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CBL & Associates Properties (CBL)
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CBL & Associates Properties 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-12.1
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. Ex-32.2
CBL-9.30.2011-10Q
UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
______________
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011
Or
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM ____________ TO _______________
 
COMMISSION FILE NO. 1-12494
______________
CBL & ASSOCIATES PROPERTIES, INC.
(Exact Name of registrant as specified in its charter)
______________
DELAWARE  
 
   62-1545718
 
 
 
(State or other jurisdiction of incorporation or organization)     
 
 (I.R.S. Employer Identification Number)
                       
 
2030 Hamilton Place Blvd., Suite 500, Chattanooga,  TN  37421-6000
(Address of principal executive office, including zip code)
423.855.0001
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
 Yes x   
  No o
                               
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 Yes x   
  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
 Large accerlerated filer x
Accerlerated filer o
 Non-accelerated filer o (Do not check if smaller reporting company)
Smaller Reporting Company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 Yes o  
  No x
As of November 2, 2011, there were 148,364,359 shares of common stock, par value $0.01 per share, outstanding.

1

CBL & Associates Properties, Inc.

Table of Contents

PART I
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

PART I – FINANCIAL INFORMATION

ITEM 1:   Financial Statements

CBL & Associates Properties, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)

ASSETS
September 30,
2011
 
December 31,
2010
Real estate assets:
 
 
 
Land
$
926,423

 
$
928,025

Buildings and improvements
7,585,004

 
7,543,326

 
8,511,427

 
8,471,351

Accumulated depreciation
(1,883,878
)
 
(1,721,194
)
 
6,627,549

 
6,750,157

Developments in progress
151,271

 
139,980

Net investment in real estate assets
6,778,820

 
6,890,137

Cash and cash equivalents
61,912

 
50,896

Receivables:
 

 
 

 Tenant, net of allowance for doubtful accounts of $1,971
     in 2011 and $3,167 in 2010
79,471

 
77,989

 Other, net of allowance for doubtful accounts of $1,397
     in 2011
12,347

 
11,996

Mortgage and other notes receivable
26,942

 
30,519

Investments in unconsolidated affiliates
179,504

 
179,410

Intangible lease assets and other assets
283,499

 
265,607

 
$
7,422,495

 
$
7,506,554

 
 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 

 
 

Mortgage and other indebtedness
$
5,233,148

 
$
5,209,747

Accounts payable and accrued liabilities
314,828

 
314,651

Total liabilities
5,547,976

 
5,524,398

Commitments and contingencies (Notes 5 and 11)


 


Redeemable noncontrolling interests:  
 

 
 

Redeemable noncontrolling partnership interests  
24,507

 
34,379

Redeemable noncontrolling preferred joint venture interest
423,834

 
423,834

Total redeemable noncontrolling interests
448,341

 
458,213

Shareholders' equity:
 

 
 

Preferred stock, $.01 par value, 15,000,000 shares authorized:
 

 
 

 7.75% Series C Cumulative Redeemable Preferred
     Stock, 460,000 shares outstanding
5

 
5

 7.375% Series D Cumulative Redeemable Preferred
     Stock, 1,815,000 shares outstanding
18

 
18

 Common stock, $.01 par value, 350,000,000 shares
     authorized, 148,363,832 and 147,923,707 issued and
     outstanding in 2011 and 2010, respectively
1,484

 
1,479

Additional paid-in capital
1,667,294

 
1,657,507

Accumulated other comprehensive income
961

 
7,855

Dividends in excess of cumulative earnings
(440,798
)
 
(366,526
)
Total shareholders' equity
1,228,964

 
1,300,338

Noncontrolling interests
197,214

 
223,605

Total equity
1,426,178

 
1,523,943

 
$
7,422,495

 
$
7,506,554

The accompanying notes are an integral part of these balance sheets.

