UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020
or
|
☐ |
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.)
COMMISSION FILE NO. 333-182515-01 (CBL & ASSOCIATES LIMITED PARTNERSHIP)
CBL & ASSOCIATES PROPERTIES, INC.
CBL & ASSOCIATES LIMITED PARTNERSHIP
(Exact Name of registrant as specified in its charter)
|
Delaware (CBL & ASSOCIATES PROPERTIES, INC.) |
|
62-1545718 |
|
Delaware (CBL & ASSOCIATES LIMITED PARTNERSHIP) |
|
62-1542285 |
|
(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.
|
CBL & Associates Properties, Inc. |
|
Yes |
☒ |
No |
☐ |
|
CBL & Associates Limited Partnership |
|
Yes |
☒ |
No |
☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
|
CBL & Associates Properties, Inc. |
|
Yes |
☒ |
No |
☐ |
|
CBL & Associates Limited Partnership |
|
Yes |
☒ |
No |
☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
|
CBL & Associates Properties, Inc. |
|
Yes |
☐ |
No |
☒ |
|
CBL & Associates Limited Partnership |
|
Yes |
☐ |
No |
☒ |
Securities registered under Section 12(b) of the Act:
CBL & Associates Properties, Inc.
|
Title of each Class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
Common Stock, $0.01 par value |
|
CBL |
|
New York Stock Exchange |
|
7.375% Series D Cumulative Redeemable Preferred Stock, $0.01 par value |
|
CBLprD |
|
New York Stock Exchange |
|
6.625% Series E Cumulative Redeemable Preferred Stock, $0.01 par value |
|
CBLprE |
|
New York Stock Exchange |
CBL & Associates Limited Partnership: None
As of August 11, 2020, there were 194,073,103 shares of CBL & Associates Properties, Inc.'s common stock, par value $0.01 per share, outstanding.
EXPLANATORY NOTE
(Dollars in thousands, except share data)
This report combines the quarterly reports on Form 10-Q for the quarter ended June 30, 2020 of CBL & Associates Properties, Inc. and CBL & Associates Limited Partnership. Unless stated otherwise or the context otherwise requires, references to the "Company" mean CBL & Associates Properties, Inc. and its subsidiaries. References to the "Operating Partnership" mean CBL & Associates Limited Partnership and its subsidiaries. The terms "we," "us" and "our" refer to the Company or the Company and the Operating Partnership collectively, as the context requires.
Due to the departure of a member of the Company’s financial reporting staff during the quarterly close and financial reporting process and the impact of recent developments related to the Company’s indebtedness, the Company was not able to complete its close process and prepare its Form 10-Q on a timely basis and its independent registered public accounting firm was unable to complete its review of the condensed consolidated financial statements for the quarter ended June 30, 2020 to be included in the Form 10-Q. The Company filed a “Notification of Late Filing” on Form 12b-25 on August 11, 2020 pursuant to Rule 12b-25 of the Securities Exchange Act of 1934 to delay the filing of this Form 10-Q.
The Company is a real estate investment trust ("REIT") whose stock is traded on the New York Stock Exchange. The Company is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At June 30, 2020, 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 94.2% limited partner interest for a combined interest held by the Company of 95.2%.
As the sole general partner of the Operating Partnership, the Company's subsidiary, CBL Holdings I, Inc., has exclusive control of the Operating Partnership's activities. Management operates the Company and the Operating Partnership as one business. The management of the Company consists of the same individuals that manage the Operating Partnership. The Company's only material asset is its indirect ownership of partnership interests of the Operating Partnership. As a result, the Company conducts substantially all its business through the Operating Partnership as described in the preceding paragraph. The Company also issues public equity from time to time and guarantees certain debt of the Operating Partnership. The Operating Partnership holds all of the assets and indebtedness of the Company and, through affiliates, retains the ownership interests in the Company's joint ventures. Except for the net proceeds of offerings of equity by the Company, which are contributed to the Operating Partnership in exchange for partnership units on a one-for-one basis, the Operating Partnership generates all remaining capital required by the Company's business through its operations and its incurrence of indebtedness.
We believe that combining the two quarterly reports on Form 10-Q for the Company and the Operating Partnership provides the following benefits:
|
|
• |
enhances investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner that management views and operates the business; |
|
|
• |
eliminates duplicative disclosure and provides a more streamlined and readable presentation, since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and |
|
|
• |
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports. |
To help investors understand the differences between the Company and the Operating Partnership, this report provides separate condensed consolidated financial statements for the Company and the Operating Partnership. Noncontrolling interests, shareholders' equity and partners' capital are the main areas of difference between the condensed consolidated financial statements of the Company and those of the Operating Partnership. A single set of notes to condensed consolidated financial statements is presented that includes separate discussions for the Company and the Operating Partnership, when applicable. A combined Management's Discussion and Analysis of Financial Condition and Results of Operations section is also included that presents combined information and discrete information related to each entity, as applicable.
In order to highlight the differences between the Company and the Operating Partnership, this report includes the following sections that provide separate financial and other information for the Company and the Operating Partnership:
|
|
• |
condensed consolidated financial statements; |
|
|
• |
certain accompanying notes to condensed consolidated financial statements, including Note 7 - Unconsolidated Affiliates and Noncontrolling Interests; Note 8 - Mortgage and Other Indebtedness, Net; and Note 11 - Earnings per Share and Earnings per Unit; |
|
|
• |
controls and procedures in Item 4 of Part I of this report; |
|
|
• |
information concerning unregistered sales of equity securities and use of proceeds in Item 2 of Part II of this report; and |
|
|
• |
certifications of the Chief Executive Officer and Chief Financial Officer included as Exhibits 31.1 through 32.4. |
Combined Guarantor Subsidiaries of the Operating Partnership
In January 2019, the Operating Partnership entered into a new $1,185,000 senior secured credit facility which replaced all of the Operating Partnership’s prior unsecured bank facilities. The secured credit facility is secured by 17 malls and 3 associated centers that are directly or indirectly owned by 36 wholly owned subsidiaries of the Operating Partnership (collectively the “Combined Guarantor Subsidiaries”). The Combined Guarantor Subsidiaries own an additional four 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.” In addition to the secured credit facility, the Operating Partnership’s debt includes three separate series of senior unsecured notes (the “Notes”). Based on the terms of the Notes, 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 a guarantee agreement with the issuer of the Notes to satisfy the guaranty requirement.
This report also includes as an exhibit the condensed combined financial statements and notes to the condensed combined financial statements of the Combined Guarantor Subsidiaries. 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 condensed consolidated financial statements or within Management’s Discussion and Analysis which accompanies the condensed 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 condensed combined financial statements and accompanying notes for the Combined Guarantor Subsidiaries in lieu of including the condensed consolidating financial information in the notes to its condensed consolidated financial statements. These condensed combined financial statements and notes are presented as an exhibit to this quarterly report on Form 10-Q for ease of reference.
CBL & Associates Properties, Inc.
CBL & Associates Limited Partnership
Table of Contents
|
|
||
|
|
|
|
|
PART I |
1 |
|
|
Item 1. |
1 |
|
|
|
|
|
|
CBL & Associates Properties, Inc. |
||
|
|
Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 |
1 |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
3 |
|
|
|
4 |
|
|
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 |
5 |
|
|
|
|
|
CBL & Associates Limited Partnership |
||
|
|
Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 |
6 |
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
8 |
|
|
|
9 |
|
|
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 |
11 |
|
|
|
|
|
CBL & Associates Properties, Inc. and CBL & Associates Limited Partnership |
||
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
12 |
|
|
|
|
|
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
41 |
|
Item 3. |
65 |
|
|
Item 4. |
65 |
|
|
|
|
|
|
PART II |
67 |
|
|
|
|
|
|
Item 1. |
67 |
|
|
Item1A. |
68 |
|
|
Item 2. |
72 |
|
|
Item 3. |
72 |
|
|
Item 4. |
72 |
|
|
Item 5. |
72 |
|
|
Item 6. |
73 |
|
|
|
|
|
|
|
75 |
|
PART I – FINANCIAL INFORMATION
ITEM 1: Financial Statements
CBL & Associates Properties, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
|
ASSETS (1) |
|
June 30, 2020 |
|
|
December 31, 2019 |
|
||
|
Real estate assets: |
|
|
|
|
|
|
|
|
|
Land |
|
$ |
719,497 |
|
|
$ |
730,218 |
|
|
Buildings and improvements |
|
|
5,285,259 |
|
|
|
5,631,831 |
|
|
|
|
|
6,004,756 |
|
|
|
6,362,049 |
|
|
Accumulated depreciation |
|
|
( 2,199,622 |
) |
|
|
( 2,349,404 |
) |
|
|
|
|
3,805,134 |
|
|
|
4,012,645 |
|
|
Developments in progress |
|
|
30,600 |
|
|
|
49,351 |
|
|
Net investment in real estate assets |
|
|
3,835,734 |
|
|
|
4,061,996 |
|
|
Cash and cash equivalents |
|
|
123,388 |
|
|
|
32,816 |
|
|
Available-for-sale securities - at fair value (amortized cost of $152,460 in 2020) |
|
|
152,418 |
|
|
|
— |
|
|
Receivables: |
|
|
|
|
|
|
|
|
|
Tenant |
|
|
125,930 |
|
|
|
75,252 |
|
|
Other |
|
|
5,457 |
|
|
|
10,792 |
|
|
Mortgage and other notes receivable |
|
|
2,729 |
|
|
|
4,662 |
|
|
Investments in unconsolidated affiliates |
|
|
301,148 |
|
|
|
307,354 |
|
|
Intangible lease assets and other assets |
|
|
108,355 |
|
|
|
129,474 |
|
|
|
|
$ |
4,655,159 |
|
|
$ |
4,622,346 |
|
|
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY |
|
|
|
|
|
|
|
|
|
Mortgage and other indebtedness, net |
|
$ |
3,774,034 |
|
|
$ |
3,527,015 |
|
|
Accounts payable and accrued liabilities |
|
|
227,147 |
|
|
|
231,306 |
|
|
Total liabilities (1) |
|
|
4,001,181 |
|
|
|
3,758,321 |
|
|
Commitments and contingencies (Note 8 and Note 12) |
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests |
|
|
525 |
|
|
|
2,160 |
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
|
Preferred Stock, $.01 par value, 15,000,000 shares authorized: |
|
|
|
|
|
|
|
|
|
7.375% Series D Cumulative Redeemable Preferred Stock, 1,815,000 shares outstanding |
|
|
18 |
|
|
|
18 |
|
|
6.625% Series E Cumulative Redeemable Preferred Stock, 690,000 shares outstanding |
|
|
7 |
|
|
|
7 |
|
|
Common stock, $.01 par value, 350,000,000 shares authorized, 191,951,454 and 174,115,111 issued and outstanding in 2020 and 2019, respectively |
|
|
1,920 |
|
|
|
1,741 |
|
|
Additional paid-in capital |
|
|
1,982,454 |
|
|
|
1,965,897 |
|
|
Accumulated other comprehensive loss |
|
|
( 42 |
) |
|
|
— |
|
|
Dividends in excess of cumulative earnings |
|
|
( 1,354,253 |
) |
|
|
( 1,161,351 |
) |
|
Total shareholders' equity |
|
|
630,104 |
|
|
|
806,312 |
|
|
Noncontrolling interests |
|
|
23,349 |
|
|
|
55,553 |
|
|
Total equity |
|
|
653,453 |
|
|
|
861,865 |
|
|
|
|
$ |
4,655,159 |
|
|
$ |
4,622,346 |
|
|
(1) |
As of June 30, 2020, includes $369,359 of assets related to consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and $171,518 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Company. See Note 7 . |
The accompanying notes are an integral part of these condensed consolidated statements.
1
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
|
$ |
120,222 |
|
|
$ |
185,393 |
|
|
$ |
281,395 |
|
|
$ |
376,373 |
|
|
Management, development and leasing fees |
|
|
1,055 |
|
|
|
2,586 |
|
|
|
3,147 |
|
|
|
5,109 |
|
|
Other |
|
|
2,934 |
|
|
|
5,398 |
|
|
|
7,243 |
|
|
|
9,925 |
|
|
Total revenues |
|
|
124,211 |
|
|
|
193,377 |
|
|
|
291,785 |
|
|
|
391,407 |
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating |
|
|
( 16,906 |
) |
|
|
( 26,532 |
) |
|
|
( 42,615 |
) |
|
|
( 55,512 |
) |
|
Depreciation and amortization |
|
|
( 52,663 |
) |
|
|
( 64,478 |
) |
|
|
( 108,565 |
) |
|
|
( 134,270 |
) |
|
Real estate taxes |
|
|
( 17,837 |
) |
|
|
( 19,148 |
) |
|
|
( 36,285 |
) |
|
|
( 39,067 |
) |
|
Maintenance and repairs |
|
|
( 6,042 |
) |
|
|
( 11,298 |
) |
|
|
( 17,250 |
) |
|
|
( 24,074 |
) |
|
General and administrative |
|
|
( 18,727 |
) |
|
|
( 14,427 |
) |
|
|
( 36,563 |
) |
|
|
( 36,434 |
) |
|
Loss on impairment |
|
|
( 13,274 |
) |
|
|
( 41,608 |
) |
|
|
( 146,918 |
) |
|
|
( 66,433 |
) |
|
Litigation settlement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 88,150 |
) |
|
Other |
|
|
( 242 |
) |
|
|
( 34 |
) |
|
|
( 400 |
) |
|
|
( 34 |
) |
|
Total operating expenses |
|
|
( 125,691 |
) |
|
|
( 177,525 |
) |
|
|
( 388,596 |
) |
|
|
( 443,974 |
) |
|
OTHER INCOME (EXPENSES): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
891 |
|
|
|
356 |
|
|
|
3,288 |
|
|
|
845 |
|
|
Interest expense |
|
|
( 52,631 |
) |
|
|
( 52,482 |
) |
|
|
( 99,623 |
) |
|
|
( 106,480 |
) |
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
71,722 |
|
|
Gain on sales of real estate assets |
|
|
2,623 |
|
|
|
5,527 |
|
|
|
2,763 |
|
|
|
5,755 |
|
|
Income tax provision |
|
|
( 16,117 |
) |
|
|
( 813 |
) |
|
|
( 16,643 |
) |
|
|
( 952 |
) |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
|
( 6,079 |
) |
|
|
1,872 |
|
|
|
( 5,061 |
) |
|
|
5,180 |
|
|
Total other expenses |
|
|
( 71,313 |
) |
|
|
( 45,540 |
) |
|
|
( 115,276 |
) |
|
|
( 23,930 |
) |
|
Net loss |
|
|
( 72,793 |
) |
|
|
( 29,688 |
) |
|
|
( 212,087 |
) |
|
|
( 76,497 |
) |
|
Net loss attributable to noncontrolling interests in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership |
|
|
2,077 |
|
|
|
5,454 |
|
|
|
18,491 |
|
|
|
13,212 |
|
|
Other consolidated subsidiaries |
|
|
487 |
|
|
|
57 |
|
|
|
694 |
|
|
|
132 |
|
|
Net loss attributable to the Company |
|
|
( 70,229 |
) |
|
|
( 24,177 |
) |
|
|
( 192,902 |
) |
|
|
( 63,153 |
) |
|
Preferred dividends declared |
|
|
— |
|
|
|
( 11,223 |
) |
|
|
— |
|
|
|
( 22,446 |
) |
|
Preferred dividends undeclared |
|
|
( 11,223 |
) |
|
|
— |
|
|
|
( 22,446 |
) |
|
|
— |
|
|
Net loss attributable to common shareholders |
|
$ |
( 81,452 |
) |
|
$ |
( 35,400 |
) |
|
$ |
( 215,348 |
) |
|
$ |
( 85,599 |
) |
|
Basic and diluted per share data attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders |
|
$ |
( 0.42 |
) |
|
$ |
( 0.20 |
) |
|
$ |
( 1.16 |
) |
|
$ |
( 0.49 |
) |
|
Weighted-average common and potential dilutive common shares outstanding |
|
|
191,962 |
|
|
|
173,473 |
|
|
|
185,547 |
|
|
|
173,363 |
|
The accompanying notes are an integral part of these condensed consolidated statements.
2
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(In thousands, except share data)
(Unaudited)
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Net loss |
|
$ |
( 72,793 |
) |
|
$ |
( 29,688 |
) |
|
$ |
( 212,087 |
) |
|
$ |
( 76,497 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available-for-sale securities |
|
|
( 64 |
) |
|
|
— |
|
|
|
( 42 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
( 72,857 |
) |
|
|
( 29,688 |
) |
|
|
( 212,129 |
) |
|
|
( 76,497 |
) |
|
Comprehensive loss attributable to noncontrolling interests in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Partnership |
|
|
2,080 |
|
|
|
5,454 |
|
|
|
18,494 |
|
|
|
13,212 |
|
|
Other consolidated subsidiaries |
|
|
487 |
|
|
|
57 |
|
|
|
694 |
|
|
|
132 |
|
|
Comprehensive loss attributable to the Company: |
|
$ |
( 70,290 |
) |
|
$ |
( 24,177 |
) |
|
$ |
( 192,941 |
) |
|
$ |
( 63,153 |
) |
The accompanying notes are an integral part of these condensed consolidated statements.
3
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
Equity |
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
Shareholders' Equity |
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
|
|
Redeemable Noncontrolling Interests |
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional Paid-in Capital |
|
|
|
Dividends in Excess of Cumulative Earnings |
|
|
Total Shareholders' Equity |
|
|
Noncontrolling Interests |
|
|
Total Equity |
|
||||||||
|
Balance, January 1, 2019 |
|
$ |
3,575 |
|
|
$ |
25 |
|
|
$ |
1,727 |
|
|
$ |
1,968,280 |
|
|
|
$ |
( 1,005,895 |
) |
|
$ |
964,137 |
|
|
$ |
68,028 |
|
|
$ |
1,032,165 |
|
|
Net loss |
|
|
( 453 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
( 38,976 |
) |
|
|
( 38,976 |
) |
|
|
( 7,380 |
) |
|
|
( 46,356 |
) |
|
Dividends declared - common stock ($0.075 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
( 13,010 |
) |
|
|
( 13,010 |
) |
|
|
— |
|
|
|
( 13,010 |
) |
|
Dividends declared - preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
( 11,223 |
) |
|
|
( 11,223 |
) |
|
|
— |
|
|
|
( 11,223 |
) |
|
Issuance of 863,174 shares of common stock and restricted common stock |
|
|
— |
|
|
|
— |
|
|
|
9 |
|
|
|
708 |
|
|
|
|
— |
|
|
|
717 |
|
|
|
— |
|
|
|
717 |
|
|
Cancellation of 57,656 shares of restricted common stock |
|
|
— |
|
|
|
— |
|
|
|
( 1 |
) |
|
|
( 133 |
) |
|
|
|
— |
|
|
|
( 134 |
) |
|
|
— |
|
|
|
( 134 |
) |
|
Performance stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
313 |
|
|
|
|
— |
|
|
|
313 |
|
|
|
— |
|
|
|
313 |
|
|
Amortization of deferred compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,033 |
|
|
|
|
— |
|
|
|
1,033 |
|
|
|
— |
|
|
|
1,033 |
|
|
Adjustment for noncontrolling interests |
|
|
1,038 |
|
|
|
— |
|
|
|
— |
|
|
|
( 2,356 |
) |
|
|
|
— |
|
|
|
( 2,356 |
) |
|
|
1,318 |
|
|
|
( 1,038 |
) |
|
Distributions to noncontrolling interests |
|
|
( 1,143 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
( 4,450 |
) |
|
|
( 4,450 |
) |
|
Contributions from noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
455 |
|
|
|
455 |
|
|
Balance, March 31, 2019 |
|
$ |
3,017 |
|
|
$ |
25 |
|
|
$ |
1,735 |
|
|
$ |
1,967,845 |
|
|
|
$ |
( 1,069,104 |
) |
|
$ |
900,501 |
|
|
$ |
57,971 |
|
|
$ |
958,472 |
|
|
Net loss |
|
|
( 317 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
( 24,177 |
) |
|
|
( 24,177 |
) |
|
|
( 5,194 |
) |
|
|
( 29,371 |
) |
|
Dividends declared - preferred stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
( 11,223 |
) |
|
|
( 11,223 |
) |
|
|
— |
|
|
|
( 11,223 |
) |
|
Issuances of 15,634 shares of common stock and restricted common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
|
|
— |
|
|
|
21 |
|
|
|
— |
|
|
|
21 |
|
|
Cancellation of 5,717 shares of restricted common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 5 |
) |
|
|
|
— |
|
|
|
( 5 |
) |
|
|
— |
|
|
|
( 5 |
) |
|
Performance stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
312 |
|
|
|
|
— |
|
|
|
312 |
|
|
|
— |
|
|
|
312 |
|
|
Amortization of deferred compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
587 |
|
|
|
|
— |
|
|
|
587 |
|
|
|
— |
|
|
|
587 |
|
|
Adjustment for noncontrolling interests |
|
|
1,130 |
|
|
|
— |
|
|
|
— |
|
|
|
( 2,211 |
) |
|
|
|
— |
|
|
|
( 2,211 |
) |
|
|
1,081 |
|
|
|
( 1,130 |
) |
|
Contributions from noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
4,148 |
|
|
|
4,148 |
|
|
Distributions to noncontrolling interests |
|
|
( 1,143 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
( 3,225 |
) |
|
|
( 3,225 |
) |
|
Balance, June 30, 2019 |
|
$ |
2,687 |
|
|
$ |
25 |
|
|
$ |
1,735 |
|
|
$ |
1,966,549 |
|
|
|
$ |
( 1,104,504 |
) |
|
$ |
863,805 |
|
|
$ |
54,781 |
|
|
$ |
918,586 |
|
|
|
|
|
|
|
|
Equity |
|
|||||||||||||||||||||||||||||
|
|
|
|
|
|
|
Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
|
Redeemable Noncontrolling 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, 2020 |
|
$ |
2,160 |
|
|
$ |
25 |
|
|
$ |
1,741 |
|
|
$ |
1,965,897 |
|
|
$ |
— |
|
|
$ |
( 1,161,351 |
) |
|
$ |
806,312 |
|
|
$ |
55,553 |
|
|
$ |
861,865 |
|
|
Net loss |
|
|
( 1,158 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 122,673 |
) |
|
|
( 122,673 |
) |
|
|
( 15,463 |
) |
|
|
( 138,136 |
) |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22 |
|
|
|
— |
|
|
|
22 |
|
|
|
— |
|
|
|
22 |
|
|
Conversion of 16,333,947 Operating Partnership common units into shares of common stock |
|
|
— |
|
|
|
— |
|
|
|
163 |
|
|
|
20,888 |
|
|
|
— |
|
|
|
— |
|
|
|
21,051 |
|
|
|
( 21,051 |
) |
|
|
— |
|
|
Issuance of 1,633,345 shares of common stock and restricted common stock |
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
|
520 |
|
|
|
— |
|
|
|
— |
|
|
|
537 |
|
|
|
— |
|
|
|
537 |
|
|
Cancellation of 116,781 shares of restricted common stock |
|
|
— |
|
|
|
— |
|
|
|
( 1 |
) |
|
|
( 96 |
) |
|
|
— |
|
|
|
— |
|
|
|
( 97 |
) |
|
|
— |
|
|
|
( 97 |
) |
|
Amortization of deferred compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
633 |
|
|
|
— |
|
|
|
— |
|
|
|
633 |
|
|
|
— |
|
|
|
633 |
|
|
Performance stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
390 |
|
|
|
— |
|
|
|
— |
|
|
|
390 |
|
|
|
— |
|
|
|
390 |
|
|
Adjustment for noncontrolling interests |
|
|
60 |
|
|
|
— |
|
|
|
— |
|
|
|
( 10,341 |
) |
|
|
— |
|
|
|
|
|
|
|
( 10,341 |
) |
|
|
10,281 |
|
|
|
( 60 |
) |
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 731 |
) |
|
|
( 731 |
) |
|
Contributions from noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
668 |
|
|
|
668 |
|
|
Balance, March 31, 2020 |
|
|
1,062 |
|
|
|
25 |
|
|
|
1,920 |
|
|
|
1,977,891 |
|
|
|
22 |
|
|
|
( 1,284,024 |
) |
|
|
695,834 |
|
|
|
29,257 |
|
|
|
725,091 |
|
|
Net loss |
|
|
( 654 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 70,229 |
) |
|
|
( 70,229 |
) |
|
|
( 1,910 |
) |
|
|
( 72,139 |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 64 |
) |
|
|
— |
|
|
|
( 64 |
) |
|
|
— |
|
|
|
( 64 |
) |
|
Issuance of 5,891 shares of common stock and restricted common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
|
Cancellation of 20,059 shares of restricted common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 14 |
) |
|
|
— |
|
|
|
— |
|
|
|
( 14 |
) |
|
|
— |
|
|
|
( 14 |
) |
|
Amortization of deferred compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
384 |
|
|
|
— |
|
|
|
— |
|
|
|
384 |
|
|
|
— |
|
|
|
384 |
|
|
Performance stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
379 |
|
|
|
— |
|
|
|
— |
|
|
|
379 |
|
|
|
— |
|
|
|
379 |
|
|
Adjustment for noncontrolling interests |
|
|
117 |
|
|
|
— |
|
|
|
— |
|
|
|
3,812 |
|
|
|
— |
|
|
|
— |
|
|
|
3,812 |
|
|
|
( 3,929 |
) |
|
|
( 117 |
) |
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 94 |
) |
|
|
( 94 |
) |
|
Contributions from noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
|
25 |
|
|
Balance, June 30, 2020 |
|
$ |
525 |
|
|
$ |
25 |
|
|
$ |
1,920 |
|
|
$ |
1,982,454 |
|
|
$ |
( 42 |
) |
|
$ |
( 1,354,253 |
) |
|
$ |
630,104 |
|
|
$ |
23,349 |
|
|
$ |
653,453 |
|
The accompanying notes are an integral part of these condensed consolidated statements.
4
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( 212,087 |
) |
|
$ |
( 76,497 |
) |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
108,565 |
|
|
|
134,270 |
|
|
Net amortization of deferred financing costs, premiums on available-for-sale securities and debt premiums and discounts |
|
|
4,595 |
|
|
|
4,306 |
|
|
Net amortization of intangible lease assets and liabilities |
|
|
( 753 |
) |
|
|
( 1,071 |
) |
|
Gain on sales of real estate assets |
|
|
( 2,763 |
) |
|
|
( 5,755 |
) |
|
Gain on insurance proceeds |
|
|
( 511 |
) |
|
|
( 421 |
) |
|
Write-off of development projects |
|
|
400 |
|
|
|
34 |
|
|
Share-based compensation expense |
|
|
2,293 |
|
|
|
2,938 |
|
|
Loss on impairment |
|
|
146,918 |
|
|
|
66,433 |
|
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
( 71,722 |
) |
|
Equity in (earnings) losses of unconsolidated affiliates |
|
|
5,061 |
|
|
|
( 5,180 |
) |
|
Distributions of earnings from unconsolidated affiliates |
|
|
3,797 |
|
|
|
11,320 |
|
|
Change in estimate of uncollectable rental revenues |
|
|
41,955 |
|
|
|
1,692 |
|
|
Change in deferred tax accounts |
|
|
15,596 |
|
|
|
90 |
|
|
Changes in: |
|
|
|
|
|
|
|
|
|
Tenant and other receivables |
|
|
( 87,298 |
) |
|
|
( 473 |
) |
|
Other assets |
|
|
753 |
|
|
|
( 2,036 |
) |
|
Accounts payable and accrued liabilities |
|
|
11,849 |
|
|
|
68,104 |
|
|
Net cash provided by operating activities |
|
|
38,370 |
|
|
|
126,032 |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Additions to real estate assets |
|
|
( 36,413 |
) |
|
|
( 51,148 |
) |
|
Proceeds from sales of real estate assets |
|
|
3,579 |
|
|
|
69,238 |
|
|
Purchase of available-for-sale securities |
|
|
( 153,193 |
) |
|
|
— |
|
|
Proceeds from insurance |
|
|
600 |
|
|
|
740 |
|
|
Payments received on mortgage and other notes receivable |
|
|
703 |
|
|
|
1,346 |
|
|
Additional investments in and advances to unconsolidated affiliates |
|
|
( 10,990 |
) |
|
|
( 780 |
) |
|
Distributions in excess of equity in earnings of unconsolidated affiliates |
|
|
5,255 |
|
|
|
8,565 |
|
|
Changes in other assets |
|
|
( 920 |
) |
|
|
( 857 |
) |
|
Net cash provided by (used in) investing activities |
|
|
( 191,379 |
) |
|
|
27,104 |
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Proceeds from mortgage and other indebtedness |
|
|
365,000 |
|
|
|
1,019,369 |
|
|
Principal payments on mortgage and other indebtedness |
|
|
( 120,467 |
) |
|
|
( 1,113,337 |
) |
|
Additions to deferred financing costs |
|
|
( 240 |
) |
|
|
( 15,546 |
) |
|
Proceeds from issuances of common stock |
|
|
5 |
|
|
|
38 |
|
|
Contributions from noncontrolling interests |
|
|
693 |
|
|
|
4,603 |
|
|
Payment of tax withholdings for restricted stock awards |
|
|
( 87 |
) |
|
|
( 132 |
) |
|
Distributions to noncontrolling interests |
|
|
( 825 |
) |
|
|
( 11,722 |
) |
|
Dividends paid to holders of preferred stock |
|
|
— |
|
|
|
( 22,446 |
) |
|
Dividends paid to common shareholders |
|
|
— |
|
|
|
( 25,959 |
) |
|
Net cash provided by (used in) financing activities |
|
|
244,079 |
|
|
|
( 165,132 |
) |
|
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
91,070 |
|
|
|
( 11,996 |
) |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period |
|
|
59,058 |
|
|
|
57,512 |
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period |
|
$ |
150,128 |
|
|
$ |
45,516 |
|
|
Reconciliation from consolidated statements of cash flows to consolidated balance sheets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
123,388 |
|
|
$ |
20,483 |
|
|
Restricted cash (1): |
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
249 |
|
|
|
84 |
|
|
Mortgage escrows |
|
|
26,491 |
|
|
|
24,949 |
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period |
|
$ |
150,128 |
|
|
$ |
45,516 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION |
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
51,703 |
|
|
$ |
105,621 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Included in intangible lease assets and other assets in the condensed consolidated balance sheets. |
The accompanying notes are an integral part of these condensed consolidated statements.
