable REIT subsidiary status for some of its subsidiaries. This enables the Company to receive income and provide services that would otherwise be impermissible for REITs. For these entities, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for deferred tax assets is provided if the Company believes all or some portion of the deferred tax asset may not be realized. An increase or decrease in the valuation allowance that results from the change in circumstances that causes a change in our judgment about the realizability of the related deferred tax asset is included in income or expense, as applicable.
The Company recorded an income tax benefit (provision) as follows for the years ended December 31, 2019, 2018 and 2017:
The Company had a net deferred tax asset of $ 15,117 and $ 20,133 at December 31, 2019 and 2018, respectively. In 2018, the Company recorded a cumulative effect adjustment in the amount of $ 11,433 related to the January 1, 2018 adoption of ASU 2016-16. The net deferred tax asset at December 31, 2019 and 2018 is included in intangible lease assets and other assets.
These deferred tax balances primarily consist of differences between book and tax related to the basis of real estate assets, depreciation expense and operating expenses, as well as net operating loss carryforwards. As of December 31, 2019, tax years that generally remain subject to examination by the Company’s major tax jurisdictions include 2019, 2018, 2017 and 2016.
The Company reports any income tax penalties attributable to its Properties as property operating expenses and any corporate-related income tax penalties as general and administrative expenses in its consolidated statements of operations. In addition, any interest incurred on tax assessments is reported as interest expense. The Company incurred nominal interest and penalty amounts in 2019, 2018 and 2017.
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 accounted for more than 4.5% of the Company’s total consolidated revenues in 2019.
Earnings per Share and Earnings per Unit
Earnings per Share of the Company
Basic earnings per share ("EPS") is computed by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS assumes the issuance of common stock for all potential dilutive common shares outstanding. The limited partners’ rights to convert their noncontrolling interests in the Operating Partnership into shares of common stock are not dilutive.
Performance stock units ("PSUs") are contingently issuable common shares and are included in earnings per share if the effect is dilutive. See Note 17
for a description of the long-term incentive program that these units relate to. There were no potential dilutive common shares and no anti-dilutive shares for the year ended December 31, 2019. The effect of 102,820 contingently issuable common shares related to PSUs for the year ended December 31, 2018 were excluded from the computation of diluted EPS because the effect would have been anti-dilutive. There were no potential dilutive common shares and no anti-dilutive shares for the year ended December 31, 2017.
Earnings per Unit of the Operating Partnership
Basic earnings per unit ("EPU") is computed by dividing net income (loss) attributable to common unitholders by the weighted-average number of common units outstanding for the period. Diluted EPU assumes the issuance of common units for all potential dilutive common units outstanding. PSUs are contingently issuable common shares and are included in earnings per share if the effect is dilutive. See Note 17
for a description of the long-term incentive program that these units relate to. There were no potential dilutive common units and no anti-dilutive units for the year ended December 31, 2019. The effect of 102,820 contingently issuable common units related to PSUs for the year ended December 31, 2018 were excluded from the computation of diluted EPS because the effect would have been anti-dilutive. There were no potential dilutive common units and no anti-dilutive units for the year ended December 31, 2017.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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.
NOTE 3. REVENUES
Contract Balances
A summary of the Company's contract assets activity during the year ended December 31, 2019 is presented below:
A summary of the Company's contract liability activity during the year ended December 31, 2019 is presented below:
The Company has the following contract balances as of December 31, 2019:
(1)
Represents leasing fees recognized as revenue in the period in which the lease is executed. Under third party and unconsolidated affiliates' contracts, the remaining 50% of the commissions are paid when the tenant opens. The tenant typically opens within a year, unless the project is in development.
(2)
Relates to a contract with a vendor in which the Company received advance payments in the initial years of the multi-year contracts.
Revenues
The following table presents the Company's revenues disaggregated by revenue source:
(1)
Revenues from leases that commenced subsequent to December 31, 2018 are accounted for in accordance with ASC 842, Leases , whereas all leases existing prior to that date are accounted for in accordance with ASC 840. See Note 4 .
(2)
Includes $ 9,404 in the Malls segment and $ 379 in the All Other segment for the year ended December 31, 2019. Includes $ 5,873 in the Malls segment and $ 2,561 in the All Other segment for the year ended December 31, 2018. See description below.
(3)
Included in All Other segment.
(4)
Marketing revenues solely relate to the Malls segment for the year ended December 31, 2019. Includes $ 6,255 in the Malls segment and $ 31 in the All Other segment for the year ended December 31, 2018.
(5)
Sales taxes are excluded from revenues.
See Note 12
for information on the Company's segments.
Revenue from Contracts with Customers
Operating expense reimbursements
Under operating and other agreements with third parties, which own anchor or outparcel buildings at the Company's properties and pay no rent, the Company receives reimbursements for certain operating expenses such as ring road and parking area maintenance, landscaping and other fees. These arrangements are primarily either set at a fixed rate with rate increases typically every five years or are on a variable (pro rata) basis, typically as a percentage of costs allocated based on square footage or sales. The majority of these contracts have an initial term and one or more extension options, which cumulatively approximate 50 or more years as historically the initial term and any extension options are typically reasonably certain of being executed by the third party. The standalone selling price of each performance obligation is determined based on the terms of the contract, which typically assigns a price to each performance obligation that directly relates to the value the customer receives for the services being provided.
Revenue is recognized as services are transferred to the customer. Variable consideration is based on historical experience and is generally recognized over time using the cost-to-cost method of measurement because it most accurately depicts the Company's performance in satisfying the performance obligation. The cumulative catch-up method is used to recognize any adjustments in variable consideration estimates. Under this method, any adjustment is recognized in the period it is identified.
Management, development and leasing fees
The Company earns revenue from contracts with third parties and unconsolidated affiliates for property management, leasing, development and other services. These contracts are accounted for on a month-to-month basis if the agreement does not contain substantive penalties for termination. The majority of the Company's contracts with customers
are accounted for on a month-to-month basis. The standalone selling price of each performance obligation is determined based on the terms of the contract, which typically assigns a price to each performance obligation that directly relates to the value the customer receives for the services being provided. These contracts generally are for the following:
•
Management fees - Management fees are charged as a percentage of revenues (as defined in the contract) and recognized as revenue over time as services are provided.
•
Leasing fees - Leasing fees are charged for newly executed leases and lease renewals and are recognized as revenue upon lease execution, when the performance obligation is completed. In cases for which the agreement specifies 50% of the leasing commission will be paid upon lease execution with the remainder paid when the tenant opens, the Company estimates the amount of variable consideration it expects to receive by evaluating the likelihood of tenant openings using the most likely amount method and records the amount as an unbilled receivable (contract asset).
•
Development fees - Development fees may be either set as a fixed rate in a separate agreement or be a variable rate based on a percentage of work costs. Variable consideration related to development fees is generally recognized over time using the cost-to-cost method of measurement because it most accurately depicts the Company's performance in satisfying the performance obligation. Contract estimates are based on various assumptions including the cost and availability of materials, anticipated performance and the complexity of the work to be performed. The cumulative catch-up method is used to recognize any adjustments in variable consideration estimates. Under this method, any adjustment is recognized in the period it is identified.
Development and leasing fees received from an unconsolidated affiliate are recognized as revenue only to the extent of the third-party partner’s ownership interest. The Company's share of such fees are recorded as a reduction to the Company’s investment in the unconsolidated affiliate.
Marketing revenues
The Company earns marketing revenues from advertising and sponsorship agreements. These fees may be for tangible items in which the Company provides advertising services and creates signs and other promotional materials for the tenant or may be arrangements in which the customer sponsors a play area or event and receives specified brand recognition and other benefits over a set period of time. Revenue related to advertising services is recognized as goods and services are provided to the customer. Sponsorship revenue is recognized on a straight-line basis over the time period specified in the contract.
Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. If the contract does not specify the revenue by performance obligation, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price. Such prices are generally determined using prices charged to customers or using the Company’s expected cost plus margin. Revenue is recognized as the Company’s performance obligations are satisfied over time, as services are provided, or at a point in time, such as leasing a space to earn a commission. Open performance obligations are those in which the Company has not fully or has partially provided the applicable good or services to the customer as specified in the contract. If consideration is received in advance of the Company’s performance, including amounts which are refundable, recognition of revenue is deferred until the performance obligation is satisfied or amounts are no longer refundable.
Practical Expedients
The Company does not disclose the value of open performance obligations for (1) contracts with an original expected duration of one year or less and (2) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice, which primarily relate to services performed for certain operating expense reimbursements and management, leasing and development activities, as described above. Performance obligations related to pro rata operating expense reimbursements for certain noncancellable contracts are disclosed below.
Outstanding Performance Obligations
The Company has outstanding performance obligations related to certain noncancellable contracts with customers for which it will receive fixed operating expense reimbursements for providing certain maintenance and other services as described above. As of December 31, 2019, the Company expects to recognize these amounts as revenue over the following periods:
The Company evaluates its performance obligations each period and makes adjustments to reflect any known additions or cancellations. Performance obligations related to variable consideration, which is based on sales, are constrained.
Note 4 - Leases
Adoption of ASU 2016-02, and all related subsequent amendments
The Company adopted ASC 842 (which includes ASU 2016-02 and all related subsequent amendments) on January 1, 2019 and applied the guidance to leases that commenced on or after January 1, 2019. Historical amounts for prior periods were not adjusted and will continue to be reported using the guidance in ASC 840, Leases .
To determine whether a contract contained a lease, the Company evaluated its contracts and verified that there was an identified asset and that the Company, or the tenant, had the right to obtain substantially all the economic benefits from the use of the asset throughout the contract term. If a contract was determined to contain a lease and the Company was a lessee, the lease was evaluated to determine whether it was an operating or financing lease. If a contract was determined to contain a lease and the Company was a lessor, the lease was evaluated to determine whether it was an operating, direct financing or sales-type lease. After determining that the contract contained a lease, the Company identified the lease component and any nonlease components associated with that lease component, and through the Company’s election to combine lease and nonlease components for all asset classes, combined the components into a single lease component within each applicable lease where the Company was the lessor.
The discount rate to be used for each lease was determined by assessing the Company’s debt information, assessing the credit rating of the Company and the Company’s debt, estimating a synthetic “secured” credit rating for the Company and estimating an appropriate incremental borrowing rate. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.
See Note 2
for additional information about this accounting standard.
Lessor
Rental Revenues
The majority of the Company’s revenues are earned through the lease of space at its properties. All of the Company's leases with tenants for the use of space at our properties are classified as operating leases. Rental revenues include minimum rent, percentage rent, other rents and reimbursements from tenants for real estate taxes, insurance, common area maintenance ("CAM") and other operating expenses as provided in the lease agreements. The option to extend or terminate our leases is specific to each underlying tenant lease agreement. Typically, the Company's leases contain penalties for early termination. The Company doesn't have any leases that convey the right for the lessee to purchase the leased asset.
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, CAM and other recoverable operating expenses as provided in the lease agreements. Any tenant reimbursements that require fixed payments are recognized on a straight-line basis over the initial terms of the related leases, whereas any variable payments are recognized when earned in accordance with the tenant lease agreements. Tenant reimbursements related to certain capital expenditures are billed to tenants over periods of 5 to 15 years.
Additionally, ASU 2018-19 clarifies that operating lease receivables are within the scope of ASC 842. Therefore, in conjunction with our adoption of ASC 842 on January 1, 2019, the Company began recognizing changes in the collectability assessment of its operating lease receivables as a reduction of rental revenues, rather than as a property operating expense.
The components of rental revenues are as follows:
The undiscounted future fixed lease payments to be received under the Company's operating leases as of December 31, 2019, are as follows:
As required by the Comparatives Under ASC 840 Option, which is a transitional amendment that allows for the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), the Company's future minimum rental income from lessees under non-cancellable operating leases where the Company is the lessor as of December 31, 2018 is also presented below:
Lessee
The Company has eight ground leases and one office lease in which it is a lessee. The maturities of these leases range from 2021 to 2089 and generally provide for renewal options ranging from
five to ten years.
We included the renewal options in our lease terms for purposes of calculating our lease liability and ROU asset because we have no plans to cease operating our assets associated with each ground lease. The ground leases relate to properties where the Company owns the buildings and improvements, but leases the underlying land. The lease payments on the majority of the ground leases are fixed, but in the instances where they are variable they are either based on the CPI index or a percentage of sales. The office lease is subleased as of December 31, 2019. As of December 31, 2019, these leases have a weighted-average remaining lease term of 39.9 years and a weighted-average discount rate of 8.1%.
The Company's ROU asset and lease liability are presented in the consolidated balance sheets within intangible lease assets and other assets and accounts payable and accrued liabilities, respectively.