3

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
REVENUES:
 
 
 
 
 
 
 
Minimum rents
$
174,917

 
$
167,742

 
$
515,682

 
$
500,178

Percentage rents
3,040

 
2,602

 
8,894

 
8,680

Other rents
4,206

 
4,236

 
13,797

 
13,321

Tenant reimbursements
77,524

 
77,370

 
231,688

 
231,376

Management, development and leasing fees
1,909

 
1,369

 
4,814

 
4,676

Other
8,415

 
7,351

 
26,372

 
21,822

Total revenues
270,011

 
260,670

 
801,247

 
780,053

 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 

 
 

 
 

 
 

Property operating
39,479

 
37,393

 
115,729

 
111,585

Depreciation and amortization
71,404

 
71,814

 
211,496

 
211,035

Real estate taxes
23,801

 
24,676

 
73,482

 
73,796

Maintenance and repairs
13,898

 
12,826

 
43,997

 
41,459

General and administrative
10,092

 
10,495

 
33,133

 
31,890

Loss on impairment of real estate
51,304

 
—

 
55,761

 
—

Other
7,446

 
6,351

 
22,795

 
19,467

Total operating expenses
217,424

 
163,555

 
556,393

 
489,232

Income from operations
52,587

 
97,115

 
244,854

 
290,821

Interest and other income
598

 
832

 
1,755

 
2,831

Interest expense
(70,643
)
 
(71,178
)
 
(209,771
)
 
(216,052
)
Gain on extinguishment of debt
—

 
—

 
581

 
—

Gain on sales of real estate assets
2,890

 
562

 
3,637

 
2,577

Equity in earnings (losses) of unconsolidated affiliates
989

 
(1,558
)
 
4,222

 
(610
)
Income tax (provision) benefit
(4,653
)
 
1,264

 
1,770

 
5,052

Income (loss) from continuing operations
(18,232
)
 
27,037

 
47,048

 
84,619

Operating income (loss) of discontinued operations
(57
)
 
611

 
27,986

 
(25,251
)
Gain (loss) on discontinued operations
(31
)
 
29

 
86

 
29

Net income (loss)
(18,320
)
 
27,677

 
75,120

 
59,397

Net (income) loss attributable to noncontrolling interests in:
 

 
 

 
 

 
 

Operating partnership
7,760

 
(3,605
)
 
(5,443
)
 
(4,992
)
Other consolidated subsidiaries
(6,166
)
 
(6,133
)
 
(18,708
)
 
(18,394
)
Net income (loss) attributable to the Company
(16,726
)
 
17,939

 
50,969

 
36,011

Preferred dividends
(10,594
)
 
(8,359
)
 
(31,782
)
 
(22,745
)
Net income (loss) attributable to common shareholders
$
(27,320
)
 
$
9,580

 
$
19,187

 
$
13,266



4

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
(Continued)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
Basic per share data attributable to common shareholders:
 

 
 

 
 

 
 

Income (loss) from continuing operations, net of preferred dividends
$
(0.18
)
 
$
0.07

 
$
(0.02
)
 
$
0.23

Discontinued operations
—

 
—

 
0.15

 
(0.13
)
Net income (loss) attributable to common shareholders
$
(0.18
)
 
$
0.07

 
$
0.13

 
$
0.10

Weighted average common shares outstanding
148,363

 
138,075

 
148,264

 
138,037

 
 
 
 
 
 
 
 
Diluted earnings per share data attributable to common shareholders:
 
 

 
 

 
 

Income (loss) from continuing operations, net of preferred dividends
$
(0.18
)
 
$
0.07

 
$
(0.02
)
 
$
0.23

Discontinued operations
—

 
—

 
0.15

 
(0.13
)
Net income (loss) attributable to common shareholders
$
(0.18
)
 
$
0.07

 
$
0.13

 
$
0.10

Weighted average common and potential dilutive common shares outstanding
148,405

 
138,121

 
148,310

 
138,079

 
 
 
 
 
 
 
 
Amounts attributable to common shareholders:
 

 
 

 
 

 
 

Income (loss) from continuing operations, net of preferred dividends
$
(27,252
)
 
$
9,115

 
$
(2,682
)
 
$
31,592

Discontinued operations
(68
)
 
465

 
21,869

 
(18,326
)
Net income (loss) attributable to common shareholders
$
(27,320
)
 
$
9,580

 
$
19,187

 
$
13,266

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.21

 
$
0.20

 
$
0.63

 
$
0.60


The accompanying notes are an integral part of these statements.