5
CBL & Associates Limited Partnership
Condensed Consolidated Balance Sheets
(In thousands, except unit data)
(Unaudited)
|
ASSETS (1) |
|
June 30, 2020 |
|
|
December 31, 2019 |
|
||
|
Real estate assets: |
|
|
|
|
|
|
|
|
|
Land |
|
$ |
719,497 |
|
|
$ |
730,218 |
|
|
Buildings and improvements |
|
|
5,285,259 |
|
|
|
5,631,831 |
|
|
|
|
|
6,004,756 |
|
|
|
6,362,049 |
|
|
Accumulated depreciation |
|
|
( 2,199,622 |
) |
|
|
( 2,349,404 |
) |
|
|
|
|
3,805,134 |
|
|
|
4,012,645 |
|
|
Developments in progress |
|
|
30,600 |
|
|
|
49,351 |
|
|
Net investment in real estate assets |
|
|
3,835,734 |
|
|
|
4,061,996 |
|
|
Cash and cash equivalents |
|
|
123,380 |
|
|
|
32,813 |
|
|
Available-for-sale securities - at fair value (amortized cost of $152,460 in 2020) |
|
|
152,418 |
|
|
|
— |
|
|
Receivables: |
|
|
|
|
|
|
|
|
|
Tenant |
|
|
125,930 |
|
|
|
75,252 |
|
|
Other |
|
|
5,409 |
|
|
|
10,744 |
|
|
Mortgage and other notes receivable |
|
|
2,729 |
|
|
|
4,662 |
|
|
Investments in unconsolidated affiliates |
|
|
301,677 |
|
|
|
307,885 |
|
|
Intangible lease assets and other assets |
|
|
108,235 |
|
|
|
129,354 |
|
|
|
|
$ |
4,655,512 |
|
|
$ |
4,622,706 |
|
|
LIABILITIES, REDEEMABLE INTERESTS AND CAPITAL |
|
|
|
|
|
|
|
|
|
Mortgage and other indebtedness, net |
|
$ |
3,774,034 |
|
|
$ |
3,527,015 |
|
|
Accounts payable and accrued liabilities |
|
|
227,218 |
|
|
|
231,377 |
|
|
Total liabilities (1) |
|
|
4,001,252 |
|
|
|
3,758,392 |
|
|
Commitments and contingencies (Note 8 and Note 12) |
|
|
|
|
|
|
|
|
|
Redeemable common units |
|
|
525 |
|
|
|
2,160 |
|
|
Partners' capital: |
|
|
|
|
|
|
|
|
|
Preferred units |
|
|
565,212 |
|
|
|
565,212 |
|
|
Common units: |
|
|
|
|
|
|
|
|
|
General partner |
|
|
658 |
|
|
|
2,765 |
|
|
Limited partners |
|
|
64,772 |
|
|
|
270,216 |
|
|
Accumulated other comprehensive loss |
|
|
( 42 |
) |
|
|
— |
|
|
Total partners' capital |
|
|
630,600 |
|
|
|
838,193 |
|
|
Noncontrolling interests |
|
|
23,135 |
|
|
|
23,961 |
|
|
Total capital |
|
|
653,735 |
|
|
|
862,154 |
|
|
|
|
$ |
4,655,512 |
|
|
$ |
4,622,706 |
|
|
(1) |
As of June 30, 2020, includes $369,359 of assets related to consolidated variable interest entities that can only be used to settle obligations of the consolidated variable interest entities and $171,518 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Operating Partnership. See Note 7 . |
The accompanying notes are an integral part of these condensed consolidated statements.
6
CBL & Associates Limited Partnership
Condensed Consolidated Statements of Operations
(In thousands, except per unit data)
(Unaudited)
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
|
$ |
120,222 |
|
|
$ |
185,393 |
|
|
$ |
281,395 |
|
|
$ |
376,373 |
|
|
Management, development and leasing fees |
|
|
1,055 |
|
|
|
2,586 |
|
|
|
3,147 |
|
|
|
5,109 |
|
|
Other |
|
|
2,934 |
|
|
|
5,398 |
|
|
|
7,243 |
|
|
|
9,925 |
|
|
Total revenues |
|
|
124,211 |
|
|
|
193,377 |
|
|
|
291,785 |
|
|
|
391,407 |
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating |
|
|
( 16,906 |
) |
|
|
( 26,532 |
) |
|
|
( 42,615 |
) |
|
|
( 55,512 |
) |
|
Depreciation and amortization |
|
|
( 52,663 |
) |
|
|
( 64,478 |
) |
|
|
( 108,565 |
) |
|
|
( 134,270 |
) |
|
Real estate taxes |
|
|
( 17,837 |
) |
|
|
( 19,148 |
) |
|
|
( 36,285 |
) |
|
|
( 39,067 |
) |
|
Maintenance and repairs |
|
|
( 6,042 |
) |
|
|
( 11,298 |
) |
|
|
( 17,250 |
) |
|
|
( 24,074 |
) |
|
General and administrative |
|
|
( 18,727 |
) |
|
|
( 14,427 |
) |
|
|
( 36,563 |
) |
|
|
( 36,434 |
) |
|
Loss on impairment |
|
|
( 13,274 |
) |
|
|
( 41,608 |
) |
|
|
( 146,918 |
) |
|
|
( 66,433 |
) |
|
Litigation settlement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 88,150 |
) |
|
Other |
|
|
( 242 |
) |
|
|
( 34 |
) |
|
|
( 400 |
) |
|
|
( 34 |
) |
|
Total operating expenses |
|
|
( 125,691 |
) |
|
|
( 177,525 |
) |
|
|
( 388,596 |
) |
|
|
( 443,974 |
) |
|
OTHER INCOME (EXPENSES): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
891 |
|
|
|
356 |
|
|
|
3,288 |
|
|
|
845 |
|
|
Interest expense |
|
|
( 52,631 |
) |
|
|
( 52,482 |
) |
|
|
( 99,623 |
) |
|
|
( 106,480 |
) |
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
71,722 |
|
|
Gain on sales of real estate assets |
|
|
2,623 |
|
|
|
5,527 |
|
|
|
2,763 |
|
|
|
5,755 |
|
|
Income tax provision |
|
|
( 16,117 |
) |
|
|
( 813 |
) |
|
|
( 16,643 |
) |
|
|
( 952 |
) |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
|
( 6,079 |
) |
|
|
1,872 |
|
|
|
( 5,061 |
) |
|
|
5,180 |
|
|
Total other expenses |
|
|
( 71,313 |
) |
|
|
( 45,540 |
) |
|
|
( 115,276 |
) |
|
|
( 23,930 |
) |
|
Net loss |
|
|
( 72,793 |
) |
|
|
( 29,688 |
) |
|
|
( 212,087 |
) |
|
|
( 76,497 |
) |
|
Net loss attributable to noncontrolling interests |
|
|
487 |
|
|
|
57 |
|
|
|
694 |
|
|
|
132 |
|
|
Net loss attributable to the Operating Partnership |
|
|
( 72,306 |
) |
|
|
( 29,631 |
) |
|
|
( 211,393 |
) |
|
|
( 76,365 |
) |
|
Distributions to preferred unitholders declared |
|
|
— |
|
|
|
( 11,223 |
) |
|
|
— |
|
|
|
( 22,446 |
) |
|
Distributions to preferred unitholders undeclared |
|
|
( 11,223 |
) |
|
|
— |
|
|
|
( 22,446 |
) |
|
|
— |
|
|
Net loss attributable to common unitholders |
|
$ |
( 83,529 |
) |
|
$ |
( 40,854 |
) |
|
$ |
( 233,839 |
) |
|
$ |
( 98,811 |
) |
|
Basic and diluted per unit data attributable to common unitholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common unitholders |
|
$ |
( 0.41 |
) |
|
$ |
( 0.20 |
) |
|
$ |
( 1.16 |
) |
|
$ |
( 0.49 |
) |
|
Weighted-average common and potential dilutive common units outstanding |
|
|
201,702 |
|
|
|
200,231 |
|
|
|
201,480 |
|
|
|
200,122 |
|
The accompanying notes are an integral part of these condensed consolidated statements .
7
CBL & Associates Limited Partnership
Condensed Consolidated Statements of Comprehensive Loss
(In thousands, except per unit data)
(Unaudited)
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Net loss |
|
$ |
( 72,793 |
) |
|
$ |
( 29,688 |
) |
|
$ |
( 212,087 |
) |
|
$ |
( 76,497 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on available-for-sale securities |
|
|
( 64 |
) |
|
|
— |
|
|
|
( 42 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
( 72,857 |
) |
|
|
( 29,688 |
) |
|
|
( 212,129 |
) |
|
|
( 76,497 |
) |
|
Comprehensive loss attributable to noncontrolling interests |
|
|
487 |
|
|
|
57 |
|
|
|
694 |
|
|
|
132 |
|
|
Comprehensive loss attributable to the Operating Partnership: |
|
$ |
( 72,370 |
) |
|
$ |
( 29,631 |
) |
|
$ |
( 211,435 |
) |
|
$ |
( 76,365 |
) |
The accompanying notes are an integral part of these condensed consolidated statements.
8
CBL & Associates Limited Partnership
Condensed Consolidated Statements of Capital
(In thousands)
(Unaudited)
|
|
|
|
|
Number of |
|
|
|
|
|
|
Common Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
Redeemable Common Units |
|
|
Preferred Units |
|
|
Common Units |
|
|
Preferred Units |
|
|
General Partner |
|
|
Limited Partners |
|
|
Total Partner's Capital |
|
|
Noncontrolling Interests |
|
|
Total Capital |
|
|||||||||
|
Balance, January 1, 2019 |
|
$ |
3,575 |
|
|
|
25,050 |
|
|
|
199,415 |
|
|
$ |
565,212 |
|
|
$ |
4,628 |
|
|
$ |
450,507 |
|
|
$ |
1,020,347 |
|
|
$ |
12,111 |
|
|
$ |
1,032,458 |
|
|
Net loss |
|
|
( 453 |
) |
|
|
— |
|
|
|
— |
|
|
|
11,223 |
|
|
|
( 590 |
) |
|
|
( 56,914 |
) |
|
|
( 46,281 |
) |
|
|
( 75 |
) |
|
|
( 46,356 |
) |
|
Issuances of common units |
|
|
— |
|
|
|
— |
|
|
|
863 |
|
|
|
— |
|
|
|
— |
|
|
|
717 |
|
|
|
717 |
|
|
|
— |
|
|
|
717 |
|
|
Distributions declared - common units |
|
|
( 1,143 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 151 |
) |
|
|
( 15,897 |
) |
|
|
( 16,048 |
) |
|
|
— |
|
|
|
( 16,048 |
) |
|
Distributions declared - preferred units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 11,223 |
) |
|
|
— |
|
|
|
— |
|
|
|
( 11,223 |
) |
|
|
— |
|
|
|
( 11,223 |
) |
|
Cancellation of restricted common units |
|
|
— |
|
|
|
— |
|
|
|
( 58 |
) |
|
|
— |
|
|
|
— |
|
|
|
( 133 |
) |
|
|
( 133 |
) |
|
|
— |
|
|
|
( 133 |
) |
|
Performance stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
309 |
|
|
|
312 |
|
|
|
— |
|
|
|
312 |
|
|
Amortization of deferred compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
|
1,022 |
|
|
|
1,033 |
|
|
|
— |
|
|
|
1,033 |
|
|
Allocation of partners' capital |
|
|
1,038 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 34 |
) |
|
|
( 1,004 |
) |
|
|
( 1,038 |
) |
|
|
— |
|
|
|
( 1,038 |
) |
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 1,412 |
) |
|
|
( 1,412 |
) |
|
Contributions from noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
455 |
|
|
|
455 |
|
|
Balance, March 31, 2019 |
|
$ |
3,017 |
|
|
|
25,050 |
|
|
|
200,220 |
|
|
$ |
565,212 |
|
|
$ |
3,867 |
|
|
$ |
378,607 |
|
|
$ |
947,686 |
|
|
$ |
11,079 |
|
|
$ |
958,765 |
|
|
Net loss |
|
|
( 317 |
) |
|
|
— |
|
|
|
— |
|
|
|
11,223 |
|
|
|
( 414 |
) |
|
|
( 40,123 |
) |
|
|
( 29,314 |
) |
|
|
( 57 |
) |
|
|
( 29,371 |
) |
|
Distributions declared - common units |
|
|
( 1,143 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 1,239 |
) |
|
|
( 1,239 |
) |
|
|
— |
|
|
|
( 1,239 |
) |
|
Distributions declared - preferred units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 11,223 |
) |
|
|
— |
|
|
|
— |
|
|
|
( 11,223 |
) |
|
|
— |
|
|
|
( 11,223 |
) |
|
Issuances of common units |
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
|
— |
|
|
|
— |
|
|
|
( 17 |
) |
|
|
( 17 |
) |
|
|
— |
|
|
|
( 17 |
) |
|
Cancellation of restricted common units |
|
|
— |
|
|
|
— |
|
|
|
( 5 |
) |
|
|
— |
|
|
|
— |
|
|
|
( 6 |
) |
|
|
( 6 |
) |
|
|
— |
|
|
|
( 6 |
) |
|
Performance stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
310 |
|
|
|
313 |
|
|
|
— |
|
|
|
313 |
|
|
Amortization of deferred compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
581 |
|
|
|
587 |
|
|
|
— |
|
|
|
587 |
|
|
Allocation of partners' capital |
|
|
1,130 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 14 |
) |
|
|
( 1,116 |
) |
|
|
( 1,130 |
) |
|
|
— |
|
|
|
( 1,130 |
) |
|
Contributions from noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,148 |
|
|
|
4,148 |
|
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 1,948 |
) |
|
|
( 1,948 |
) |
|
Balance, June 30, 2019 |
|
$ |
2,687 |
|
|
|
25,050 |
|
|
|
200,230 |
|
|
$ |
565,212 |
|
|
$ |
3,448 |
|
|
$ |
336,997 |
|
|
$ |
905,657 |
|
|
$ |
13,222 |
|
|
$ |
918,879 |
|
9
CBL & Associates Limited Partnership
Condensed Consolidated Statements of Capital
(Continued)
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Common Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
Redeemable Common Units |
|
|
Preferred Units |
|
|
Common Units |
|
|
Preferred Units |
|
|
General Partner |
|
|
Limited Partners |
|
|
Accumulated Other Comprehensive Income |
|
|
Total Partner's Capital |
|
|
Noncontrolling Interests |
|
|
Total Capital |
|
||||||||||
|
Balance, January 1, 2020 |
|
$ |
2,160 |
|
|
|
25,050 |
|
|
|
200,189 |
|
|
$ |
565,212 |
|
|
$ |
2,765 |
|
|
$ |
270,216 |
|
|
$ |
— |
|
|
$ |
838,193 |
|
|
$ |
23,961 |
|
|
$ |
862,154 |
|
|
Net loss |
|
|
( 1,158 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 1,406 |
) |
|
|
( 136,523 |
) |
|
|
— |
|
|
|
( 137,929 |
) |
|
|
( 207 |
) |
|
|
( 138,136 |
) |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22 |
|
|
|
22 |
|
|
|
— |
|
|
|
22 |
|
|
Issuances of common units |
|
|
— |
|
|
|
— |
|
|
|
1,633 |
|
|
|
— |
|
|
|
— |
|
|
|
536 |
|
|
|
— |
|
|
|
536 |
|
|
|
— |
|
|
|
536 |
|
|
Cancellation of restricted common units |
|
|
— |
|
|
|
— |
|
|
|
( 116 |
) |
|
|
— |
|
|
|
— |
|
|
|
( 97 |
) |
|
|
— |
|
|
|
( 97 |
) |
|
|
— |
|
|
|
( 97 |
) |
|
Allocation of partners' capital |
|
|
60 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 1 |
) |
|
|
( 64 |
) |
|
|
— |
|
|
|
( 65 |
) |
|
|
— |
|
|
|
( 65 |
) |
|
Amortization of deferred compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18 |
|
|
|
615 |
|
|
|
— |
|
|
|
633 |
|
|
|
— |
|
|
|
633 |
|
|
Adjustment to record redeemable interests at redemption value |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 8 |
) |
|
|
8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 731 |
) |
|
|
( 731 |
) |
|
Contributions from noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
668 |
|
|
|
668 |
|
|
Performance stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
386 |
|
|
|
— |
|
|
|
390 |
|
|
|
— |
|
|
|
390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020 |
|
|
1,062 |
|
|
|
25,050 |
|
|
|
201,706 |
|
|
|
565,212 |
|
|
|
1,372 |
|
|
|
135,077 |
|
|
|
22 |
|
|
|
701,683 |
|
|
|
23,691 |
|
|
|
725,374 |
|
|
Net loss |
|
|
( 654 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 728 |
) |
|
|
( 70,924 |
) |
|
|
— |
|
|
|
( 71,652 |
) |
|
|
( 487 |
) |
|
|
( 72,139 |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 64 |
) |
|
|
( 64 |
) |
|
|
— |
|
|
|
( 64 |
) |
|
Issuances of common units |
|
|
— |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
|
Cancellation of restricted common units |
|
|
— |
|
|
|
— |
|
|
|
( 21 |
) |
|
|
— |
|
|
|
— |
|
|
|
( 14 |
) |
|
|
— |
|
|
|
( 14 |
) |
|
|
— |
|
|
|
( 14 |
) |
|
Allocation of partners' capital |
|
|
117 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 1 |
) |
|
|
( 117 |
) |
|
|
— |
|
|
|
( 118 |
) |
|
|
— |
|
|
|
( 118 |
) |
|
Amortization of deferred compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
|
373 |
|
|
|
— |
|
|
|
384 |
|
|
|
— |
|
|
|
384 |
|
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 94 |
) |
|
|
( 94 |
) |
|
Contributions from noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
|
25 |
|
|
Performance stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
375 |
|
|
|
— |
|
|
|
379 |
|
|
|
— |
|
|
|
379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2020 |
|
$ |
525 |
|
|
|
25,050 |
|
|
|
201,691 |
|
|
$ |
565,212 |
|
|
$ |
658 |
|
|
$ |
64,772 |
|
|
$ |
( 42 |
) |
|
$ |
630,600 |
|
|
$ |
23,135 |
|
|
$ |
653,735 |
|
The accompanying notes are an integral part of these condensed consolidated statements.
10
CBL & Associates Limited Partnership
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( 212,087 |
) |
|
$ |
( 76,497 |
) |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
108,565 |
|
|
|
134,270 |
|
|
Net amortization of deferred financing costs, premiums on available-for-sale securities and debt premiums and discounts |
|
|
4,595 |
|
|
|
4,306 |
|
|
Net amortization of intangible lease assets and liabilities |
|
|
( 753 |
) |
|
|
( 1,071 |
) |
|
Gain on sales of real estate assets |
|
|
( 2,763 |
) |
|
|
( 5,755 |
) |
|
Gain on insurance proceeds |
|
|
( 511 |
) |
|
|
( 421 |
) |
|
Write-off of development projects |
|
|
400 |
|
|
|
34 |
|
|
Share-based compensation expense |
|
|
2,293 |
|
|
|
2,938 |
|
|
Loss on impairment |
|
|
146,918 |
|
|
|
66,433 |
|
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
( 71,722 |
) |
|
Equity in (earnings) losses of unconsolidated affiliates |
|
|
5,061 |
|
|
|
( 5,180 |
) |
|
Distributions of earnings from unconsolidated affiliates |
|
|
3,797 |
|
|
|
11,321 |
|
|
Change in estimate of uncollectable rental revenues |
|
|
41,955 |
|
|
|
1,692 |
|
|
Change in deferred tax accounts |
|
|
15,596 |
|
|
|
90 |
|
|
Changes in: |
|
|
|
|
|
|
|
|
|
Tenant and other receivables |
|
|
( 87,298 |
) |
|
|
( 473 |
) |
|
Other assets |
|
|
753 |
|
|
|
( 2,036 |
) |
|
Accounts payable and accrued liabilities |
|
|
11,845 |
|
|
|
68,102 |
|
|
Net cash provided by operating activities |
|
|
38,366 |
|
|
|
126,031 |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Additions to real estate assets |
|
|
( 36,413 |
) |
|
|
( 51,148 |
) |
|
Proceeds from sales of real estate assets |
|
|
3,579 |
|
|
|
69,238 |
|
|
Purchase of available-for-sale securities |
|
|
( 153,193 |
) |
|
|
— |
|
|
Proceeds from insurance |
|
|
600 |
|
|
|
740 |
|
|
Payments received on mortgage and other notes receivable |
|
|
703 |
|
|
|
1,346 |
|
|
Additional investments in and advances to unconsolidated affiliates |
|
|
( 10,990 |
) |
|
|
( 780 |
) |
|
Distributions in excess of equity in earnings of unconsolidated affiliates |
|
|
5,255 |
|
|
|
8,565 |
|
|
Changes in other assets |
|
|
( 920 |
) |
|
|
( 857 |
) |
|
Net cash provided by (used in) investing activities |
|
|
( 191,379 |
) |
|
|
27,104 |
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Proceeds from mortgage and other indebtedness |
|
|
365,000 |
|
|
|
1,019,369 |
|
|
Principal payments on mortgage and other indebtedness |
|
|
( 120,467 |
) |
|
|
( 1,113,337 |
) |
|
Additions to deferred financing costs |
|
|
( 240 |
) |
|
|
( 15,546 |
) |
|
Proceeds from issuances of common units |
|
|
5 |
|
|
|
38 |
|
|
Contributions from noncontrolling interests |
|
|
693 |
|
|
|
4,603 |
|
|
Payment of tax withholdings for restricted stock awards |
|
|
( 87 |
) |
|
|
( 132 |
) |
|
Distributions to noncontrolling interests |
|
|
( 825 |
) |
|
|
( 5,646 |
) |
|
Distributions to preferred unitholders |
|
|
— |
|
|
|
( 22,446 |
) |
|
Distributions to common unitholders |
|
|
— |
|
|
|
( 32,035 |
) |
|
Net cash provided by (used in) financing activities |
|
|
244,079 |
|
|
|
( 165,132 |
) |
|
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
91,066 |
|
|
|
( 11,997 |
) |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period |
|
|
59,054 |
|
|
|
57,512 |
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period |
|
$ |
150,120 |
|
|
$ |
45,515 |
|
|
Reconciliation from consolidated statements of cash flows to consolidated balance sheets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
123,380 |
|
|
$ |
20,482 |
|
|
Restricted cash (1): |
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
249 |
|
|
|
84 |
|
|
Mortgage escrows |
|
|
26,491 |
|
|
|
24,949 |
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period |
|
$ |
150,120 |
|
|
$ |
45,515 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
51,703 |
|
|
$ |
105,621 |
|
|
(1) |
Included in intangible lease assets and other assets in the condensed consolidated balance sheets. |
The accompanying notes are an integral part of these condensed consolidated statements.
11
CBL & Associates Properties, Inc.
CBL & Associates Limited Partnership
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per share and per unit data)
Note 1 – Organization and Basis of Presentation
Unless stated otherwise or the context otherwise requires, references to the "Company" mean CBL & Associates Properties, Inc. and its subsidiaries. References to the "Operating Partnership" mean CBL & Associates Limited Partnership and its subsidiaries.
CBL & Associates Properties, Inc. (“CBL”), a Delaware corporation, is a self-managed, self-administered, fully-integrated real estate investment trust (“REIT”) that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers and office properties. Its properties are located in 26 states, but are primarily in the southeastern and midwestern United States.
CBL conducts substantially all 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 June 30, 2020, the Operating Partnership owned interests in the following properties:
|
|
|
|
|
|
|
All Other Properties |
|
|
|
|
|
|||||||||
|
|
|
Malls (1) |
|
|
Associated Centers |
|
|
Community Centers |
|
|
Office Buildings and Other |
|
|
Total |
|
|||||
|
Consolidated Properties |
|
|
53 |
|
|
|
20 |
|
|
|
1 |
|
|
|
4 |
|
(2) |
|
78 |
|
|
Unconsolidated Properties (3) |
|
|
10 |
|
|
|
3 |
|
|
|
5 |
|
|
|
3 |
|
|
|
21 |
|
|
Total |
|
|
63 |
|
|
|
23 |
|
|
|
6 |
|
|
|
7 |
|
|
|
99 |
|
|
(1) |
Category consists of regional malls, open-air centers and outlet centers (including one mixed-use center). |
|
(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 June 30, 2020, the Operating Partnership had an interest in one self-storage facility that was under development (the "Construction Properties").
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 June 30, 2020, 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 94.2% limited partner interest for a combined interest held by CBL of 95.2%.
The noncontrolling interest in the Operating Partnership is held by CBL & Associates, Inc., its shareholders and affiliates and certain senior officers of the Company (collectively "CBL's Predecessor"), all of which contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for a limited partner interest when the Operating Partnership was formed in November 1993, and by various third parties. In March 2020, the Company issued 16,333,947 shares of the Company’s common stock to CBL’s Predecessor in exchange for a like number of common units of limited partnership interest in the Operating Partnership pursuant to exchange notices received from CBL’s Predecessor. At June 30, 2020, CBL’s Predecessor owned a 0.9% limited partner interest and third parties owned a 3.9% limited partner interest in the Operating Partnership. CBL's Predecessor also owned 19.9 million shares of CBL’s common stock at June 30, 2020, for a total combined effective interest of 10.7% in the Operating Partnership.
The Operating Partnership conducts the Company’s property management and development activities through its wholly owned subsidiary, CBL & Associates Management, Inc. (the “Management Company”), to comply with certain requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).
12
The accompanying condensed consolidated financial statements are unaudited; however, they have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. All intercompany transactions have been eliminated. The results for the interim period ended June 30 , 2020 are not necessarily indicative of the results to be obtained for the full fiscal year.
These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K, as amended, for the year ended December 31, 2019.
COVID-19
The COVID-19 pandemic has had, and likely will continue to have, repercussions across local, national and global economies and financial markets. COVID-19 has impacted all states where the Company’s tenants operate their businesses or where the Company’s properties are located and measures taken to prevent or remediate COVID-19, including “shelter-in place” or “stay-at-home” orders or other quarantine mandates issued by local, state or federal authorities, have had an adverse effect on its business and the businesses of its tenants. The full extent of the adverse impact on, among other things, the Company’s results of operations, liquidity (including its ability to access capital markets), the possibility of future impairments of long-lived assets or its investments in unconsolidated joint ventures, its compliance with debt covenants, its ability to renew and re-lease its leased space, the outlook for the retail environment, potential bankruptcies or other store closings and its ability to develop, acquire, dispose or lease properties, is unknown and will depend on future developments, which are highly uncertain and cannot be predicted. The Company expects a material adverse impact on its revenues, results of operations, and cash flows for the year ended December 31, 2020. The situation is rapidly changing and additional impacts to the business may arise that the Company is not aware of currently.
Listing Criteria
On February 5, 2020, the Company received notice from the New York Stock Exchange ("NYSE") that its common stock is no longer in compliance with NYSE continued listing criteria set forth in Section 802.01C of the Listed Company Manual of the NYSE, which require listed companies to maintain an average closing share price of at least $1.00 over a period of 30 consecutive trading days. The Company has until October 14, 2020, inclusive of extensions of the cure period provided by the NYSE in response to the COVID-19 pandemic, to regain compliance with the continued listing criteria. During this period, the Company expects its common stock to continue to trade on the NYSE, which will allow for flexibility in addressing this matter. On May 7, 2020, the Company’s shareholders voted to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split at a ratio between 1-for-5 and 1-for-25, and a proportionate reduction in the number of authorized shares of common stock, to be determined at the discretion of the board of directors for the purpose of complying with NYSE Listing Standards, subject to the board of directors’ discretion to abandon this amendment. The Company’s board of directors has not yet taken action to effect the reverse stock split . The Company intends to actively evaluate and monitor the price of its common stock between the date of this report and October 2020. A delisting of the Company’s common stock from the NYSE could negatively impact it by, among other things, reducing the trading liquidity of, and the market price for, its common stock.