A summary of the Company's ROU asset and lease liability activity during the year ended December 31 , 2019 is presented below:
The components of lease expense are presented below:
The undiscounted future lease payments to be paid under the Company's operating leases as of December 31, 2019, are as follows:
As required by the Comparatives Under ASC 840 Option, which is a transitional amendment that allows for the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), the Company's future obligations to be paid under the Company's operating leases where the Company is the lessee as of December 31, 2018 is also presented below:
Practical Expedients
In regard to leases that commenced before January 1, 2019, the Company elected to use a package of practical expedients to not reassess whether any expired or existing contracts are or contain a lease, to not reassess lease classification for any expired or existing leases, and to not reassess initial direct costs for any existing leases. The Company also elected a practical expedient to not assess whether existing or expired land easements that were not previously accounted for as leases under ASC 840 are or contain a lease under ASC 842. Additionally, the Company elected a
practical expedient by class of underlying asset applied to all leases to elect not to separate lease and nonlease components as long as the lease and at least one nonlease component have the same timing and pattern of transfer and the lease is classified as an operating lease. The combined component is being accounted for under ASC 842. The Company made an accounting policy election to exclude sales and other similar taxes from revenues, and instead account for them as costs of the lessee. Lastly, the Company has elected not to apply the recognition requirements of ASC 842 to short-term leases.
See Note 2
for additional information about this accounting standard.
NOTE 5. ACQUISITIONS
Since the adoption of ASU 2017-01, Clarifying the Definition of a Business , as of January 1, 2017, the Company's acquisitions of shopping center and other properties have been accounted for as acquisitions of assets. The Company includes the results of operations of real estate assets acquired in the consolidated statements of operations from the date of the related acquisition.
2019 Acquisition
In October 2019, the Company acquired the former Boston store located at West Towne Mall for $ 5,700 in cash. The Company plans to redevelop this space.
2018 Acquisition
In February 2018, the Company acquired the former Bon-Ton store located at Westmoreland Mall for $ 3,250 in cash. The Company is redeveloping this space.
2017 Acquisitions
JG Gulf Coast LLC
In December 2017, the Company was assigned its partner's 50% interest in Gulf Coast Town Center - Phase III for no consideration. The unconsolidated affiliate was previously accounted for using the equity method of accounting (see Note 7
). As of the December 31, 2017 assignment date, the wholly owned joint venture was accounted for on a consolidated basis in the Company's operations. The Company recorded $ 2,818 of net assets at their carry-over basis, which included $ 4,118 related to a mortgage note payable to the Company. The Property was sold in March 2018. See
Note 6
for more information.
Sears and Macy's stores
In January 2017, the Company acquired several Sears and Macy's stores, which included land, buildings and improvements, for future redevelopment at the related malls.
The Company purchased five Sears department stores and two Sears Auto Centers for $ 72,765 in cash, which included $ 265 of capitalized transaction costs. Sears continued to operate the department stores in 2017 under new ten-year leases for which the Company received aggregate annual base rent of $ 5,075. Annual base rent was to be reduced by 0.25% for the third through tenth years of the leases. Sears was responsible for paying CAM charges, taxes, insurance and utilities under the terms of the leases. The Company had the right to terminate each Sears lease at any time (except November 15 through January 15, in any given year), with six month's advance notice. With six month's advance notice, Sears had the right to terminate one lease after a four -year period and could terminate the four other leases after a two -year period.
Of the five sale leasebacks described above, one of these locations closed in 2018. The Company terminated the Sears lease and redeveloped the former Sears store at Brookfield Square in 2018. The redevelopment opened in October 2019. Four other Sears stores closed in 2019. The Company commenced construction on the redevelopment of the former Sears at Hamilton Place in 2019 with an anticipated opening date in spring 2020. Construction is expected to begin on the redevelopment of the former Sears at Cross Creek Mall in 2020, with an opening anticipated in 2021. The Company is in the planning stages for the redevelopment of the remaining locations. The leases on the Sears Auto Centers were terminated by the Company, in accordance with the terms of the Company's agreement with Sears, and the Company has completed redevelopment of both locations.
The Company also acquired four Macy's stores in 2017 for $ 7,034 in cash, which included $ 34 of capitalized transaction costs. Three of these locations closed in March 2017, with two having redevelopments completed in 2019. The
title to the property of one of these locations was transferred to the mortgage holder in satisfaction of the non-recourse debt secured by the property. The remaining location is in the planning stages of redevelopment.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the respective acquisition dates:
NOTE 6. DISPOSITIONS AND HELD FOR SALE
The Company evaluates its disposals utilizing the guidance in ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . Based on its analysis, the Company determined that the dispositions described below do not meet the criteria for classification as discontinued operations and are not considered to be significant disposals based on its quantitative and qualitative evaluation. Thus, the results of operations of the shopping center Properties described below, as well as any related gain or loss, are included in net income (loss) for all periods presented, as applicable.
2019 Dispositions
Net proceeds realized from the 2019 dispositions listed below were used to reduce outstanding balances on the Company's credit facility, unless otherwise noted. The following is a summary of the Company's 2019 dispositions:
(1)
See below for more information regarding the sale of Cary Towne Center.
( )
The Company recognized a loss on impairment of $ 2,284 in March 2019 when it adjusted the book value of the mall to the net sales price based on a signed contract with a third-party buyer and recognized $( 239) in April 2019 related to a true-up of closing costs. See
Note 16 for additional information.
( )
The Company recognized a loss of impairment of $ 8,582 in June 2019 when it adjusted the book value to the net sales price based on a signed contract with a third-party buyer, adjusted to reflect the estimated disposition costs. See Note 16 for additional information.
The Company realized gains of $ 6,434 related to the sale of five outparcels and a gain of $ 1,627 related to the formation of three joint ventures during the year ended December 31, 2019. Also, the Company realized a loss of $ 33 related to prior period adjustments.
The Company recognized a gain on extinguishment of debt for the properties listed below, which represented the amount by which the outstanding debt balance exceeded the net book value of the property as of the transfer date. See Note 8
for more information.
(1)
The Company transferred title to the mall to the mortgage holder in satisfaction of the non-recourse debt secured by the property. A loss on impairment of real estate of $ 43,007 was recorded in 2017 to write down the book value of the mall to its then estimated fair value. The Company also recorded $ 305 of aggregate non-cash default interest expense during the first quarter of 2019.
(2)
The Company sold the mall for $ 31,500 and the net proceeds from the sale were used to satisfy a portion of the loan secured by the mall. The remaining principal balance was forgiven. The Company recorded a loss on impairment of real estate of $ 54,678 during 2018 to write down the book value of the mall to its then estimated fair value. The Company also recorded $ 237 of aggregate non-cash default interest expense during the first quarter of 2019.
In a separate transaction during January 2019, the Company also sold an anchor store parcel and vacant land at Acadiana Mall, which were not collateral on the loan, for a cash price of $ 4,000. A loss on impairment of real estate of $ 1,593 was recorded in 2018 to write down the book value of the anchor store parcel and vacant land to its then estimated fair value.
2018 Dispositions
Net proceeds realized from the 2018 dispositions listed below were used to reduce the outstanding balances on the Company's credit facilities, unless otherwise noted. The following is a summary of the Company's 2018 dispositions:
(1)
The Company recognized a loss on impairment of $ 18,061 in 2018 when it adjusted the book value of the mall to its estimated fair value based upon a contract with a third-party buyer, adjusted to reflect disposition costs. See Note 16
additional information.
(2)
In conjunction with the sale of this 50/ 50 consolidated joint venture, the loan secured by the community center was retired. The Company received 100% of the net proceeds from the sale in accordance with the terms of the joint venture agreement.
(3)
The Company received additional consideration per the terms of the sales contract related to the completion of an outparcel construction project. See 2017 Dispositions below for discussion of the sale of College Square in 2017.
The Company also realized a gain of $ 11,530 primarily related to the sale of 12 outparcels and from several outparcels sold through eminent domain proceedings during the year ended December 31, 2018.
2018 Held for Sale
Cary Towne Center was classified as held for sale at December 31, 2018 and the $ 30,971 on the consolidated balance sheet represented the Company's net investment in real estate assets at December 31, 2018, which approximates 0.6% of the Company's total assets as of December 31, 2018. A nonrecourse loan secured by Cary Towne Center with a principal balance of $ 43,716 as of December 31, 2018 was classified on the Company's consolidated balance sheet as liabilities related to assets held for sale.
Dispositions
Net proceeds realized from the 2017 dispositions were used to reduce the outstanding balances on the Company's credit facilities, unless otherwise noted. The following is a summary of the Company's 2017 dispositions by sale:
( )
In conjunction with the sale of this 75/ 25 consolidated joint venture, three loans secured by the mall were retired. The Company's share of the gain from the sale was approximately $ 48,800. In accordance with the joint venture agreement, the joint venture partner received a priority return of $ 7,477 from the proceeds of the sale.
( )
The Company recognized a gain of $ 1,994 in the second quarter of 2017 upon the sale of the malls. This gain was partially reduced in the third quarter of 2017 due to construction costs of $ 1,448 not previously considered.
The Company also realized a gain of $ 17,812 primarily related to the sale of 12 outparcels during the year ended December 31, 2017.
The Company recognized a gain on extinguishment of debt for the Properties listed below, which represented the amount by which the outstanding debt balance exceeded the net book value of the Property as of the transfer date. The respective mortgage lender completed the foreclosure process and received title to the mall listed below in satisfaction of the non-recourse debt secured by the Property. See Note 8
for additional information.
The following is a summary of these 2017 dispositions:
NOTE 7. UNCONSOLIDATED AFFILIATES
Unconsolidated Affiliates
Although the Company had majority ownership of certain joint ventures during 2019, 2018 and 2017, it evaluated the investments and concluded that the other partners or owners in these joint ventures had substantive participating rights, such as approvals of:
•
the pro forma for the development and construction of the project and any material deviations or modifications thereto;
•
the site plan and any material deviations or modifications thereto;
•
the conceptual design of the project and the initial plans and specifications for the project and any material deviations or modifications thereto;
•
any acquisition/construction loans or any permanent financings/refinancings;
•
the annual operating budgets and any material deviations or modifications thereto;
•
the initial leasing plan and leasing parameters and any material deviations or modifications thereto; and
•
any material acquisitions or dispositions with respect to the project.
As a result of the joint control over these joint ventures, the Company accounts for these investments using the equity method of accounting.
At December 31, 2019, the Company had investments in 28 entities, which are accounted for using the equity method of accounting. The Company's ownership interest in these unconsolidated affiliates ranges from 20.0% to 65.0%. Of these entities, 17 are owned in 50 / 50 joint ventures.
2019 Activity - Unconsolidated Affiliates
Atlanta Outlet JV, LLC
In December 2019, the Company sold 25% of its interest in The Outlet Shoppes at Atlanta, in Woodstock, GA, to its existing joint venture partner for a total consideration of $ 20,778, including $ 11,440 of assumed debt. Following the sale, the Company and its joint venture partner each own a 50% interest. In addition to the sale of its interest, the Company and its joint venture partner executed an amendment to the joint venture agreement that modified certain terms of the agreement, which resulted in the Company deconsolidating this property. As a result of these transactions, the Company recognized a gain on investment/deconsolidation of $ 56,067, which was made up of a $ 12,939 gain on the sale of the Company’s 25% interest and a $ 43,128 gain related to adjusting the Company’s retained interest to fair value.
BI Development, LLC
In October 2019, the Company entered into a joint venture, BI Development, LLC, to acquire, redevelop and operate the vacant JC Penney parcel at Northgate Mall in Chattanooga, TN. The Company has a 20% membership interest in the joint venture. As of December 31, 2019, the Company made no initial capital contribution and has no future funding obligations. The unconsolidated affiliate is a variable interest entity ("VIE").
Bullseye, LLC
In September 2018, the Company entered into a joint venture, Bullseye, LLC, to develop a vacant land parcel adjacent to Hamilton Corner in Chattanooga, TN. The Company has a 20% membership interest in the joint venture. The Company made no initial investment and has no future funding obligations. The unconsolidated affiliate is a variable interest entity ("VIE").
El Paso Outlet Center Holding, LLC, and El Paso Outlet Outparcels, LLC
In August 2019, the Company sold 25% of its interest in The Outlet Shoppes at El Paso, in El Paso, TX, to its existing joint venture partner for total consideration of $ 27,750, including $ 18,525 of assumed debt. Following the sale, the Company and its joint venture partner each own a 50% interest. In addition to the sale of its interest, the Company and its joint venture partner executed an amendment to the joint venture agreement that modified certain terms of the agreement, which resulted in the Company deconsolidating this property. As a result of these transactions, the Company recognized a gain on investment/deconsolidation of $ 11,174, which was made up of a $ 3,884 gain on the sale of the Company's 25% interest and a $ 7,290 gain related to adjusting the Company's retained interest to fair value.
G&I VIII CBL Triangle LLC
In July 2019, the lender foreclosed on the loan secured by Triangle Town Center. In September 2018, the Company had reduced its investment in the unconsolidated 90/10 joint venture to zero.
Hamilton Place Self Storage, LLC
In September 2019, the Company entered into a joint venture, Hamilton Place Self Storage, LLC, to develop a self-storage facility adjacent to Hamilton Place. The Company has a 54% share in the joint venture and recorded a $ 187 loss on sale of real estate assets related to land that it contributed to the joint venture. The unconsolidated affiliate is a VIE. In conjunction with the formation of the joint venture, the unconsolidated affiliate closed on a construction loan with a total borrowing capacity of up to $ 7,002, a variable interest rate of LIBOR plus 2.75% and a maturity date of September 2024.