5

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands)
 
 
 
 
Equity
 
 
 
Shareholders' Equity
 
 
 
 
 
Redeemable Noncontrolling Partnership Interests
 
Preferred
 Stock
 
Common
 Stock
 
Additional
 Paid-in
 Capital
 
Accumulated Other Comprehensive Income
 
Dividends in Excess of Cumulative Earnings
 
Total Shareholders' Equity
 
Noncontrolling Interests
 
Total
 Equity
Balance, January 1, 2010
$
22,689

 
$
12

 
$
1,379

 
$
1,399,654

 
$
491

 
$
(283,640
)
 
$
1,117,896

 
$
302,483

 
$
1,420,379

Net income
2,997

 
—

 
—

 
—

 
—

 
36,011

 
36,011

 
4,935

 
40,946

Other comprehensive income (loss):
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net unrealized gain on available-for-sale securities
44

 
—

 
—

 
—

 
3,879

 
—

 
3,879

 
1,431

 
5,310

Net unrealized gain on hedging instruments
21

 
—

 
—

 
—

 
1,867

 
—

 
1,867

 
681

 
2,548

Realized loss on foreign currency translation adjustment
1

 
—

 
—

 
—

 
123

 
—

 
123

 
45

 
168

Net unrealized gain (loss) on foreign currency
      translation adjustment
(397
)
 
—

 
—

 
—

 
(962
)
 
—

 
(962
)
 
1,203

 
241

Other comprehensive income (loss)
(331
)
 
 

 
 

 
 

 
 

 
 

 
4,907

 
3,360

 
8,267

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared - common stock
—

 
—

 
—

 
—

 
—

 
(82,834
)
 
(82,834
)
 
—

 
(82,834
)
Dividends declared - preferred stock
—

 
—

 
—

 
—

 
—

 
(22,745
)
 
(22,745
)
 
—

 
(22,745
)
Issuance of preferred stock in equity offering
—

 
6

 
—

 
121,262

 
—

 
—

 
121,268

 
—

 
121,268

Issuance of common stock and restricted common stock
—

 
—

 
1

 
164

 
—

 
—

 
165

 
—

 
165

Cancellation of restricted common stock
—

 
—

 
—

 
(175
)
 
—

 
—

 
(175
)
 
—

 
(175
)
Exercise of stock options
—

 
—

 
1

 
941

 
—

 
—

 
942

 
—

 
942

Accrual under deferred compensation arrangements
—

 
—

 
—

 
30

 
—

 
—

 
30

 
—

 
30

Amortization of deferred compensation
—

 
—

 
—

 
1,844

 
—

 
—

 
1,844

 
—

 
1,844

Income tax effect of share-based compensation
(10
)
 
—

 
—

 
(1,468
)
 
—

 
—

 
(1,468
)
 
(337
)
 
(1,805
)
Distributions to noncontrolling interests
(7,787
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(43,993
)
 
(43,993
)
Adjustment for noncontrolling interests
2,311

 
—

 
—

 
(10,050
)
 
—

 
—

 
(10,050
)
 
7,739

 
(2,311
)
Adjustment to record redeemable
     noncontrolling interests at redemption value
7,781

 
—

 
—

 
(7,781
)
 
—

 
—

 
(7,781
)
 
—

 
(7,781
)
Balance, September 30, 2010
$
27,650

 
$
18

 
$
1,381

 
$
1,504,421

 
$
5,398

 
$
(353,208
)
 
$
1,158,010

 
$
274,187

 
$
1,432,197


The accompanying notes are an integral part of these statements.