Liquidity and Going Concern Considerations
In accordance with the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim reporting period, management evaluates whether there are conditions or events that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In making its assessment, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and conditional and unconditional obligations due over the next twelve months.
The Operating Partnership received notices of default and reservation of rights letters from the administrative agent under the secured credit facility asserting that certain defaults and events of default have occurred and continue to exist as of June 30, 2020 by reason of the Operating Partnership’s failure to comply with certain restrictive covenants, including the liquidity covenant, in the secured credit facility. As of the date of this report, the lenders under the secured credit facility have not accelerated the outstanding amount due and payable on the loans or commenced foreclosure proceedings, but they may seek to exercise one or more of these remedies in the future.
Management has engaged Weil, Gotshal & Manges LLP and Moelis & Company LLC (the “Advisors”) to assist the Company in exploring several alternatives to reduce overall leverage and interest expense and to extend the maturity of its debt including (i) the senior secured credit facility, which includes a revolving facility with a balance of $675,925 and term loan with a balance of $447,500 as of June 30, 2020, that matures in July 2023 and (ii) the Notes with balances of $450,000, $300,000, and $625,000, as of June 30, 2020, that mature in December 2023 , October 2024 and December 2026 ,
13
respectively, as well as the cumulative unpaid dividends on the Company’s preferred stock and the special common units of limited partnership interest in the Operating Partnership. The Advisors commenced discussions in May 2020 with advisors to certain holders of the N otes and the credit committee of the senior secured credit facility. Management may pursue a comprehensive capital structure solution that will address the Company’s funded indebtedness and outstanding equity interests that may result in the reorganization of the Company.
Given the impact of the COVID-19 pandemic on the retail and broader markets, the ongoing weakness of the credit markets, and the Operating Partnership’s default of certain restrictive covenants, the Company believes that there is substantial doubt that it will continue to operate as a going concern within one year after the date these condensed consolidated financial statements are issued. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the condensed consolidated financial statements do not reflect any adjustments related to the recoverability of assets and satisfaction of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 2 – Summary of Significant Accounting Policies
Accounting Guidance Adopted
|
Description |
|
Expected Adoption Date & Application Method |
|
Financial Statement Effect and Other Information |
|
Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments |
|
January 1, 2020 - Modified Retrospective |
|
The guidance replaces the current incurred loss impairment model, which reflects credit events, with a current expected credit loss model, which recognizes an allowance for credit losses based on an entity’s estimate of contractual cash flows not expected to be collected.
The Company has determined that its available-for-sale debt securities, guarantees, mortgage and other notes receivable and receivables within the scope of ASC 606 fall under the scope of this standard. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or disclosures. |
|
|
|
|
|
|
|
ASU 2018-13, Fair Value Measurement |
|
January 1, 2020 - Prospective |
|
The guidance eliminates, adds and modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or disclosures. |
|
|
|
|
|
|
|
ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract |
|
January 1, 2020 - Prospective |
|
The guidance addresses diversity in practice in accounting for the costs of implementation activities in a cloud computing arrangement that is a service contract. Under the guidance, the Company is to follow Subtopic 350-40 on internal-use software to determine which implementation costs to capitalize and which to expense.
The guidance also requires an entity to expense capitalized implementation costs over the term of the hosting arrangement and include that expense in the same line item as the fees associated with the service element of the arrangement. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or disclosures. |
14
|
Lease Modification Q&A |
|
April 1, 2020 – Prospective |
|
In April 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance related to lease concessions provided as a result of COVID-19. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A clarifies that entities may elect to not evaluate whether lease-related relief that lessors provide to mitigate the economic effects of COVID-19 on lessees is a lease modification under Topic 842, Leases . Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 is a modification can then elect whether to apply the modification guidance (i.e. assume the relief was always contemplated by the contract or assume the relief was not contemplated by the contract). Both lessees and lessors may make this election.
The Company has elected to apply the relief provided under the Lease Modification Q&A and will avail itself of the election to avoid performing a lease by lease analysis for the lease concessions that were (1) granted as relief due to the COVID-19 pandemic and (2) result in the cash flows remaining substantially the same or less than the original contract. The Lease Modification Q&A had a material impact on the Company’s consolidated financial statements as of and for the three and six months ended June 30, 2020. However, its future impact to the Company is dependent upon the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by the Company at the time of entering such concessions.
The Lease Modification Q&A allows the Company to determine accounting policy elections at a disaggregated level, and the elections should be applied consistently by either the type of concession, underlying asset class or on another reasonable basis. As a result, the Company has made the following policy elections based on the type of concession agreed to with the respective tenant. Rent Deferrals The Company will account for rental deferrals using the receivables model as described within the Lease Modification Q&A. Under the receivables model, the Company will continue to recognize lease revenue in a manner that is unchanged from the original lease agreement and continue to recognize lease receivables and rental revenue during the deferral period. Rent Abatements The Company will account for rental abatements using the negative variable income model as described within the Lease Modification Q&A. Under the negative variable income model, the Company will recognize negative variable rent for the current period reduction of rental revenue associated with any lease concessions we provide. |
15
Accounts Receivable
Receivables include amounts billed and currently due from tenants pursuant to lease agreements and receivables attributable to straight-line rents associated with those lease agreements. Individual leases where the collection of rents is in dispute are assessed for collectability based on management’s best estimate of collection considering the anticipated outcome of the dispute. Individual leases that are not in dispute are assessed for collectability and upon the determination that the collection of rents over the remaining lease term is not probable, accounts receivable are reduced as an adjustment to rental revenues. Revenue from leases where collection is deemed to be less than probable is recorded on a cash basis until collectability is determined to be probable. Further, management assesses whether operating lease receivables, at a portfolio level, are appropriately valued based upon an analysis of balances outstanding, historical collection levels and current economic trends. An allowance for the uncollectible portion of the portfolio is recorded as an adjustment to rental revenues. Management’s estimate of the collectability of accounts receivable from tenants is based on the best information available to management at the time of evaluation.
The duration of the COVID-19 pandemic and our tenants’ ability to resume operations once governmental and legislative restrictions are lifted has caused uncertainty in the Company’s ongoing ability to collect rents when due. Considering the potential impact of these uncertainties, management’s collection assessment also took into consideration the type of retailer and current discussions with the tenants, as well as recent rent collection experience and tenant bankruptcies based on the best information available to management at the time of evaluation. For the three and six months ended June 30, 2020, the Company recorded $36,912 and $40,692, respectively, associated with potentially uncollectible revenues, which includes $1,088 and $2,557, respectively, for straight-line rent receivables .
Carrying Value of Long-Lived Assets and Investment in Unconsolidated Affiliates
The Company evaluates its real estate assets and investment in unconsolidated affiliates for impairment indicators whenever events or changes in circumstances indicate that recoverability of its investment in the asset is not reasonably assured. Furthermore, this evaluation is conducted no less frequently than quarterly, irrespective of changes in circumstances. The prolonged outbreak of the COVID-19 pandemic has resulted in sustained closure of the Company’s properties, as well as the cessation of the operations of certain of its tenants, which will likely result in a reduction in the revenues and cash flows of many of its properties due to the adverse financial impacts on its tenants, as well as reductions in other sources of income generated by its properties. In addition to reduced revenues, the Company’s ability to obtain sufficient financing for such properties may be impaired as well as its ability to lease or re-lease properties as a result of worsening market and economic conditions resulting from the COVID-19 pandemic.
16
As of June 30 , 2020, the Company’s evaluation of impairment of real estate assets considered its estimate of cash flow declines caused by the COVID-19 pandemic, but its other assumptions, including estimated hold period, were generally unchanged given the highly uncertain environment. The worsening of estimated future cash flows due to a change in the Company’s plans , policies, or views of market and economic conditions as it relates to one or more of its properties adversely impacted by the COVID-19 pandemic could result in the recognition of substantial impairment charges on its assets, which could adversely impact its financial results. For the three months ended June 30, 2020, the Company recorded an impairment charge of $ 13,274 related to one mall. For the six months ended June 30 , 2020, the Company recorded impairment charges of $ 146,918 related to three of its malls . As of June 30, 2020, four other properties had impairment indicators; however, based on the Company’s plans with respect to those properties and the economic environment as of June 30 , 2020, no additional impairment charges were recorded .
As of June 30, 2020, 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. Future declines in the fair value of the Company’s investments in unconsolidated affiliates, including those resulting from the adverse impact of the COVID-19 pandemic on the real estate assets owned by the unconsolidated affiliates, could result in the recognition of substantial impairment charges on its investments in unconsolidated affiliates to the extent such declines are determined to be other-than-temporary. No impairments of investments in unconsolidated affiliates were recorded in the three and six-month periods ended June 30, 2020 and 2019. As of June 30, 2020, there were indicators that the fair value of one investment in unconsolidated affiliates had declined below the Company’s carrying value of the investment; however, the decline was determined to not be other-than-temporary.
Note 3 – Revenues
Revenues
The following table presents the Company's revenues disaggregated by revenue source:
|
|
|
Three Months Ended June 30, 2020 |
|
|
Three Months Ended June 30, 2019 |
|
|
Six Months Ended June 30, 2020 |
|
|
Six Months Ended June 30, 2019 |
|
||||
|
Rental revenues (1) |
|
$ |
120,222 |
|
|
$ |
185,393 |
|
|
$ |
281,395 |
|
|
$ |
376,373 |
|
|
Revenues from contracts with customers (ASC 606): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense reimbursements (2) |
|
|
2,103 |
|
|
|
2,061 |
|
|
|
4,492 |
|
|
|
4,204 |
|
|
Management, development and leasing fees (3) |
|
|
1,055 |
|
|
|
2,586 |
|
|
|
3,147 |
|
|
|
5,109 |
|
|
Marketing revenues (4) |
|
|
351 |
|
|
|
1,218 |
|
|
|
1,094 |
|
|
|
2,092 |
|
|
|
|
|
3,509 |
|
|
|
5,865 |
|
|
|
8,733 |
|
|
|
11,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
480 |
|
|
|
2,119 |
|
|
|
1,657 |
|
|
|
3,629 |
|
|
Total revenues (5) |
|
$ |
124,211 |
|
|
$ |
193,377 |
|
|
$ |
291,785 |
|
|
$ |
391,407 |
|
|
(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. |
|
|
( 2 ) |
Includes $2,024 in the Malls segment and $79 in the All Other segment for the three months ended June 30, 2020, and includes $1,892 in the Malls segment and $169 in the All Other segment for the three months ended June 30, 2019. Includes $4,345 in the Malls segment and $147 in the All Other segment for the six months ended June 30, 2020, and includes $4,084 in the Malls segment and $120 in the All Other segment for the six months ended June 30, 2019. |
|
( 3 ) |
Included in All Other segment. |
|
( 4 ) |
Marketing revenues solely relate to the Malls segment for all periods presented. |
|
( 5 ) |
Sales taxes are excluded from revenues. |
See Note 10 for information on the Company's segments.
Revenue from Contracts with Customers
Expected credit losses
During the three and six months ended June 30, 2020, the Company individually evaluated tenant receivables within the scope of ASC 606, of which a significant portion are short term. These receivables are assessed for collectability based on management’s best estimate of collection considering balances outstanding, historical collection levels and current economic trends. The Company recognized bad debt expense of $1,041 and $1,263 related to this class of receivables that were deemed uncollectable for the three and six months ended June 30, 2020, respectively.
17
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 June 30, 2020, the Company expects to recognize these amounts as revenue over the following periods:
|
Performance obligation |
|
Less than 5 years |
|
|
5-20 years |
|
|
Over 20 years |
|
|
Total |
|
||||
|
Fixed operating expense reimbursements |
|
$ |
25,080 |
|
|
$ |
52,220 |
|
|
$ |
47,746 |
|
|
$ |
125,046 |
|
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
Lessor
The components of rental revenues are as follows:
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Fixed lease payments |
|
$ |
99,150 |
|
|
$ |
151,730 |
|
|
$ |
236,544 |
|
|
$ |
311,002 |
|
|
Variable lease payments |
|
|
21,072 |
|
|
|
33,663 |
|
|
|
44,851 |
|
|
|
65,371 |
|
|
Total rental revenues |
|
$ |
120,222 |
|
|
$ |
185,393 |
|
|
$ |
281,395 |
|
|
$ |
376,373 |
|
The undiscounted future fixed lease payments to be received under the Company's operating leases as of June 30, 2020, are as follows :
|
Years Ending December 31, |
|
Operating Leases |
|
|
|
2020 (1) |
|
$ |
242,571 |
|
|
2021 |
|
|
446,200 |
|
|
2022 |
|
|
376,986 |
|
|
2023 |
|
|
313,251 |
|
|
2024 |
|
|
248,727 |
|
|
2025 |
|
|
185,386 |
|
|
Thereafter |
|
|
451,572 |
|
|
Total undiscounted lease payments |
|
$ |
2,264,693 |
|
|
(1) |
Reflects rental payments for the fiscal period July 1, 2020 to December 31, 2020. |
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 where we have plans to continue operating our assets under the current terms 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 one office lease is subleased as of June 30, 2020. As of June 30, 2020, these leases have a weighted-average remaining lease term of 42.9 years and a weighted-average discount rate of 8.1%.
The components of lease expense are presented below:
|
|
|
Three Months Ended June 30, 2020 |
|
|
Three Months Ended June 30, 2019 |
|
|
Six Months Ended June 30, 2020 |
|
|
Six Months Ended June 30, 2019 |
|
||||
|
Lease expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease expense |
|
$ |
114 |
|
|
$ |
207 |
|
|
$ |
239 |
|
|
$ |
425 |
|
|
Variable lease expense |
|
|
31 |
|
|
|
( 2 |
) |
|
|
116 |
|
|
|
30 |
|
|
Total lease expense |
|
$ |
145 |
|
|
$ |
205 |
|
|
$ |
355 |
|
|
$ |
455 |
|
18
Note 5 – 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 $2,652,997 and $2,970,246 at June 30, 2020 and December 31, 2019, 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.
During March 2020, the Company purchased U.S. Treasury securities that are scheduled to mature between April 2021 and June 2021. The Company has designated these securities as available-for-sale (“AFS”). The fair value of these securities was calculated based on quoted market prices in active markets and are included in the Level 1 fair value hierarchy. The Company believes the market for U.S. Treasury securities is an actively traded market given the high level of daily trading volume. The following table sets forth information regarding the Company’s AFS securities that were measured at fair value for the six months ended June 30, 2020:
|
AFS Security |
|
Amortized Cost |
|
|
Allowance for credit losses (1) |
|
|
Total unrealized gains/(losses) |
|
|
Fair Value |
|
||||
|
U.S. Treasury securities |
|
$ |
152,460 |
|
|
$ |
— |
|
|
$ |
( 42 |
) |
|
$ |
152,418 |
|
|
(1) |
U.S Treasury securities have a long history with no credit losses. Additionally, the Company notes that U.S Treasury securities are explicitly fully guaranteed by a sovereign entity that can print its own currency and that the sovereign entity’s currency is routinely held by central banks and other major financial institutions, is used in international commerce, and commonly viewed as a reserve currency, all of which qualitatively indicate that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. Therefore, the Company did not record expected credit losses for its U.S Treasury securities for the three and six months ended June 30, 2020. |
The Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), on January 1, 2020. Under ASC Topic 326-30, the Company elected to exclude applicable accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities, and separately present the accrued interest receivable balance within the Other Receivables line item of the condensed consolidated balance sheets. The accrued interest receivables balance totaled $329 as of June 30, 2020. The Company elected not to measure an allowance for credit losses on accrued interest receivable as an allowance on possible uncollectable accrued interest receivable is recorded in a timely manner.
19
Fair Value Measurements on a Nonrecurring Basis
The Company measures the fair value of certain long-lived assets on a nonrecurring basis, through quarterly impairment testing or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company considers both quantitative and qualitative factors in its impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each property such as net operating income ("NOI"), occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the property and tenant mix. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experience impairment, the Company classifies such long-lived assets under Level 3 in the fair value hierarchy. Level 3 inputs primarily consist of sales and market data, independent valuations and discounted cash flow models.
Long-lived Assets Measured at Fair Value in 2020
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 six months ended June 30, 2020:
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|||||||||
|
|
|
Total |
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total Loss on Impairment |
|
|||||
|
2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets |
|
$ |
166,900 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
166,900 |
|
|
$ |
146,918 |
|
During the six months ended June 30, 2020, the Company recognized impairments of real estate of $146,918 related to three malls.
|
Impairment Date |
|
Property |
|
Location |
|
Segment Classification |
|
Loss on Impairment |
|
|
Fair Value |
|
|
||
|
March |
|
Burnsville Center (1) |
|
Burnsville, MN |
|
Malls |
|
$ |
26,562 |
|
|
$ |
47,300 |
|
|
|
March |
|
Monroeville Mall (2) |
|
Pittsburgh, PA |
|
Malls |
|
|
107,082 |
|
|
|
67,000 |
|
|
|
June |
|
Asheville Mall (3) |
|
Asheville, NC |
|
Malls |
|
|
13,274 |
|
|
|
52,600 |
|
|
|
|
|
|
|
|
|
|
|
$ |
146,918 |
|
|
$ |
166,900 |
|
|
|
(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 $47,300. 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 Burnsville Center 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 15.5%. |
|
(2) |
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 $67,000. The mall had experienced a decline of NOI due to store closures and rent reductions. Management determined the fair value of Monroeville 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 14.0% and a discount rate of 14.5%. |
|
(3) |
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 $52,600. 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 Asheville 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 13.25% and a discount rate of 14.0%. |
Long-lived Assets Measured at Fair Value in 2019
The following table sets forth information regarding the Company's assets that were measured at fair value on a nonrecurring basis and related impairment charges for the six months ended June 30, 2019:
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|||||||||
|
|
|
Total |
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total Loss on Impairment |
|
|||||
|
2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets |
|
$ |
127,319 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
127,319 |
|
|
$ |
66,433 |
|
20
During the six months ended June 30, 2019, the Company recognized impairments of real estate of $66,662 related to three malls and one community center:
|
Impairment Date |
|
Property |
|
Location |
|
Segment Classification |
|
Loss on Impairment |
|
|
Fair Value |
|
|
||
|
March |
|
Greenbrier Mall (1) |
|
Chesapeake, VA |
|
Malls |
|
$ |
22,770 |
|
|
$ |
56,300 |
|
|
|
March/April |
|
Honey Creek Mall (2) |
|
Terre Haute, IN |
|
Malls |
|
|
2,045 |
|
|
|
14,360 |
|
|
|
June |
|
The Forum at Grandview (3) |
|
Madison, MS |
|
All Other |
|
|
8,582 |
|
|
|
31,559 |
|
|
|
June |
|
EastGate Mall (4) |
|
Cincinnati, OH |
|
Malls |
|
|
33,265 |
|
|
|
25,100 |
|
|
|
January/March |
|
Other adjustments (5) |
|
Various |
|
Malls |
|
|
( 229 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
$ |
66,433 |
|
|
$ |
127,319 |
|
|
|
(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) |
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. |
|
(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. |
|
(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) |
Related to true-ups of estimated expenses to actual expenses for properties sold in prior periods. |
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 properties described below, as well as any related gains or losses, are included in net loss for all periods presented, as applicable.
2020 Dispositions
The Company realized a gain of $2,623 related to the sale of two outparcels during the three months ended June 30, 2020, and realized a gain of $2,763 related to the sale of three outparcels during the six months ended June 30, 2020.
Note 7 – Unconsolidated Affiliates and Noncontrolling Interests
Unconsolidated Affiliates
Although the Company had majority ownership of certain joint ventures during 2020 and 2019, 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 |
21
|
|
• |
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 June 30, 2020, the Company had investments in 29 entities, which are accounted for using the equity method of accounting. The Company's ownership interest in these unconsolidated affiliates ranges from 20% to 65%. Of these entities, 17 are owned in 50/50 joint ventures.
2020 Activity - Unconsolidated Affiliates
Atlanta Outlet JV, LLC
In February 2020, Atlanta Outlet JV, LLC, a 50/50 joint venture, closed on a new loan in the amount of $4,680, with an interest rate of LIBOR plus 2.5% and a maturity date of November 2023 . Proceeds were used to retire the previous loan. The Operating Partnership and its joint venture partner have each guaranteed 100% of the loan. See Note 12 for more information.
BI Development II, LLC
In June 2020, the Company entered into a joint venture, BI Development II, LLC, to acquire, redevelop and operate the vacant Sears parcel at Northgate Mall in Chattanooga, TN. The Company has a 20% membership interest in the joint venture. As of June 30, 2020, the Company made no initial capital contribution and has no future funding obligations. The unconsolidated affiliate is a variable interest entity ("VIE").
CBL/T-C, LLC
As of June 30, 2020, the non-recourse loan that is secured by Oak Park Mall was in default. The loan, which matures in October 2025 , had an outstanding balance of $262,971 at June 30, 2020. The Company has been in discussions with the lender regarding a restructure of the loan. As of the date of this report, the lender has not accelerated the outstanding amount due and payable on the loan or commenced foreclosure proceedings, but it may seek to exercise one or more of these remedies in the future.
Condensed Combined Financial Statements - Unconsolidated Affiliates
Condensed combined financial statement information of the unconsolidated affiliates is as follows:
|
|
|
June 30, 2020 |
|
|
December 31, 2019 |
|
||
|
ASSETS: |
|
|
|
|
|
|
|
|
|
Investment in real estate assets |
|
$ |
2,324,956 |
|
|
$ |
2,293,438 |
|
|
Accumulated depreciation |
|
|
( 835,032 |
) |
|
|
( 803,909 |
) |
|
|
|
|
1,489,924 |
|
|
|
1,489,529 |
|
|
Developments in progress |
|
|
47,761 |
|
|
|
46,503 |
|
|
Net investment in real estate assets |
|
|
1,537,685 |
|
|
|
1,536,032 |
|
|
Other assets |
|
|
170,711 |
|
|
|
154,427 |
|
|
Total assets |
|
$ |
1,708,396 |
|
|
$ |
1,690,459 |
|
|
LIABILITIES: |
|
|
|
|
|
|
|
|
|
Mortgage and other indebtedness, net |
|
$ |
1,432,269 |
|
|
$ |
1,417,644 |
|
|
Other liabilities |
|
|
40,449 |
|
|
|
41,007 |
|
|
Total liabilities |
|
|
1,472,718 |
|
|
|
1,458,651 |
|
|
OWNERS' EQUITY: |
|
|
|
|
|
|
|
|
|
The Company |
|
|
150,542 |
|
|
|
149,376 |
|
|
Other investors |
|
|
85,136 |
|
|
|
82,432 |
|
|
Total owners' equity |
|
|
235,678 |
|
|
|
231,808 |
|
|
Total liabilities and owners’ equity |
|
$ |
1,708,396 |
|
|
$ |
1,690,459 |
|
22
|
|
|
Three Months Ended June 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Total revenues |
|
$ |
46,661 |
|
|
$ |
54,230 |
|
|
Net income (loss) (1) |
|
$ |
( 6,511 |
) |
|
$ |
2,993 |
|
|
(1) The Company's pro rata share of net income (loss) is $( 6,079) and $1,872 for the three months ended June 30, 2020 and 2019, respectively. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Total revenues |
|
$ |
107,175 |
|
|
$ |
110,097 |
|
|
Net income (loss) (1) |
|
$ |
( 1,468 |
) |
|
$ |
9,003 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The Company's pro rata share of net income (loss) is $( 5,061) and $5,180 for the six months ended June 30, 2020 and 2019, respectively. |
Noncontrolling Interests
Noncontrolling interests consist of the following:
|
|
|
As of |
|
|||||
|
|
|
June 30, 2020 |
|
|
December 31, 2019 |
|
||
|
Noncontrolling interests: |
|
|
|
|
|
|
|
|
|
Operating Partnership |
|
$ |
214 |
|
|
$ |
31,592 |
|
|
Other consolidated subsidiaries |
|
|
23,135 |
|
|
|
23,961 |
|
|
|
|
$ |
23,349 |
|
|
$ |
55,553 |
|
Accounts Receivable
See Note 2 – Summary of Significant Accounting Policies for the Company’s accounting policy related to accounts receivable, which is also applicable to the unconsolidated affiliates. The duration of the COVID-19 pandemic and the unconsolidated affiliates’ tenants’ ability to resume operations once governmental and legislative restrictions are lifted has caused uncertainty in the unconsolidated affiliates’ ongoing ability to collect rents when due. Considering the potential impact of these uncertainties, the unconsolidated affiliates’ collection assessment also took into consideration the type of retailer and current discussions with the tenants, as well as recent rent collection experience and tenant bankruptcies based on the best information available to management at the time of evaluation. For the three and six months ended June 30, 2020, the unconsolidated affiliates recorded $11,799 and $13,535, respectively, associated with potentially uncollectible revenues, which includes $250 and $435, respectively, for straight-line rent receivables.
At June 30, 2020, the unconsolidated affiliates’ Receivables include $1,944 related to receivables that have been deferred and are to be repaid over periods generally starting in late 2020 and extending for some portion of 2021. The unconsolidated affiliates granted abatements of $1,191 for the three and six months ended June 30, 2020. As of early August 2020, the Company estimates that the unconsolidated affiliates will defer $3,200 of the rents that were billed for April, May and June 2020 based on agreements that have been executed or are in active negotiation. The unconsolidated affiliates continue to assess rent relief requests from their tenants but are unable to predict the resolution or impact of these discussions.
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
23
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.
Consolidated VIEs
As of June 30, 2020, the Company had investments in 12 consolidated VIEs with ownership interests ranging from 50% to 92%.
Unconsolidated VIEs
The table below lists the Company's unconsolidated VIEs as of June 30, 2020:
|
Unconsolidated VIEs: |
|
Investment in Real Estate Joint Ventures and Partnerships |
|
|
Maximum Risk of Loss |
|
||
|
Ambassador Infrastructure, LLC (1) |
|
$ |
— |
|
|
$ |
9,360 |
|
|
BI Development, LLC |
|
|
— |
|
|
|
— |
|
|
BI Development II, LLC |
|
|
— |
|
|
|
— |
|
|
Bullseye, LLC |
|
|
— |
|
|
|
— |
|
|
Continental 425 Fund LLC |
|
|
7,120 |
|
|
|
7,120 |
|
|
EastGate Storage, LLC (1) |
|
|
654 |
|
|
|
3,904 |
|
|
Hamilton Place Self Storage (1) |
|
|
1,406 |
|
|
|
8,408 |
|
|
Parkdale Self Storage, LLC (1) |
|
|
1,088 |
|
|
|
7,588 |
|
|
PHG-CBL Lexington, LLC |
|
|
35 |
|
|
|
35 |
|
|
Self Storage at Mid Rivers, LLC (1) |
|
|
605 |
|
|
|
3,599 |
|
|
Shoppes at Eagle Point, LLC (1) |
|
|
16,818 |
|
|
|
29,558 |
|
|
Vision - CBL Hamilton Place, LLC |
|
|
3,620 |
|
|
|
3,620 |
|
|
|
|
$ |
31,346 |
|
|
$ |
73,192 |
|
|
(1) |
The Operating Partnership has guaranteed all or a portion of the debt of each of these VIEs. See Note 12 for more information. |
24
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 (the "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 credit facility and secured term loan as of June 30, 2020.