The Operating Partnership has guaranteed % of the construction loan, but has a back-up guaranty from its joint venture partner for % of the construction loan. See
Note 15
for more information.
Louisville Outlet Shoppes, LLC
In November 2019, the Company and its joint venture partner executed an amendment to the joint venture agreement that modified certain terms of the agreement, which resulted in the Company deconsolidating this property.
Mall of South Carolina L.P.
In November 2019, the Company and its joint venture partner closed on construction loan to construct a new building adjacent to Coastal Grand that will include Dick’s Sporting Goods and Golf Galaxy. The construction loan has a total borrowing capacity of $ 7,959, a fixed interest rate of 5.05% and a maturity date of November 2024 .
Parkdale Self Storage, LLC
In May 2019, the Company entered into a 50/50 joint venture, Parkdale Self Storage, LLC, to develop a self-storage facility adjacent to Parkdale Mall. The Company recorded gain on sale of real estate assets of $ 433 related to land that it contributed to the joint venture. The unconsolidated affiliate is a VIE. In conjunction with the formation of the joint venture, the unconsolidated affiliate closed on a construction loan with a total borrowing capacity of up to $ 6,500, a variable interest rate that is the greater of 5.25% or LIBOR plus 2.80% and a maturity date of July 2024 . The Operating Partnership has a joint and several guaranty with its joint venture partner. Therefore, the maximum guarantee is 100% of the loan. See Note 15
for more information.
Vision-CBL Hamilton Place, LLC
In November 2018, the Company entered into a 50/50 joint venture, Vision-CBL Hamilton Place, LLC, to acquire, develop and operate an Aloft by Marriott hotel adjacent to Hamilton Place. In December 2019, the Company recorded a $ 1,381 gain on sale of real estate assets related to land that it contributed to the joint venture. The unconsolidated affiliate is a VIE. See additional information in Variable Interest Entities below. In October 2019, the unconsolidated affiliate closed on a construction loan with a borrowing capacity of $ 16,800, a variable interest rate of LIBOR plus 2.45% and a maturity date of November 2024 .
2018 Activity - Unconsolidated Affiliates
CBL/T-C, LLC
In April 2018, the Company and its 50/50 joint venture partner closed on a $ 155,000 non-recourse loan secured by CoolSprings Galleria. The loan bears a fixed interest rate of 4.84% and matures on May 2028. Proceeds from the loan were used to retire an existing $ 97,732 loan, which had an interest rate of 6.98% at the repayment date and was due to mature in June 2018. The Company's share of excess proceeds was used to reduce outstanding balances on its credit facilities.
Continental 425 Fund LLC
In December 2018, the Company contributed land valued at $ 6,000 and cash of $ 7 in exchange for a 43.5% interest in Continental 425 Fund LLC. The land contributed is adjacent to The Pavilion at Port Orange, a community center located in Port Orange, FL, and is being used in the development of an apartment complex. The unconsolidated affiliate is a variable interest entity. In conjunction with the formation of the joint venture, the joint venture closed on a construction loan with a total borrowing capacity of $ 36,990, a variable interest rate of LIBOR plus 2.35% and a maturity date of December 2021 . In addition, there are two one-year extension options available at the joint venture’s election.
G&I VIII CBL Triangle LLC
In September 2018, G&I VIII CBL Triangle LLC recognized an impairment of $ 89,826 to write down Triangle Town Center's net book value of $ 123,453 to its estimated fair value of approximately $ 33,600. Management determined the fair
value using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of 10 years , with a sale occurring at the end of the holding period, a capitalization rate of 15% and a discount rate of 15% . The mall ha d experienced declining tenant sales over the past few years and wa s facing challenges from store closures. The Company recorded $ 1,022 as its share of the loss on impairment recognized by the unconsolidated joint venture, which reduced the carrying value of the Company's investment in the joint venture to zero in the third quarter of 2018.
Port Orange Town Center LLC, West Melbourne Town Center LLC and West Melbourne Holdings II, LLC
In May 2018, the $ 56,738 loan secured by The Pavilion at Port Orange, the $ 41,997 loan secured by Hammock Landing - Phase I and the $ 16,217 loan secured by Hammock Landing - Phase II were amended to extend the maturity date to February 2021. Each loan has two one-year extension options, available at the unconsolidated affiliate's election, for an outside maturity date of February 2023. The interest rate increased from a variable rate of LIBOR plus 2.0% to LIBOR plus 2.25%. The Operating Partnership's guaranty also increased to 50%.
Self-Storage at Mid Rivers, LLC
In April 2018, the Company entered into a 50/50 joint venture, Self-Storage at Mid Rivers, LLC, to develop a self-storage facility adjacent to Mid Rivers Mall. The Company recorded a $ 387 gain related to land that it contributed to the joint venture. The unconsolidated affiliate is a variable interest entity. In conjunction with the formation of the joint venture, the unconsolidated affiliate closed on a construction loan, with a borrowing capacity of $ 5,987, a variable interest rate of LIBOR plus 2.75% and a maturity date of April 2023.
2017 Activity - Unconsolidated Affiliates
Ambassador Infrastructure, LLC
In August 2019, the unconsolidated affiliate amended and modified the existing $ 11,035 loan to extend the maturity date to August 2020. The Operating Partnership has guaranteed 100% of the loan. The loan carries a variable interest rate of LIBOR plus 2.0%, but the unconsolidated affiliate has an interest rate swap on the notional amount of the loan, amortizing to $ 9,360 over the term of the swap, to effectively fix the interest rate at 3.74%.
EastGate Storage, LLC
In November 2017, the Company entered into a 50/50 joint venture, EastGate Storage, LLC with an unaffiliated partner to develop a self-storage facility adjacent to EastGate Mall. The Company contributed land with a fair value of $ 1,134 and the partner is equalizing through cash contributions. In conjunction with the formation of the joint venture, the unconsolidated affiliate closed on a construction loan with a total borrowing capacity of $ 6,500, a variable interest rate of LIBOR plus 2.75% and a maturity date of December 2022. The loan is interest only through November 2020. The self-storage facility opened in September 2018.
River Ridge Mall JV, LLC
The Company sold its 25% interest in River Ridge Mall JV, LLC ("River Ridge") to its joint venture partner for $ 9,000 in cash and the Company recorded a $ 5,843 loss on investment related to the sale of its interest and recorded an additional $ 354 loss on investment upon the sale closing in August 2017. The loss on investment is included in gain on investments in the consolidated statements of operations. The Company's property management agreement with River Ridge Mall JV, LLC ended September 30, 2017.
Shoppes at Eagle Point, LLC
The Company formed a 50/50 unconsolidated joint venture, Shoppes at Eagle Point, LLC, to develop, own and operate a community center located in Cookeville, TN. The partners contributed aggregate initial equity of $ 1,031. In October 2017, the unconsolidated affiliate closed on a construction loan with a total borrowing capacity of $ 36,400, a variable interest rate of LIBOR plus 2.75% and a maturity date of October 2020. The loan has one two-year extension option available at the unconsolidated affiliate's election, subject to compliance with the terms of the loan. The interest rate will be reduced to a variable-rate of LIBOR plus 2.35% once certain debt and operational metrics are met. In the third quarter of 2017, the land was acquired and construction began. The community center opened in November 2018.
JG Gulf Coast Town Center LLC - Phase III
In July 2017, the Company loaned the unconsolidated affiliate the amount necessary to retire the loan and received a mortgage note receivable in return. In December 2017, the Company entered into an assignment and assumption
agreement with the Company's partner in the JG Gulf Coast Town Center LLC joint venture. Under the terms of the agreement, the Company was assigned the rights and assumed the obligations of its joint venture partner with respect to its 50% interest in Gulf Coast Town Center - Phase III, a community center located in Ft. Meyers, FL. See
Note 5
for more information. The intercompany loan was eliminated in consolidation as of December 31, 2017 since the Property became wholly
owned by the Company. The property was sold in March 2018. See
Note 6
for details.
Condensed Combined Financial Statements - Unconsolidated Affiliates
Condensed combined financial statement information of the unconsolidated affiliates is as follows:
(1)
The Company's pro rata share of net income (loss) is $ 4,940, $ 14,677 and $ 22,939 for the years ended December 31, 2019, 2018 and 2017, respectively, and is included in equity in earnings of unconsolidated affiliates in the consolidated statements of operations.
See Note 15
for a description of guarantees the Operating Partnership has issued related to the unconsolidated affiliates listed below.
NOTE 8. MORTGAGE AND OTHER INDEBTEDNESS, NET
Debt of the Company
CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries that it has a direct or indirect ownership interest in is the borrower on all of the Company's debt.
CBL is a limited guarantor of the Senior Unsecured Notes, as described below, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates. The Company also provides a similar limited guarantee of the Operating Partnership's obligations with respect to its secured line of credit and
secured term loan as of December 31, 2019.
Debt of the Operating Partnership
Mortgage and other indebtedness, net, consisted of the following:
(1)
Weighted-average interest rate includes the effect of debt premiums and discounts, but excludes amortization of deferred financing costs.
(2)
The balance is net of an unamortized discount of $ 2,106 and $ 2,577, as of December 31, 2019 and 2018, respectively.
(3)
The balance is net of an unamortized discount of $ 40 and $ 47, as of December 31, 2019 and 2018, respectively.
(4)
The balance is net of an unamortized discount of $ 7,527 and $ 8,365 as of December 31, 2019 and 2018, respectively.
( )
Represents a non-recourse mortgage loan secured by Cary Towne Center that is classified on the consolidated balance sheet as liabilities related to assets held for sale. The mall was sold in January 2019. See Note 6 for more information.
Non-recourse term loans, recourse term loans, the secured line of credit and the secured term loan include loans that are secured by Properties owned by the Company that have a net carrying value of $ 2,639,827 at December 31, 2019.
Senior Unsecured Notes
(1)
Issued by the Operating Partnership. CBL is a limited guarantor of the Operating Partnership's obligations under the Notes as described above.
(2)
Interest is payable semiannually in arrears. The interest rate for the 2024 Notes and the 2023 Notes was subject to an increase ranging from 0.25% to 1.00% from time to time if, on or after January 1, 2016 and prior to January 1, 2020, the ratio of secured debt to total assets of the Company, as defined, was greater than 40% but less than 45%. The required ratio of secured debt to total assets for the 2026 Notes is 40% or less. As of December 31, 2019, this ratio was
32%.
(3)
The Notes are redeemable at the Operating Partnership's election, in whole or in part from time to time, on not less than 30 days and not more than 60 days' notice to the holders of the Notes to be redeemed. The 2026 Notes, the 2024 Notes and the 2023 Notes may be redeemed prior to September 15, 2026, July 15, 2024, and September 1, 2023 , respectively, for cash at a redemption price equal to the aggregate principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date and a make-whole premium calculated in accordance with the indenture. On or after the redemption date, the Notes are redeemable for cash at a redemption price equal to the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest. If redeemed prior to the respective dates noted above, each issuance of Notes is redeemable at the treasury rate plus 0.50%, 0.35% and 0.40% for the 2026 Notes, the 2024 Notes and the 2023 Notes, respectively.
Senior Secured Credit Facility
In January 2019, the Company entered into a new $ 1,185,000 senior secured credit facility, which includes a fully funded $ 500,000 term loan and a revolving line of credit with a borrowing capacity of $ 685,000. The facility replaced all of
the Company's prior unsecured bank facilities, which included three unsecured term loans with an aggregate balance of $ 695,000 and three unsecured revolving lines of credit with an aggregate capacity of $ 1,100,000 . At closing, the Company utilized the line of credit to reduce the principal balance of the unsecured term loan from $ 695,000 to $ 500,000 . The facility matures in July 2023 and bears interest at a variable rate of LIBOR plus 2.25%. The facility had an interest rate of 3.94 % at December 31, 2019. The Operating Partnership is required to pay an annual facility fee, to be paid quarterly, which ranges from 0.25 % to 0.35 %, based on the unused capacity of the line of credit. The principal balance on the term loan will be reduced by $ 35,000 per year in quarterly installments. At December 31, 2019, the secured line of credit had an outstanding balance of $ 310,925 and the secured term loan had an outstanding balance of $ 465,000 .
The secured credit facility is secured by 17 malls and 3 associated centers that are owned by 36 wholly owned subsidiaries of the Operating Partnership (collectively the “Combined Guarantor Subsidiaries”). The Combined Guarantor Subsidiaries own an additional five malls, two associated centers and four mortgage notes receivable that are not collateral for the secured credit facility. The properties that are collateral for the secured credit facility and the properties and mortgage notes receivable that are not collateral are collectively referred to as the “Guarantor Properties.” The terms of the Notes provide that, to the extent that any subsidiary of the Operating Partnership executes and delivers a guarantee to another debt facility, the Operating Partnership shall also cause the subsidiary to guarantee the Operating Partnership’s obligations under the Notes on a senior basis. In January 2019, the Combined Guarantor Subsidiaries entered into a guarantee agreement with the issuer of the Notes to satisfy the guaranty requirement.