6

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands)
(Continued)
 
 
 
Equity
 
 
 
Shareholders' Equity
 
 
 
 
 
Redeemable Noncontrolling Partnership Interests
 
Preferred
 Stock
 
Common
 Stock
 
Additional
 Paid-in
 Capital
 
Accumulated Other Comprehensive Income
 
Dividends in Excess of Cumulative Earnings
 
Total Shareholders' Equity
 
Noncontrolling Interests
 
Total
 Equity
Balance, January 1, 2011
$
34,379

 
$
23

 
$
1,479

 
$
1,657,507

 
$
7,855

 
$
(366,526
)
 
$
1,300,338

 
$
223,605

 
$
1,523,943

Net income
3,055

 
—

 
—

 
—

 
—

 
50,969

 
50,969

 
5,661

 
56,630

Other comprehensive loss:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Unrealized loss on available-for-sale securities
(28
)
 
—

 
—

 
—

 
(2,652
)
 
—

 
(2,652
)
 
(723
)
 
(3,375
)
Realized loss on sale of marketable securities
—

 
—

 
—

 
—

 
17

 
—

 
17

 
5

 
22

Unrealized loss on hedging instruments
(45
)
 
—

 
—

 
—

 
(4,259
)
 
—

 
(4,259
)
 
(1,162
)
 
(5,421
)
Other comprehensive loss
(73
)
 
 

 
 

 
 

 
 

 
 

 
(6,894
)
 
(1,880
)
 
(8,774
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of operating partnership special
     common units to shares of common stock
—

 
—

 
1

 
728

 
—

 
—

 
729

 
(729
)
 
—

Dividends declared - common stock
—

 
—

 
—

 
—

 
—

 
(93,459
)
 
(93,459
)
 
—

 
(93,459
)
Dividends declared - preferred stock
—

 
—

 
—

 
—

 
—

 
(31,782
)
 
(31,782
)
 
—

 
(31,782
)
Issuance of common stock and restricted common stock
—

 
—

 
2

 
233

 
—

 
—

 
235

 
—

 
235

Cancellation of restricted common stock
—

 
—

 
—

 
(184
)
 
—

 
—

 
(184
)
 
—

 
(184
)
Exercise of stock options
—

 
—

 
2

 
1,953

 
—

 
—

 
1,955

 
—

 
1,955

Accrual under deferred compensation arrangements
—

 
—

 
—

 
41

 
—

 
—

 
41

 
—

 
41

Amortization of deferred compensation
—

 
—

 
—

 
1,629

 
—

 
—

 
1,629

 
—

 
1,629

Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,040

 
1,040

Distributions to noncontrolling interests
(6,405
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(31,545
)
 
(31,545
)
Adjustment for noncontrolling interests
2,181

 
—

 
—

 
(3,243
)
 
—

 
—

 
(3,243
)
 
1,062

 
(2,181
)
Adjustment to record redeemable
     noncontrolling interests at redemption value
(8,630
)
 
—

 
—

 
8,630

 
—

 
—

 
8,630

 
—

 
8,630

Balance, September 30, 2011
$
24,507

 
$
23

 
$
1,484

 
$
1,667,294

 
$
961

 
$
(440,798
)
 
$
1,228,964

 
$
197,214

 
$
1,426,178


The accompanying notes are an integral part of these statements.


7

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
  
 
Nine Months Ended
September 30,
 
2011
 
2010
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
75,120

 
$
59,397

Adjustments to reconcile net income to net cash provided by
    operating activities:
 
 
 

Depreciation and amortization
211,582

 
216,016

Net amortization of deferred finance costs and debt premiums
8,143

 
5,219

Net amortization of intangible lease assets and liabilities
(1,179
)
 
(1,481
)
Gain on sales of real estate assets
(3,637
)
 
(2,577
)
Realized foreign currency loss
—

 
169

Gain on sale of discontinued operations
(86
)
 
(29
)
Write-off of development projects
51

 
420

Share-based compensation expense
1,769

 
1,932

Income tax effect of share-based compensation
—

 
(1,815
)
Net realized loss on sale of available-for-sale securities
22

 
—

Write-down of mortgage and other notes receivable
1,900

 
—

Loss on impairment of real estate
55,761

 
—

Loss on impairment of real estate from discontinued operations
2,239

 
25,435

Gain on extinguishment of debt
(581
)
 