Debt of the Operating Partnership
Net mortgage and other indebtedness consisted of the following:
|
|
|
June 30, 2020 |
|
|
December 31, 2019 |
|
||||||||||
|
|
|
Amount |
|
|
Weighted- Average Interest Rate (1) |
|
|
Amount |
|
|
Weighted- Average Interest Rate (1) |
|
||||
|
Fixed-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating Properties |
|
$ |
1,230,227 |
|
|
|
5.19 |
% |
|
$ |
1,330,561 |
|
|
|
5.27 |
% |
|
Senior unsecured notes due 2023 (2) |
|
|
448,139 |
|
|
|
5.25 |
% |
|
|
447,894 |
|
|
|
5.25 |
% |
|
Senior unsecured notes due 2024 (3) |
|
|
299,964 |
|
|
|
4.60 |
% |
|
|
299,960 |
|
|
|
4.60 |
% |
|
Senior unsecured notes due 2026 (4) |
|
|
617,911 |
|
|
|
5.95 |
% |
|
|
617,473 |
|
|
|
5.95 |
% |
|
Total fixed-rate debt |
|
|
2,596,241 |
|
|
|
5.31 |
% |
|
|
2,695,888 |
|
|
|
5.35 |
% |
|
Variable-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recourse loan on operating Property |
|
|
41,500 |
|
|
|
2.82 |
% |
|
|
41,950 |
|
|
|
4.34 |
% |
|
Construction loan |
|
|
27,215 |
|
|
|
3.07 |
% |
|
|
29,400 |
|
|
|
4.60 |
% |
|
Secured line of credit |
|
|
675,925 |
|
|
|
2.42 |
% |
|
|
310,925 |
|
|
|
3.94 |
% |
|
Secured term loan |
|
|
447,500 |
|
|
|
2.42 |
% |
|
|
465,000 |
|
|
|
3.94 |
% |
|
Total variable-rate debt |
|
|
1,192,140 |
|
|
|
2.45 |
% |
|
|
847,275 |
|
|
|
3.98 |
% |
|
Total fixed-rate and variable-rate debt |
|
|
3,788,381 |
|
|
|
4.41 |
% |
|
|
3,543,163 |
|
|
|
5.02 |
% |
|
Unamortized deferred financing costs (5) |
|
|
( 14,347 |
) |
|
|
|
|
|
|
( 16,148 |
) |
|
|
|
|
|
Total mortgage and other indebtedness, net |
|
$ |
3,774,034 |
|
|
|
|
|
|
$ |
3,527,015 |
|
|
|
|
|
|
(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 $1,861 and $2,106 as of June 30, 2020 and December 31, 2019, respectively. |
|
(3) |
The balance is net of an unamortized discount of $36 and $40 as of June 30, 2020 and December 31, 2019, respectively. |
|
(4) |
The balance is net of an unamortized discount of $7,090 and $7,527 as of June 30, 2020 and December 31, 2019, respectively. |
|
(5) |
Includes $4,795 of unamortized deferred financing costs related to the secured term loan and certain property-level, non-recourse mortgage loans that may be required to be written off in the event that a waiver or restructuring of terms cannot be negotiated and the debt is either redeemed or otherwise extinguished. Additionally, intangible lease assets and other assets includes $7,828 of unamortized deferred financing costs related to the secured line of credit that may be required to be written off in the event that a waiver or restructuring of terms cannot be negotiated and the debt is either redeemed or otherwise extinguished. |
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 $2,378,939 at June 30, 2020.
Senior Unsecured Notes
|
Description |
|
Issued (1) |
|
Amount |
|
|
Interest Rate |
|
|
Maturity Date (2) |
||
|
2023 Notes |
|
November 2013 |
|
$ |
450,000 |
|
|
|
5.25 |
% |
|
December 2023 |
|
2024 Notes |
|
October 2014 |
|
|
300,000 |
|
|
|
4.60 |
% |
|
October 2024 |
|
2026 Notes |
|
December 2016 / September 2017 |
|
|
625,000 |
|
|
|
5.95 |
% |
|
December 2026 |
|
(1) |
Issued by the Operating Partnership. CBL is a limited guarantor of the Operating Partnership's obligations under the Notes as described above. |
|
( 2 ) |
The Notes are redeemable at the Operating Partnership's election, in whole or in part from time to time, on not less than 30 days and not more than 60 days' notice to the holders of the Notes to be redeemed. The 2026 Notes, the 2024 Notes and the 2023 Notes may be redeemed prior to September 15, 2026, July 15, 2024, and September 1, 2023, respectively, for cash at a redemption price equal to the aggregate principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date and a make-whole premium calculated in accordance with the indenture. On or after the respective dates noted above, the Notes are redeemable for cash at a redemption price equal to the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest. If redeemed prior to the respective dates noted above, |
25
|
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. |
The Company elected to not make the $11,813 interest payment due and payable on June 1, 2020, with respect to the Operating Partnership’s 5.25% senior unsecured notes due 2023 (the “2023 Notes”) (the “2023 Notes Interest Payment”). The Company also elected to not make the $18,594 interest payment due and payable on June 15, 2020, with respect to the Operating Partnership’s 5.95% senior unsecured notes due 2026 (the “2026 Notes”) (the “2026 Notes Interest Payment”). The Operating Partnership did not make either the 2023 Notes Interest Payment or the 2026 Notes Interest Payment by the last day of the respective 30-day grace periods provided for in the indenture governing the 2023 Notes and the 2026 Notes. The Operating Partnership’s failure to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment during the applicable grace periods constituted an “event of default” with respect to each of the 2023 Notes and the 2026 Notes.
The Company entered into forbearance agreements, as amended, with certain beneficial owners and/or investment advisors or managers of discretionary funds, accounts or other entities for the holders or beneficial owners (the “Holders”) of in excess of 50 % of the aggregate principal amount of each of the 2023 Notes and the 2026 Notes. Pursuant to the forbearance agreements, among other provisions, the Holders of the 2023 Notes and the 2026 Notes agreed to forbear from exercising any rights and remedies under the indenture governing the 2023 Notes and the 2026 Notes solely with respect to the respective defaults from the nonpayment of the 2023 Notes Interest Payment and the 2026 Notes Interest Payment. The event of default caused by the Operating Partnership’s failure to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment resulted in a cross default under the secured credit facility. The Company entered into a forbearance agreement, as amended, (the “Bank Forbearance Agreement”) with the administrative agent for the lenders under the secured credit facility pursuant to which, among other provisions, the administrative agent, on behalf of itself and the lenders, agreed to forbear from exercising any rights and remedies under the secured credit facility agreement solely with respect to the specified defaults (as defined in the Bank Forbearance Agreement), including the cross-default resulting from the failure to pay the 2023 Notes Interest Payment and the 2026 Notes Interest Payment .
On August 5, 2020, prior to the expiration of the forbearance periods in the forbearance agreements with the Holders of the 2023 Notes and the 2026 Notes and the Bank Forbearance Agreement, the Operating Partnership made the 2023 Notes Interest Payment to the holders of the 2023 Notes and the 2026 Notes Interest Payment to the holders of the 2026 Notes. Accordingly, from and after such payment, the nonpayment of each of the 2023 Notes Interest Payment and the 2026 Notes Interest Payment no longer constitutes (i) an “event of default” under the indenture governing the 2023 Notes and the 2026 Notes that occurred and is continuing or (ii) to the extent provided in the Bank Forbearance Agreement, an “event of default” under the secured credit facility. See Financial Covenants and Restrictions below for more information.
Senior Secured Credit Facility
The Company has a $1,185,000 senior secured credit facility, which includes a revolving line of credit with a borrowing capacity of $685,000 and a term loan with an outstanding balance of $447,500 at June 30, 2020. The facility matures in July 2023 and bore interest at a variable rate of LIBOR plus 2.25% through March 30, 2020. As described in Note 15 – Subsequent Events , on August 6, 2020, the Operating Partnership received a notice of imposition of base rate and post-default rate letter from the administrative agent under the secured credit facility, which (i) informed the Operating Partnership that following an asserted event of default on March 19, 2020, all outstanding loans were converted to base rate loans at the expiration of the applicable interest periods and (ii) seeks payment of $4,812 related thereto for April through June 2020. The base rate is defined as the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) the LIBOR Market Index Rate plus 1.0%, plus 1.25%. The base rate on June 30, 2020 was 4.50% based on the prime rate plus 1.25%. The administrative agent also informed the Operating Partnership that from and after August 6, 2020, interest will accrue on all outstanding obligations at the post-default rate, which is equal to the rate that otherwise would be in effect plus 5.0%. The post-default interest rate at the time of notification was 9.50%.
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 June 30, 2020, the secured line of credit had an outstanding balance of $675,925. In March 2020, the Company drew $280,000 on its secured credit facility to increase liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of COVID-19.
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 four 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
26
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 or within Management’s Discussion and Analysis which accompanies the condensed 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 condensed combined financial statements and accompanying notes for the Combined Guarantor Subsidiaries in lieu of including the condensed consolidating financial information in the notes to its condensed consolidated financial statements. These condensed combined financial statements and notes are presented as an exhibit to this quarterly report on Form 10-Q for ease of reference.
Financial Covenants and Restrictions
The agreements for the Notes and senior secured credit facility 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 and the senior secured credit facility. Additionally, the senior secured credit facility contains a provision that any default on a payment of non-recourse indebtedness in excess of $150,000 is also a default of the senior secured credit facility.
In connection with the Company’s election to not make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment, the Company entered into forbearance agreements, as amended, with the Holders of in excess of 50 % of the aggregate principal amount of each of the 2023 Notes and the 2026 Notes. Pursuant to the forbearance agreements, among other provisions, the Holders of the 2023 Notes and the 2026 Notes agreed to forbear from exercising any rights and remedies under the indenture governing the 2023 Notes and the 2026 Notes solely with respect to the respective defaults from the nonpayment of the 2023 Notes Interest Payment and the 2026 Notes Interest Payment . The event of default caused by the Operating Partnership’s failure to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment resulted in a cross default under the secured credit facility. The Company entered into a forbearance agreement, as amended, (the “Bank Forbearance Agreement”) with the administrative agent for the lenders under the secured credit facility pursuant to which, among other provisions, the administrative agent, on behalf of itself and the lenders, agreed to forbear from exercising any rights and remedies under the secured credit facility agreement solely with respect to the specified defaults (as defined in the Bank Forbearance Agreement), including the cross-default resulting from the failure to pay the 2023 Notes Interest Payment and the 2026 Notes Interest Payment .
On August 5, 2020, prior to the expiration of the forbearance periods in the forbearance agreements with the Holders of the 2023 Notes and the 2026 Notes and the Bank Forbearance Agreement, the Operating Partnership made the 2023 Notes Interest Payment to the holders of the 2023 Notes and the 2026 Notes Interest Payment to the holders of the 2026 Notes. Accordingly, from and after such payment, the nonpayment of each of the 2023 Notes Interest Payment and the 2026 Notes Interest Payment no longer constitutes (i) an “event of default” under the indenture governing the 2023 Notes and the 2026 Notes that occurred and is continuing or (ii) to the extent provided in the Bank Forbearance Agreement, an “event of default” under the secured credit facility.
On each of May 26, 2020, June 2, 2020, June 16, 2020 and August 6, 2020, the Operating Partnership received notices of default and reservation of rights letters from the administrative agent under the secured credit facility asserting that certain defaults and events of default have occurred and continue to exist by reason of the Operating Partnership’s failure to comply with certain restrictive covenants, including the liquidity covenant, in the secured credit facility and resulting from the failure to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment prior to the expiration of the applicable grace periods. In addition, as described in Note 15 – Subsequent Events , on August 6, 2020, the Operating Partnership received a notice of imposition of base rate and post-default rate letter from the administrative agent under the secured credit facility, which (i) informed the Operating Partnership that following an asserted event of default on March 19, 2020, all outstanding loans were converted to base rate loans at the expiration of the applicable interest periods and (ii) seeks payment of approximately $4,812 related thereto for April through June 2020. The base rate is defined as the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) the LIBOR Market Index Rate plus 1.0%, plus 1.25%. The base rate on June 30, 2020 was 4.50% based on the prime rate plus 1.25%. The administrative agent also informed the Operating Partnership that from and after August 6, 2020, interest will accrue on all outstanding obligations at the post-default rate, which is equal to the rate that otherwise would be in effect plus 5.0%. The post-default interest rate at the time of notification was 9.50%.
27
Violation of each of the covenants as described above provides the lenders with the option to accelerate the maturity of the secured credit facility. As of the date of this report, the lenders under the secured credit facility have not accelerated the outstanding amount due and payable on the loans or commenced foreclosure proceedings, but they may seek to exercise one or more of these remedies in the future. In addition, as a result of the events of default asserted by the administrative agent in such letters, the administrative agent may deny the Operating Partnership’s request for future LIBOR interest periods, which would result in an increase in annual interest expense of approximately $23,100 based on the base rate and $78,600 based on the post-default rate. The Operating Partnership has commenced discussions with the administrative agent on behalf of the lenders with respect to these assertions; however, there can be no assurance that the Operating Partnership will agree upon a favorable resolution with respect to such claims. Failure to reach a consensual resolution of these claims or to complete a refinancing or other restructuring could have a material adverse effect on the Operating Partnership’s liquidity, financial condition and results of operations, which may result in filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring plan. See Liquidity and Going Concern Considerations in Note 1 – Organization and Basis of Presentation and Note 15 – Subsequent Events for additional information.
Mortgages on Operating Properties
2020 Loan Repayments
|
Date |
|
Property |
|
Interest Rate at Repayment Date |
|
|
Scheduled Maturity Date |
|
Principal Balance Repaid (1) |
|
||
|
February |
|
Parkway Place |
|
6.50% |
|
|
July 2020 |
|
$ |
33,186 |
|
|
|
February |
|
Valley View Mall |
|
6.50% |
|
|
July 2020 |
|
|
51,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
84,546 |
|
|
(1) |
The Company retired the loans with borrowings from its secured line of credit. |
Loans in Default
As of June 30, 2020, six non-recourse loans that are each secured by one of the Company’s malls were in default. The Company has been in discussions with the lenders for each of these properties regarding a restructure of each respective loan. As of the date of this report, the lenders under each of these loans have not accelerated the outstanding amount due and payable on the loans or commenced foreclosure proceedings, but they may seek to exercise one or more of these remedies in the future. Management has previously impaired the mall that secures each loan due to a shortened expected hold period resulting from management’s assessment that there is an increased likelihood that the loan secured by each mall may not be successfully restructured or refinanced. The non-recourse loans that are in default at June 30, 2020 are as follows:
|
Property |
|
Location |
|
Interest Rate |
|
|
Scheduled Maturity Date |
|
Loan Amount |
|
|
|
Greenbrier Mall |
|
Chesapeake, VA |
|
5.41% |
|
|
Dec-19 |
|
$ |
64,501 |
|
|
Hickory Point Mall |
|
Forsyth, IL |
|
5.85% |
|
|
Dec-19 |
|
|
27,446 |
|
|
Burnsville Center |
|
Burnsville, MN |
|
6.00% |
|
|
Jul-20 |
|
|
64,233 |
|
|
EastGate Mall |
|
Cincinnati, OH |
|
5.83% |
|
|
Apr-21 |
|
|
31,952 |
|
|
Park Plaza |
|
Little Rock, AR |
|
5.28% |
|
|
Apr-21 |
|
|
77,577 |
|
|
Asheville Mall |
|
Asheville, NC |
|
5.80% |
|
|
Sep-21 |
|
|
63,041 |
|
28
Scheduled Principal Payments
As of June 30, 2020, 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, including construction loans and the secured line of credit, are as follows:
|
2020 (1) |
|
$ |
101,401 |
|
|
2021 |
|
|
557,157 |
|
|
2022 |
|
|
465,844 |
|
|
2023 |
|
|
1,491,825 |
|
|
2024 |
|
|
341,398 |
|
|
2025 |
|
|
36,160 |
|
|
Thereafter |
|
|
711,636 |
|
|
|
|
|
3,705,421 |
|
|
Net unamortized discounts and premium |
|
|
( 8,987 |
) |
|
Unamortized deferred financing costs |
|
|
( 14,347 |
) |
|
Principal balance of loans with a maturity date prior to June 30, 2020 (2) |
|
|
91,947 |
|
|
Total mortgage and other indebtedness, net |
|
$ |
3,774,034 |
|
|
(1 ) |
Reflects payments for the fiscal period July 1, 2020 through December 31, 2020. |
|
(2) |
Represents the aggregate principal balance as of June 30, 2020 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 $101,401 of scheduled principal payments in 2020, $64,233 relates to the maturing principal balance of one operating property loan.
The Company’s mortgage and other indebtedness had a weighted-average maturity of 3.3 years as of June 30, 2020 and 3.7 years as of December 31, 2019.
Note 9 – Mortgage and Other Notes Receivable
The Company’s mortgage note receivable is collateralized by an assignment of 100% of the partnership interests that own the real estate assets. Other notes receivable include amounts due from tenants and unsecured notes received from third parties as whole or partial consideration for property or investments.
Mortgage and other notes receivable consist of the following:
|
|
|
|
|
As of June 30, 2020 |
|
|
As of December 31, 2019 |
|
||||||||
|
|
|
Maturity Date |
|
Interest Rate |
|
|
Balance |
|
|
Interest Rate |
|
Balance |
|
|||
|
Mortgages |
|
Dec 2016 |
(1) |
3.48% |
|
|
$ |
1,100 |
|
|
4.28% - 9.50% |
|
$ |
2,637 |
|
|
|
Other Notes Receivable |
|
Sep 2021- Apr 2026 |
|
4.00% - 5.00% |
|
|
|
1,629 |
|
|
4.00% - 5.00% |
|
|
2,025 |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,729 |
|
|
|
|
$ |
4,662 |
|
|
(1) |
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. |
Expected credit losses
As of June 30, 2020, the one mortgage note receivable is in default, but as noted above, the Company has a noncontrolling interest recorded related to the defaulting partner’s interest that serves as collateral on the note, and that amount is greater than the outstanding balance on the note. Based on this information, the Company did not record a credit loss for this class of receivables for the six months ended June 30, 2020.
During the six months ended June 30, 2020, the Company assessed each of its note receivables factoring in credit quality indicators such as collection experience and future expectations of performance to determine whether a credit loss should be recorded. Based on this information, the Company wrote off a $1,230 note receivable associated with amounts due from a government sponsored district at The Shoppes at St. Clair during the three months ended March 31, 2020. The Company did not record any other credit losses for this class of receivables for the three months ended June 30, 2020.
29
Note 10 – Segment Information
The Company measures performance and allocates resources according to property type, which is determined based on certain criteria such as type of tenants, capital requirements, economic risks, leasing terms, and short and long-term returns on capital. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments.
Information on the Company’s segments is presented as follows:
|
Three Months Ended June 30, 2020 |
|
Malls |
|
|
All Other (1) |
|
|
Total |
|
|||
|
Revenues (2) |
|
$ |
112,002 |
|
|
$ |
12,209 |
|
|
$ |
124,211 |
|
|
Property operating expenses (3) |
|
|
( 38,385 |
) |
|
|
( 2,400 |
) |
|
|
( 40,785 |
) |
|
Interest expense |
|
|
( 18,960 |
) |
|
|
( 33,671 |
) |
|
|
( 52,631 |
) |
|
Other expense |
|
|
— |
|
|
|
( 242 |
) |
|
|
( 242 |
) |
|
Gain on sales of real estate assets |
|
|
— |
|
|
|
2,623 |
|
|
|
2,623 |
|
|
Segment profit (loss) |
|
$ |
54,657 |
|
|
$ |
( 21,481 |
) |
|
|
33,176 |
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
( 52,663 |
) |
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
( 18,727 |
) |
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
891 |
|
|
Loss on impairment |
|
|
|
|
|
|
|
|
|
|
( 13,274 |
) |
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
( 16,117 |
) |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
( 6,079 |
) |
|
Net loss |
|
|
|
|
|
|
|
|
|
$ |
( 72,793 |
) |
|
Capital expenditures (4) |
|
$ |
9,754 |
|
|
$ |
1,377 |
|
|
$ |
11,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019 |
|
Malls |
|
|
All Other (1) |
|
|
Total |
|
|||
|
Revenues (2) |
|
$ |
170,976 |
|
|
$ |
22,401 |
|
|
$ |
193,377 |
|
|
Property operating expenses (3) |
|
|
( 53,599 |
) |
|
|
( 3,379 |
) |
|
|
( 56,978 |
) |
|
Interest expense |
|
|
( 21,556 |
) |
|
|
( 30,926 |
) |
|
|
( 52,482 |
) |
|
Other expense |
|
|
— |
|
|
|
( 34 |
) |
|
|
( 34 |
) |
|
Gain on sales of real estate assets |
|
|
2,478 |
|
|
|
3,049 |
|
|
|
5,527 |
|
|
Segment profit (loss) |
|
$ |
98,299 |
|
|
$ |
( 8,889 |
) |
|
|
89,410 |
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
( 64,478 |
) |
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
( 14,427 |
) |
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
356 |
|
|
Loss on impairment |
|
|
|
|
|
|
|
|
|
|
( 41,608 |
) |
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
( 813 |
) |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
1,872 |
|
|
Net loss |
|
|
|
|
|
|
|
|
|
$ |
( 29,688 |
) |
|
Capital expenditures (4) |
|
$ |
31,560 |
|
|
$ |
1,413 |
|
|
$ |
32,973 |
|
30
|
Six Months Ended June 30, 2020 |
|
Malls |
|
|
All Other (1) |
|
|
Total |
|
|||
|
Revenues (2) |
|
$ |
265,353 |
|
|
$ |
26,432 |
|
|
$ |
291,785 |
|
|
Property operating expenses (3) |
|
|
( 90,483 |
) |
|
|
( 5,667 |
) |
|
|
( 96,150 |
) |
|
Interest expense |
|
|
( 37,107 |
) |
|
|
( 62,516 |
) |
|
|
( 99,623 |
) |
|
Other expense |
|
|
— |
|
|
|
( 400 |
) |
|
|
( 400 |
) |
|
Gain (loss) on sales of real estate assets |
|
|
( 25 |
) |
|
|
2,788 |
|
|
|
2,763 |
|
|
Segment profit (loss) |
|
$ |
137,738 |
|
|
$ |
( 39,363 |
) |
|
|
98,375 |
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
( 108,565 |
) |
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
( 36,563 |
) |
|
Litigation settlement |
|
|
|
|
|
|
|
|
|
|
— |
|
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
3,288 |
|
|
Gain on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
— |
|
|
Loss on impairment |
|
|
|
|
|
|
|
|
|
|
( 146,918 |
) |
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
( 16,643 |
) |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
( 5,061 |
) |
|
Net loss |
|
|
|
|
|
|
|
|
|
$ |
( 212,087 |
) |
|
Capital expenditures (4) |
|
$ |
27,810 |
|
|
$ |
3,653 |
|
|
$ |
31,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019 |
|
Malls |
|
|
All Other (1) |
|
|
Total |
|
|||
|
Revenues (2) |
|
$ |
354,840 |
|
|
$ |
36,567 |
|
|
$ |
391,407 |
|
|
Property operating expenses (3) |
|
|
( 110,780 |
) |
|
|
( 7,873 |
) |
|
|
( 118,653 |
) |
|
Interest expense |
|
|
( 44,746 |
) |
|
|
( 61,734 |
) |
|
|
( 106,480 |
) |
|
Other expense |
|
|
— |
|
|
|
( 34 |
) |
|
|
( 34 |
) |
|
Gain on sales of real estate assets |
|
|
2,478 |
|
|
|
3,277 |
|
|
|
5,755 |
|
|
Segment profit (loss) |
|
$ |
201,792 |
|
|
$ |
( 29,797 |
) |
|
|
171,995 |
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
( 134,270 |
) |
|
General and administrative expense |
|
|
|
|
|
|
|
|
|
|
( 36,434 |
) |
|
Litigation settlement |
|
|
|
|
|
|
|
|
|
|
( 88,150 |
) |
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
845 |
|
|
Gain on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
71,722 |
|
|
Loss on impairment |
|
|
|
|
|
|
|
|
|
|
( 66,433 |
) |
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
( 952 |
) |
|
Equity in earnings (losses) of unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
5,180 |
|
|
Net loss |
|
|
|
|
|
|
|
|
|
$ |
( 76,497 |
) |
|
Capital expenditures (4) |
|
$ |
59,584 |
|
|
$ |
1,528 |
|
|
$ |
61,112 |
|
|
Total Assets |
|
Malls |
|
|
All Other (1) |
|
|
Total |
|
|||
|
June 30, 2020 |
|
$ |
3,994,951 |
|
|
$ |
660,208 |
|
|
$ |
4,655,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
$ |
4,180,515 |
|
|
$ |
441,831 |
|
|
$ |
4,622,346 |
|
|
(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 the All Other category. See Note 3 for information on the Company's revenues disaggregated by revenue source for each of the above segments. |
|
(3) |
Property operating expenses include property operating, real estate taxes and maintenance and repairs. |
|
(4) |
Includes additions to and acquisitions of real estate assets and investments in unconsolidated affiliates. Developments in progress are included in the All Other category. |
31
Note 11 – Earnings per Share and Earnings per Unit
Earnings per Share of the Company
Basic earnings per share (“EPS”) is computed by dividing net income (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. There were no potential dilutive common shares and there were no anti-dilutive shares for the three and six month periods ended June 30, 2020 and 2019.
Earnings per Unit of the Operating Partnership
Basic earnings per unit (“EPU”) is computed using the two-class method. The two-class method is required when either (i) participating securities or (ii) multiple classes of common stock exists. The Operating Partnership’s special common units, and common units issued upon the conversion or redemption of special common units, meet the definition of participating securities as these units have the contractual right and obligation to share in the Operating Partnership’s net income (loss) and distributions. Under this approach net income (loss) attributable to common unitholders is reduced by the amount of distributions made (declared) to all common unitholders and by the amount of distributions that are required to be made (declared and undeclared) to special common unitholders. Distributed and undistributed earnings is subsequently divided by the weighted-average number of common and special common units outstanding for the period to compute basic EPU for each unit. Undistributed losses are allocated 100 percent to common units, other than common units issued upon the conversion or redemption of special common units. The special common units, and common units issued upon the conversion or redemption of special common units, only participate in undistributed losses in the event of a liquidation. Diluted EPU is computed by considering either the two-class method or the if-converted method, whichever results in more dilution. The if-converted method assumes the issuance of common units for all potential dilutive special common units outstanding. Due to the loss position (negative earnings) of the Operating Partnership for the three and six month periods ended June 30, 2020 and 2019 all special common units, and common units issued upon the conversion or redemption of special common units, are antidilutive. The calculation of diluted EPU through the if-converted method would reduce the loss per share (as a result of an increase number of shares in the denominator) for the common units. Therefore in a loss position diluted EPU is equal to basic EPU. There were no potential dilutive common units and there were no anti-dilutive units other than the special common units, and common units issued upon the conversion or redemption of special common units, outstanding for the three and six month periods ended June 30, 2020 and 2019.
The following table presents basic and diluted EPU for common and special common units for the three-month and six-month periods ended June 30, 2020 and 2019.
32
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
(In thousands, except per unit data) |
|
|
2020 |
|
|
|
2019 |
|
|
|
2020 |
|
|
|
2019 |
|
|
Net Loss Attributable to Common Unitholders |
|
$ |
( 83,529 |
) |
|
$ |
( 40,854 |
) |
|
$ |
( 233,839 |
) |
|
$ |
( 98,811 |
) |
|
Distributions to Common Unitholders - Declared Only |
|
|
— |
|
|
|
( 14,594 |
) |
|
|
— |
|
|
|
( 14,639 |
) |
|
Distributions to Special Common Unitholders - Declared and Undeclared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units issued on conversion of SCUs |
|
|
— |
|
|
|
( 178 |
) |
|
|
— |
|
|
|
( 133 |
) |
|
S-SCUs |
|
|
( 1,143 |
) |
|
|
( 1,143 |
) |
|
|
( 2,286 |
) |
|
|
( 2,286 |
) |
|
L-SCUs |
|
|
- |
|
|
|
( 433 |
) |
|
|
( 433 |
) |
|
|
( 866 |
) |
|
K-SCUs |
|
|
( 844 |
) |
|
|
( 844 |
) |
|
|
( 1,687 |
) |
|
|
( 1,687 |
) |
|
Total Undistributed Losses Available to Common and Special Common Unitholders |
|
$ |
( 85,516 |
) |
|
$ |
( 58,046 |
) |
|
$ |
( 238,245 |
) |
|
$ |
( 118,421 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed Earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units issued on conversion of SCUs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
133 |
|
|
S-SCUs |
|
|
1,143 |
|
|
|
1,143 |
|
|
|
2,286 |
|
|
|
4,572 |
|
|
L-SCUs |
|
|
433 |
|
|
|
433 |
|
|
|
433 |
|
|
|
1,732 |
|
|
K-SCUs |
|
|
844 |
|
|
|
844 |
|
|
|
1,687 |
|
|
|
3,375 |
|
|
Common Units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units issued on conversion of SCUs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
S-SCUs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
L-SCUs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
K-SCUs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Common Units |
|
|
( 85,513 |
) |
|
|
( 43,274 |
) |
|
|
( 238,243 |
) |
|
|
( 201,801 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units issued on conversion of SCUs |
|
|
1,697 |
|
|
|
1,770 |
|
|
|
1,697 |
|
|
|
1,758 |
|
|
S-SCUs |
|
|
1,561 |
|
|
|
1,561 |
|
|
|
1,561 |
|
|
|
1,561 |
|
|
L-SCUs |
|
|
572 |
|
|
|
572 |
|
|
|
572 |
|
|
|
572 |
|
|
K-SCUs |
|
|
1,137 |
|
|
|
1,137 |
|
|
|
1,137 |
|
|
|
1,137 |
|
|
Common Units |
|
|
196,736 |
|
|
|
195,192 |
|
|
|
196,513 |
|
|
|
195,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPU: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units issued on conversion of SCUs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
S-SCUs |
|
|
0.73 |
|
|
|
0.73 |
|
|
|
1.46 |
|
|
|
2.93 |
|
|
L-SCUs |
|
|
0.76 |
|
|
|
0.76 |
|
|
|
0.76 |
|
|
|
3.03 |
|
|
K-SCUs |
|
|
0.74 |
|
|
|
0.74 |
|
|
|
1.48 |
|
|
|
2.97 |
|
|
Common Units |
|
|
( 0.43 |
) |
|
|
( 0.22 |
) |
|
|
( 1.21 |
) |
|
|
( 0.96 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Basic EPU |
|
$ |
( 0.41 |
) |
|
$ |
( 0.20 |
) |
|
$ |
( 1.16 |
) |
|
$ |
( 0.49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPU: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units issued on conversion of SCUs |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
S-SCUs |
|
|
0.73 |
|
|
|
0.73 |
|
|
|
1.46 |
|
|
|
2.93 |
|
|
L-SCUs |
|
|
0.76 |
|
|
|
0.76 |
|
|
|
0.76 |
|
|
|
3.03 |
|
|
K-SCUs |
|
|
0.74 |
|
|
|
0.74 |
|
|
|
1.48 |
|
|
|
2.97 |
|
|
Common Units |
|
|
( 0.43 |
) |
|
|
( 0.22 |
) |
|
|
( 1.21 |
) |
|
|
( 0.53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Diluted EPU |
|
$ |
( 0.41 |
) |
|
$ |
( 0.20 |
) |
|
$ |
( 1.16 |
) |
|
$ |
( 0.49 |
) |
For additional information regarding the participation rights and minimum distributions relating to the common and special common units, see Note 9. Shareholders’ Equity and Partners’ Capital and Note 10. Redeemable Interests and Noncontrolling Interests of the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2019.