Each of the Combined Guarantor Subsidiaries meet the criteria in Rule 3-10(f) of SEC Regulation S-X to provide condensed consolidating financial information as additional disclosure in the notes to the Operating Partnership's consolidated financial statements because each Combined Guarantor Subsidiary is 100% owned by the Operating Partnership, the guaranty issued by each Combined Guarantor Subsidiary is full and unconditional and the guaranty issued by each Combined Guarantor Subsidiary is joint and several. However, the Operating Partnership has elected to provide combined financial statements and accompanying notes for the Combined Guarantor Subsidiaries in lieu of including the consolidating financial information in the notes to its consolidated financial statements. These combined financial statements and notes are presented as an exhibit to this annual report on Form 10-K for ease of reference.
Fixed-Rate Debt
As of December 31, 2019, fixed-rate loans on operating Properties bear interest at stated rates ranging from 4.36% to 6.50%. Fixed-rate loans on operating Properties generally provide for monthly payments of principal and/or interest and mature at various dates through June 2026, with a weighted-average maturity of 2.1 years.
2019 Financings
In April 2019, the loan secured by Volusia Mall was refinanced to increase the principal balance to $ 50,000. In addition, the maturity date was extended to May 2024 and the fixed interest rate was reduced from 8.00% to 4.56%. The net proceeds from the new loan were used to retire the $ 41,000 existing loan and a portion of the loan secured by Honey Creek Mall, as described below.
In May 2019, the Company exercised an option to extend the loan secured by The Outlet Shoppes at Laredo to May 2021. In conjunction with the amendment, a payment of $ 10,800 was made to reduce the outstanding balance of the loan to $ 43,000. The noncontrolling interest partner in the joint venture funded its 35% share of the $10,800 payment.
2018 Financings
The following table presents the fixed-rate loans secured by the related consolidated Properties that were entered into in 2018:
(1)
The Company exercised the extension option under the mortgage loan.
(2)
The Company owned the property in a 75/25 consolidated joint venture. A portion of the proceeds from the non-recourse loan was used to retire a recourse loan secured by Phase II of The Outlet Shoppes at El Paso as described below.
Loan Repayments
The Company repaid the following fixed-rate loans, secured by the related consolidated Properties, in 2019 and 2018:
(1)
The Company retired the loans with borrowings from its credit facilities unless otherwise noted.
(2)
The Company retired the loan using proceeds from the refinancing of the loan secured by Volusia Mall as well as proceeds from the sale of Honey Creek Mall.
Dispositions
The following is a summary of the Company's dispositions for which the fixed-rate loan secured by the mall was extinguished:
(1)
The Company transferred title to the mall to the mortgage holder in satisfaction of the non-recourse debt secured by the Property.
(2)
The Company sold the mall for $ 31,500 and the net proceeds from the sale were used to satisfy a portion of the loan secured by the mall. The remaining principal balance was forgiven.
Variable-Rate Debt
The recourse loan secured by The Outlet Shoppes at Laredo bears interest at a variable interest rate indexed to LIBOR. At December 31, 2019, the interest rate was 4.34%. This loan matures in May 2021.
Loan Repayments
The Company repaid the following variable-rate loans, secured by the related consolidated properties in 2018:
(1)
The Company retired the loans with borrowings from its credit facilities unless otherwise noted.
(2)
The loan was retired in conjunction with the sale of the property that secured the loan. See Note 6
for more information.
(3)
The loan secured by the Property was retired when the joint venture closed on a new fixed-rate loan in September 2018 as described above.
Construction Loan
Financing
The Company entered into a construction loan in October 2018 to redevelop anchor space at Brookfield Square. The construction loan bears interest at a variable interest rate indexed to LIBOR. At December 31, 2019, the interest rate was 4.6%. This loan matures in October 2021 and has one 12-month extension option for an outside maturity date of October 2022. The total borrowing capacity on the loan is $ 29,400.
Financial Covenants and Restrictions
The agreements for the secured credit facility and the Notes contain, among other restrictions, certain financial covenants including the maintenance of certain financial coverage ratios, minimum unencumbered asset and interest ratios, maximum secured indebtedness ratios, maximum total indebtedness ratios and limitations on cash flow distributions. The agreements for the Notes described above contain default provisions customary for transactions of this nature (with applicable customary grace periods). Additionally, any default in the payment of any recourse indebtedness greater than or equal to $ 50,000 of the Operating Partnership will constitute an event of default under the Notes. The Company believes that it was in compliance with all financial covenants and restrictions at December 31, 2019.
Other
Several of the Company’s Properties are owned by special purpose entities, created as a requirement under certain loan agreements that are included in the Company’s consolidated financial statements. The sole business purpose of the special purpose entities is to own and operate these Properties. The real estate and other assets owned by these special purpose entities are restricted under the loan agreements in that they are not available to settle other debts of the Company. However, so long as the loans are not under an event of default, as defined in the loan agreements, the cash flows from these Properties, after payments of debt service, operating expenses and reserves, are available for distribution to the Company.
Scheduled Principal Payments
As of December 31, 2019, the scheduled principal amortization and balloon payments of the Company’s consolidated debt, excluding extensions available at the Company’s option, on all mortgage and other indebtedness, are as follows:
(1)
Represents the aggregate principal balance as of December 31, 2019 of two non-recourse loans, secured by Greenbrier Mall and Hickory Point Mall, which were in default. The loans secured by Greenbrier Mall and Hickory Point Mall matured in December 2019.
Of the $ 222,353 of scheduled principal payments in 2020, $ 149,670 relates to the maturing principal balances of three operating Property loans and $ 72,683 relates to scheduled principal amortization. Subsequent to December 31, 2019, the Company retired $ 84,803 related to two of the three operating Property loans scheduled to mature in 2020. See Note 20
for more information.
Additionally, subject to the need to maintain compliance with all applicable debt covenants, the Operating Partnership, or any affiliate of the Operating Partnership, may at any time, or from time to time, repurchase outstanding Notes in the open market or otherwise. Such Notes may, at the option of the Operating Partnership or the relevant affiliate of the Operating Partnership, be held, resold or surrendered to the Trustee for cancellation.
NOTE 9. SHAREHOLDERS’ EQUITY AND PARTNERS' CAPITAL
Common Stock and Common Units
The Company's authorized common stock consists of 350,000,000 shares at $ 0.01 par value per share. The Company had 174,115,111 and 172,656,458 shares of common stock issued and outstanding as of December 31, 2019 and 2018, respectively.
Partners in the Operating Partnership hold their ownership through common and special common units of limited partnership interest, hereinafter referred to as "common units." A common unit and a share of CBL's common stock have essentially the same economic characteristics, as they effectively participate equally in the net income and distributions of the Operating Partnership, except for certain special common units as disclosed in Note 10
. For each share of common stock issued by CBL, the Operating Partnership has issued a corresponding number of common units to CBL in exchange for the proceeds from the stock issuance. The Operating Partnership had 200,189,077 and 199,414,863 common units outstanding as of December 31, 2019 and 2018, respectively.
Each limited partner in the Operating Partnership has the right to exchange all or a portion of its common units for shares of CBL's common stock, or at the Company's election, their cash equivalent. When an exchange for common stock occurs, the Company assumes the limited partner's common units in the Operating Partnership. The number of shares of common stock received by a limited partner of the Operating Partnership upon exercise of its exchange rights will be equal, on a one-for-one basis, to the number of common units exchanged by the limited partner. If the Company elects to pay cash, the amount of cash paid by the Operating Partnership to redeem the limited partner's common units will be based on the five-day trailing average of the trading price, at the time of exchange, of the shares of common stock that would otherwise have been received by the limited partner in the exchange. However, for so long as the current distribution suspension results in the existence of a distribution shortfall (as described in the Partnership Agreement of the Operating Partnership) with respect to any of the S-SCUs, the L-SCUs or the K-SCUs (an “SCU Distribution Shortfall”), the Company may not elect to settle any exchange requested by a holder of common units of the Operating Partnership in cash, and may only settle any such exchange through the issuance of shares of common stock or other units of the Operating Partnership ranking junior to any such units as to which a distribution shortfall exists. The Company’s Board of Directors has prospectively approved that to the extent any partners exercise any or all of their exchange rights while the existence of the SCU Distribution Shortfall requires any exchange to be settled through the issuance of shares of common stock or other units of the Operating Partnership, the consideration paid shall be in the form of shares of common stock. Neither the common units nor the shares of CBL's common stock are subject to any right of mandatory redemption.
At-The-Market Equity Program
On March 1, 2013, the Company entered into the Sales Agreements (collectively, the "Sales Agreements") with a number of sales agents to sell shares of CBL's common stock, having an aggregate offering price of up to $ 300,000, from time to time in the ATM equity offerings (as defined in Rule 415 of the Securities Act of 1933, as amended) or in negotiated transaction (the "ATM program"). In accordance with the Sales Agreements, the Company will set the parameters for the sales of shares, including the number of shares to be issued, the time period during which sales are to be made and any minimum price below which sales may not be made. The Sales Agreements provide that the sales agents will be entitled to compensation for their services at a mutually agreed commission rate not to exceed 2.0% of the gross proceeds from the sales of shares sold through the ATM program. For each share of common stock issued by CBL, the Operating Partnership issues a corresponding number of common units of limited partnership interest to CBL in exchange for the contribution of the proceeds from the stock issuance. The Company includes only share issuances that have settled in the calculation of shares outstanding at the end of each period.
Since inception, the Company has sold $ 211,493 of common stock through the ATM program, at a weighted-average sales price of $ 25.12, generating net proceeds of $ 209,596, which were used to reduce the balances on the Company's credit facilities. Since the commencement of the ATM program, the Company has issued 8,419,298 shares of common stock and approximately $ 88,507 remains available that may be sold under this program as of December 31, 2019. The Company has not sold any shares under the ATM program since 2013. Actual future sales under this program, if any, will depend on a variety of factors including but not limited to market conditions, the trading price of CBL's common stock and the Company's capital needs. The Company has no obligation to sell the remaining shares available under the ATM program.
Common Unit Activity
During 2019, the Operating Partnership elected to pay cash of $ 96 to a holder of 72,592 common units in the Operating Partnership upon the exercise of its conversion rights. The Company also issued 611,847 shares of common stock to two holders of 611,847 common units of limited partnership interest in the Operating Partnership in connection with the exercise of the holders’ contractual exchange rights.
During 2018, the Operating Partnership elected to pay cash of $ 2,246 to two holders of 526,510 common units in the Operating Partnership upon the exercise of their conversion rights. The Company also issued 915,338 shares of common stock to a holder of 915,338 common units of limited partnership interest in the Operating Partnership in connection with the exercise of the holder's contractual exchange rights.
During 2017, the Operating Partnership elected to pay cash of $ 656 to five holders of 84,014 common units in the Operating Partnership upon the exercise of their conversion rights.
Preferred Stock and Preferred Units
The Company's authorized preferred stock consists of 15,000,000 shares at $ 0.01 par value per share. A description of the Company's cumulative redeemable preferred stock is listed below. The Operating Partnership issues an equivalent number of preferred units to CBL in exchange for the contribution of the proceeds from CBL to the Operating Partnership when CBL issues preferred stock. The preferred units generally have the same terms and economic characteristics as the corresponding series of preferred stock.
The Company has 6,900,000 depositary shares, each representing 1/10th of a share of CBL's 6.625% Series E Preferred Stock with a par value of $ 0.01 per share, outstanding as of December 31, 2019 and 2018. The Series E Preferred Stock has a liquidation preference of $ 250.00 per share ($ 25.00 per depositary share). The dividends on the Series E Preferred Stock are cumulative, accrue from the date of issuance and are payable quarterly in arrears at a rate of $ 16.5625 per share ($ 1.65625 per depositary share) per annum. The Series E Preferred Stock generally 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, except under certain circumstances in connection with a change of control. Owners of the depositary shares representing Series E Preferred Stock generally have no voting rights except under dividend default. The Company may redeem shares, in whole or in part, at any time for a cash redemption price of $ 250.00 per share ($25.00 per depositary share) plus accrued and unpaid dividends.
The Company has 18,150,000 depositary shares, each representing 1/10th of a share of CBL's 7.375% Series D Preferred Stock with a par value of $ 0.01 per share, outstanding as of December 31, 2019 and 2018. The Series D Preferred Stock has a liquidation preference of $ 250.00 per share ($ 25.00 per depositary share). The dividends on the Series D Preferred Stock are cumulative, accrue from the date of issuance and are payable quarterly in arrears at a rate of $ 18.4375 per share ($ 1.84375 per depositary share) per annum. The Series D 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 Company may redeem shares, in whole or in part, at any time for a cash redemption price of $ 250.00 per share ($25.00 per depositary share) plus accrued and unpaid dividends.
In December 2019, the Company announced the suspension of all future dividends on its 7.375% Series D Cumulative Redeemable Preferred Stock and 6.625% Series E Cumulative Redeemable Preferred Stock. Unpaid dividends on the Company’s preferred stock accrue without interest. The dividend suspension will be reviewed quarterly by the Board of Directors, but is expected to remain in place through at least year-end 2020. The Company will review taxable income on a regular basis and take measures, if necessary, to ensure that it meets the minimum distribution requirements to maintain its status as a REIT.