—

Gain on extinguishment of debt from discontinued operations
(31,434
)
 
—

Equity in (earnings) losses of unconsolidated affiliates
(4,222
)
 
610

Distributions of earnings from unconsolidated affiliates
6,171

 
3,554

Provision for doubtful accounts
1,999

 
2,950

Change in deferred tax accounts
(5,032
)
 
2,245

Changes in:
 

 
 

Tenant and other receivables
(3,908
)
 
(8,623
)
Other assets
552

 
(5,918
)
Accounts payable and accrued liabilities
2,905

 
(7,666
)
Net cash provided by operating activities
318,135

 
289,838

 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Additions to real estate assets
(149,321
)
 
(80,689
)
Acquisition of real estate assets
(12,172
)
 
—

(Additions) reductions to restricted cash
(13,571
)
 
16,837

Proceeds from sales of real estate assets
20,495

 
5,485

Additions to mortgage and other notes receivable
(5,300
)
 
—

Payments received on mortgage and other notes receivable
4,817

 
1,485

Net purchases of available-for-sale securities
—

 
(9,975
)
Additional investments in and advances to unconsolidated affiliates
(20,041
)
 
(22,019
)
Distributions in excess of equity in earnings of unconsolidated affiliates
13,094

 
28,548

Changes in other assets
(10,770
)
 
(4,089
)
Net cash used in investing activities
(172,769
)
 
(64,417
)

8

 
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
(Continued)
 
 
 
 
 
 
Nine Months Ended
September 30,
 
 
2011
 
2010
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from mortgage and other indebtedness
$
1,373,265

 
$
637,113

 
Principal payments on mortgage and other indebtedness
(1,315,890
)
 
(824,371
)
 
Additions to deferred financing costs
(16,154
)
 
(4,418
)
 
Proceeds from issuances of common stock
136

 
104

 
Proceeds from issuances of preferred stock
—

 
121,268

 
Proceeds from exercises of stock options
1,955

 
942

 
Income tax effect of share-based compensation
—

 
1,815

 
Contributions from noncontrolling interests
1,040

 
—

 
Distributions to noncontrolling interests
(55,033
)
 
(64,409
)
 
Dividends paid to holders of preferred stock
(31,782
)
 
(22,745
)
 
Dividends paid to common shareholders
(91,887
)
 
(62,114
)
 
Net cash used in financing activities
(134,350
)
 
(216,815
)
 
 
 
 
 
 
NET CHANGE IN CASH AND CASH EQUIVALENTS
11,016

 
8,606

 
CASH AND CASH EQUIVALENTS, beginning of period
50,896

 
48,062

 
CASH AND CASH EQUIVALENTS, end of period
$
61,912

 
$
56,668

 
 
 
 
 
 
SUPPLEMENTAL INFORMATION:
 

 
 

 
Cash paid for interest, net of amounts capitalized
$
202,097

 
$
212,343


 
The accompanying notes are an integral part of these statements.


9

CBL & Associates Properties, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except share data)

Note 1 – Organization and Basis of Presentation
 
CBL & Associates Properties, Inc. (“CBL”), a Delaware corporation, is a self-managed, self-administered, fully-integrated real estate investment trust (“REIT”) that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air centers, community centers and office properties.  Its shopping centers 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”). As of September 30, 2011, the Operating Partnership owned controlling interests in 77 regional malls/open-air centers, 30 associated centers (each located adjacent to a regional mall), eight community centers and 14 office buildings, including CBL’s corporate office building. The Operating Partnership consolidates the financial statements of all entities in which it has a controlling financial interest or where it is the primary beneficiary of a variable interest entity.  At September 30, 2011, the Operating Partnership owned non-controlling interests in seven regional malls, four associated centers, five community centers and six office buildings. Because one or more of the other partners have substantive participating rights, the Operating Partnership does not control these partnerships and joint ventures and, accordingly, accounts for these investments using the equity method. The Operating Partnership had controlling interests in two community center expansions, one mall expansion and three mall redevelopments under construction at September 30, 2011.  The Operating Partnership also holds options to acquire certain development properties owned by third parties.
 