33
Note 12 – Contingencies
Litigation
As previously disclosed, 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. Pursuant to the settlement agreement the Company 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. The class members were 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 valid claim pursuant to the Court's order will receive payment of their claims in cash. Class members who are current tenants began receiving monthly credits against rents and future charges during the three months ended June 30, 2020 and will continue 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 class counsel (up to a maximum of $27,000), incentive award to the class representative (up to a maximum of $50), and class administration costs (which are expected to not exceed $100), 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. During the three-month periods ended September 30, 2019 and December 31, 2019, 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. Additionally, the Company reduced the accrued liability during the three months ended December 31, 2019 by $23,050 related to attorney and administrative fees that were paid pursuant to the settlement agreement. During the three months and six months ended June 30, 2020, the Company reduced the accrued liability by $3,276, which was related to monthly credits against rents and other charges for current tenants. The Company received document requests in the third quarter of 2019, 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.
See Note 15 – Subsequent Events for discussion of events that occurred subsequent to June 30, 2020 in connection with the class action litigation settlement.
Securities Litigation
The Company and certain of its officers and directors were 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. Those cases were consolidated on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Securities Litigation , 1:19-cv-00149-JRG-CHS.
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 nine 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
34
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”); 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”) ; and on April 14, 2020, a shareholder filed a putative derivative complaint captioned Hebig v. Lebovitz, et al., 1:19-cv-00149-JRG-CHS , in the United States District Court for the Eastern District of Tennessee (the “ Hebig 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 expects the Chatman, Kurup, Kemmer , and Hebig 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 partner or have the ability to increase its ownership interest. The guarantees expire upon repayment of the debt, unless noted otherwise.
35
The following table represents the Operating Partnership's guarantees of unconsolidated affiliates' debt as reflected in the accompanying condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019:
|
|
|
As of June 30, 2020 |
|
|
Obligation recorded to reflect guaranty |
|
||||||||||||||||||||||
|
Unconsolidated Affiliate |
|
Company's Ownership Interest |
|
|
Outstanding Balance |
|
|
Percentage Guaranteed by the Operating Partnership |
|
|
|
Maximum Guaranteed Amount |
|
|
Debt Maturity Date (1) |
|
|
June 30, 2020 |
|
|
December 31, 2019 |
|
||||||
|
West Melbourne I, LLC - Phase I |
|
50% |
|
|
$ |
40,567 |
|
|
50% |
|
|
|
$ |
20,284 |
|
|
Feb-2021 |
(2) |
|
$ |
203 |
|
|
$ |
199 |
|
||
|
West Melbourne I, LLC - Phase II |
|
50% |
|
|
|
14,603 |
|
|
50% |
|
|
|
|
7,302 |
|
|
Feb-2021 |
(2) |
|
|
73 |
|
|
|
78 |
|
||
|
Port Orange I, LLC |
|
50% |
|
|
|
53,792 |
|
|
50% |
|
|
|
|
26,896 |
|
|
Feb-2021 |
(2) |
|
|
269 |
|
|
|
270 |
|
||
|
Ambassador Infrastructure, LLC |
|
65% |
|
|
|
9,360 |
|
|
100% |
|
|
|
|
9,360 |
|
|
Aug-2020 |
|
|
|
94 |
|
|
|
101 |
|
||
|
Shoppes at Eagle Point, LLC |
|
50% |
|
|
|
35,189 |
|
|
35% |
|
(3) |
|
|
12,740 |
|
|
Oct-2020 |
(4) |
|
|
127 |
|
|
|
127 |
|
||
|
EastGate Storage, LLC |
|
50% |
|
|
|
6,439 |
|
|
50% |
|
(5) |
|
|
3,250 |
|
|
Dec-2022 |
|
|
|
33 |
|
|
|
33 |
|
||
|
Self Storage at Mid Rivers, LLC |
|
50% |
|
|
|
5,843 |
|
|
50% |
|
(6) |
|
|
2,994 |
|
|
Apr-2023 |
|
|
|
30 |
|
|
|
30 |
|
||
|
Parkdale Self Storage, LLC |
|
50% |
|
|
|
5,483 |
|
|
100% |
|
(7) |
|
|
6,500 |
|
|
Jul-2024 |
|
|
|
65 |
|
|
|
65 |
|
||
|
Hamilton Place Self Storage, LLC |
|
54% |
|
|
|
5,146 |
|
|
100% |
|
(8) |
|
|
7,002 |
|
|
Sep-2024 |
|
|
|
70 |
|
|
|
70 |
|
||
|
Atlanta Outlet JV, LLC |
|
50% |
|
|
|
4,680 |
|
|
100% |
|
|
|
|
4,680 |
|
|
Nov-2023 |
|
|
|
— |
|
|
|
— |
|
||
|
Louisville Outlet Shoppes, LLC |
|
50% |
|
|
|
9,182 |
|
|
100% |
|
(9) |
|
|
9,182 |
|
|
Jul-2020 |
|
|
|
— |
|
|
|
— |
|
||
|
Total guaranty liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
964 |
|
|
$ |
973 |
|
|
(1) |
Excludes any extension options. |
|
(2) |
These loans have two one-year extension options at the joint venture’s election. |
|
(3) |
The guaranty is for a fixed amount of $12,740 throughout the term of the loan, including any extensions. |
|
(4) |
The loan has one two-year extension option, at the joint venture's election, for an outside maturity date of October 2022. |
|
(5) |
The guaranty may be reduced to 25% once certain debt and operational metrics are met. |
|
(6) |
The guaranty may be reduced to 25% once certain debt and operational metrics are met. |
|
(7) |
Parkdale Self Storage, LLC, a 50/50 joint venture, closed on a construction loan with a total borrowing capacity of up to $6,500 for the development of a climate controlled self-storage facility adjacent to Parkdale Mall in Beaumont, TX. The Operating Partnership has a joint and several guaranty with its 50/50 partner. Therefore, the maximum guarantee is 100% of the loan. |
|
(8) |
Hamilton Place Self Storage, LLC, a 54/46 joint venture, closed on a construction loan with a total borrowing capacity of up to $7,002 for the development of a climate controlled self-storage facility adjacent to Hamilton Place in Chattanooga, TN. The Operating Partnership has guaranteed 100% of the construction loan, but it has a back-up guaranty with its joint venture partner for 50% of the construction loan. The guaranty may be reduced to 50% upon opening, and further reduced to 25% once certain debt and operations metrics are met. |
|
(9) |
In July 2020, the maturity date was extended to October 2020. |
The Company has guaranteed the lease performance of York Town Center, LP ("YTC"), an unconsolidated affiliate in which the Company owns a 50% interest, under the terms of an agreement with a third party that owns property as part of York Town Center. Under the terms of that agreement, YTC is obligated to cause performance of the third party’s obligations as landlord under its lease with its sole tenant, including, but not limited to, provisions such as co-tenancy and exclusivity requirements. Should YTC fail to cause performance, then the tenant under the third party landlord’s lease may pursue certain remedies ranging from rights to terminate its lease to receiving reductions in rent. The Company has guaranteed YTC’s performance under this agreement up to a maximum of $22,000, which decreases by $800 annually until the guaranteed amount is reduced to $10,000. The maximum guaranteed obligation was $11,600 as of June 30, 2020. The Company entered into an agreement with its joint venture partner under which the joint venture partner has agreed to reimburse the Company 50% of any amounts it is obligated to fund under the guaranty. The Company did not include an obligation for this guaranty because it determined that the fair value of the guaranty was not material as of June 30, 2020 and December 31, 2019.
Expected credit losses
During the three and six months ended June 30, 2020, the Company evaluated each guarantee individually by looking at the debt service ratio, cash flow forecasts and the performance of each loan. The result of the analysis was that each loan is current and performing, and if applicable, none of the loans that are guaranteed by the Company are in violation of their debt covenants, each operating property has positive cash flows that are sufficient to cover debt service and forecasted cash flows for each operating property do not indicate that there is more than a remote probability that the Company will be required to perform under each guaranty. Historically, the Company has not had to perform on any of its guarantees of unconsolidated affiliates’ debt. Based on current and future conditions, the Company does not expect to have to perform, and therefore did not record a credit loss for the three and six months ended June 30, 2020.
36
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 $4,902 and $13,660 at June 30, 2020 and December 31, 2019, respectively.
Note 13 – Share-Based Compensation
As of June 30, 2020, the Company has outstanding awards under 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.
Restricted Stock Awards
The Company may make restricted stock awards to independent directors, officers and its employees under the 2012 Plan. These awards are generally granted based on the performance of the Company and its employees. None of these awards have performance requirements other than a service condition of continued employment, unless otherwise provided. Compensation expense is recognized on a straight-line basis over the requisite service period.
Share-based compensation expense related to the restricted stock awards was $361 and $546 for the three months ended June 30, 2020 and 2019, respectively, and $1,505 and $2,259 for the six months ended June 30, 2020 and 2019, respectively. Share-based compensation cost capitalized as part of real estate assets was $5 and $27 for the three months ended June 30, 2020 and 2019, respectively, and $12 and $41 for the six months ended June 30, 2020 and 2019, respectively.
A summary of the status of the Company’s nonvested restricted stock awards as of June 30, 2020, and changes during the six months ended June 30, 2020, is presented below:
|
|
|
Shares |
|
|
Weighted- Average Grant-Date Fair Value |
|
||
|
Nonvested at January 1, 2020 |
|
|
971,846 |
|
|
$ |
5.16 |
|
|
Granted |
|
|
1,628,397 |
|
|
$ |
0.86 |
|
|
Vested |
|
|
( 1,051,783 |
) |
|
$ |
2.86 |
|
|
Forfeited |
|
|
( 24,911 |
) |
|
$ |
4.64 |
|
|
Nonvested at June 30, 2020 |
|
|
1,523,549 |
|
|
$ |
2.16 |
|
As of June 30, 2020, there was $2,709 of total unrecognized compensation cost related to nonvested stock awards granted under the plans, which is expected to be recognized over a weighted-average period of 2.4 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 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 2018 PSUs, 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. Beginning with the 2018 PSU grant, to maintain compliance with a 200,000 share annual equity grant limit (the “Section 162(m) Grant Limit”) that was included in the 2012 Plan to satisfy the “qualified performance-based compensation” exception to the deduction limits for certain executive compensation under Section 162(m) of the Code, 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 such 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.
37
In conjunction with the February 2020 approval of the 2020 LTIP grants for the named executive officers, the 2012 Stock Incentive Plan was amended to remove the Section 162(m) Grant Limit, which no longer served its original purpose because the “qualified performance-based compensation” exception to the Section 162(m) deduction limits was repealed by the 2017 tax reform legislation. However, NYSE rules also include an annual equity grant limit which effectively limits the number of shares that can be subject to stock awards to any individual named executive officer, 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”). To maintain NYSE compliance following elimination of the Section 162(m) Grant Limit, the Company’s Compensation Committee revised PSU awards under the LTIP, beginning in 2020, to provide that if a grant of PSUs could result in the issuance of a number of shares to a named executive officer at the conclusion of the 3-year performance period that would exceed the NYSE Annual Grant Limit, when coupled with the number of shares subject to other stock awards (e.g., the time-vesting restricted stock component of the LTIP) issued in the same year that such PSUs were issued, any such excess will instead be converted to a cash bonus award, while remaining subject to vesting conditions as described below.
Any such portion of the value of the 2018 PSUs, the 2019 PSUs or the 2020 PSUs earned payable as a cash bonus will be subject to the same vesting provisions as the issuance of common stock pursuant to the PSUs. 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.
Performance Stock Units
A summary of the status of the Company’s PSU activity as of June 30, 2020, and changes during the six months ended June 30, 2020, is presented below:
|
|
|
PSUs |
|
|
Weighted-Average Grant Date Fair Value |
|
||
|
Outstanding at January 1, 2020 |
|
|
1,766,580 |
|
|
$ |
2.96 |
|
|
2020 PSUs granted (1) |
|
|
3,408,083 |
|
|
$ |
0.84 |
|
|
Outstanding at June 30, 2020 (2) |
|
|
5,174,663 |
|
|
$ |
1.56 |
|
|
(1) |
Includes 211,375 shares classified as a liability due to the potential cash component described above. |
|
( 2 ) |
None of the PSUs outstanding at June 30, 2020 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, for awards classified as equity, 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 2020 PSUs is measured at each reporting period, using the same methodology as was used at the initial grant date, and classified as a liability on the condensed consolidated balance sheet as of June 30, 2020 with an adjustment to compensation expense. If the performance criterion is not satisfied at the end of the performance period for the 2020 PSUs, previously recognized compensation expense related to the liability-classified awards would be reversed as there would be no value at the settlement date.
38
Share-based compensation expense related to the PSUs was $( 60) and $443 for the three months ended June 30, 2020 and 2019, respectively, and $418 and $869 for the six months ended June 30, 2020 and 2019, respectively. Unrecognized compensation costs related to the PSUs was $3,597 as of June 30, 2020, which is expected to be recognized over a weighted-average period of 4.2 years.
The following table summarizes the assumptions used in the Monte Carlo simulation pricing model related to the PSUs:
|
|
|
2020 PSUs |
|
|
2019 PSUs |
|
|
2018 PSUs |
|
|||
|
Grant date |
|
February 10, 2020 |
|
|
February 11, 2019 |
|
|
February 12, 2018 |
|
|||
|
Fair value per share on valuation date (1) |
|
$ |
0.84 |
|
|
$ |
4.74 |
|
|
$ |
4.76 |
|
|
Risk-free interest rate (2) |
|
|
1.39 |
% |
|
|
2.54 |
% |
|
|
2.36 |
% |
|
Expected share price volatility (3) |
|
|
57.98 |
% |
|
|
60.99 |
% |
|
|
42.02 |
% |
|
( 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 2020 PSUs classified as equity consists of 2,131,245 shares at a fair value of $0.88 (which relate to relative TSR) and 1,065,463 shares at fair value of $0.75 per share (which relate to absolute TSR). 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). |
|
(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 five-year period for the 2020 PSUs and a three-year period for the 2019 and 2018 PSUs and implied volatility data based on the trailing month average of daily implied volatilities implied by stock call option contracts that were both closest to the terms shown and closest to the money. |
Note 14 – Noncash Investing and Financing Activities
The Company’s noncash investing and financing activities were as follows:
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Accrued dividends and distributions payable |
|
$ |
— |
|
|
$ |
2,420 |
|
|
Additions to real estate assets accrued but not yet paid |
|
|
14,130 |
|
|
|
26,572 |
|
|
Transfer of real estate assets in settlement of mortgage debt obligations: |
|
|
|
|
|
|
|
|
|
Decrease in real estate assets |
|
|
— |
|
|
|
( 60,059 |
) |
|
Decrease in mortgage and other indebtedness |
|
|
— |
|
|
|
124,111 |
|
|
Decrease in operating assets and liabilities |
|
|
— |
|
|
|
9,333 |
|
|
Decrease in intangible lease and other assets |
|
|
— |
|
|
|
( 1,663 |
) |
|
Conversion of Operating Partnership units to common stock |
|
|
21,051 |
|
|
|
— |
|
|
Increase (decrease) in lease liabilities arising from right-of-use assets |
|
|
( 159 |
) |
|
|
4,042 |
|
|
Deconsolidation upon formation or transfer of interests in joint ventures: |
|
|
|
|
|
|
|
|
|
Decrease in real estate assets |
|
|
— |
|
|
|
( 566 |
) |
|
Increase in investment in unconsolidated affiliates |
|
|
— |
|
|
|
999 |
|
39
Note 15 – Subsequent Events
The Company elected to not make the 2026 Notes Interest Payment by the end of the 30-day grace period to make such payment. The Company made the 2023 Notes Interest Payment and the 2026 Notes Interest Payment on August 5, 2020. See Note 8 – Mortgage and Other Indebtedness, Net for more information.
On August 6, 2020, the Operating Partnership received a notice of imposition of base rate and post-default rate letter from the administrative agent under the secured credit facility, which (i) informed the Operating Partnership that following an asserted event of default on March 19, 2020, all outstanding loans were converted to base rate loans at the expiration of the applicable interest periods and (ii) seeks payment of approximately $4,812 related thereto for April through June 2020. The administrative agent also informed the Operating Partnership that from and after August 6, 2020, interest will accrue on all outstanding obligations at the post-default rate, which is equal to the rate that otherwise would be in effect plus 5.0%. See Note 8 – Mortgage and Other Indebtedness, Net for more information.
The maturity date of the loan secured by The Outlet Shoppes of the Bluegrass – Phase II that was scheduled to mature in July 2020 was extended to October 2020 .
With respect to the class action litigation settlement discussed in Note 12 – Contingencies , the Company made the final fee payment of $4,000 to class counsel in July 2020. Additionally, the Company paid $4,915 in July 2020 to settle claims of former tenants in connection with the class action litigation settlement.
In July 2020, the Company issued 1,783,403 and 338,331 shares of the Company’s common stock to certain individuals and entities included in CBL’s Predecessor and a third party, respectively, in exchange for a like number of common units of limited partnership interest in the Operating Partnership pursuant to exchange notices received from CBL’s Predecessor and such third party.
40
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and accompanying notes that are included in this Form 10-Q. Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as defined in the notes to the condensed consolidated financial statements. In this discussion, the terms “we,” “us” and “our” refer to the Company or the Company and the Operating Partnership collectively, as the text requires.
Certain statements made in this section or elsewhere in this report may be deemed “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical fact should be considered to be forward-looking statements. In many cases, these forward-looking statements may be identified by the use of words such as “will,” “may,” “should,” “could,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “projects,” “goals,” “objectives,” “targets,” “predicts,” “plans,” “seeks,” and variations of these words and similar expressions. Any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this report.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained. It is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties. Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the potential adverse effect of the COVID-19 pandemic, and federal, state, and/or local regulatory guidelines to control it, on our financial condition, operating results and cash flows, our tenants and their customers, the real estate market in which we operate, the global economy and the financial markets. The extent to which the COVID-19 pandemic impacts us and our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the direct and indirect economic effects of the pandemic and containment measures, and potential changes in consumer behavior, among others. In addition to the risk factors described in Part I, Item 1A of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2019, and in Part II, Item 1A of this report, such known risks and uncertainties, many of which may be influenced by the COVID-19 pandemic, include, without limitation:
|
|
• |
general industry, economic and business conditions; |
|
|
• |
interest rate fluctuations; |
|
|
• |
costs and availability of capital, including debt, and capital requirements; |
|
|
• |
costs and availability of real estate; |
|
|
• |
inability to consummate acquisition opportunities and other risks associated with acquisitions; |
|
|
• |
competition from other companies and retail formats; |
|
|
• |
changes in retail demand and rental rates in our markets; |
|
|
• |
shifts in customer demands including the impact of online shopping; |
|
|
• |
tenant bankruptcies or store closings; |
|
|
• |
changes in vacancy rates at our properties; |
|
|
• |
changes in operating expenses; |
|
|
• |
changes in applicable laws, rules and regulations; |
|
|
• |
sales of real property; |
|
|
• |
uncertainty and economic impact of pandemics, epidemics or other public health emergencies or fear of such events, such as the recent COVID-19 pandemic; |
|
|
• |
cyber-attacks or acts of cyber-terrorism; |
41
|
|
• |
changes in , or withdraw al of, the credit ratings of the Operating Partnership's senior unsecured long-term indebtedness; |
|
|
• |
the ability to obtain suitable equity and/or debt financing and the continued availability of financing, in the amounts and on the terms necessary to support our future refinancing requirements and business; and |
|
|
• |
other risks referenced from time to time in filings with the SEC and those factors listed or incorporated by reference into this report. |
This list of risks and uncertainties is only a summary and is not intended to be exhaustive. We disclaim any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information.
EXECUTIVE OVERVIEW
We are a self-managed, self-administered, fully integrated REIT that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers, office and other properties. See Note 1 to the condensed consolidated financial statements for information on our property interests as of June 30, 2020. We have elected to be taxed as a REIT for federal income tax purposes.
On March 11, 2020, the World Health Organization classified COVID-19 as a pandemic. Due to the extraordinary governmental actions taken to contain COVID-19, we are unable to predict the full extent of the pandemic’s impact on our results of operations for the remainder of 2020. As a result, we previously withdrew our full-year 2020 same-center NOI and FFO per share, as adjusted, guidance and underlying assumptions and do not plan to reinstate full-year 2020 guidance until there is further clarity on the impact of the pandemic.
In response to local and state mandated closures, our entire portfolio, except for a few properties, closed in March. Beginning in late April, government agencies began allowing the re-opening of properties with specified health and safety restrictions. As of August 1, 2020, all of our mall properties, but one, have re-opened and we have implemented strict procedures and guidelines for our employees, tenants and property visitors based on CDC and other health agency recommendations. Our properties continue to update these policies and procedures, following any new mandates and regulations, as required. The safety and health of our customers, employees and tenants remains a top priority.
Our financial and operating results for the second quarter reflect the temporary closure of our portfolio for a significant period due to government mandates. Revenues for the quarter were impacted by a major increase in the estimate for uncollectible revenues related to rents due from tenants that recently filed for bankruptcy or are struggling financially, as well as amounts that were abated as part of negotiations. Store closures and rent loss from prior tenant bankruptcies and lower percentage rent related to lower retail sales also impacted revenues. We offset a portion of this decline through aggressive actions to reduce costs both at the property and corporate levels, including company-wide salary reductions, furloughs, reductions-in-force and other expense reduction initiatives. However, the pandemic has accelerated a number of tenant bankruptcies, resulting in an expectation of additional store closures and lost rent through the remainder of the year.
The mandated closures resulted in nearly all of our tenants closing for a period of time and/or shortening operating hours. As a result, we have experienced an increased level of requests for rent deferrals and abatements, as well as defaults on rent obligations. While, in general, we believe that tenants have a clear contractual obligation to pay rent, we have been working with our tenants to address rent deferral requests. Based on completed or in process agreements with 20 of our top tenants as a percentage of total revenues, excluding tenants in bankruptcy, we anticipate collecting over 60% of related rent for the second quarter, with the remainder expected to be deferred or abated. We remain in negotiations with tenants and are unable to predict the outcome of those discussions. As we finalize negotiations, rent collections as a percentage of billed cash-based rents have increased with certain past-due amounts being paid, resulting in an overall collection rate for April through July 2020 of over 54%. As of early August 2020, July rent collections are currently estimated at 49%; however, we anticipate an improvement in the collection rate as we finalize negotiations with retailers and additional past due amounts are collected. We currently estimate that we will defer $17.0 million, at our share, of rents that were billed for April, May and June 2020 based on agreements that have been executed or are in active negotiation. We continue to assess rent relief requests from our tenants but are unable to predict the resolution or impact of these discussions.
We implemented a full financial COVID-19 response to improve liquidity and reduce costs. These significant actions included drawing $280 million on our secured line of credit, eliminating all non-essential expenditures, implementing a company-wide furlough and salary reduction program and delaying and suspending capital expenditures, including redevelopment investments . See the "Liquidity and Capital Resources" section for more information.
42
As discussed in “ Note 1 – Organization and Basis of Presentation ” and “ Note 8 – Mortgage and Other Indebtedness, Net ” to the condensed consolidated financial statements and in “ Liquidity and Capital Resources ” herein, we have received notices of default and reservation of rights letters from the administrative agent under the secured credit facility asserting that certain defaults and events of default have occurred and continue to exist by reason of the our failure to comply with certain restrictive covenants, including the liquidity covenant, in the secured credit facility and resulting from the failure to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment prior to the expiration of the applicable grace periods. In addition, on August 6, 2020, we received a notice of imposition of base rate and post-default rate letter from the administrative agent under the secured credit facility, which (i) informed us that following an asserted event of default on March 19, 2020, all outstanding loans were converted to base rate loans at the expiration of the applicable interest periods and (ii) seeks payment of approximately $4.8 million related thereto for April through June 2020. The administrative agent also informed us that from and after August 6, 2020, interest will accrue on all outstanding obligations at the post-default rate. See Note 1 – Organization and Basis of Presentation and Liquidity and Capital Resources for additional information.
We have engaged Weil, Gotshal & Manges LLP and Moelis & Company LLC (the “Advisors”) to assist us in exploring several alternatives to reduce overall leverage and interest expense and to extend the maturity of our debt including (i) the senior secured credit facility, which includes a revolving facility with a balance of $675.9 million and term loan with a balance of $447.5 million as of June 30, 2020, that matures in July 2023 and (ii) the Notes with balances of $450.0 million, $300.0 million, and $625.0 million, as of June 30, 2020, that mature in December 2023, October 2024 and December 2026, respectively, as well as the cumulative unpaid dividends on our preferred stock and the special common units of limited partnership interest in the Operating Partnership. The Advisors commenced discussions in May 2020 with advisors to certain holders of the Notes and the credit committee of the senior secured credit facility. We may pursue a comprehensive capital structure solution that will address our funded indebtedness and outstanding equity interests that may result in the reorganization of the Company.
Given the impact of the COVID-19 pandemic on the retail and broader markets, the ongoing weakness of the credit markets and significant uncertainties associated with each of these matters, we believe that there is substantial doubt that we will continue to operate as a going concern within one year after the date our condensed consolidated financial statements for the quarter ended June 30, 2020 are issued. See “ Note 1 – Organization and Basis of Presentation ” to the condensed consolidated financial statements for additional information.
We had a net loss for the three and six months ended June 30, 2020 of $72.8 million and $212.1 million respectively, compared to a net loss for the three and six months ended June 30, 2019 of $29.7 million and $76.5 million, respectively. We recorded a net loss attributable to common shareholders for the three and six months ended June 30, 2020 of $81.5 million and $215.3 million, respectively compared to a net loss for the three and six months ended June 30, 2019 of $35.4 million and $85.6 million, respectively. In addition to the impact of the government mandated closures, significant items that affected the comparability between the three-month periods include loss on impairment that is $28.3 million lower and an increase in the income tax provision of $15.3 million due to the recognition of a valuation allowance against our deferred tax assets. For the six-month periods, in addition to the impact of the government mandated closures, significant items that affected the comparability between the six-month periods include litigation settlement expense of $88.2 million and gain on extinguishment of debt of $71.7 million that were recognized in the six months ended June 30, 2019, as well as loss on impairment that is $80.5 million higher in the six months ended June 30, 2020. We also deconsolidated three outlet centers in the third and fourth quarters of 2019.
Same-center NOI and FFO are non-GAAP measures. 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.” For a description of FFO, a reconciliation from net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders, and an explanation of why we believe this is a useful performance measure, see "Non-GAAP Measure - Funds from Operations."