Dividends - CBL
CBL paid a first quarter 2019 cash dividend on its common stock of $ 0.075 per share on April 16th. Under the terms of a litigation settlement agreement, the Company did not pay any dividends to holders of its common shares payable in the third and fourth quarters of 2019 (see Note 15
for more information on the litigation settlement agreement). As noted above, in December 2019 the Company suspended all future dividends on its common stock and preferred stock, as well as distributions to all noncontrolling interest investors in its Operating Partnership (as noted below). No dividends may be paid on shares of the Company’s common stock unless (i) all accrued but unpaid dividends on its preferred stock, and any current dividend then due, have been paid in cash, or a cash sum sufficient for such payment has been set apart for payment and (ii) the SCU Distribution Shortfall created by its related suspension of distributions to noncontrolling interest investors in its Operating Partnership has likewise been remedied through the payment of distributions sufficient to satisfy such shortfall
for all prior periods and the then-current period (thereby allowing the resumption of distributions on the common units in the Operating Partnership that are held by the Company, which fund its common stock dividends) .
The decision to declare and pay dividends on the Company’s common stock in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of its b oard of d irectors. The total dividend included in accounts payable and accrued liabilities at December 31, 201 was $
12,949 .
The allocations of dividends declared and paid for income tax purposes are as follows:
(1)
Of the $ 0.075 per share dividend declared on October 29, 2018 and paid January 16, 2019, $0.075 was reported and is taxable in 2019.
(2)
Of the $0.200 per share dividend declared on November 2, 2017 and paid January 16, 2018, $ 0.200 was reported and is taxable in 2018.
( )
The allocations for income tax purposes are the same for each series of preferred stock for each period presented.
Distributions - The Operating Partnership
The Operating Partnership paid first, second and third quarter 2019 cash distributions on its redeemable common units of $ 0.7322 per share on April 16th, July 16th and October 16th, 2019. The Operating partnership paid first quarter cash distributions on its common units of $ 0.075 per share on April 16th. The Company suspended all future distributions by the Operating Partnership until further notice. The total distribution included in accounts payable and accrued liabilities at December 31, 2018 was $ 4,181.
NOTE 10. REDEEMABLE INTERESTS AND NONCONTROLLING INTERESTS
Redeemable Noncontrolling Interests and Noncontrolling Interests of the Company
Partnership Interests in the Operating Partnership that Are Not Owned by the Company
The common units that the Company does not own are reflected in the Company's consolidated balance sheets as redeemable noncontrolling interest and noncontrolling interests in the Operating Partnership.
Series S Special Common Units
Redeemable noncontrolling interest includes a noncontrolling partnership interest in the Operating Partnership for which the partnership agreement includes redemption provisions that may require the Operating Partnership to redeem the partnership interest for real property. In July 2004, the Operating Partnership issued 1,560,940 Series S special common units (“S-SCUs”), all of which are outstanding as of December 31, 2019, in connection with the acquisition of Monroeville Mall. Under the terms of the Operating Partnership’s limited partnership agreement, the holder of the S-SCUs has the right to exchange all or a portion of its partnership interest for shares of the Company’s common stock or, at the Company’s election, their cash equivalent. The holder has the additional right to require the Operating Partnership to acquire a qualifying property and distribute it to the holder in exchange for the S-SCUs. Generally, the acquisition price of the qualifying property cannot be more than the lesser of the consideration that would be received in a normal exchange, as discussed above, or $ 20,000, subject to certain limited exceptions. Should the consideration that would be received in a
normal exchange exceed the maximum property acquisition price as described in the preceding sentence, the excess portion of its partnership interest could be exchanged for shares of CBL's stock or, at the Company’s election, their cash equivalent. The S-SCUs receive a minimum distribution of $ 2.92875 per unit per year which will cumulate (similar to a preferred dividend) during the current SCU Distribution Shortfall, with the SCU Distribution Shortfall being required to be fully cured (on a ratable basis among the respective holders of S-SCUs, L-SCUs and K-SCUs) before any distributions may be resumed with respect to regular common units, pursuant to the terms of the Operating Partnership’s limited partnership agreement .
Series L Special Common Units
In June 2005, the Operating Partnership issued 571,700 Series L special common units ("L-SCUs"), all of which are outstanding as of December 31, 2019, in connection with the acquisition of Laurel Park Place. The L-SCUs receive a minimum distribution of $0.7572 per unit per quarter ($ 3.0288 per unit per year) which will cumulate (similar to a preferred dividend) during the current SCU Distribution Shortfall, with the SCU Distribution Shortfall being required to be fully cured (on a ratable basis among the respective holders of S-SCUs, L-SCUs and K-SCUs) before any distributions may be resumed with respect to regular common units, pursuant to the terms of the Operating Partnership’s limited partnership agreement. Upon the earlier to occur of June 1, 2020, or when the distribution on the common units exceeds $ 0.7572 per unit for four consecutive calendar quarters, the L-SCUs will thereafter receive a distribution equal to the amount paid on the common units. In December 2012, the Operating Partnership issued 622,278 common units valued at $ 14,000 to acquire the remaining 30% noncontrolling interest in Laurel Park Place.
Series K Special Common Units
In November 2005, the Operating Partnership issued 1,144,924 Series K special common units ("K-SCUs") in connection with the acquisition of Oak Park Mall, Eastland Mall and Hickory Point Mall. The holders of the K-SCUs receive a dividend at a rate of 6.25%, or $ 2.96875 per K-SCU, which will cumulate (similar to a preferred dividend) during the current SCU Distribution Shortfall, with the SCU Distribution Shortfall being required to be fully cured (on a ratable basis among the respective holders of S-SCUs, L-SCUs and K-SCUs) before any distributions may be resumed with respect to regular common units, pursuant to the terms of the Operating Partnership’s limited partnership agreement. When the quarterly distribution on the Operating Partnership’s common units exceeds the quarterly K-SCU distribution for four consecutive quarters, the K-SCUs will receive distributions at the rate equal to that paid on the Operating Partnership’s common units. The holders of the K-SCUs may exchange them, on a one-for-one basis, for shares of CBL’s common stock or, at the Company’s election, their cash equivalent.
In December 2018, the Operating Partnership elected to pay $ 21 in cash to a holder of 8,120 K-SCUs upon the exercise of the holder's conversion rights.
Outstanding rights to convert redeemable noncontrolling interests and noncontrolling interests in the Operating Partnership to common stock were held by the following parties at December 31, 2019 and 2018:
The assets and liabilities allocated to the Operating Partnership’s redeemable noncontrolling interest and noncontrolling interests are based on their ownership percentages of the Operating Partnership at December 31, 2019 and 2018. The ownership percentages are determined by dividing the number of common units held by each of the redeemable noncontrolling interest and the noncontrolling interests at December 31, 2019 and 2018 by the total common units outstanding at December 31, 2019 and 2018, respectively. The redeemable noncontrolling interest ownership percentage in assets and liabilities of the Operating Partnership was 0.8% at December 31, 2019 and 2018. The noncontrolling interest ownership percentage in assets and liabilities of the Operating Partnership was 12.2% and 12.6% at December 31, 2019 and 2018, respectively.
Income is allocated to the Operating Partnership’s redeemable noncontrolling interest and noncontrolling interests based on their weighted-average ownership during the year. The ownership percentages are determined by dividing the weighted-average number of common units held by each of the redeemable noncontrolling interest and noncontrolling interests by the total weighted-average number of common units outstanding during the year.
A change in the number of shares of common stock or common units changes the percentage ownership of all partners of the Operating Partnership. A common unit is considered to be equivalent to a share of common stock since it generally is exchangeable for shares of the Company’s common stock or, at the Company’s election, their cash equivalent. As a result, an allocation is made between redeemable noncontrolling interests, shareholders’ equity and noncontrolling interests in the Operating Partnership in the Company's accompanying balance sheets 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 common units outstanding. During 201 , 201 and 201 , the Company allocated $ 3,398 , $ 4,065 and $ 3,049 , respectively, from shareholders’ equity to redeemable noncontrolling interest. During 201 , 201 and 201 , the Company allocated $ 4,392 , $ 13,642 and $ 4,290 , respectively, from shareholders' equity to noncontrolling interest.
The total redeemable noncontrolling interest in the Operating Partnership was $ 2,160 and $ 3,575 at December 31, 2019 and 2018, respectively. The total noncontrolling interest in the Operating Partnership was $ 31,592 and $ 55,917 at December 31, 2019 and 2018, respectively.
Redeemable Noncontrolling Interests and Noncontrolling Interests in Other Consolidated Subsidiaries
The Company had 12 and 19 other consolidated subsidiaries at December 31, 2019 and 2018, respectively, that had noncontrolling interests held by third parties and for which the related partnership agreements either do not include redemption provisions or are subject to redemption provisions that do not require classification outside of permanent equity. The total noncontrolling interests in other consolidated subsidiaries were $ 23,961 and $ 12,111 at December 31, 2019 and 2018, respectively.
The assets and liabilities allocated to the redeemable noncontrolling interests and noncontrolling interests in other consolidated subsidiaries are based on the third parties’ ownership percentages in each subsidiary at December 31, 2019 and 2018. Income is allocated to the redeemable noncontrolling interests and noncontrolling interests in other consolidated subsidiaries based on the third parties’ weighted-average ownership in each subsidiary during the year.
Redeemable Interests and Noncontrolling Interests of the Operating Partnership
The S-SCUs described above that are reflected as redeemable noncontrolling interests in the Company's consolidated balance sheets are reflected as redeemable common units in the Operating Partnership's consolidated balance sheets.
The noncontrolling interests in other consolidated subsidiaries that are held by third parties that are reflected as a component of noncontrolling interests in the Company's consolidated balance sheets comprise the entire amount that is reflected as noncontrolling interests in the Operating Partnership's consolidated balance sheets.
Variable Interest Entities
In accordance with the guidance in ASU 2015-02, Amendments to the Consolidation Analysis , and ASU 2016-17, Interests Held Through Related Parties That Are under Common Control , the Operating Partnership and certain of its subsidiaries are deemed to have the characteristics of a VIE primarily because the limited partners of these entities do not collectively possess substantive kick-out or participating rights.
The Company consolidates the Operating Partnership, which is a VIE, for which the Company is the primary beneficiary. The Company, through the Operating Partnership, consolidates all VIEs for which it is the primary beneficiary. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership is considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether the Company is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of the Company's investment; the obligation or likelihood for the Company or other investors to provide financial support; and the similarity with and significance to the Company's business activities and the business activities of the other investors.
The table below lists the Company's consolidated VIEs as of December 31, 2019 and 2018, which do not reflect the elimination of any internal debt the consolidated VIE has with the Operating Partnership:
( )
These entities were deconsolidated in 2019. See
Note 7
for more information.
( )
Of this total, $ 41,950 related to The Outlet Shoppes at Laredo, is guaranteed by the Operating Partnership.
The table below lists the Company's unconsolidated VIEs as of December 31, 2019:
(1)
See
Note 15
for information on guarantees of debt.
NOTE 11. MORTGAGE AND OTHER NOTES RECEIVABLE
Each of the Company's mortgage notes receivable is collateralized by either a first mortgage, a second mortgage or by an assignment of 100% of the partnership interests that own the real estate assets. Other notes receivable include amounts due from tenants or government sponsored districts and unsecured notes received from third parties as whole or partial consideration for property or investments. The Company reviews its mortgage and other notes receivable to determine if the balances are realizable based on factors affecting the collectability of those balances. Factors may include credit quality, timeliness of required periodic payments, past due status and management discussions with obligors.
Mortgage and other notes receivable consist of the following:
( )
Includes a $ 1,100 note with D'Iberville Promenade, LLC with a maturity date of December 2016, that is in default. This is secured by the joint venture partner’s interest in the joint venture.
NOTE 12. SEGMENT INFORMATION
The Company measures performance and allocates resources according to property type, which is determined based on certain criteria such as type of tenants, capital requirements, economic risks, leasing terms, and short- and long-term returns on capital. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments. 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:
(1)
The All Other category includes associated centers, community centers, mortgage and other notes receivable, office buildings, self-storage facilities, corporate-level debt and the Management Company.
(2)
Management, development and leasing fees are included in All Other category. See Note 3 for information on the Company’s revenues disaggregated by revenue source for each of the above segments.
( )
Property operating expenses include property operating, real estate taxes and maintenance and repairs.
( )
Includes additions to and acquisitions of real estate assets and investments in unconsolidated affiliates. Developments in progress are included in the All Other category.
NOTE 13. SUPPLEMENTAL AND NONCASH INFORMATION
The Company paid cash for interest, net of amounts capitalized, in the amount of $ 198,261, $ 205,029 and $ 220,099 during 2019, 2018 and 2017, respectively.
The Company’s noncash investing and financing activities for 2019, 2018 and 2017 were as follows:
(1)
See
Note 6
and
Note 8
for more information.
(2)
See
Note 8
for more information.
( )
See
Note 7
for more information.
( )
See
Note 7
for more information.
NOTE 14. RELATED PARTY TRANSACTIONS
The Management Company provides management, development and leasing services to the Company’s unconsolidated affiliates and other affiliated partnerships. Revenues recognized for these services amounted to $ 6,878, $ 7,607 and $ 7,598 in 2019, 2018 and 2017, respectively.