CBL is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At September 30, 2011, 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 a 76.9% limited partner interest for a combined interest held by CBL of 77.9%.
 
The noncontrolling interest in the Operating Partnership is held primarily by CBL & Associates, Inc. and its affiliates (collectively “CBL’s Predecessor”) and by affiliates of The Richard E. Jacobs Group, Inc. (“Jacobs”). CBL’s Predecessor contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for a limited partner interest when the Operating Partnership was formed in November 1993. Jacobs contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for limited partner interests when the Operating Partnership acquired the majority of Jacobs’ interests in 23 properties in January 2001 and the balance of such interests in February 2002. At September 30, 2011, CBL’s Predecessor owned a 9.8% limited partner interest, Jacobs owned a 6.9% limited partner interest and third parties owned a 5.4% limited partner interest in the Operating Partnership.  CBL’s Predecessor also owned 7.4 million shares of CBL’s common stock at September 30, 2011, for a total combined effective interest of 13.7% in the Operating Partnership.
 
The Operating Partnership conducts CBL’s property management and development activities through CBL & Associates Management, Inc. (the “Management Company”) to comply with certain requirements of the Internal Revenue Code of 1986, as amended (the “Code”). The Operating Partnership owns 100% of both of the Management Company’s preferred stock and common stock.
 
CBL, the Operating Partnership and the Management Company are collectively referred to herein as “the Company”.
 
The accompanying condensed consolidated financial statements are unaudited; however, they have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. Material intercompany transactions have been eliminated. The results for the interim period ended September 30, 2011 are not necessarily indicative of the results to be obtained for the full fiscal year.

These condensed consolidated financial statements should be read in conjunction with CBL’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2010, as amended.
 



10

Note 2 – Recent Accounting Pronouncements
 
Accounting Guidance Adopted
 
In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU No. 2010-20”).  ASU No. 2010-20 requires entities to provide extensive new disclosures in their financial statements about their financing receivables, including credit risk exposures and the allowance for credit losses.  The new disclosures include information regarding credit quality, impaired or modified receivables, non-accrual or past due receivables and activity related to modified receivables and the allowance for credit losses.  In January 2011, the FASB issued ASU No. 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (“ASU No. 2011-01”).  ASU No. 2011-01 delayed immediately the effective date for disclosures prescribed by ASU No. 2010-20 that relate to troubled debt restructurings.  The adoption of the non-deferred disclosures prescribed by ASU No. 2010-20 did not have an impact on the Company’s condensed consolidated financial statements.
  
In April 2011, the FASB issued ASU No. 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“ASU No. 2011-02”).  ASU No. 2011-02 provides additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring.  For public entities, these amendments are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011.   The adoption of these amendments did not have an impact on the Company’s condensed consolidated financial statements.

 Accounting Pronouncements Not Yet Effective

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”).  The objective of this accounting update is to align the principles for fair value measurements and the related disclosure requirements under GAAP and International Financial Reporting Standards (“IFRSs”), thus improving the comparability of fair value measurements presented and disclosed in financial statements.  This amendment is effective for interim and annual periods beginning after December 15, 2011 and should be applied prospectively.  The adoption of ASU No. 2011-04 will not have a material impact on the Company’s condensed consolidated financial statements.
 
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (“ASU No. 2011-05”).  The objective of this accounting update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.  The FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  This new accounting guidance is effective for interim and annual periods beginning after December 15, 2011 and is required to be applied retrospectively.  The Company currently presents components of its other comprehensive income as part of the statement of changes in stockholders’ equity and, as such, is evaluating the preferred method between the two options available.  While the adoption of ASU No. 2011-05 will change the presentation format of the Company’s condensed consolidated financial statements, it will not have an impact on the amounts reported in those statements.