RESULTS OF OPERATIONS
Properties that were in operation for the entire year during 2019 and the six months ended June 30, 2020 are referred to as the “Comparable Properties.” Since January 1, 2019, we have opened one self-storage facility, deconsolidated three outlet centers and disposed of ten properties:
Properties Opened
|
Property |
|
Location |
|
Date Opened |
|
Mid Rivers Mall – CubeSmart Self-storage (1) |
|
St. Peters, MO |
|
January 2019 |
|
(1) |
This property is owned by 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 condensed consolidated statements of operations. |
43
Deconsolidations
|
Property |
|
Location |
|
Date of Deconsolidation |
|
The Outlet Shoppes at Atlanta (1) |
|
Woodstock, GA |
|
December 2019 |
|
The Outlet Shoppes at El Paso (1) |
|
El Paso, TX |
|
August 2019 |
|
The Outlet Shoppes of the Bluegrass (1) |
|
Simpsonville, KY |
|
November 2019 |
|
|
(1) |
This property is owned by a joint venture that is accounted for using the equity method of accounting and is included in equity in earnings of unconsolidated affiliates in the accompanying condensed consolidated statements of operations from the date of deconsolidation. |
Dispositions
|
Property |
|
Location |
|
Sales Date |
|
850 Greenbrier Circle |
|
Chesapeake, VA |
|
July 2019 |
|
Acadiana Mall |
|
Lafayette, LA |
|
January 2019 |
|
Barnes & Noble parcel |
|
High Point, NC |
|
July 2019 |
|
Cary Towne Center |
|
Cary, NC |
|
January 2019 |
|
Courtyard by Marriott at Pearland Town Center |
|
Pearland, TX |
|
June 2019 |
|
Dick’s Sporting Goods at Hanes Mall |
|
Winston-Salem, NC |
|
September 2019 |
|
The Forum at Grandview |
|
Madison, MS |
|
July 2019 |
|
Honey Creek Mall |
|
Terre Haute, IN |
|
April 2019 |
|
Kroger at Foothills Plaza |
|
Maryville, TN |
|
July 2019 |
|
The Shoppes at Hickory Point |
|
Forsyth, IL |
|
April 2019 |
Non-core properties are defined as Excluded Malls - see definition that follows under " Operational Review. "
Comparison of the Three Months Ended June 30, 2020 to the Three Months Ended June 30, 2019
Revenues
|
|
|
Total for the Three Months Ended June 30, |
|
|
|
|
|
|
Comparable Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
Core |
|
|
Non-core |
|
|
Deconsolidation |
|
|
Dispositions |
|
|
Total Change |
|
||||||||
|
Rental revenues |
|
$ |
120,222 |
|
|
$ |
185,393 |
|
|
$ |
(65,171 |
) |
|
$ |
(46,375 |
) |
|
$ |
(4,749 |
) |
|
$ |
(10,735 |
) |
|
$ |
(3,312 |
) |
|
$ |
(65,171 |
) |
|
Management, development and leasing fees |
|
|
1,055 |
|
|
|
2,586 |
|
|
|
(1,531 |
) |
|
|
(1,531 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,531 |
) |
|
Other |
|
|
2,934 |
|
|
|
5,398 |
|
|
|
(2,464 |
) |
|
|
(1,904 |
) |
|
|
(385 |
) |
|
|
(86 |
) |
|
|
(89 |
) |
|
|
(2,464 |
) |
|
Total revenues |
|
$ |
124,211 |
|
|
$ |
193,377 |
|
|
$ |
(69,166 |
) |
|
$ |
(49,810 |
) |
|
$ |
(5,134 |
) |
|
$ |
(10,821 |
) |
|
$ |
(3,401 |
) |
|
$ |
(69,166 |
) |
Rental revenues from the Comparable Properties declined due to $1.6 million of rent abatements on past due rents and an estimate of $31.5 million in uncollectible revenues for past due rents related to tenants that are in bankruptcy or are struggling financially, primarily as a result of mandated property closures. Percentage rent declined as a result of lower retail sales due to mandated property closures. Rental revenues were also negatively impacted by rent concessions that were in effect prior to the COVID-19 pandemic for tenants with high occupancy cost levels and tenants that closed in 2019 due to bankruptcy.
44
Operating Expenses
|
|
|
Total for the Three Months Ended June 30, |
|
|
|
|
|
|
Comparable Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
Core |
|
|
Non-core |
|
|
Deconsolidation |
|
|
Dispositions |
|
|
Total Change |
|
||||||||
|
Property operating |
|
$ |
(16,906 |
) |
|
$ |
(26,532 |
) |
|
$ |
9,626 |
|
|
$ |
5,106 |
|
|
$ |
1,024 |
|
|
$ |
2,611 |
|
|
$ |
885 |
|
|
$ |
9,626 |
|
|
Real estate taxes |
|
|
(17,837 |
) |
|
|
(19,148 |
) |
|
|
1,311 |
|
|
|
91 |
|
|
|
(117 |
) |
|
|
956 |
|
|
|
381 |
|
|
|
1,311 |
|
|
Maintenance and repairs |
|
|
(6,042 |
) |
|
|
(11,298 |
) |
|
|
5,256 |
|
|
|
3,871 |
|
|
|
725 |
|
|
|
300 |
|
|
|
360 |
|
|
|
5,256 |
|
|
Property operating expenses |
|
|
(40,785 |
) |
|
|
(56,978 |
) |
|
|
16,193 |
|
|
|
9,068 |
|
|
|
1,632 |
|
|
|
3,867 |
|
|
|
1,626 |
|
|
|
16,193 |
|
|
Depreciation and amortization |
|
|
(52,663 |
) |
|
|
(64,478 |
) |
|
|
11,815 |
|
|
|
5,538 |
|
|
|
1,759 |
|
|
|
3,741 |
|
|
|
777 |
|
|
|
11,815 |
|
|
General and administrative |
|
|
(18,727 |
) |
|
|
(14,427 |
) |
|
|
(4,300 |
) |
|
|
(4,300 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,300 |
) |
|
Loss on impairment |
|
|
(13,274 |
) |
|
|
(41,608 |
) |
|
|
28,334 |
|
|
|
4,226 |
|
|
|
16,230 |
|
|
|
— |
|
|
|
7,878 |
|
|
|
28,334 |
|
|
Other |
|
|
(242 |
) |
|
|
(34 |
) |
|
|
(208 |
) |
|
|
(208 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(208 |
) |
|
Total operating expenses |
|
$ |
(125,691 |
) |
|
$ |
(177,525 |
) |
|
$ |
51,834 |
|
|
$ |
14,324 |
|
|
$ |
19,621 |
|
|
$ |
7,608 |
|
|
$ |
10,281 |
|
|
$ |
51,834 |
|
Property operating expenses at the Comparable Properties decreased primarily due to the implementation of comprehensive programs to reduce operating expenses as a result of mandated property closures, including salary reductions, furloughs, reductions-in-force and other operating expense initiatives.
The decrease in depreciation and amortization expense related to the Comparable Properties primarily relates to lower a lower basis in depreciable assets resulting from impairments recorded since the prior year period.
General and administrative expenses increased primarily due to $7.9 million of costs related to the Company’s negotiations to restructure its corporate-level debt, which was partially offset by the implementation of comprehensive programs to reduce expenses, including salary reductions, furloughs, reductions-in-force and other general and administrative expenses.
In the second quarter of 2020, we recognized $13.3 million of loss on impairment of real estate to write down the book value of one mall. In the second quarter of 2019, we recognized $41.6 million of loss on impairment of real estate to write down the book value of one mall and one community center. See Note 5 to the condensed consolidated financial statements for more information.
Other Income and Expenses
Interest and other income increased $0.5 million compared to the prior-year period primarily due to interest income related to the U.S. Treasury securities that we invested in using a portion of the $280 million we drew on our secured line of credit in March 2020 to increase liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic . This was partially offset by a decrease in interest income due to several mortgage and other notes receivable being retired since the prior year period.
Interest expense increased $0.1 million due to an increase of $2.9 million in corporate interest expense primarily due to the increase in the interest rate on the secured credit facility as a result of notices of default received from the administrative agent under the secured credit facility plus default interest expense related to property-level nonrecourse loans that are in default. These increases were mostly offset by a $2.8 million decrease in property-level interest expense from the deconsolidation of three encumbered properties since the prior-year period and lower interest expense due to the continued amortization of the secured term loan and non-recourse property-level loans.
During the three months ended June 30, 2020, we recognized $2.6 million of gain on sales of real estate assets related to the sale of two outparcels. During the three months ended June 30, 2019, we recognized $5.5 million of gain on sales of real estate assets primarily related to the sale of a center, a hotel and an outparcel.
The income tax provision increased $15.3 million as compared to the prior-year period as we recorded a valuation allowance of $15.8 million, which reflects a full valuation allowance on our deferred tax assets. The valuation allowance was recorded due to management’s evaluation of positive and negative indicators and determination that the deferred tax assets would not be realized.
Equity in earnings of unconsolidated affiliates decreased by $7.9 million during the three months ended June 30, 2020 compared to the prior-year period. The decrease was primarily due to an increase in the amortization of our inside/outside basis difference related to the three properties that were deconsolidated since the end of the prior year period as well as lower earnings of our unconsolidated affiliates due to the mandated property closures and an increase in estimates of uncollectible rental revenues.
45
Comparison of the Six Months Ended June 30, 2020 to the Six Months Ended June 30, 2019
Revenues
|
|
|
Total for the Six Months Ended June 30, |
|
|
|
|
|
|
Comparable Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
Core |
|
|
Non-core |
|
|
Deconsolidation |
|
|
Dispositions |
|
|
Total Change |
|
||||||||
|
Rental revenues |
|
$ |
281,395 |
|
|
$ |
376,373 |
|
|
$ |
(94,978 |
) |
|
$ |
(57,541 |
) |
|
$ |
(7,454 |
) |
|
$ |
(21,231 |
) |
|
$ |
(8,752 |
) |
|
$ |
(94,978 |
) |
|
Management, development and leasing fees |
|
|
3,147 |
|
|
|
5,109 |
|
|
|
(1,962 |
) |
|
|
(1,962 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,962 |
) |
|
Other |
|
|
7,243 |
|
|
|
9,925 |
|
|
|
(2,682 |
) |
|
|
(1,955 |
) |
|
|
(187 |
) |
|
|
(303 |
) |
|
|
(237 |
) |
|
|
(2,682 |
) |
|
Total revenues |
|
$ |
291,785 |
|
|
$ |
391,407 |
|
|
$ |
(99,622 |
) |
|
$ |
(61,458 |
) |
|
$ |
(7,641 |
) |
|
$ |
(21,534 |
) |
|
$ |
(8,989 |
) |
|
$ |
(99,622 |
) |
Rental revenues from the Comparable Properties declined due to $1.7 million of rent abatements on past due rents and an estimate of $32.0 million in uncollectible revenues for past due rents related to tenants that are in bankruptcy or are struggling financially, primarily as a result of mandated property closures. Percentage rent declined as a result of lower retail sales due to mandated property closures. Rental revenues were also negatively impacted by rent concessions that were in effect prior to the COVID-19 pandemic for tenants with high occupancy cost levels and tenants that closed in 2019 due to bankruptcy.
Operating Expenses
|
|
|
Total for the Six Months Ended June 30, |
|
|
|
|
|
|
Comparable Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
Core |
|
|
Non-core |
|
|
Deconsolidation |
|
|
Dispositions |
|
|
Total Change |
|
||||||||
|
Property operating |
|
$ |
(42,615 |
) |
|
$ |
(55,512 |
) |
|
$ |
12,897 |
|
|
$ |
4,397 |
|
|
$ |
1,147 |
|
|
$ |
5,036 |
|
|
$ |
2,317 |
|
|
$ |
12,897 |
|
|
Real estate taxes |
|
|
(36,285 |
) |
|
|
(39,067 |
) |
|
|
2,782 |
|
|
|
(53 |
) |
|
|
139 |
|
|
|
1,888 |
|
|
|
808 |
|
|
|
2,782 |
|
|
Maintenance and repairs |
|
|
(17,250 |
) |
|
|
(24,074 |
) |
|
|
6,824 |
|
|
|
4,465 |
|
|
|
920 |
|
|
|
506 |
|
|
|
933 |
|
|
|
6,824 |
|
|
Property operating expenses |
|
|
(96,150 |
) |
|
|
(118,653 |
) |
|
|
22,503 |
|
|
|
8,809 |
|
|
|
2,206 |
|
|
|
7,430 |
|
|
|
4,058 |
|
|
|
22,503 |
|
|
Depreciation and amortization |
|
|
(108,565 |
) |
|
|
(134,270 |
) |
|
|
25,705 |
|
|
|
12,981 |
|
|
|
3,447 |
|
|
|
7,195 |
|
|
|
2,082 |
|
|
|
25,705 |
|
|
General and administrative |
|
|
(36,563 |
) |
|
|
(36,434 |
) |
|
|
(129 |
) |
|
|
(129 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(129 |
) |
|
Loss on impairment |
|
|
(146,918 |
) |
|
|
(66,433 |
) |
|
|
(80,485 |
) |
|
|
(102,857 |
) |
|
|
12,438 |
|
|
|
— |
|
|
|
9,934 |
|
|
|
(80,485 |
) |
|
Litigation settlement |
|
|
— |
|
|
|
(88,150 |
) |
|
|
88,150 |
|
|
|
88,150 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
88,150 |
|
|
Other |
|
|
(400 |
) |
|
|
(34 |
) |
|
|
(366 |
) |
|
|
(366 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(366 |
) |
|
Total operating expenses |
|
$ |
(388,596 |
) |
|
$ |
(443,974 |
) |
|
$ |
55,378 |
|
|
$ |
6,588 |
|
|
$ |
18,091 |
|
|
$ |
14,625 |
|
|
$ |
16,074 |
|
|
$ |
55,378 |
|
Property operating expenses at the Comparable Properties decreased primarily due to the implementation of comprehensive programs to reduce operating expenses following mandated property closures during the second quarter 2020, including salary reductions, furloughs, reductions-in-force and other operating expense initiatives.
The decrease in depreciation and amortization expense related to the Comparable Properties primarily relates to a lower basis in depreciable assets resulting from impairments recorded since the prior year period, as well as a higher amount of write-offs of tenant improvements and intangible lease assets related to store closings in the prior year period.
General and administrative expenses increased slightly due to $7.9 million of costs related to the Company’s negotiations to restructure its corporate-level debt, partially offset by the implementation of comprehensive programs to reduce expenses, including salary reductions, furloughs and reductions-in-force, as well higher legal expenses in the prior year period related to the litigation settlement and the new secured credit facility.
For the six months ended June 30, 2020, we recognized $146.9 million of loss on impairment of real estate to write down the book value of three malls. For the six months ended June 30, 2019, we recognized $66.4 million of loss on impairment of real estate to write down the book value of three malls and one community center. See Note 5 to the condensed consolidated financial statements for more information.
During the three months ended June 30, 2019, we recognized $88.2 million of litigation settlement expense related to the settlement of a class action lawsuit. See Note 12 to the condensed consolidated financial statements for more information.
46
Other Income and Expenses
Interest and other income increased $2.4 million during the six months ended June 30, 2020 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 and interest income related to the U.S. Treasury securities that we invested in using a portion of the $280 million we drew on our secured line of credit in March 2020 to increase liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic .
Interest expense decreased $6.9 million compared to the prior-year period. The decrease was primarily due to a $5.6 million decrease in property-level interest expense from the deconsolidation of three encumbered properties since the prior-year period and $5.3 million lower interest expense due to the continued amortization of non-recourse property-level loans and the retirement of two property-level loans. These decreases were partially offset by an increase of $0.8 million in corporate interest expense primarily due to the increase in the interest rate on the secured credit facility in the second quarter 2020 as a result of notices of default received from the administrative agent under the secured credit facility plus $2.3 million higher default interest expense related to property-level nonrecourse loans that are in default.
During the three months ended June 30, 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.
Equity in earnings of unconsolidated affiliates decreased by $10.2 million during the six months ended June 30, 2020 compared to the prior-year period. The decrease was primarily due to an increase in the amortization of our inside/outside basis difference related to the three properties that were deconsolidated since the end of the prior year period as well as lower earnings of our unconsolidated affiliates due to the mandated property closures and an increase in estimates of uncollectible rental revenues.
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 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, amortization of above and below market lease intangibles and write-offs of landlord inducement assets in order to enhance the comparability of results from one period to another.
We include a property in our same-center pool when we have owned all or a portion of the property since January 1 of the preceding calendar year and it has been in operation for both the entire preceding calendar year and current year-to-date period. New properties are excluded from same-center NOI until they meet these criteria. Properties excluded from the same-center pool that would otherwise meet these criteria are properties which 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 and those in which we own a noncontrolling interest of 25% or less. Asheville Mall, Burnsville Center, EastGate Mall, Hickory Point Mall, Greenbrier Mall and Park Plaza were classified as Lender Malls at June 30, 2020.
47
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 loss for the three- and six-month period s ended June 30 , 20 20 and 201 9 is as follows (in thousands):
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Net loss |
|
$ |
(72,793 |
) |
|
$ |
(29,688 |
) |
|
$ |
(212,087 |
) |
|
$ |
(76,497 |
) |
|
Adjustments: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
65,895 |
|
|
|
73,292 |
|
|
|
134,384 |
|
|
|
151,593 |
|
|
Interest expense |
|
|
59,736 |
|
|
|
57,351 |
|
|
|
113,822 |
|
|
|
116,153 |
|
|
Abandoned projects expense |
|
|
242 |
|
|
|
34 |
|
|
|
400 |
|
|
|
34 |
|
|
Gain on sales of real estate assets |
|
|
(2,623 |
) |
|
|
(5,524 |
) |
|
|
(2,763 |
) |
|
|
(6,382 |
) |
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(71,722 |
) |
|
Loss on impairment |
|
|
13,274 |
|
|
|
41,608 |
|
|
|
146,918 |
|
|
|
66,433 |
|
|
Litigation settlement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
88,150 |
|
|
Income tax provision |
|
|
16,117 |
|
|
|
813 |
|
|
|
16,643 |
|
|
|
952 |
|
|
Lease termination fees |
|
|
(1,433 |
) |
|
|
(1,073 |
) |
|
|
(1,653 |
) |
|
|
(2,090 |
) |
|
Straight-line rent and above- and below-market rent |
|
|
(236 |
) |
|
|
(1,408 |
) |
|
|
(2,031 |
) |
|
|
(2,453 |
) |
|
Net loss attributable to noncontrolling interests in other consolidated subsidiaries |
|
|
487 |
|
|
|
57 |
|
|
|
694 |
|
|
|
132 |
|
|
General and administrative expenses |
|
|
18,727 |
|
|
|
14,427 |
|
|
|
36,563 |
|
|
|
36,434 |
|
|
Management fees and non-property level revenues |
|
|
(1,142 |
) |
|
|
(4,118 |
) |
|
|
(5,320 |
) |
|
|
(6,784 |
) |
|
Operating Partnership's share of property NOI |
|
|
96,251 |
|
|
|
145,771 |
|
|
|
225,570 |
|
|
|
293,953 |
|
|
Non-comparable NOI |
|
|
(5,523 |
) |
|
|
(12,336 |
) |
|
|
(13,222 |
) |
|
|
(27,338 |
) |
|
Total same-center NOI |
|
$ |
90,728 |
|
|
$ |
133,435 |
|
|
$ |
212,348 |
|
|
$ |
266,615 |
|
|
(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 32.0% for the three months ended June 30, 2020 as compared to the prior-year period. The $42.7 million decrease for the three months ended June 30, 2020 compared to the same period in 2019 primarily consisted of a $54.8 million decrease in revenues offset by a $11.3 million decline in operating expenses. Rental revenues declined $50.5 million during the quarter primarily related to $37.8 million of estimated uncollectible revenues related to tenants in bankruptcy or struggling financially and $2.4 million of rent abatements. Same-center NOI was also negatively impacted by store closures and rent concessions that were in effect prior to the COVID-19 pandemic for tenants with high occupancy cost levels and tenants that closed in 2019 due to bankruptcy.
Same-center NOI decreased 20.3% for the six months ended June 30, 2020 as compared to the prior-year period. The $54.3 million decrease for the six months ended June 30, 2020 compared to the same period in 2019 primarily consisted of a $66.0 million decrease in revenues offset by a $11.7 million decline in operating expenses. Rental revenues declined $64.5 million during the quarter primarily related to $41.0 million of estimated uncollectible revenues related to tenants in bankruptcy or struggling financially and $2.4 million of rent abatements. Same-center NOI was also negatively impacted by store closures and rent concessions that were in effect prior to the COVID-19 pandemic for tenants with high occupancy cost levels and tenants that closed in 2019 due to bankruptcy.
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.
In response to local and state mandated closures due to the COVID-19 pandemic, our entire portfolio, except for a few properties, closed. All but one of our mall properties have re-opened and we have implemented strict procedures and guidelines for our employees, tenants and property visitors based on CDC and other health agency recommendations.
The mandated closures resulted in nearly all of our tenants closing for a period of time and/or shortening operating hours. As a result, we have experienced an increased level of requests for rent deferrals, and abatements, as well as defaults on rent obligations. While, in general, we believe that the tenants have a clear contractual obligation to pay rent, we have been working with our tenants to address rent deferral requests. Based on agreements with our top 20 tenants as a
48
percentage of total revenues, excluding tenants in bankruptcy, we anticipate collecting over 60% of related rent for the second quarter, with the remainder expected to be deferred or abated. We remain in negotiations with tenants and are unable to predict the outcome of those discussions. As we finalize negotiations, rent collections as a percentage of billed cash-based rents have increased with certain past-due amounts being paid, resulting in an overall collection rate April through July of over 54%. As of early August 2020, July rent collections are currently estimated at 49%; however, we anticipate an improvement in the collection rate as we finalize negotiations with retailers and additional past due amounts are collected. We estimate that we will defer $17.0 million, at our share, of rents that were billed for April, May and June 2020 based on agreements that have been executed or are in active negotiation. We continue to assess rent relief requests from our tenants but are unable to predict the resolution or impact of these discussions.
Year-to-date, twelve national tenants have declared bankruptcy, including major tenants such as J.C. Penney, Ascena Retail Group, Stage Stores and GNC. As of June 30, 2020, J.C. Penney and Ascena Retail Group, Inc. represented $18.5 million in gross annual revenue and comprised 6.1 million square feet. The remaining ten tenants in bankruptcy represented approximately $22.3 million in gross annual revenue and comprised 1.1 million square feet. The majority of these have announced some store closures but are expected to reorganize and continue to operate.
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 June 30, 2020 and 2019. The Outlet Shoppes at Laredo will be classified as a stabilized mall starting January 1, 2021. |
|
|
(3) |
Excluded Malls - We exclude malls from our core portfolio if they fall in one of the following categories, for which operational metrics are excluded: |
|
|
a. |
Lender Malls - Malls for which we are working or intend to work with the lender on a restructure of the terms of the loan secured by the property or convey the secured property to the lender. Asheville Mall, Burnsville Center, EastGate Mall, Hickory Point Mall, Greenbrier Mall and Park Plaza were classified as Lender Malls as of June 30, 2020, and Greenbrier Mall, Hickory Point Mall and Triangle Town Center were classified as Lender Malls as of June 30, 2019. 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. |
|
|
b. |
Repositioning Malls - Malls that are currently being repositioned or where we have determined that the current format of the mall no longer represents the best use of the mall and we are in the process of evaluating alternative strategies for the mall. This may include major redevelopment or an alternative retail or non-retail format, or after evaluating alternative strategies for the mall, we may determine that the mall no longer meets our criteria for long-term investment. The steps taken to reposition these malls, such as signing tenants to short-term leases, which are not included in occupancy percentages, or leasing to regional or local tenants, which typically do not report sales, may lead to metrics which do not provide relevant information related to the condition of these malls. Therefore, traditional performance measures, such as occupancy percentages and leasing metrics, exclude Repositioning Malls. There were no malls classified as Repositioning Malls as of June 30, 2020 and June 30, 2019. |
We derive the majority of our total revenues from the mall properties. The sources of our total revenues by property type were as follows:
49
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. Due to temporary mall and store closures that occurred during the second quarter 2020, the majority of CBL’s tenants did not report sales for the full reporting period. As a result, CBL is not able to provide a complete measure of sales per square foot for the trailing twelve months ended June 30, 2020. Stabilized mall same-center sales per square foot for the twelve months ended June 30, 2019 were $383.
Occupancy
Our portfolio occupancy is summarized in the following table (1):
|
|
|
As of June 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Total portfolio |
|
|
88.1 |
% |
|
|
90.2 |
% |
|
Malls: |
|
|
|
|
|
|
|
|
|
Total Mall portfolio |
|
|
86.6 |
% |
|
|
88.1 |
% |
|
Same-center Malls |
|
|
86.6 |
% |
|
|
88.3 |
% |
|
Stabilized Malls |
|
|
86.8 |
% |
|
|
88.3 |
% |
|
Non-stabilized Malls (2) |
|
|
79.2 |
% |
|
|
78.0 |
% |
|
Other Properties: |
|
|
|
|
|
|
|
|
|
Associated centers |
|
|
90.5 |
% |
|
|
96.3 |
% |
|
Community centers |
|
|
95.2 |
% |
|
|
97.6 |
% |
|
(1) |
As noted above, excluded properties are not included in occupancy metrics. Occupancy for malls represents percentage of mall store gross leasable area occupied under 20,000 square feet. Occupancy for other properties represents percentage of gross leasable area occupied. |
|
(2) |
Represents occupancy for The Outlet Shoppes at Laredo as of June 30, 2020 and 2019. |
Leasing
Leasing activity for the quarter was muted as we shifted our focus to negotiating with existing tenants. To-date we have completed or are finalizing negotiations with retailers representing the majority of second quarter rent. These agreements generally include flexible terms on second quarter rent to certain retailers that require assistance, such as rent deferrals, while at the same time preserving current and future income.
The following is a summary of the total square feet of leases signed in the three- and six-month periods ended June, 2020 and 2019:
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Operating portfolio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New leases |
|
|
141,751 |
|
|
|
256,648 |
|
|
|
420,117 |
|
|
|
528,461 |
|
|
Renewal leases |
|
|
133,671 |
|
|
|
461,251 |
|
|
|
766,431 |
|
|
|
1,153,378 |
|
|
Development portfolio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New leases |
|
|
— |
|
|
|
54,702 |
|
|
|
7,929 |
|
|
|
204,439 |
|
|
Total leased |
|
|
275,422 |
|
|
|
772,601 |
|
|
|
1,194,477 |
|
|
|
1,886,278 |
|
Average annual base rents per square foot are based on contractual rents in effect as of June 30, 2020 and 2019, 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:
50
|
|
|
June 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Malls (1): |
|
|
|
|
|
|
|
|
|
Same-center Stabilized Malls |
|
$ |
32.14 |
|
|
$ |
32.50 |
|
|
Stabilized Malls |
|
|
32.24 |
|
|
|
32.48 |
|
|
Non-stabilized Malls (2) |
|
|
24.74 |
|
|
|
24.65 |
|
|
Other Properties (3): |
|
|
15.72 |
|
|
|
15.36 |
|
|
Associated centers |
|
|
14.32 |
|
|
|
13.85 |
|
|
Community centers |
|
|
16.97 |
|
|
|
16.65 |
|
|
Office buildings |
|
|
19.16 |
|
|
|
17.94 |
|
|
(1) |
Excluded properties are not included. |
|
(2) |
Represents average annual base rents for The Outlet Shoppes at Laredo as of June 30, 2020 and 2019. |
|
(3) |
Average base rents for associated centers, community centers and office buildings include all leased space, regardless of size. |
Results from new and renewal leasing of comparable small shop space of less than 10,000 square feet during the six month period ended June 30, 2020 for spaces that were previously occupied, based on the contractual terms of the related leases inclusive of the impact of any rent concessions, are as follows:
|
Property Type |
|
Square Feet |
|
|
Prior Gross Rent PSF |
|
|
New Initial Gross Rent PSF |
|
|
% Change Initial |
|
|
New Average Gross Rent PSF (1) |
|
|
% Change Average |
|
||||||
|
Quarter: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Property Types (2) |
|
|
77,127 |
|
|
$ |
28.55 |
|
|
$ |
27.00 |
|
|
|
(5.4 |
)% |
|
$ |
28.09 |
|
|
|
(1.6 |
)% |
|
Stabilized Malls |
|
|
51,365 |
|
|
|
32.19 |
|
|
|
30.91 |
|
|
|
(4.0 |
)% |
|
|
32.46 |
|
|
|
0.8 |
% |
|
New leases |
|
|
2,490 |
|
|
|
47.45 |
|
|
|
54.12 |
|
|
|
14.1 |
% |
|
|
57.37 |
|
|
|
20.9 |
% |
|
Renewal leases |
|
|
48,875 |
|
|
|
31.42 |
|
|
|
29.73 |
|
|
|
(5.4 |
)% |
|
|
31.19 |
|
|
|
(0.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Property Types (2) |
|
|
537,651 |
|
|
$ |
28.06 |
|
|
$ |
25.75 |
|
|
|
(8.2 |
)% |
|
$ |
26.22 |
|
|
|
(6.6 |
)% |
|
Stabilized Malls |
|
|
496,089 |
|
|
|
28.21 |
|
|
|
25.93 |
|
|
|
(8.1 |
)% |
|
|
26.41 |
|
|
|
(6.4 |
)% |
|
New leases |
|
|
51,694 |
|
|
|
23.67 |
|
|
|
29.42 |
|
|
|
24.3 |
% |
|
|
30.89 |
|
|
|
30.5 |
% |
|
Renewal leases |
|
|
444,395 |
|
|
|
28.74 |
|
|
|
25.53 |
|
|
|
(11.2 |
)% |
|
|
25.88 |
|
|
|
(10.0 |
)% |
|
(1) |
Average gross rent does not incorporate allowable future increases for recoverable common area expenses. |
|
(2) |
Includes stabilized malls, associated centers, community centers and office buildings. |
New and renewal leasing activity of comparable small shop space of less than 10,000 square feet based on the lease commencement date is as follows:
|
|
|
Number of Leases |
|
|
Square Feet |
|
|
Term (in years) |
|
|
Initial Rent PSF |
|
|
Average Rent PSF |
|
|
Expiring Rent PSF |
|
|
Initial Rent Spread |
|
|
Average Rent Spread |
|
||||||||||||||||
|
Commencement 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New |
|
|
68 |
|
|
|
232,843 |
|
|
|
7.50 |
|
|
$ |
29.33 |
|
|
$ |
30.88 |
|
|
$ |
23.98 |
|
|
$ |
5.35 |
|
|
|
22.3 |
% |
|
$ |
6.90 |
|
|
|
28.8 |
% |
|
Renewal |
|
|
320 |
|
|
|
1,022,993 |
|
|
|
2.64 |
|
|
|
27.58 |
|
|
|
27.81 |
|
|
|
32.03 |
|
|
|
(4.45 |
) |
|
|
(13.9 |
)% |
|
|
(4.22 |
) |
|
|
(13.2 |
)% |
|
Commencement 2020 Total |
|
|
388 |
|
|
|
1,255,836 |
|
|
|
3.49 |
|
|
|
27.90 |
|
|
|
28.38 |
|
|
|
30.66 |
|
|
|
(2.76 |
) |
|
|
(9.0 |
)% |
|
|
(2.28 |
) |
|
|
(7.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commencement 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renewal |
|
|
45 |
|
|
|
158,020 |
|
|
|
3.27 |
|
|
|
34.89 |
|
|
|
35.78 |
|
|
|
34.33 |
|
|
|
0.56 |
|
|
|
1.6 |
% |
|
|
1.45 |
|
|
|
4.2 |
% |
|
Commencement 2021 Total |
|
|
45 |
|
|
|
158,020 |
|
|
|
3.27 |
|
|
|
34.89 |
|
|
|
35.78 |
|
|
|
34.33 |
|
|
|
0.56 |
|
|
|
1.6 |
% |
|
|
1.45 |
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2020/2021 |
|
|
433 |
|
|
|
1,413,856 |
|
|
|
3.47 |
|
|
$ |
28.68 |
|
|
$ |
29.21 |
|
|
$ |
31.07 |
|
|
$ |
(2.39 |
) |
|
|
(7.7 |
)% |
|
$ |
(1.86 |
) |
|
|
(6.0 |
)% |
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2020, we had $275.8 million available in cash and U.S. Treasury securities and we had $675.9 million outstanding on our secured credit facility leaving $4.3 million of availability, after considering outstanding letters of credit of $1.3 million. Our total pro rata share of debt at June 30, 2020 was $4.5 billion.