NOTE 15. CONTINGENCIES
Litigation
In April 2019, the Company entered into a settlement agreement and release with respect to the class action lawsuit filed on March 16, 2016 in the United States District Court for the Middle District of Florida by Wave Lengths Hair Salons of Florida, Inc. d/b/a Salon Adrian. The settlement agreement stated that the Company had to set aside a common fund with a monetary and non-monetary value of $ 90,000 to be disbursed to class members in accordance with an agreed-upon formula that is based upon aggregate damages of $ 60,000. The Court granted final approval to the proposed settlement on August 22, 2019. Class members are comprised of past and current tenants at certain of the Company's shopping centers that it owns or formerly owned during the class period, which extended from January 1, 2011 through the date of preliminary court approval. Class members who are past tenants and made a claim pursuant to the Court's order will receive payment of their claims in cash. Class members who are current tenants will receive monthly credits against rents and future charges, beginning no earlier than January 1, 2020 and continuing for the following five years. Any amounts under the settlement
allocated to tenants with outstanding amounts payable to the Company, including tenants which have declared bankruptcy or declare bankruptcy over the relevant period, will first be deducted from the amounts owed to the Company. All attorney’s fees and associated costs to be paid to class counsel (up to a maximum of $ 28,000 ), any incentive award to the class representative (up to a maximum of $ ), and class administration costs (which are expected to not exceed $ ), have or will be funded by the common fund, which has been approved by the Court. Under the terms of the settlement agreement, the Company did not pay any dividends to holders of its common shares payable in the third and fourth quarters of 2019. The settlement agreement does not restrict the Company's ability to declare dividends payable in 2020 or in subsequent years. The Company recorded an accrued liability and corresponding litigation settlement expense of $ 88,150 in the three months ended March 31, 2019 related to the settlement agreement. The Company reduced the accrued liability by $ 26,396 , a majority of which was related to past tenants that did not submit a claim pursuant to the terms of the settlement agreement with the remainder relating to tenants that either opted out of the lawsuit or waived their rights to their respective settlement amounts . T he Company also reduced the accrued liability by $ 23,050
related to attorney and administrative fees that were paid pursuant to the settlement agreement . The Company also received document requests in the third quarter, in the form of subpoenas, from the Securities and Exchange Commission and the Department of Justice regarding the Wave Lengths Hair Salons of Florida, Inc. litigation and other related matters. The Company is continuing to cooperat e in these matters.
Securities Litigation
The Company and certain of its officers and directors have been named as defendants in three putative securities class action lawsuits (collectively, the “Securities Class Action Litigation”), each filed in the United States District Court for the Eastern District of Tennessee, on behalf of all persons who purchased or otherwise acquired the Company’s securities during a specified period of time. The first such lawsuit, captioned Paskowitz v. CBL & Associates Properties, Inc., et al. , 1:19-cv-00149-JRG-CHS, was filed on May 17, 2019, and asserts claims on behalf of persons or entities that purchased CBL securities between November 8, 2017 and March 26, 2019, inclusive. The second such lawsuit, captioned Williams v. CBL & Associates Properties, Inc., et al. , 1:19-cv-00181, was filed on June 21, 2019, and asserts claims on behalf of persons or entities that purchased CBL securities between April 29, 2016 and March 26, 2019, inclusive. The third such lawsuit, captioned Merelles v. CBL & Associates Properties, Inc., et al. , 1:19-CV-00193, was filed on July 2, 2019, and asserts claims on behalf of persons or entities that purchased CBL securities between July 29, 2014 and March 26, 2019. The Court consolidated these cases on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Securities Litigation , 1:19-cv-00149-JRG-CHS. After plaintiff Laurence Paskowitz voluntarily dismissed his case on July 25, 2019, the Court re-consolidated the two remaining cases under the caption In re CBL & Associates Properties, Inc. Securities Litigation , 1:19-cv-00181-JRG-CHS, on August 2, 2019. On September 26, 2019, the Merelles complaint was voluntarily dismissed.
The complaints filed in the Securities Class Action Litigation allege violations of the securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions regarding the Company’s contingent liabilities, business, operations, and prospects during the periods of time specified above. The plaintiffs seek compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the amount of damages sought. The outcome of these legal proceedings cannot be predicted with certainty.
Certain of the Company’s current and former directors and officers have been named as defendants in eight shareholder derivative lawsuits (collectively, the “Derivative Litigation”). On June 4, 2019, a shareholder filed a putative derivative complaint captioned Robert Garfield v. Stephen D. Lebovitz et al. , 1:19-cv-01038-LPS, in the United States District Court for the District of Delaware (the “ Garfield Derivative Action”), purportedly on behalf of the Company against certain of its officers and directors. On June 24, 2019, September 5, 2019 and September 25, 2019, respectively, other shareholders filed three additional putative derivative complaints, each in the United States District Court for the District of Delaware, captioned as follows: Robert Cohen v. Stephen D. Lebovitz et al. , 1:19-cv-01185-LPS (the “ Cohen Derivative Action”); Travis Lore v. Stephen D. Lebovitz et al. , 1:19-cv-01665-LPS (the “ Lore Derivative Action”), and City of Gainesville Cons. Police Officers’ and Firefighters Retirement Plan v. Stephen D. Lebovitz et al. , 1:19-cv-01800 (the “ Gainesville Derivative Action”), each asserting substantially similar claims purportedly on behalf of the Company against similar defendants. The Court consolidated the Garfield Derivative Action and the Cohen Derivative Action on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Derivative Litigation , 1:19-cv-01038-LPS (the " Consolidated Derivative Action"). On July 25, 2019, the Court stayed proceedings in the Consolidated Derivative Action pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation. On October 14, 2019, the parties to the Gainesville Derivative Action and the Lore Derivative Action filed a joint stipulation and proposed order confirming that each of those cases is subject to the consolidation order previously entered by the Court in the Consolidated Derivative Action and that further proceedings in those cases are stayed pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation. On July 22, 2019, a shareholder filed a putative derivative complaint captioned Shebitz v. Lebovitz et al. , 1:19-cv-00213, in the United States District Court for the Eastern District of Tennessee (the “ Shebitz Derivative Action”); on
January 10, 2020, a shareholder filed a putative derivative complaint captioned Chatman v. Lebovitz, et al., 2020-0011-JTL, in the Delaware Chancery Court (the “Chatman Derivative Action”) ; on February 12, 2020, a shareholder filed a putative derivative complaint captioned Kurup v. Lebovitz, et al., 2020-0070-JTL, in the Delaware Chancery Court (the “ Kurup Derivative Action”); and on February 26, 2020,
a shareholder filed a putative derivative complaint captioned Kemmer v. Lebovitz, et al.,
1:20-cv-00052 , in the United States District Court for the Eastern District of Tennessee (the “ Kemmer Derivative Action”) , each asserting substantially similar claims purportedly on behalf of the Company against similar defendants. On October 7, 2019, the Court stayed the Shebitz Derivative Action , pending resolution of an eventual motion to dismiss in the related Securities Class Action Litigation ; the Company anticipates the Chatman , Kurup, and Kemmer
Derivative Actions to be stayed as well.
The complaints filed in the Derivative Litigation allege, among other things, breaches of fiduciary duties, unjust enrichment, waste of corporate assets, and violations of the federal securities laws. The factual allegations upon which these claims are based are similar to the factual allegations made in the Securities Class Action Litigation, described above. The complaints filed in the Derivative Litigation seek, among other things, unspecified damages and restitution for the Company from the individual defendants, the payment of costs and attorneys’ fees, and that the Company be directed to reform certain governance and internal procedures. The outcome of these legal proceedings cannot be predicted with certainty.
The Company's insurance carriers have been placed on notice of these matters.
The Company is currently involved in certain other litigation that arises in the ordinary course of business, most of which is expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.
Environmental Contingencies
The Company evaluates potential loss contingencies related to environmental matters using the same criteria described above related to litigation matters. Based on current information, an unfavorable outcome concerning such environmental matters, both individually and in the aggregate, is considered to be reasonably possible. However, the Company believes its maximum potential exposure to loss would not be material to its results of operations or financial condition. The Company has a master insurance policy that provides coverage through 2022 for certain environmental claims up to $ 10,000 per occurrence and up to $ 50,000 in the aggregate, subject to deductibles and certain exclusions. At certain locations, individual policies are in place.
Guarantees
The Operating Partnership may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on the Operating Partnership's investment in the joint venture. The Operating Partnership may receive a fee from the joint venture for providing the guaranty. Additionally, when the Operating Partnership issues a guaranty, the terms of the joint venture agreement typically provide that the Operating Partnership may receive indemnification from the joint venture or have the ability to increase its ownership interest. The guarantees expire upon repayment of the debt, unless noted otherwise.
The following table represents the Operating Partnership's guarantees of unconsolidated affiliates' debt as reflected in the accompanying consolidated balance sheets as of December 31, 2019 and 2018:
(1)
Excludes any extension options.
( )
The loan has two one-year extension options at the joint venture’s election.
( )
The guaranty is for a fixed amount of $ 12,740 throughout the term of the loan, including any extensions.
( )
The loan has one- two -year extension option, at the joint venture's election, for an outside maturity date of October 2022.
( )
The guaranty was reduced to 50% once construction was completed during the second quarter of 2019. The guaranty may be further reduced to 25% once certain debt and operational metrics are met.
( )
The Company received a 1% fee for the guaranty when the loan was issued in April 2018. The guaranty was reduced to 50% once construction was completed during the second quarter of 2019. The guaranty may be further reduced to 25% once certain debt and operational metrics are met.
( )
The Operating Partnership has a joint and several guaranty with its 50/50 partner. Therefore, the maximum guarantee is 100% of the loan.
( )
The Operating Partnership has guaranteed 100% of the construction loan, but it has a back-up guaranty from its joint venture partner for 50% of the construction loan.
( )
In December 2019, the Company deconsolidated this entity. See Note 7
for more information.
( )
In November 2019, the Company deconsolidated this entity. See Note 7
for more information.
The Company has guaranteed the lease performance of York Town Center, LP ("YTC"), an unconsolidated affiliate in which it owns a 50% interest, under the terms of an agreement with a third party that owns property as part of York Town Center. Under the terms of that agreement, YTC is obligated to cause performance of the third party’s obligations as landlord under its lease with its sole tenant, including, but not limited to, provisions such as co-tenancy and exclusivity requirements. Should YTC fail to cause performance, then the tenant under the third-party landlord’s lease may pursue certain remedies ranging from rights to terminate its lease to receiving reductions in rent. The Company has guaranteed YTC’s performance under this agreement up to a maximum of $ 22,000, which decreases by $ 800 annually until the guaranteed amount is reduced to $ 10,000. The guaranty expires on December 31, 2020. The maximum guaranteed obligation was $ 11,600 as of December 31, 2019. The Company entered into an agreement with its joint venture partner under which the joint venture partner has agreed to reimburse the Company 50% of any amounts it is obligated to fund under the guaranty. The Company did not record an obligation for this guaranty because it determined that it was not probable that the Company would have to perform under the guaranty as of December 31, 2019 and 2018.
Performance Bonds
The Company has issued various bonds that it would have to satisfy in the event of non-performance. The total amount outstanding on these bonds was $ 13,660 and $ 16,003 at December 31, 2019 and 2018, respectively.
NOTE 16. FAIR VALUE MEASUREMENTS
The Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy in accordance with ASC 820, Fair Value Measurements and Disclosure , ("ASC 820") based on whether the inputs to valuation techniques are observable or unobservable. The fair value hierarchy contains three levels of inputs that may be used to measure fair value as follows:
Level 1 -
Inputs represent quoted prices in active markets for identical assets and liabilities as of the measurement date.
Level 2 -
Inputs, other than those included in Level 1, represent observable measurements for similar instruments in active markets, or identical or similar instruments in markets that are not active, and observable measurements or market data for instruments with substantially the full term of the asset or liability.
Level 3 -
Inputs represent unobservable measurements, supported by little, if any, market activity, and require considerable assumptions that are significant to the fair value of the asset or liability. Market valuations must often be determined using discounted cash flow methodologies, pricing models or similar techniques based on the Company’s assumptions and best judgment.
The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under ASC 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date and under current market conditions. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs and consider assumptions such as inherent risk, transfer restrictions and risk of nonperformance.
Fair Value Measurements on a Recurring Basis
The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term nature of these financial instruments. Based on the interest rates for similar financial instruments, the carrying value of mortgage and other notes receivable is a reasonable estimate of fair value. The estimated fair value of mortgage and other indebtedness was $ 2,970,246 and $ 3,740,431 at December 31, 2019 and 2018, respectively. The fair value was calculated using Level 2 inputs by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently.
Fair Value Measurements on a Nonrecurring Basis
The Company measures the fair value of certain long-lived assets on a nonrecurring basis, through quarterly impairment testing or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company considers both quantitative and qualitative factors in its impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each Property such as NOI, occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the Property and tenant mix. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experience impairment, the Company classifies such long-lived assets under Level 3 in the fair value hierarchy. Level 3 inputs primarily consist of sales and market data, independent valuations and discounted cash flow models. See below for a description of the estimates and assumptions the Company used in its impairment analysis. See Note 2
for additional information describing the Company's impairment review process.