Note 3 – Fair Value Measurements
 
The Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy 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.
 

11


Level 3 – Inputs represent unobservable measurements, supported by little, if any, market activity, and require considerable assumptions that are significant to the fair value of the asset or liability.  Market valuations must often be determined using discounted cash flow methodologies, pricing models or similar techniques based on the Company’s assumptions and best judgment.
 
The following tables set forth information regarding the Company’s financial instruments that are measured at fair value in the condensed consolidated balance sheets as of September 30, 2011 and December 31, 2010:
 
 
 
 
Fair Value Measurements at Reporting Date Using
 
Fair Value at
September 30, 2011
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
32,014

 
$
20,185

 
$
—

 
$
11,829

Privately held debt and equity securities
2,475

 
—

 
—

 
2,475

Interest rate caps
1

 
—

 
1

 
—

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Interest rate swaps
$
5,560

 
$
—

 
$
5,560

 
$
—

 
 
 

 
Fair Value Measurements at Reporting Date Using
 
Fair Value at
December 31, 2010
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
Assets:
 

 
 

 
 

 
 

Available-for-sale securities
$
22,052

 
$
22,052

 
$
—

 
$
—

Privately held debt and equity securities
2,475

 
—

 
—

 
2,475

Interest rate cap
3

 
—

 
3

 
—

 
Intangible lease assets and other assets in the consolidated balance sheets include marketable securities consisting of corporate equity securities, mortgage/asset-backed securities, mutual funds and bonds that are classified as available for sale.  Net unrealized gains and losses on available-for-sale securities that are deemed to be temporary in nature are recorded as a component of accumulated other comprehensive income in redeemable noncontrolling interests, shareholders’ equity and noncontrolling interests.  If a decline in the value of an investment is deemed to be other than temporary, the investment is written down to fair value and an impairment loss is recognized in the current period to the extent of the decline in value.  During the three and nine month periods ended September 30, 2011 and 2010, the Company did not record any write-downs related to other-than-temporary impairments.  During the nine months ended September 30, 2011, the Company recognized realized losses of $22 related to sales of marketable securities.  The fair value of the Company’s available-for-sale securities is based on quoted market prices and, thus, is classified under Level 1.  The following is a summary of the equity securities held by the Company as of September 30, 2011 and December 31, 2010:


12

 
 
 
Gross Unrealized
 
 
 
Adjusted Cost
 
Gains
 
Losses
 
Fair Value
September 30, 2011:
 
 
 
 
 
 
 
Common stocks
$
4,207

 
$
6,373

 
$
(5
)
 
$
10,575

Mutual funds
5,539

 
18

 
(99
)
 
5,458

Mortgage/asset-backed securities
1,748

 
12

 
—

 
1,760

 Government and government sponsored entities
14,960

 
46

 
(1,542
)
 
13,464

Corporate bonds
699

 
24

 
—

 
723

International bonds
33

 
1

 
—

 
34

 
$
27,186

 
$
6,474

 
$
(1,646
)
 
$
32,014

 
 
 
 

 
Gross Unrealized
 
 

 
Adjusted Cost
 
Gains
 
Losses
 
Fair Value
December 31, 2010:
 

 
 

 
 

 
 

Common stocks
$
4,207

 
$
8,347

 
$
(4
)
 
$
12,550

Mutual funds
5,318

 
37

 
(39
)
 
5,316

Mortgage/asset-backed securities
1,571

 
—

 
(6
)
 
1,565

Government and government sponsored entities
1,864

 
8

 
(11
)
 
1,861

Corporate bonds
710

 
18

 
—

 
728

International bonds
32

 
—

 
—

 
32

 
$
13,702

 
$
8,410

 
$
(60
)
 
$
22,052

 
The Company holds a secured convertible promissory note from Jinsheng Group (“Jinsheng”), in which the Company also holds a cost-method investment.  The secured convertible note is non-interest bearing and is secured by shares of Jinsheng.  Since the secured convertible note is non-interest bearing and there is no active market for Jinsheng’s debt, the Company performed an analysis on the note considering credit risk and discounting factors to determine the fair value.  Due to the significant estimates and assumptions used in the valuation of the note, the Company has classified it under Level 3.  The Company performed quantitative and qualitative analyses of its investment as of September 30, 2011 and determined that the current balance of the secured convertible note of $2,475 is not impaired.  See Note 5 for further discussion.
 