51
In February 2020, we utilized our secured credit facility to pay off two loans secured by Parkway Place and Valley View Mall totaling $84.5 million. Also, we closed on a new loan secured by The Outlet Shoppes at Atlanta – Phase II in the amount of $4.7 million, with an interest rate of LIBOR plus 2.5% and a maturity date of November 2023. Proceeds were used to retire the $4.4 million existing loan. In March 2020, we drew $280.0 million on our secured line of credit to increase liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic. We purchased $1 54.2 million , including accrued interest, of U.S. Treasury securities with a portion of the borrowings on our secured line of credit .
In response to the COVID-19 pandemic, we implemented comprehensive programs to halt all non-essential expenditures, to reduce operating and overhead expenses and to reduce, defer or suspend capital expenditures, including redevelopment investments. These programs include a temporary 50% reduction to the compensation of our Chairman of the Board, our CEO and our President as well as independent director fees, a temporary 20% reduction to the compensation of our other named executive officers, salary reductions to all staff, a broad-based furlough program and 2020 capital expenditure reductions or deferrals estimated in the range of $60.0 million to $80.0 million. While we have paused several major projects, we are pursuing capital lite solutions for backfilling our remaining available anchors, including joint venture partnerships, favorable lease structures and third-party arrangements – all of which benefit our portfolio while preserving capital. Additionally, we were able to achieve debt service payment deferrals for a portion of our secured loans. Securitized lenders in general have shown minimal flexibility in amending loan payments.
We have addressed nearly all our major debt maturities for 2020 and are in discussions with existing lenders for certain 2021 secured loan maturities. We have no significant unsecured debt maturities until December 2023. We are being proactive to determine the best strategies for addressing these future maturities and significantly reducing leverage.
We have engaged Weil, Gotshal & Manges LLP and Moelis & Company LLC (the “Advisors”) to assist us in exploring several alternatives to reduce overall leverage and interest expense and to extend the maturity of our debt including (i) the senior secured credit facility, which includes a revolving facility with a balance of $675.9 million and a term loan with a balance of $447.5 million as of June 30, 2020, that matures in July 2023 and (ii) the Notes with balances of $450.0 million, $300.0 million, and $625.0 million, as of June 30, 2020, that mature in December 2023, October 2024 and December 2026, respectively, as well as the cumulative unpaid dividends on our preferred stock and the special common units of limited partnership interest in the Operating Partnership. The Advisors commenced discussions in May 2020 with advisors to certain holders of the Notes and the credit committee of the senior secured credit facility. We may pursue a comprehensive capital structure solution that will address our funded indebtedness and outstanding equity interests that may result in the reorganization of the Company.
As discussed in “ Note 8 – Mortgage and Other Indebtedness, Net ” to the condensed consolidated financial statements, we elected to not make the $11.8 million interest payment due and payable on June 1, 2020, with respect to the 5.25% senior unsecured notes due 2023 (the “2023 Notes”) (the “2023 Notes Interest Payment”). We also elected to not make the $18.6 million interest payment due and payable on June 15, 2020, with respect to our 5.95% senior unsecured notes due 2026 (the “2026 Notes”) (the “2026 Notes Interest Payment”). We did not make either the 2023 Notes Interest Payment or the 2026 Notes Interest Payment by the last day of the respective 30-day grace periods that were provided for in the indenture governing the 2023 Notes and the 2026 Notes. Our failure to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment during the applicable grace periods constituted an “event of default” with respect to each of the 2023 Notes and the 2026 Notes. The event of default caused by our failure to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment resulted in a cross default under the secured credit facility. On August 5, 2020, we made the 2023 Notes Interest Payment to the holders of the 2023 Notes and the 2026 Notes Interest Payment to the holders of the 2026 Notes. Accordingly, from and after such payment, the nonpayment of each of the 2023 Notes Interest Payment and the 2026 Notes Interest Payment no longer constitutes (i) an “event of default” under the indenture governing the 2023 Notes and the 2026 Notes that occurred and is continuing or (ii) to the extent provided in the Bank Forbearance Agreement, an “event of default” under the secured credit facility . See the section below titled Financial Covenants and Restrictions for a discussion regarding the violation of certain covenants under our secured credit facility, the 2023 Notes and the 2026 Notes.
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 combination of cash flows generated from our operations, combined with cash on hand and our investment in U.S. Treasury securities will, for the foreseeable future, provide adequate liquidity to meet our cash needs assuming we continue to operate as a going concern within twelve months of the date our condensed consolidated financial statements are issued. In addition to these factors, we have options available to us to generate additional liquidity, including but not limited to, joint venture investments 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.
52
Cash Flows - Operating, Investing and Financing Activities
There was $150.1 million of cash, cash equivalents and restricted cash as of June 30, 2020, an increase of $91.1 million from December 31, 2019. Of this amount, $123.4 million was unrestricted cash and cash equivalents as of June 30, 2020. Also, at June 30, 2020, we had $152.4 million in U.S. Treasuries that are scheduled to mature between April 2021 and June 2021.
Our net cash flows are summarized as follows (in thousands):
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|||
|
Net cash provided by operating activities |
|
$ |
38,370 |
|
|
$ |
126,032 |
|
|
$ |
(87,662 |
) |
|
Net cash provided by (used in) investing activities |
|
|
(191,379 |
) |
|
|
27,104 |
|
|
|
(218,483 |
) |
|
Net cash provided by (used in) financing activities |
|
|
244,079 |
|
|
|
(165,132 |
) |
|
|
409,211 |
|
|
Net cash flows |
|
$ |
91,070 |
|
|
$ |
(11,996 |
) |
|
$ |
103,066 |
|
Cash Provided by Operating Activities
Cash provided by operating activities decreased $87.6 million primarily due to a decline in cash payments of rental revenues from tenants due to the closure of most of our malls in response to government mandates that began in March. Rental revenues also decreased due to store closures and rent concessions for tenants with high occupancy cost levels, including tenants that closed in 2019 and 2020 due to bankruptcy prior to the government mandated closures, as well as a decline in rental revenues related to dispositions.
Cash Provided by (Used in) Investing Activities
Net cash used in investing activities for 2020 was primarily related to the purchase of $153.2 million of U.S. Treasury securities using a portion of the $280.0 million that we drew on our secured line of credit. We also expended $36.4 million on additions to real estate assets, primarily related to redevelopment projects. Net cash provided by investing activities in the prior year period related to $69.2 million of proceeds from dispositions of properties, which was partially offset by $51.1 million of additions to real estate assets.
Cash Provided by (Used in) Financing Activities
The net cash inflow for 2020 is primarily due to the $280.0 million draw on our secured credit facility in order to increase liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic. Additionally, there were no common or preferred stock dividends paid for the six months ended June 30, 2020, as compared to $25.9 million in dividends paid to holders of common stock and $22.4 million in dividends paid to holders of preferred stock during the six months ended June 30, 2019.
Debt
Debt of the Company
CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries, that it has a direct or indirect ownership interest in, is the borrower on all of our debt. CBL is a limited guarantor of the Notes, as described in Note 8 to the condensed consolidated financial statements, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates. We also provide a similar limited guarantee of the Operating Partnership's obligations with respect to our secured credit facility as of June 30, 2020.
53
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):
|
June 30, 2020: |
|
Consolidated |
|
|
Noncontrolling Interests |
|
|
Unconsolidated Affiliates |
|
|
Total |
|
|
Weighted- Average Interest Rate (1) |
|
|||||
|
Fixed-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating Properties (2) |
|
$ |
1,230,227 |
|
|
$ |
(30,377 |
) |
|
$ |
618,902 |
|
|
$ |
1,818,752 |
|
|
|
4.80 |
% |
|
Recourse loans on operating Properties (3) |
|
|
— |
|
|
|
— |
|
|
|
9,360 |
|
|
|
9,360 |
|
|
|
3.74 |
% |
|
Senior unsecured notes due 2023 (4) |
|
|
448,139 |
|
|
|
— |
|
|
|
— |
|
|
|
448,139 |
|
|
|
5.25 |
% |
|
Senior unsecured notes due 2024 (5) |
|
|
299,964 |
|
|
|
— |
|
|
|
— |
|
|
|
299,964 |
|
|
|
4.60 |
% |
|
Senior unsecured notes due 2026 (6) |
|
|
617,911 |
|
|
|
— |
|
|
|
— |
|
|
|
617,911 |
|
|
|
5.95 |
% |
|
Total fixed-rate debt |
|
|
2,596,241 |
|
|
|
(30,377 |
) |
|
|
628,262 |
|
|
|
3,194,126 |
|
|
|
5.07 |
% |
|
Variable-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recourse loans on operating Properties |
|
|
41,500 |
|
|
|
— |
|
|
|
68,936 |
|
|
|
110,436 |
|
|
|
2.68 |
% |
|
Construction loans |
|
|
27,215 |
|
|
|
— |
|
|
|
48,779 |
|
|
|
75,994 |
|
|
|
3.13 |
% |
|
Secured line of credit |
|
|
675,925 |
|
|
|
— |
|
|
|
— |
|
|
|
675,925 |
|
|
|
2.42 |
% |
|
Secured term loan |
|
|
447,500 |
|
|
|
— |
|
|
|
— |
|
|
|
447,500 |
|
|
|
2.42 |
% |
|
Total variable-rate debt |
|
|
1,192,140 |
|
|
|
— |
|
|
|
117,715 |
|
|
|
1,309,855 |
|
|
|
2.49 |
% |
|
Total fixed-rate and variable-rate debt |
|
|
3,788,381 |
|
|
|
(30,377 |
) |
|
|
745,977 |
|
|
|
4,503,981 |
|
|
|
4.32 |
% |
|
Unamortized deferred financing costs |
|
|
(14,347 |
) |
|
|
291 |
|
|
|
(2,769 |
) |
|
|
(16,825 |
) |
|
|
|
|
|
Total mortgage and other indebtedness, net |
|
$ |
3,774,034 |
|
|
$ |
(30,086 |
) |
|
$ |
743,208 |
|
|
$ |
4,487,156 |
|
|
|
|
|
|
December 31, 2019: |
|
Consolidated |
|
|
Noncontrolling Interests |
|
|
Unconsolidated Affiliates |
|
|
Total |
|
|
Weighted- Average Interest Rate (1) |
|
|||||
|
Fixed-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating Properties (2) |
|
$ |
1,330,561 |
|
|
$ |
(30,658 |
) |
|
$ |
623,193 |
|
|
$ |
1,923,096 |
|
|
|
4.88 |
% |
|
Recourse loans on operating Properties (3) |
|
|
— |
|
|
|
— |
|
|
|
10,050 |
|
|
|
10,050 |
|
|
|
3.74 |
% |
|
Senior unsecured notes due 2023 (4) |
|
|
447,894 |
|
|
|
— |
|
|
|
— |
|
|
|
447,894 |
|
|
|
5.25 |
% |
|
Senior unsecured notes due 2024 (5) |
|
|
299,960 |
|
|
|
— |
|
|
|
— |
|
|
|
299,960 |
|
|
|
4.60 |
% |
|
Senior unsecured notes due 2026 (6) |
|
|
617,473 |
|
|
|
— |
|
|
|
— |
|
|
|
617,473 |
|
|
|
5.95 |
% |
|
Total fixed-rate debt |
|
|
2,695,888 |
|
|
|
(30,658 |
) |
|
|
633,243 |
|
|
|
3,298,473 |
|
|
|
5.10 |
% |
|
Variable-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recourse loans on operating Properties |
|
|
41,950 |
|
|
|
— |
|
|
|
69,046 |
|
|
|
110,996 |
|
|
|
4.13 |
% |
|
Construction loans |
|
|
29,400 |
|
|
|
— |
|
|
|
35,362 |
|
|
|
64,762 |
|
|
|
4.45 |
% |
|
Secured line of credit |
|
|
310,925 |
|
|
|
— |
|
|
|
— |
|
|
|
310,925 |
|
|
|
3.94 |
% |
|
Secured term loan |
|
|
465,000 |
|
|
|
— |
|
|
|
— |
|
|
|
465,000 |
|
|
|
3.94 |
% |
|
Total variable-rate debt |
|
|
847,275 |
|
|
|
— |
|
|
|
104,408 |
|
|
|
951,683 |
|
|
|
4.00 |
% |
|
Total fixed-rate and variable-rate debt |
|
|
3,543,163 |
|
|
|
(30,658 |
) |
|
|
737,651 |
|
|
|
4,250,156 |
|
|
|
4.86 |
% |
|
Unamortized deferred financing costs |
|
|
(16,148 |
) |
|
|
318 |
|
|
|
(2,851 |
) |
|
|
(18,681 |
) |
|
|
|
|
|
Total mortgage and other indebtedness, net |
|
$ |
3,527,015 |
|
|
$ |
(30,340 |
) |
|
$ |
734,800 |
|
|
$ |
4,231,475 |
|
|
|
|
|
|
(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 outstanding of $43,199 as of June 30, 2020 and $43,623 as of December 31, 2019 related to a variable-rate loan on Ambassador Town Center to effectively fix the interest rate on this loan to a fixed-rate of 3.22%. |
|
(3) |
The unconsolidated affiliate has an interest rate swap on a notional amount outstanding of $9,360 as of June 30, 2020 and $10,050 as of December 31, 2019 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%. |
|
(4) |
The balance is net of an unamortized discount of $1,861 and $2,106 as of June 30, 2020 and December 31, 2019, respectively. |
|
(5) |
The balance is net of an unamortized discount of $36 and $40 as of June 30, 2020 and December 31, 2019, respectively. |
|
(6) |
The balance is net of an unamortized discount of $7,090 and $7,527 as of June 30, 2020 and December 31, 2019, respectively. |
54
The weighted-average remaining term of our total share of consolidated and unconsolidated debt was 3. 4 years and 3.9 years at June 30 , 2020 and December 31, 201 9 , respectively. The weighted-average remaining term of our pro rata share of fixed-rate debt was 3. 6 and 4. 1 years at June 30 , 2020 and December 31, 201 9 , respectively.
As of June 30, 2020 and December 31, 2019, our pro rata share of consolidated and unconsolidated variable-rate debt represented 29.2% and 22.5%, respectively, of our total pro rata share of debt.
See Note 7 to the condensed consolidated financial statements for information concerning activity related to unconsolidated affiliates.
Credit Ratings
During the quarter ended June 30, 2020, Fitch Ratings, Moody’s Investors Service and S&P Global Ratings terminated their coverage of the Operating Partnership's unsecured long-term indebtedness.
Senior Unsecured Notes
The following presents the Company's compliance with key covenant ratios, as defined, of the Notes and the senior secured credit facility as of June 30, 2020:
|
Debt Covenant Compliance Ratios (1) |
|
Required |
|
Actual |
|
|
|
Total debt to total assets |
|
< 60% |
|
|
56 |
% |
|
Secured debt to total assets |
|
< 40% |
|
|
36 |
% |
|
Total unencumbered assets to unsecured debt |
|
> 150% |
|
|
191 |
% |
|
Consolidated income available for debt service to annual debt service charge |
|
> 1.5x |
|
|
2.4 |
x |
|
Minimum debt yield on outstanding balance (2) |
|
> 10% |
|
|
11.1 |
% |
|
(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) The minimum debt yield on outstanding balance debt covenant compliance ratio only applies to the secured credit facility. If the minimum debt yield on outstanding balance is 11.0% or below, then the lender will initiate a cash trap where all cash flow of the properties that secure the credit facility will be held in escrow and may also be used for debt service. If subsequently the minimum debt yield on outstanding balance is greater than 11.0% for two consecutive quarters, then all amounts are released from escrow and returned to the borrower.
Management projects that the Company will maintain compliance with the above covenants through June 30, 2021. Uncertainty in the current economic environment due to the COVID-19 pandemic may significantly impact the judgments regarding estimates and assumptions utilized by management in preparing its projections of future cash flows, which were made using the best information available to management at the time. Actual results could differ materially from management’s projections.
Financial Covenants and Restrictions
As discussed in “ Note 8 – Mortgage and Other Indebtedness, Net ” to the condensed consolidated financial statements, we elected not to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment. The Operating Partnership did not make either the 2023 Notes Interest Payment or the 2026 Notes Interest Payment by the last day of the respective 30-day grace periods provided for in the indenture governing the 2023 Notes and the 2026 Notes. The Operating Partnership’s failure to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment during the applicable grace periods constituted an “event of default” with respect to each of the 2023 Notes and the 2026 Notes. We entered into forbearance agreements, as amended, with certain beneficial owners and/or investment advisors or managers of discretionary funds, accounts or other entities for the holders or beneficial owners (the “Holders”) of in excess of 50% of the aggregate principal amount of each of the 2023 Notes and the 2026 Notes. Pursuant to the forbearance agreements, among other provisions, the Holders of the 2023 Notes and the 2026 Notes agreed to forbear from exercising any rights and remedies under the indenture governing the 2023 Notes and the 2026 Notes solely with respect to the respective defaults from the nonpayment of the 2023 Notes Interest Payment and the 2026 Notes Interest Payment. The event of default caused by the Operating Partnership’s failure to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment resulted in a cross default under the secured credit facility. We entered into a forbearance agreement, as amended, (the “Bank Forbearance Agreement”) with the administrative agent for the lenders under the secured credit facility pursuant to which, among other provisions, the administrative agent, on behalf of itself and the lenders, agreed to forbear from exercising any rights and remedies under the secured credit facility agreement solely with respect to the specified defaults (as defined in the Bank Forbearance Agreement), including the cross-default resulting from the failure to pay the 2023 Notes Interest Payment or the 2026 Notes Interest Payment.
55
On August 5, 2020, prior to the expiration of the forbearance periods in the forbearance agreements with the Holders of the 2023 Notes and the 2026 Notes and the Bank Forbearance Agreement, we made the 2023 Notes Interest Payment to the holders of the 2023 Notes and the 2026 Notes Interest Payment to the holders of the 2026 Notes. Accordingly, from and after such payment, the nonpayment of each of the 2023 Notes Interest Payment and the 2026 Notes Interest Payment no longer constitutes (i) an “event of default” under the indenture governing the 2023 Notes and the 2026 Notes that occurred and is continuing or (ii) to the extent provided in the Bank Forbearance Agreement, an “event of default” under the secured credit facility.
On each of May 26, 2020, June 2, 2020, June 16, 2020 and August 6, 2020, we received notices of default and reservation of rights letters from the administrative agent under our secured credit facility asserting that certain defaults and events of default have occurred and continue to exist by reason of our failure to comply with certain restrictive covenants, including the liquidity covenant, in the secured credit facility and resulting from the failure to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment prior to the expiration of the applicable grace periods. In addition, on August 6, 2020, we received a notice of imposition of base rate and post-default rate letter from the administrative agent under the secured credit facility, which (i) informed us that following an asserted event of default on March 19, 2020, all outstanding loans were converted to base rate loans at the expiration of the applicable interest periods and (ii) seeks payment of approximately $4.8 million related thereto for April through June 2020. The base rate is defined as the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) the LIBOR Market Index Rate plus 1.0%, plus 1.25%. The base rate on July 1, 2020 was 4.50%. The administrative agent also informed us that from and after August 6, 2020, interest will accrue on all outstanding obligations at the post-default , which is equal to the rate that otherwise would be in effect plus 5.0%. The post-default rate at the time of notification was 9.50% . We disagree with the assertions made by the administrative agent as to the imposition of the base rate and post-default rate interest and related matters, and intend to vigorously defend any such claims. As of the date of this report, the lenders under the secured credit facility have not accelerated the outstanding amount due and payable on the loans or commenced foreclosure proceedings, but they may seek to exercise one or more of these remedies in the future. In addition, as a result of the events of default asserted by the administrative agent in such letters, the administrative agent may deny our request for future LIBOR interest periods, which would result in an increase in annual interest expense of approximately $23.1 million based on the base rate and $78.6 million based on the post-default rate . We have commenced discussions with the administrative agent on behalf of the lenders with respect to these assertions; however, there can be no assurance that we will agree upon a favorable resolution with respect to such claims. Failure to reach a consensual resolution of these claims or to complete a refinancing or other restructuring could have a material adverse effect on our liquidity, financial condition and results of operations, which may result in filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring plan.
Given the impact of the COVID-19 pandemic on the retail and broader markets, the ongoing weakness of the credit markets and significant uncertainties associated with each of these matters, we believe that there is substantial doubt that we will continue to operate as a going concern within one year after the date our condensed consolidated financial statements for the six months ended June 30, 2020 are issued. See Note 1 – Organization and Basis of Presentation to the condensed consolidated financial statements for additional information.
Unencumbered Consolidated Portfolio Statistics
(Dollars in thousands, except sales per square foot data)
|
|
|
Sales Per Square Foot for the Twelve Months Ended (1) (2) |
|
|
Occupancy (2) |
|
|
% of Consolidated Unencumbered NOI for the Six Months Ended |
|
|
|
|
|||||||||
|
|
|
6/30/20 |
(3) |
6/30/19 |
|
|
6/30/20 |
|
|
6/30/19 |
|
|
6/30/20 |
|
|
(4 |
) |
||||
|
Unencumbered consolidated Properties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Malls |
|
|
|
$ |
375 |
|
|
|
88.8 |
% |
|
|
83.1 |
% |
|
|
19.2 |
% |
|
(5 |
) |
|
Tier 2 Malls |
|
|
|
|
337 |
|
|
|
80.7 |
% |
|
|
86.2 |
% |
|
|
34.5 |
% |
|
|
|
|
Tier 3 Malls |
|
|
|
|
278 |
|
|
|
82.6 |
% |
|
|
86.5 |
% |
|
|
23.9 |
% |
|
|
|
|
Total Malls |
|
N/A |
|
|
320 |
|
|
|
82.9 |
% |
|
|
85.8 |
% |
|
|
77.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Associated Centers |
|
N/A |
|
N/A |
|
|
|
90.9 |
% |
|
|
96.1 |
% |
|
|
16.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Community Centers |
|
N/A |
|
N/A |
|
|
|
98.8 |
% |
|
|
99.4 |
% |
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Office Buildings & Other |
|
N/A |
|
N/A |
|
|
|
100.0 |
% |
|
|
86.7 |
% |
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unencumbered Consolidated Portfolio |
|
N/A |
|
$ |
320 |
|
|
|
86.3 |
% |
|
|
89.8 |
% |
|
|
100.0 |
% |
|
|
|
56
|
(1) |
Represents same-center sales per square foot for mall tenants 10,000 square feet or less for stabilized malls. |
|
(2) |
Operating metrics are included for unencumbered operating properties and do not include sales or occupancy of unencumbered parcels. |
|
(3) |
Due to temporary mall and store closures that occurred during the second quarter 2020, the majority of CBL’s tenants did not report sales for the full reporting period. As a result, CBL is not able to provide a complete measure of sales per square foot for the quarter or trailing twelve months. |
|
( 4 ) |
Our consolidated unencumbered properties generated approximately 34.7% of total consolidated NOI of $176,749,047 (which excludes NOI related to dispositions) for the six months ended June 30, 2020. |
|
( 5 ) |
NOI is derived from unencumbered portions of Tier One properties that are otherwise secured by a loan. The unencumbered portions include outparcels, anchors and former anchors that have been redeveloped. |
Equity
In 2019, 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. The dividend arrearage created by our board of directors’ decision to suspend the dividends that continue to accrue on our outstanding preferred stock currently makes us ineligible to use the abbreviated, and less costly, SEC Form S-3 registration statement to register our securities for sale. This means we will be required to use a registration statement on Form S-1 to register additional securities for sale with the SEC, which we expect to hinder our ability to act quickly in relation to, and raise our costs incurred in, future capital raising activities. This preferred dividend arrearage (and the Operating Partnership’s related arrearage in 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 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.
See Listing Criteria in Note 1 to the condensed consolidated financial statements for additional information regarding a notice we received from the NYSE regarding our non-compliance with the NYSE Listing Standards and our plans to address this non-compliance.
As a publicly traded company, and as a subsidiary of a publicly traded company, we previously have accessed capital through both the public equity and debt markets. We have a shelf registration statement on Form S-3 on file with the SEC that previously authorized us to publicly issue unspecified amounts of 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, as a result of both (i) the fact that the Company no longer qualifies as a well-known seasoned issuer under SEC rules and (ii) our loss of eligibility to use Form S-3 to register offers and sales of securities as described above, we are unable to use this shelf registration statement.
Additionally, while we had previously suspended quarterly dividend payments on our common stock during 2019, a very small amount of monthly “cash option” investments in shares continued into May 2020, pursuant to the terms of the Company’s dividend reinvestment plan (“DRIP”). Due in part to impacts on the Company’s operations and staffing resulting from ongoing efforts to address the COVID-19 pandemic, we inadvertently failed to suspend the operation of these “cash option” investments during the months of March, April and May 2020, after we lost the ability to use the Form S-3 registration statement for the DRIP, effective with the filing of our Annual Report on Form 10-K in March, due to the dividend arrearage with respect to our preferred stock. We have now fully suspended the operation of our DRIP, including the cash option feature but, as a result of this oversight, we issued a total of 6,134 shares of common stock that were not registered under the Securities Act of 1933, as amended (the “Securities Act”) for aggregate consideration of $1,346.94 prior to such suspension. The purchasers of these shares, issued pursuant to our DRIP when we were not eligible to issue shares on Form S-3, could bring claims against us for rescission and other damages under federal or state securities laws.