The following table sets forth information regarding the Company’s assets that are measured at fair value on a nonrecurring basis and related impairment charges for the years ended December 31, 2019 and 2018:
Long-lived Assets Measured at Fair Value in 2019
During the year ended December 31, 2019, the Company recognized impairments of real estate of $ 239,521 related to six malls and one community center. The Properties were classified for segment reporting purposes as listed below (see section below for information on outparcels). See Note 12
for segment information.
(1)
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $ 56,300. The mall has experienced a decline in cash flows due to store closures and rent reductions. Additionally, one anchor was vacant as of the date of impairment. These factors resulted in a reduction of the expected hold period for this asset based on Management’s assessment that there was an increased likelihood that the loan secured by the mall may not be successfully restructured or refinanced. Management determined the fair value of Greenbrier Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 11.5% and a discount rate of 11.5%.
(2)
During the quarter ended March 31, 2019, the Company adjusted the book value of the mall to the net sales price of $ 14,360 based on a signed contract with a third-party buyer, adjusted to reflect estimated disposition costs. The mall was sold in April 2019. See Note 6 for additional information.
(3)
The Company adjusted the book value to the net sales price of $ 31,559 based on a signed contract with a third-party buyer, adjusted to reflect estimated disposition costs. The property was sold in July 2019. See Note 6 for additional information.
(4)
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $ 25,100. The mall had experienced a decline in cash flows due to store closures and rent reductions. These factors resulted in a reduction of the expected hold period for this asset based on Management’s assessment that there was an increased likelihood that the loan secured by the mall may not be successfully restructured or refinanced. Management determined the fair value of EastGate Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 14.5% and a discount rate of 15.0%.
(5)
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $ 53,340. The mall has experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of Mid Rivers Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 12.5% and a discount rate of 13.25%.
(6)
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $ 26,000. The mall had experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of Laurel Park Place using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 13.5% and a discount rate of 14.0%.
(7)
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $ 39,000. The mall had experienced a decline of NOI due to store closures and rent reductions. These factors resulted in a reduction of the expected hold period for this asset based on Management’s assessment that there was an increased likelihood that the loan secured by the mall may not be successfully restructured or refinanced. Management determined the fair value of Park Plaza Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 13.0% and a discount rate of 14.0%.
(8)
Related to true-ups of estimated expenses to actual expenses for properties sold in prior periods.
Long-lived Assets Measured at Fair Value in 2018
During the year ended December 31, 2018, the Company recognized impairments of real estate of $ 174,529 primarily related to five malls and undeveloped land. The Properties were classified for segment reporting purposes as listed below (see section below for information on outparcels). See Note 12
for segment information.
(1)
The Company adjusted the book value of the mall to the net sales price of $ 17,640 in a signed contract with a third-party buyer, adjusted for disposition costs. The mall was sold in July 2018. See Note 6 for additional information.
(2)
The long-lived asset was not included in the Company's consolidated balance sheets at December 31, 2018 as the Company no longer had an interest in the property.
(3)
In June 2018, the Company was notified by IKEA that, as a result of a shift in its corporate strategy, it was terminating the contract to purchase land at the mall upon which it would develop and open a store. Under the terms of the interest-only non-recourse loan secured by the mall, the loan matured on the date the IKEA contract terminated if that date was prior to the scheduled maturity date of March 5, 2019. The Company engaged in conversations with the lender regarding a potential restructure of the loan. Based on the results of these conversations, the Company concluded that an impairment was required because it was unlikely to recover the asset's net carrying value through future cash flows. Management determined the fair value of Cary Towne Center using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, a capitalization rate of 12.0% and a discount rate of 13%. In December 2018, the Company adjusted the book value of the property to the net sales price of $ 30,971 based on a signed contract with a third-party buyer. The property sold in January 2019. See Note 8 for information related to the mortgage loan.
(4)
In accordance with the Company's quarterly impairment review process, the Company wrote down the book value of land to its estimated value of $ 8,100. The Company evaluated comparable land parcel transactions and determined that $ 8,100 was the land's estimated fair value.
(5)
The Company adjusted the book value of the anchor parcel and the vacant land to the net sales price of $ 3,920 in a signed contract with a third party buyer, adjusted to reflect estimated disposition costs. The property was sold in January 2019.
(6)
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $ 26,450. The mall had experienced a deterioration in cash flows as a result of the downturn of the economy in its market area and four vacant anchors with no active prospects to replace these anchor stores. Management determined the fair value of Eastland Mall using a discounted cash flow methodology. The discount cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 15.0% and a discount rate of 17.0%.
(7)
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $ 16,400. The mall had experienced a decline in cash flows due to store closures and rent reductions. Additionally, two anchors were vacant as of December 31, 2018, and a third anchor announced during the fourth quarter of 2018 that it would be closing during the first quarter of 2019. Management determined the fair value of Honey Creek Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 18.0% and a discount rate of 20.0%.
(8)
The Company adjusted the book value of the land contributed to a joint venture to its agreed upon fair value based on the joint venture agreement with its partner, Continental 425 Fund LLC. See Note 7
for more information.
Long-lived Assets Measured at Fair Value in 2017:
During the year ended December 31, 2017, the Company recognized impairments of real estate of $ 71,401 primarily related to two malls, a parcel project near an outlet center and one outparcel. The Properties were classified for segment reporting purposes as listed below (see section below for information on outparcels). See Note 12
for segment information.
(1)
The Company wrote down the book value of its interest in a consolidated joint venture that owned land adjacent to one of its outlet malls upon the divestiture of its interests to a fair value of $ 1,000. In conjunction with the divestiture and assignment of the Company's interests in this consolidated joint venture, the Company was relieved of its debt obligation by the joint venture partner.
(2)
The long-lived asset was not included in the Company's consolidated balance sheets at December 31, 2017 as the Company no longer had an interest in the property.
(3)
In accordance with the Company's quarterly impairment review process, the Company wrote down the book value of the mall to its estimated fair value of $ 67,300. The mall had experienced declining tenant sales and cash flows as a result of the downturn of the economy in its market area and an anchor announced in the second quarter 2017 that it would close its store later in 2017. Management determined the fair value of Acadiana Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 15.5% and a discount rate of 15.75%.
(4)
Relates to true-ups of estimated expenses to actual expenses for properties sold in prior periods.
(5)
In accordance with the Company's quarterly impairment review process, the Company wrote down the book value of the mall to its estimated fair value of $ 14,050. The mall had experienced decreased occupancy and cash flows as a result of the downturn of the economy in its market area. Management determined the fair value of Hickory Point Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 18.0% and a discount rate of 19.0%.
Other Impairment Loss in 2017
During the year ended December 31, 2017, the Company recorded impairments of $ 116 related to the sale of one outparcel. Outparcels are classified for segment reporting purposes in the All Other category. See Note 12
for segment information.
NOTE 17. SHARE-BASED COMPENSATION
As of December 31, 2019, there was one share-based compensation plan under which the Company has outstanding awards, the CBL & Associates Properties, Inc. 2012 Stock Incentive Plan ("the 2012 Plan"), which was approved by the Company's shareholders in May 2012. The 2012 Plan permits the Company to issue stock options and common stock to selected officers, employees and non-employee directors of the Company up to a total of 10,400,000 shares. As the primary operating subsidiary of the Company, the Operating Partnership participates in and bears the compensation expense associated with the Company's share-based compensation plan. The Compensation Committee of the Board of Directors (the “Committee”) administers the 2012 Plan.
In accordance with the provisions of ASU 2016-09, which are designed to simplify the accounting for share-based payments transactions, the Company elected to account for forfeitures of share-based payments as they occur rather than continuing to estimate them in advance.
Restricted Stock Awards
Under the 2012 Plan, common stock may be awarded either alone, in addition to, or in tandem with other granted stock awards. 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. Generally, an award of common stock vests either immediately at grant or in equal installments over a period of five years. Stock awarded to independent directors is fully vested upon grant; however, the independent directors may not transfer such shares during their board term. The Committee may also provide for the issuance of common stock under the 2012 Plan on a deferred basis pursuant to deferred compensation arrangements. The fair value of common stock awarded under the 2012 Plan is determined based on the market price of CBL’s common stock on the grant date and the related compensation expense is recognized over the vesting period on a straight-line basis.
The Company may make restricted stock awards to independent directors, officers and its employees under the 2012 Plan. These awards are generally granted based on the performance of the Company and its employees. None of these awards have performance requirements other than a service condition of continued employment, unless otherwise provided. Compensation expense is recognized on a straight-line basis over the requisite service period.
The share-based compensation cost related to the restricted stock awards was $ 3,396, $ 3,744 and $ 3,907 for 2019, 2018 and 2017, respectively. Share-based compensation cost resulting from share-based awards is recorded at the Management Company, which is a taxable entity. Share-based compensation cost capitalized as part of real estate assets was $ 66, $ 287 and $ 405 in 2019, 2018 and 2017, respectively.
A summary of the status of the Company’s nonvested restricted stock awards as of December 31, 2019, and changes during the year ended December 31, 2019, is presented below:
The weighted-average grant-date fair value of shares granted during 2019, 2018 and 2017 was $ 2.20, $ 4.55 and $ 10.75, respectively. The total fair value of shares vested during 2019, 2018 and 2017 was $ 3,869, $ 2,189 and $ 2,791, respectively.
As of December 31, 2019, there was $ 2,950 of total unrecognized compensation cost related to nonvested stock awards granted under the 2012 Plan, which is expected to be recognized over a weighted-average period of 2.4 years.
Long-Term Incentive Program
In 2015, the Company adopted a long-term incentive program ("LTIP") for its named executive officers, which consists of performance stock unit ("PSU") awards and annual restricted stock awards, that may be issued under the 2012 Plan. The number of shares related to the PSU awards that each named executive officer may receive upon the conclusion of a three-year performance period is determined, for awards granted in 2017 and prior years, based on the Company's
achievement of specified levels of long-term total stockholder return ("TSR") performance relative to the National Association of Real Estate Investment Trusts (“ NAREIT ”) Retail Index, provided that at least a "Threshold" level must be attained for any shares to be earned.
Beginning with the PSU awards granted under the LTIP in 2018, two-thirds of the quantitative portion of the award over the performance period is based on the achievement of TSR relative to the NAREIT Retail Index while the remaining one-third is based on the achievement of absolute TSR metrics for the Company.
In February 2020, the 2012 Plan was amended to remove the annual equity grant limit of 200,000 shares for awards to any one individual (the “Section 162(m) Grant Limit”), originally included to achieve compliance with the “qualified performance-based compensation” exception to the deduction limits for certain executive compensation under Section 162(m) of the Internal Revenue Code, which no longer served its intended purpose after this exception was repealed by the 2017 tax reform legislation Prior to this amendment, PSU awards granted under the LTIP in 2018 and 2019 provided that, to the extent that a grant of PSUs could result in the issuance of a number of shares of common stock at the conclusion of the performance period that, when coupled with the number of shares of time-vesting restricted stock granted in the same year the PSUs were granted, would exceed the Section 162(m) Grant Limit, any such excess will be converted to a cash bonus award with a value equivalent to the number of shares of common stock constituting such excess times the average of the high and low trading prices reported for CBL's common stock on the date such shares would otherwise have been issuable. PSU awards granted in 2020, following repeal of the Section 162(m) Grant Limit, included the addition of a similar provision to maintain compliance with annual equity grant limits incorporated in Section 312.03(b) of the New York Stock Exchange Listed Company Manual, which limits the number of shares subject to stock awards granted to a named executive officer in a given year without additional shareholder approval to one percent ( 1%) of the total number of outstanding shares of the Company’s common stock (the “NYSE Annual Grant Limit”). Any portion of the value of the PSUs granted in 2018 or 2019 that is earned and payable as a cash bonus due to the Section 162(m) Grant Limit, and any portion of the value of PSUs granted in 2020 or future years that is payable as a cash bonus due to the NYSE Annual Grant Limit, will be subject to the same vesting provisions as the issuance of common stock pursuant to the PSUs and is not expected to be significant. In addition, to the extent any cash is to be paid, the cash will be paid first relative to the vesting schedule, ahead of the issuance of shares of common stock with respect to the balance of PSUs earned.
Annual Restricted Stock Awards
Under the LTIP, annual restricted stock awards consist of shares of time-vested restricted stock awarded based on a qualitative evaluation of the performance of the Company and the named executive officer during the fiscal year. Annual restricted stock awards under the LTIP, which are included in the totals reflected in the preceding table, vest 20% on the date of grant with the remainder vesting in four equal annual installments. Outstanding restricted stock, and related grant/vesting/forfeiture activity during 2019 for awards made to named executive officers under the LTIP, is included in the information presented in the table above.
Performance Stock Units
The Company granted the following PSUs in the first quarter of the respective years. A summary of PSU activity as of December 31, 2019, and changes during the year ended December 31, 2019, is presented below:
(1)
Includes 566,862 shares classified as a liability due to the potential cash component described above.