The Company uses interest rate hedges to mitigate the effect of interest rate movements on its variable-rate debt.  The Company had four interest rate swaps and two interest rate caps as of September 30, 2011 and one interest rate cap as of December 31, 2010 that qualify as hedging instruments and are designated as cash flow hedges.  The interest rate caps are included in intangible lease assets and other assets and the interest rate swaps are reflected in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets.  The swaps and caps have predominantly met the effectiveness test criteria since inception and changes in their fair values are, thus, primarily reported in other comprehensive income and are reclassified into earnings in the same period or periods during which the hedged items affect earnings.  The fair values of the Company’s interest rate hedges, classified under Level 2, are determined using a proprietary model which is based on prevailing market data for contracts with matching durations, current and anticipated London Interbank Offered Rate (“LIBOR”) information, consideration of the Company’s credit standing, credit risk of the counterparties and reasonable estimates about relevant future market conditions.  See Note 6 for further information regarding the Company’s interest rate hedging activity.
 
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 notes receivable is a reasonable estimate of fair value.  The estimated fair value of mortgage and other indebtedness was $5,534,315 and $5,709,860 at September 30, 2011 and December 31, 2010, respectively.  The estimated fair value was calculated by discounting future cash flows for the notes payable using estimated market rates at which similar loans would be made currently.

13


The following table sets forth information regarding the Company’s assets that are measured at fair value on a nonrecurring basis:
 
 
 
Fair Value Measurements at Reporting Date Using
 
 
 
Fair Value at
September 30, 2011
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
 
Total Losses
Asset:
 
 
 
 
 
 
 
 
 
Long-lived assets
$
22,481

 
$
—

 
$
—

 
$
22,481

 
$
55,140

 
In accordance with the Company's quarterly impairment review process, the Company recorded a non-cash impairment of real estate of $50,683 in the third quarter of 2011 related to Columbia Place in Columbia, SC, to write-down the depreciated book value as of September 30, 2011 from $56,746 to an estimated fair value of $6,063 as of the same date. Columbia Place has experienced declining cash flows as a result of changes in property-specific market conditions, which were further exacerbated by the recent economic conditions, that have negatively impacted leasing activity and occupancy.

The Company recorded an impairment of real estate of $622 related to an outparcel that was sold in September 2011 for net proceeds after selling costs of $1,477, which was less than its carrying amount of $2,099.

The Company recorded a non-cash impairment of real estate of $4,457 during the second quarter of 2011 related to Settlers Ridge - Phase II, which was under construction at June 30, 2011.  The property had a carrying value of $19,330 as of June 30, 2011 that was written down to its estimated fair value of $14,873 as of the same date. The property is expected to be sold upon completion and stabilization and the loss was recorded to write down the book value of the property to its estimated fair value.  The fair value was estimated using the expected sales price and the projected book value of the completed property.

The fair value reflected in the table above reflects the estimated fair value of $6,063 of Columbia Place as of September 30, 2011 and the estimated fair value of Settlers Ridge Phase II of $14,873 as of June 30, 2011, adjusted for capital expenditures and depreciation expense during the third quarter of 2011.

The revenues of Columbia Place and Settlers Ridge Phase II accounted for approximately 1.0% of total consolidated revenues for the trailing twelve months ended September 30, 2011. A reconciliation of each property's carrying values for the nine months ended September 30, 2011 is as follows:
 
Columbia Place
 
Settlers Ridge Phase II
 
Total
Beginning carrying value, January 1, 2011
$
58,207

 
$
12,461

 
$
70,668

Capital expenditures
14

 
8,505

 
8,519

Depreciation expense
(1,475
)
 
(91
)