(2)
Based on the Company’s TSR relative to the NAREIT Retail Index for the three-year performance period ended December 31, 2019, none of the 2017 PSU were earned as of December 31, 2019.
( )
None of the PSUs outstanding at December 31, 2019 were vested.
Shares earned pursuant to the PSU awards vest 60% at the conclusion of the performance period while the remaining 40% of the PSU award vests 20% on each of the first two anniversaries thereafter.
Compensation cost is recognized on a tranche-by-tranche basis using the accelerated attribution method. The resulting expense is recorded regardless of whether any PSU awards are earned as long as the required service period is met.
The fair value of the potential cash component related to the 2018 and 2019 PSUs is measured each reporting period, using the same methodology as was used at the initial grant date, and classified as a liability on the consolidated balance sheet as of December 31, 2019 with an adjustment to compensation expense. If the performance criterion is not satisfied at the end of the performance period for the 2019 PSUs, previously recognized compensation expense related to the liability-classified awards would be reversed as there would be no value at the settlement date.
Share-based compensation expense related to the PSUs was $ 1,564, $ 1,364 and $ 1,501 in 2019, 2018 and 2017, respectively. Unrecognized compensation costs related to the PSUs was $ 2,374 as of December 31, 2019, which is expected to be recognized over a weighted-average period of 4.0 years.
The following table summarizes the assumptions used in the Monte Carlo simulation pricing model related to the PSUs:
(1)
The value of the PSU awards is estimated on the date of grant using a Monte Carlo Simulation model. The valuation consists of computing the fair value using CBL's simulated stock price as well as TSR over a three-year performance period. The award is modeled as a contingent claim in that the expected return on the underlying shares is risk-free and the rate of discounting the payoff of the award is also risk-free. The weighted-average fair value per share related to the 2019 PSUs classified as equity consists of 357,800 shares at a fair value of $ 2.45 per share (which relate to relative TSR) and 178,875 shares at a fair value of $ 2.29 per share (which relate to absolute TSR). The weighted-average fair value per share related to the 2018 PSUs classified as equity consists of 240,164 shares at a fair value of $ 3.13 per share (which relate to relative TSR) and 120,064 shares at a fair value of $ 1.63 per share (which relate to absolute TSR) .
(2)
The risk-free interest rate was based on the yield curve on zero-coupon U.S. Treasury securities in effect as of the valuation date, which is the respective grant date listed above.
(3)
The computation of expected volatility was based on a blend of the historical volatility of CBL's shares of common stock based on annualized daily total continuous returns over a three-year period and implied volatility data based on the trailing month average of daily implied volatilities implied by stock call option contracts that were both closest to the terms shown and closest to the money.
NOTE 18. 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 60 days 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 annual gross salary 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 $ 921, $ 1,003 and $ 1,034 in 2019, 2018 and 2017, 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 CBL’s common stock. The shares are purchased at the prevailing market price of the stock at the time of purchase.
NOTE 19. QUARTERLY INFORMATION (UNAUDITED)
Net loss for the quarter ended March 31, 2019 includes loss on impairment of real estate assets of $ 24,825 primarily related to Greenbrier Mall and Honey Creek Mall. Also, included in the quarter ended March 31, 2019 is gain on extinguishment of debt of $ 71,722 related to Acadiana Mall and Cary Towne Center, and the accrued maximum expense of $ 88,150 related to the proposed settlement of a class action lawsuit .
Net loss for the quarter ended June 30, 2019 includes loss on impairment of real estate assets of $ 41,608 primarily related to EastGate Mall and The Forum at Grandview.
Net loss for the quarter ended September 30, 2019 includes loss on impairment of real estate assets of $ 135,688 related to Laurel Park Place and Mid Rivers Mall. Also, included in the quarter ended September 30, 2019 is gain on deconsolidation of $ 11,174 related to The Outlet Shoppes at El Paso.
Net income for the quarter ended December 31, 2019 includes loss on impairment of real estate asset of $ 37,400 related to Park Plaza Mall. Also, included in the quarter ended December 31, 2019 is gain on deconsolidation of $ 56,067 related to The Outlet Shoppes at Atlanta.
Net loss for the quarter ended June 30, 2018 includes loss on impairment of real estate assets of $ 51,983 related to Cary Towne Center. Net loss for the quarter ended December 31, 2018 includes loss on impairment of real estate assets of $ 2,693, $ 36,525 and $ 48,640 for Cary Towne Center, Eastland Mall and Honey Creek Mall, respectively (see Note 16
).
NOTE 20. SUBSEQUENT EVENTS
In January 2020, the Company used its secured credit facility to retire two loans totaling $ 84,803 that were secured by Parkway Place and Valley View Mall.
Schedule II
CBL & ASSOCIATES PROPERTIES, INC.
CBL & ASSOCIATES LIMITED PARTNERSHIP
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Schedule III
CBL & ASSOCIATES PROPERTIES, INC.
CBL & ASSOCIATES LIMITED PARTNERSHIP
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
At December 31, 2019
(In thousands)
Schedule III
CBL & ASSOCIATES PROPERTIES, INC.
CBL & ASSOCIATES LIMITED PARTNERSHIP
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
At December 31, 2019
(In thousands)
Schedule III
CBL & ASSOCIATES PROPERTIES, INC.
CBL & ASSOCIATES LIMITED PARTNERSHIP
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
At December 31, 2019
(In thousands)
Schedule III
CBL & ASSOCIATES PROPERTIES, INC.
CBL & ASSOCIATES LIMITED PARTNERSHIP
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
At December 31, 2019
(In thousands)
(1)
Initial cost represents the total cost capitalized including carrying cost at the end of the first fiscal year in which the Property opened or was acquired.
(2)
Encumbrances represent the face amount of the mortgage and other indebtedness balance at December 31, 2019, excluding debt premium or discount, if applicable.
(3)
The aggregate cost of land and buildings and improvements for federal income tax purposes is approximately $ 7.077 billion.
(4)
Depreciation for all Properties is computed over the useful life which is generally
10 - 20 years
for certain improvements and
7 - 10 years
for equipment and fixtures.
( )
Property is pledged as collateral on the secured credit facility.
Schedul e III
CBL & ASSOCIATES PROPERTIES, INC.
CBL & ASSOCIATES LIMITED PARTNERSHIP
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
At December 31, 2019
(In thousands)
The changes in real estate assets and accumulated depreciation for the years ending December 31, 2019, 2018, and 2017 are set forth below (in thousands):
Schedule IV
CBL & ASSOCIATES PROPERTIES, INC.
CBL & ASSOCIATES LIMITED PARTNERSHIP
MORTGAGE NOTES RECEIVABLE ON REAL ESTATE
At December 31, 2019
(In thousands)
(1)
Equal monthly installments comprised of principal and interest, unless otherwise noted.
(2)
The aggregate carrying value for federal income tax purposes was $ 2,637 at December 31, 2019.
( )
This loan bears interest at LIBOR plus 2.50% and is in default at December 31, 2019. See Note 11
to the consolidated financial statements for additional information.
(4)
This loan bears interest at prime plus 2.0%.
The changes in mortgage notes receivable were as follows (in thousands):
EXHIBIT INDEX
(a)
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016.**
(b)
Incorporated by reference from the Company’s Quarterly Report on Form 10-Q, for the quarter ended June 30, 2018.**
(c)
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001.*
(d)
Incorporated by reference from the Company's Current Report on Form 8-K, dated June 10, 2002, filed on June 17, 2002.*
(e)
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002.*
(f)
Incorporated by reference from the Company's Registration Statement on Form 8-A, filed on August 21, 2003.*
(g)
Incorporated by reference from the Company's Registration Statement on Form 8-A, filed on December 10, 2004.*
(h)
Incorporated by reference from the Company's Current Report on Form 8-K, filed on March 1, 2010.*
(i)
Incorporated by reference from the Company's Current Report on Form 8-K, filed on October 18, 2010.*
(j)
Incorporated by reference from the Company's Registration Statement on Form 8-A, filed on October 1, 2012.*
(k)
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004.*
(l)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q, for the quarter ended June 30, 2005.*
(m)
Incorporated by reference from the Company's Current Report on Form 8-K, filed on November 22, 2005.*
(n)
Incorporated by reference from the Company's Current Report on Form 8-K, dated and filed on November 26, 2013.**
(o)
Incorporated by reference from the Company’s Current Report on Form 8-K, filed December 13, 2016.**
(p)
Incorporated by reference from the Company’s Current Report on Form 8-K, filed February 5, 2019.**
(q)
Incorporated by reference from the Company’s Current Report on Form 8-K, filed October 8, 2014.**
(r)
Incorporated by reference from the Company's Current Report on Form 8-K, filed on September 1, 2017.**
(s)
Incorporated by reference from the Company's Current Report on Form 8-K, filed on November 5, 2010.*
(t)
Incorporated by reference from the Company's Current Report on Form 8-K, filed on October 5, 2012.*
(u)
Incorporated by reference from the Company's Current Report on Form 8-K, filed on May 10, 2012.*
(v)
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012.*
(w)
Incorporated by reference from the Company's Current Report on Form 8-K, filed on May 17, 2013.*
(x)
Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.**
(y)
Incorporated by reference from the Company's Current Report on Form 8-K, filed on May 12, 2017.*
(z)
Incorporated by reference from the Company’s Current Report on Form 8-K, filed on March 27, 2015.**
(aa)
Incorporated by reference from the Company’s Current Report on Form 8-K, filed on February 13, 2017.**
(bb)
Incorporated by reference from the Company’s Current Report on Form 8-K, filed on February 16, 2018.**
(cc)
Incorporated by reference from the Company’s Current Report on Form 8-K, filed on February 15, 2019.**
(dd)
Incorporated by reference to Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form S-11 (No. 33-67372), as filed with the Commission on October 5, 1993. Exhibit originally filed in paper format and as such, a hyperlink is not available.*
(ee)
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. Exhibit originally filed in paper format and as such, a hyperlink is not available.*
(ff)
Incorporated by reference from the Company's Current Report on Form 8-K, filed on November 9, 2012.*
(gg)
Incorporated by reference from the Company's Current Report on Form 8-K, filed on February 6, 2001*
(hh)
Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005.*
(ii)
Incorporated by reference from the Company's Current Report on Form 8-K, filed on March 1, 2013.*
(jj)
Incorporated by reference from the Company's Current Report on Form 8-K/A, filed on February 28, 2019.**
(kk)
Incorporated by reference from the Company's Current Report on Form 8-K, filed on October 3, 2018.**
(ll)
Incorporated by reference from the Company’s Current Report on Form 8-K, filed on November 1, 2019.**
(mm)Incorporated by reference from the Company’s Quarterly Report on Form 10-Q/A, filed on December 20, 2019.**
(nn)
Incorporated by reference from the Company’s Current Report on Form 8-K, filed on February 14, 2020.**
†
A management contract or compensatory plan or arrangement required to be filed pursuant to Item 15(b) of this report.
* Commission File No. 1-12494
** Commission File No. 1-12494 and 333-182515-01
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/ Farzana Khaleel
Farzana Khaleel
Executive Vice President -
Chief Financial Officer and Treasurer
Dated: March 9, 2020
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.
Signature
Title
Date
/s/ Charles B. Lebovitz
Chairman of the Board
March 9, 2020
Charles B. Lebovitz
/s/ Stephen D. Lebovitz
Director and Chief Executive Officer
(Principal Executive Officer)
March 9, 2020
Stephen D. Lebovitz
/s/ Farzana Khaleel
Executive Vice President - Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)
March 9, 2020
Farzana Khaleel
/s/ A. Larry Chapman*
Director
March 9, 2020
A. Larry Chapman
/s/ Matthew S. Dominski*
Director
March 9, 2020
Matthew S. Dominski
/s/ John D. Griffith*
Director
March 9, 2020
John D. Griffith
/s/ Richard J. Lieb*
Director
March 9, 2020
Richard J. Lieb
/s/ Kathleen M. Nelson*
Director
March 9, 2020
Kathleen M. Nelson
/s/ Michael L. Ashner
Director
March 9, 2020
Michael L. Ashner
/s/ Carolyn B. Tiffany
Director
March 9, 2020
Carolyn B. Tiffany
*By: /s/ Farzana Khaleel
Attorney-in-Fact
March 9, 2020
Farzana Khaleel
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 LIMITED PARTNERSHIP
(Registrant)
By: CBL HOLDINGS I, INC., its general partner
By:
/s/ Farzana Khaleel
Farzana Khaleel
Executive Vice President -
Chief Financial Officer and Treasurer
Dated: March 9, 2020
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.
Signature
Title
Date
/s/ Charles B. Lebovitz
Chairman of the Board of CBL Holdings I, Inc., general partner of the Registrant
March 9, 2020
Charles B. Lebovitz
/s/ Stephen D. Lebovitz
Director and Chief Executive Officer of CBL Holdings I, Inc., general partner of the Registrant (Principal Executive Officer)
March 9, 2020
Stephen D. Lebovitz
/s/ Farzana Khaleel
Executive Vice President - Chief Financial Officer and Treasurer of CBL Holdings, I, Inc., general partner of the Registrant (Principal Financial Officer and Principal Accounting Officer)
March 9, 2020
Farzana Khaleel