57
Market Capitalization
Our total-market capitalization as of June 30, 2020 was as follows (in thousands, except stock prices):
|
|
|
Shares Outstanding |
|
|
Stock Price (1) |
|
||
|
Common stock and operating partnership units |
|
|
201,691 |
|
|
$ |
0.27 |
|
|
7.375% Series D Cumulative Redeemable Preferred Stock |
|
|
1,815 |
|
|
|
250.00 |
|
|
6.625% Series E Cumulative Redeemable Preferred Stock |
|
|
690 |
|
|
|
250.00 |
|
|
(1) |
Stock price for common stock and Operating Partnership units equals the closing price of CBL's common stock on June 30, 2020. The stock prices for the preferred stock represent the liquidation preference of each respective series of preferred stock. |
Capital Expenditures
Deferred maintenance expenditures are generally included in the determination of CAM expense that is billed to tenants in accordance with their lease agreements. These expenditures are generally 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, redevelopments and expansions, summarizes these capital expenditures, including our share of unconsolidated affiliates' capital expenditures, for the three and six month periods ended June 30, 2020 compared to the same periods in 2019 (in thousands):
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Tenant allowances (1) |
|
$ |
1,360 |
|
|
$ |
8,796 |
|
|
$ |
8,578 |
|
|
$ |
11,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred maintenance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parking area and parking area lighting |
|
|
15 |
|
|
|
126 |
|
|
|
270 |
|
|
|
214 |
|
|
Roof repairs and replacements |
|
|
1,748 |
|
|
|
2,612 |
|
|
|
1,899 |
|
|
|
2,674 |
|
|
Other capital expenditures |
|
|
645 |
|
|
|
5,898 |
|
|
|
3,841 |
|
|
|
9,484 |
|
|
Total deferred maintenance |
|
|
2,408 |
|
|
|
8,636 |
|
|
|
6,010 |
|
|
|
12,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized overhead |
|
|
100 |
|
|
|
425 |
|
|
|
731 |
|
|
|
1,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest |
|
|
366 |
|
|
|
619 |
|
|
|
1,092 |
|
|
|
1,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
4,234 |
|
|
$ |
18,476 |
|
|
$ |
16,411 |
|
|
$ |
25,976 |
|
|
(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. As noted above, in response to the impact from COVID-19 we have deferred or suspended capital expenditures, including redevelopment expenditures, in the range of $60.0 million to $80.0 million. We believe that property operating cash flows, which include reimbursements from tenants for certain expenses, and readily available cash on hand will provide the necessary funding for these expenditures.
Developments, Expansions and Redevelopments
The following tables summarize our development, expansion and redevelopment projects as of June 30, 2020.
58
Properties Opened During the Six Months Ended June 30, 2020
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
CBL's Share of |
|
|
|
|
|
|
|
|||||||||
|
Property |
|
Location |
|
CBL Ownership Interest |
|
|
Total Project Square Feet |
|
|
Total Cost (1) |
|
|
Cost to Date (2) |
|
|
2019 Cost |
|
|
Opening Date |
|
Initial Unleveraged Yield |
|
||||||
|
Outparcel Development: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fremaux Town Center - Old Navy |
|
Slidell, LA |
|
90% |
|
|
|
12,467 |
|
|
$ |
1,919 |
|
|
$ |
1,553 |
|
|
$ |
100 |
|
|
May-20 |
|
|
9.2 |
% |
|
|
Parkdale Mall - Self-storage (3)(4) |
|
Beaumont, TX |
|
50% |
|
|
|
69,341 |
|
|
|
4,435 |
|
|
|
3,543 |
|
|
|
1,039 |
|
|
Apr-20 |
|
|
10.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Outparcel Development Completed |
|
|
|
|
|
|
|
|
81,808 |
|
|
$ |
6,354 |
|
|
$ |
5,096 |
|
|
$ |
1,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 expected yield upon stabilization. |
|
(4) |
Total cost includes an allocated value for the Company’s land contribution. |
Redevelopments Completed During the Six Months Ended June 30, 2020
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
CBL's Share of |
|
|
|
|
|
|
|
|||||||||
|
Property |
|
Location |
|
CBL Ownership Interest |
|
|
Total Project Square Feet |
|
|
Total Cost (1) |
|
|
Cost to Date (2) |
|
|
2020 Cost |
|
|
Opening Date |
|
Initial Unleveraged Yield |
|
||||||
|
Mall Redevelopments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CherryVale Mall - Sears Redevelopment (Tilt) |
|
Rockford, IL |
|
100% |
|
|
|
114,118 |
|
|
$ |
3,508 |
|
|
$ |
2,981 |
|
|
$ |
78 |
|
|
Jun-20 |
|
|
8.3 |
% |
|
|
Dakota Square Mall - Herbergers Redevelopment (Ross/shops) |
|
Minot, ND |
|
100% |
|
|
|
30,096 |
|
|
|
6,410 |
|
|
|
4,537 |
|
|
|
188 |
|
|
Jan-20 |
|
|
7.2 |
% |
|
|
Hamilton Place - Sears Redevelopment (Cheesecake Factory/Dicks Sporting Goods/Dave & Buster's/Office) (3) |
|
Chattanooga, TN |
|
100% |
|
|
|
195,166 |
|
|
|
38,715 |
|
|
|
28,327 |
|
|
|
2,471 |
|
|
Mar-20 |
|
|
7.8 |
% |
|
|
Mall del Norte - Forever 21 Redevelopment (Main Event) |
|
Laredo, TX |
|
100% |
|
|
|
81,242 |
|
|
|
10,514 |
|
|
|
6,674 |
|
|
|
1,016 |
|
|
Sep-19/Feb-20 |
|
|
9.3 |
% |
|
|
The Promenade - (Five Below/Carter's) |
|
D'Iberville, MS |
|
100% |
|
|
|
14,007 |
|
|
|
2,832 |
|
|
|
2,263 |
|
|
|
251 |
|
|
Feb-20/Apr-20 |
|
|
11.4 |
% |
|
|
Total Redevelopments Completed |
|
|
|
|
|
|
|
|
434,629 |
|
|
$ |
61,979 |
|
|
$ |
44,782 |
|
|
$ |
4,004 |
|
|
|
|
|
|
|
|
(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 building in 2017. |
59
Properties Under D evelopment at June 30 , 2020
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
CBL's Share of |
|
|
|
|
|
|
|
|||||||||
|
Property |
|
Location |
|
CBL Ownership Interest |
|
|
Total Project Square Feet |
|
|
Total Cost (1) |
|
|
Cost to Date (2) |
|
|
2020 Cost |
|
|
Expected Opening Date (3) |
|
Initial Unleveraged Yield |
|
||||||
|
Outparcel Developments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hamilton Place - Self Storage (4)(5) |
|
Chattanooga, TN |
|
60% |
|
|
|
68,875 |
|
|
$ |
5,824 |
|
|
$ |
3,639 |
|
|
$ |
2,520 |
|
|
Q3 '20 |
|
|
8.7 |
% |
|
|
Hamilton Place Development - Aloft Hotel (5) |
|
Chattanooga, TN |
|
50% |
|
|
|
89,674 |
|
|
|
12,000 |
|
|
|
4,742 |
|
|
|
4,099 |
|
|
Q1 '21 |
|
|
9.2 |
% |
|
|
Mayfaire Town Center - First Watch |
|
Wilmington, NC |
|
100% |
|
|
|
6,300 |
|
|
|
2,267 |
|
|
|
1,437 |
|
|
|
1,071 |
|
|
Q3 '20 |
|
|
10.1 |
% |
|
|
Pearland Town Center - HCA Offices |
|
Pearland, TX |
|
100% |
|
|
|
48,416 |
|
|
|
14,186 |
|
|
|
3,148 |
|
|
|
2,291 |
|
|
Q1 '21 |
|
|
11.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
213,265 |
|
|
$ |
34,277 |
|
|
$ |
12,966 |
|
|
$ |
9,981 |
|
|
|
|
|
|
|
|
Mall Redevelopments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coastal Grand - Dick's Sporting Goods/Golf Galaxy |
|
Myrtle Beach, SC |
|
50% |
|
|
|
132,727 |
|
|
$ |
7,050 |
|
|
$ |
4,452 |
|
|
$ |
3,386 |
|
|
Q3 '20 |
|
|
11.6 |
% |
|
|
Westmoreland Mall - JC Penney Redevelopment (Chipotle) |
|
Greensburg, PA |
|
100% |
|
|
|
2,300 |
|
|
|
1,017 |
|
|
|
1,085 |
|
|
|
840 |
|
|
Q3 '20 |
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
135,027 |
|
|
$ |
8,067 |
|
|
$ |
5,537 |
|
|
$ |
4,226 |
|
|
|
|
|
|
|
|
Total Properties Under Development |
|
|
|
|
|
|
|
|
348,292 |
|
|
$ |
42,344 |
|
|
$ |
18,503 |
|
|
$ |
14,207 |
|
|
|
|
|
|
|
|
(1) |
Total Cost is presented net of reimbursements to be received. |
|
(2) |
Cost to Date does not reflect reimbursements until they are received. |
|
(3) |
As a result of government mandated construction halts due to the COVID-19 pandemic, opening dates may change from what is currently reflected. |
|
( 4 ) |
Yield is based on expected yield once project stabilizes. |
|
(5) |
Total cost includes an allocated value for the Company’s land contribution. |
Off-Balance Sheet Arrangements
Unconsolidated Affiliates
We have ownership interests in 28 unconsolidated affiliates as of June 30, 2020 that are described in Note 7 to the condensed consolidated financial statements. The unconsolidated affiliates are accounted for using the equity method of accounting and are reflected in the condensed consolidated balance sheets as investments in unconsolidated affiliates.
The following are circumstances when we may consider entering into a joint venture with a third party:
|
|
• |
Third parties may approach us with opportunities in which they have obtained land and performed some pre-development activities, but they may not have sufficient access to the capital resources or the development and leasing expertise to bring the project to fruition. We enter into such arrangements when we determine such a project is viable and we can achieve a satisfactory return on our investment. We typically earn development fees from the joint venture and provide management and leasing services to the property for a fee once the property is placed in operation. |
|
|
• |
We determine that we may have the opportunity to capitalize on the value we have created in a property by selling an interest in the property to a third party. This provides us with an additional source of capital that can be used to develop or acquire additional real estate assets that we believe will provide greater potential for growth. When we retain an interest in an asset rather than selling a 100% interest, it is typically because this allows us to continue to manage the property, which provides us the ability to earn fees for management, leasing, development and financing services provided to the joint venture. |
Guarantees
We may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on our investment in the joint venture. We may receive a fee from the joint venture for providing the guaranty. Additionally, when we issue a guaranty, the terms of the joint venture agreement typically provide that we may receive indemnification from the joint venture or have the ability to increase our ownership interest.
See Note 12 to the condensed consolidated statements for information related to our guarantees of unconsolidated affiliates' debt as of June 30, 2020 and December 31, 2019.
60
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements and disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex judgment about the effect of matters that are inherently uncertain and that may change in subsequent periods. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our Annual Report on Form 10-K, as amended, for the year ended December 31, 2019 contains a discussion of our critical accounting policies and estimates in the Management's Discussion and Analysis of Financial Condition and Results of Operations section. Uncertainty in the current economic environment due to the effects of the COVID-19 pandemic has and may continue to significantly impact management’s judgments regarding estimates and assumptions. In addition to the critical accounting policies and estimates discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K, as amended, we are adding the following due to significant changes in judgements related to the COVID-19 pandemic.
Revenue Recognition and Accounts Receivable
Receivables include amounts billed and currently due from tenants pursuant to lease agreements and receivables attributable to straight-line rents associated with those lease agreements. Individual leases where the collection of rents is in dispute are assessed for collectability based on management’s best estimate of collection considering the anticipated outcome of the dispute. Individual leases that are not in dispute are assessed for collectability and upon the determination that the collection of rents over the remaining lease term is not probable, accounts receivable are reduced as an adjustment to rental revenues. Revenue from leases where collection is deemed to be less than probable is recorded on a cash basis until collectability is determined to be probable. Further, management assesses whether operating lease receivables, at a portfolio level, are appropriately valued based upon an analysis of balances outstanding, historical collection levels and current economic trends. An allowance for the uncollectible portion of the portfolio is recorded as an adjustment to rental revenues. Management’s estimate of the collectability of accounts receivable from tenants is based on the best information available to management at the time of evaluation.
We review current economic considerations each reporting period, including the effects of tenant bankruptcies. Additionally, with the uncertainties regarding COVID-19, our assessment also took into consideration the type of tenant and current discussions with the tenants, as well as recent rent collection experience. Evaluating and estimating uncollectible lease payments and related receivables requires a significant amount of judgment by management and is based on the best information available to management at the time of evaluation. For the three and six months ended June 30, 2020, we reduced rental revenue by $36.9 million and $40.7 million, respectively, due to lease-related reserves and write-offs, which includes $1.1 million and $2.6 million, respectively, for straight-line rent receivables. Actual results could differ from these estimates and such differences could be material to our consolidated financial statements.
Lease Modifications
In April 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance related to lease concessions provided as a result of COVID-19. Under existing lease guidance, we would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A clarifies that entities may elect to not evaluate whether lease-related relief that lessors provide to mitigate the economic effects of COVID-19 on lessees is a lease modification under Topic 842, Leases . Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 is a modification can then elect whether to apply the modification guidance (i.e. assume the relief was always contemplated by the contract or assume the relief was not contemplated by the contract). Both lessees and lessors may make this election.
We have elected to apply the relief provided under the Lease Modification Q&A and will avail ourselves of the election to avoid performing a lease by lease analysis for the lease concessions that were (1) granted as relief due to the COVID-19 pandemic and (2) result in the cash flows remaining substantially the same or less than the original contract. The Lease Modification Q&A had a material impact on our consolidated financial statements as of and for the three and six months ended June 30, 2020. However, its future impact to us is dependent upon the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by us at the time of entering such concessions.
61
The Lease Modification Q&A allows us to determine accounting policy elections at a disaggregated level, and the elections should be applied consistently by either the type of concession, underlying asset class or on another reasonable basis . As a result, we have made the following policy elections based on the type of concession agreed to with the respective tenant.
Rent Deferrals
The Company will account for rental deferrals using the receivables model as described within the Lease Modification Q&A. Under the receivables model, the Company will continue to recognize lease revenue in a manner that is unchanged from the original lease agreement and continue to recognize lease receivables and rental revenue during deferral period.
Rent Abatements
The Company will account for rental abatements using the negative variable income model as described within the Lease Modification Q&A. Under the negative variable income model, the Company will recognize negative variable rent for the current period reduction of rental revenue associated with any lease concessions we provide.
At June 30, 2020, our receivables include $9.1 million related to receivables that have been deferred and are to be repaid over periods generally starting in late 2020 and extending for some portion of 2021. We granted abatements of $1.8 million for the three and six months ended June 30, 2020. As of early August 2020, we estimate that we will defer $15.5 million of rents that were billed for April, May and June 2020 based on agreements that have been executed or are in active negotiation. We continue to assess rent relief requests from our tenants but are unable to predict the resolution or impact of these discussions.
Recent Accounting Pronouncements
See Note 2 to the condensed consolidated financial statements for information on recently issued accounting pronouncements.
Impact of Inflation and Deflation
Deflation can result in a decline in general price levels, often caused by a decrease in the supply of money or credit. The predominant effects of deflation are high unemployment, credit contraction and weakened consumer demand. Restricted lending practices could impact our ability to obtain financings or refinancings for our properties and our tenants’ ability to obtain credit. Decreases in consumer demand can have a direct impact on our tenants and the rents we receive.
During inflationary periods, substantially all of our tenant leases contain provisions designed to mitigate the impact of inflation. These provisions include clauses enabling us to receive percentage rent based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases are for terms of less than 10 years, which may provide us the opportunity to replace existing leases with new leases at higher base and/or percentage rent if rents of the existing leases are below the then existing market rate. Most of the leases require the tenants to pay a fixed amount, subject to annual increases, for their share of operating expenses, including 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. NAREIT defines FFO as net income (loss) (computed in accordance with GAAP) excluding gains or losses on sales of depreciable operating properties and impairment losses of depreciable properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests. Adjustments for unconsolidated partnerships, joint ventures and noncontrolling interests are calculated on the same basis. We define FFO as defined above by NAREIT less dividends on preferred stock of the Company or distributions on preferred units of the Operating Partnership, as applicable. Our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
We believe that FFO provides an additional indicator of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assumes the value of real estate assets declines predictably over time. Since values of real estate assets have historically risen or fallen with market conditions, we believe that FFO, which excludes historical cost depreciation and amortization, enhances investors’ understanding of our operating performance.
62
The use of FFO as an indicator of financial performance is influenced not only by the operations of our properties and interest rates, but also by our capital structure.
We present both FFO allocable to Operating Partnership common unitholders and FFO allocable to common shareholders, as we believe that both are useful performance measures. We believe FFO allocable to Operating Partnership common unitholders is a useful performance measure since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in our Operating Partnership. We believe FFO allocable to common shareholders is a useful performance measure because it is the performance measure that is most directly comparable to net income (loss) attributable to common shareholders.
In our reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders that is presented below, we make an adjustment to add back noncontrolling interest in income (loss) of our Operating Partnership in order to arrive at FFO of the Operating Partnership common unitholders. We then apply a percentage to FFO of the Operating Partnership common unitholders to arrive at FFO allocable to common shareholders. The percentage is computed by taking the weighted-average number of common shares outstanding for the period and dividing it by the sum of the weighted-average number of common shares and the weighted-average number of Operating Partnership units held by noncontrolling interests during the period.
FFO does not represent cash flows from operations as defined by GAAP, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to net income (loss) for purposes of evaluating our operating performance or to cash flow as a measure of liquidity.
The Company believes that it is important to identify the impact of certain significant items on its FFO measures for a reader to have a complete understanding of the Company’s results of operations. Therefore, the Company has also presented adjusted FFO measures excluding these significant items from the applicable periods. Please refer to the reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders below for a description of these adjustments.
FFO of the Operating Partnership declined to $(5.2) million for the three months ended June 30, 2020 from $68.5 million for the prior-year period and declined to $45.8 million for the six months ended June 30, 2020 from $112.6 million for the prior-year period. Excluding the adjustments noted below, FFO of the Operating Partnership, as adjusted, declined to $4.9 million for the three months ended June 30, 2020 from $68.5 million for the same period in 2019, and declined to $56.5 million for the six months ended June 30, 2020 from $129.1 million for the same period in 2019. The decreases in FFO, as adjusted, for the three- and six- month periods were primarily driven by lower property-level NOI, which includes the estimate for uncollectable rental revenues and rent abatements due to the mandated property closures a result of the COVID-19 pandemic. The reduction in rental revenues was partially offset by the program we put in place to eliminate all non-essential expenditures and the company-wide furlough and salary reduction program.
63
The reconciliation of net loss attributable to common shareholders to FFO allocable to Operating Partnership common unitholders is as follows (in thousands, except per share data):
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Net loss attributable to common shareholders |
|
$ |
(81,452 |
) |
|
$ |
(35,400 |
) |
|
$ |
(215,348 |
) |
|
$ |
(85,599 |
) |
|
Noncontrolling interest in income (loss) of Operating Partnership |
|
|
(2,077 |
) |
|
|
(5,454 |
) |
|
|
(18,491 |
) |
|
|
(13,212 |
) |
|
Depreciation and amortization expense of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Properties |
|
|
52,663 |
|
|
|
64,478 |
|
|
|
108,565 |
|
|
|
134,270 |
|
|
Unconsolidated affiliates |
|
|
14,020 |
|
|
|
11,462 |
|
|
|
27,530 |
|
|
|
22,128 |
|
|
Non-real estate assets |
|
|
(812 |
) |
|
|
(902 |
) |
|
|
(1,729 |
) |
|
|
(1,799 |
) |
|
Noncontrolling interests' share of depreciation and amortization |
|
|
(788 |
) |
|
|
(2,648 |
) |
|
|
(1,711 |
) |
|
|
(4,805 |
) |
|
Loss on impairment |
|
|
13,274 |
|
|
|
41,608 |
|
|
|
146,918 |
|
|
|
66,433 |
|
|
(Gain) loss on depreciable property |
|
|
— |
|
|
|
(4,599 |
) |
|
|
25 |
|
|
|
(4,841 |
) |
|
FFO allocable to Operating Partnership common unitholders |
|
|
(5,172 |
) |
|
|
68,545 |
|
|
|
45,759 |
|
|
|
112,575 |
|
|
Debt restructuring expenses (1) |
|
|
7,857 |
|
|
|
— |
|
|
|
7,857 |
|
|
|
— |
|
|
Litigation settlement, net of taxes (2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
87,667 |
|
|
Non-cash default interest expense (3) |
|
|
2,203 |
|
|
|
— |
|
|
|
2,893 |
|
|
|
542 |
|
|
Gain on extinguishment of debt (4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(71,722 |
) |
|
FFO allocable to Operating Partnership common unitholders, as adjusted |
|
$ |
4,888 |
|
|
$ |
68,545 |
|
|
$ |
56,509 |
|
|
$ |
129,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO per diluted share |
|
$ |
(0.03 |
) |
|
$ |
0.34 |
|
|
$ |
0.23 |
|
|
$ |
0.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO, as adjusted, per diluted share |
|
$ |
0.02 |
|
|
$ |
0.34 |
|
|
$ |
0.28 |
|
|
$ |
0.64 |
|
|
(1) |
Represents professional fees related to the Company's negotiations with the administrative agent and lenders under the secured credit facility and certain holders of the Company's senior unsecured notes regarding a restructure of such indebtedness. |
|
(2) |
The six months ended June 30, 2019 is comprised of the accrued maximum expense of $88.2 million related to the proposed settlement of a class action lawsuit. |
|
( 3 ) |
The six months ended June 30, 2020 includes default interest expense related to Greenbrier Mall, Hickory Point Mall, Eastgate Mall, Asheville Mall, Burnsville Center and Park Plaza Mall. The six months ended June 30, 2019 includes default interest expense related to Acadiana Mall and Cary Towne Center. |
|
( 4 ) |
The six months ended June 30, 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 reconciliation of diluted EPS to FFO per diluted share is as follows:
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Diluted EPS attributable to common shareholders |
|
$ |
(0.42 |
) |
|
$ |
(0.20 |
) |
|
$ |
(1.16 |
) |
|
$ |
(0.49 |
) |
|
Eliminate amounts per share excluded from FFO: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense, including amounts from consolidated Properties, unconsolidated affiliates, non-real estate assets and excluding amounts allocated to noncontrolling interests |
|
|
0.32 |
|
|
|
0.36 |
|
|
|
0.66 |
|
|
|
0.75 |
|
|
Loss on impairment |
|
|
0.07 |
|
|
|
0.20 |
|
|
|
0.73 |
|
|
|
0.32 |
|
|
Gain on depreciable property |
|
|
— |
|
|
|
(0.02 |
) |
|
|
— |
|
|
|
(0.02 |
) |
|
FFO per diluted share |
|
$ |
(0.03 |
) |
|
$ |
0.34 |
|
|
$ |
0.23 |
|
|
$ |
0.56 |
|
64
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):
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
FFO of the Operating Partnership |
|
$ |
(5,172 |
) |
|
$ |
68,545 |
|
|
$ |
45,759 |
|
|
$ |
112,575 |
|
|
Percentage allocable to common shareholders (1) |
|
|
95.17 |
% |
|
|
86.64 |
% |
|
|
92.09 |
% |
|
|
86.63 |
% |
|
FFO allocable to common shareholders |
|
$ |
(4,922 |
) |
|
$ |
59,387 |
|
|
$ |
42,139 |
|
|
$ |
97,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO allocable to Operating Partnership common unitholders, as adjusted |
|
$ |
4,888 |
|
|
$ |
68,545 |
|
|
$ |
56,509 |
|
|
$ |
129,062 |
|
|
Percentage allocable to common shareholders (1) |
|
|
95.17 |
% |
|
|
86.64 |
% |
|
|
92.09 |
% |
|
|
86.63 |
% |
|
FFO allocable to common shareholders, as adjusted |
|
$ |
4,652 |
|
|
$ |
59,387 |
|
|
$ |
52,039 |
|
|
$ |
111,806 |
|
|
(1) |
Represents the weighted-average number of common shares outstanding for the period divided by the sum of the weighted-average number of common shares and the weighted-average number of Operating Partnership units outstanding during the period. |
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
We are exposed to 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.
Interest Rate Risk
Based on our proportionate share of consolidated and unconsolidated variable-rate debt at June 30, 2020, a 0.5% increase or decrease in interest rates on variable-rate debt would decrease or increase annual cash flows by approximately $6.6 million and increase or decrease annual interest expense, after the effect of capitalized interest, by approximately $6.5 million.
Based on our proportionate share of total consolidated and unconsolidated debt at June 30, 2020, a 0.5% increase in interest rates would decrease the fair value of debt by approximately $28.4 million, while a 0.5% decrease in interest rates would increase the fair value of debt by approximately $36.1 million.
ITEM 4: Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, an evaluation was performed under the supervision of our Chief Executive Officer and Chief Financial Officer and with the participation of our management, of the effectiveness of the design and operation of the Company's and the Operating Partnership's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. The Company’s and the Operating Partnership’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and to ensure that information we are required to disclose is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's and the Operating Partnership's disclosure controls and procedures were not effective as a result of the material weakness described below.
Material Weakness in Internal Control over Financial Reporting
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s and the Operating Partnership’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of June 30, 2020, management of the Company and the Operating Partnership determined that there was a control deficiency that constituted a material weakness, as described below.
As a result of recent turnover, the Company and the Operating Partnership did not maintain a sufficient complement of personnel commensurate with their accounting and financial reporting requirements in accordance with U.S. GAAP and SEC regulations.
The control deficiency described above created a reasonable possibility that a material misstatement of the annual or interim financial statements would not be prevented or detected on a timely basis and therefore we concluded that the
65
deficiency represents a material weakness in the Company’s and the Operating Partnership’s internal control over financial reporting and that the Company and the Operating Partnership did not maintain effective internal control over financial reporting as of June 30, 2020 based on criteria established in Internal Control-Integrated Framework issued by COSO.
Notwithstanding the identified material weakness, management believes that the Condensed Consolidated Financial Statements and related financial information included in this Form 10-Q fairly present, in all material respects, our balance sheets, statements of operations, comprehensive loss and cash flows as of and for the periods presented.
Remediation Plan
The Company and the Operating Partnership plan to remediate this material weakness by hiring additional personnel to enable them to meet their financial reporting requirements. The Company and the Operating Partnership may also utilize outside advisors to assist on a short-term basis.
Changes in Internal Control over Financial Reporting
We have continued to address the effects of the COVID-19 pandemic on our control structure, including modifications to business modeling, forecasting and estimations, lease modifications, and accounts receivable collectability, as well as for the consequences of reductions in headcount and remote working arrangements. We are continually monitoring and assessing the COVID-19 pandemic’s effect on our internal control processes in order to minimize the impact to their design and operating effectiveness. There were no other changes in the Company’s or the Operating Partnership’s internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
66
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
Litigation
As previously disclosed, 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. Pursuant to the settlement agreement the Company 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. The class members were 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 valid claim pursuant to the Court's order will receive payment of their claims in cash. Class members who are current tenants began receiving monthly credits against rents and future charges during the three months ended June 30, 2020 and will continue 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 class counsel (up to a maximum of $27.0 million), any incentive award to the class representative (up to a maximum of $50 thousand), and class administration costs (which are expected to not exceed $100 thousand), 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. During the three-month periods ended September 30, 2019 and December 31, 2019, 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. Additionally, the Company reduced the accrued liability during the three months ended December 31, 2019 by $23.1 million related to attorney and administrative fees that were paid pursuant to the settlement agreement. During the three months and six months ended June 30, 2020, the Company reduced the accrued liability by $3.3 million, which was related to monthly credits against rents and other charges for current tenants. The Company also received document requests in the third quarter of 2019, 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 were 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. Those cases were consolidated on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Securities Litigation , 1:19-cv-00149-JRG-CHS.
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 nine 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
67
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”); 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”) ; and on April 14, 2020, a shareholder filed a putative derivative complaint captioned Hebig v. Lebovitz, et al., 1:19-cv-00149-JRG-CHS , in the United States District Court for the Eastern District of Tennessee (the “ Hebig 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 expects the Chatman, Kurup, Kemmer , and Hebig 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.
ITEM 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risks that could materially affect our business, financial condition or results of operations that are discussed under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2019. The risk factor set forth below updates, and should be read together with, such risk factors. Moreover, risk factors set forth in the Annual Report on Form 10-K, as amended, for the year ended December 31, 2019 could be heightened as a result of the impact of the COVID-19 pandemic.
The current pandemic of the novel coronavirus, or COVID-19 has, and could continue to, materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance, as could any future outbreak of another highly infectious or contagious disease.
Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.
The COVID-19 pandemic has had, and may continue to have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many - including the United States - have reacted by instituting quarantines, mandating business and school closures and restricting travel.
68
Certain states and cities, including where we own properties and where our corporate headquarters is located, have also reacted by instituting quarantines, restrictions on travel, “shelter - in - place” rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. The Company cannot predict if additional states and cities will implement similar restrictions or when restrictions currently in place will be lifted . As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including the retail industr y in which the Company and our tenants operate.
A majority of our tenants have implemented temporary closures and/or shortened the operating hours of their stores and requested rent deferral or rent abatement during this pandemic or have failed to pay rent. In addition, state, local or industry-initiated efforts, such as tenant rent freezes, or governmental or court-imposed delays in the processing of landlord initiated commercial eviction and collection actions in various jurisdictions in light of the COVID-19 pandemic, may also affect our ability to collect rent or enforce remedies for the failure to pay rent. We believe our tenants do not have a contractual right to cease paying rent due to government-mandated closures and, subject to negotiated resolutions of rent deferral requests that we may enter into with certain tenants, we intend to enforce our rights under our lease agreements. However, COVID-19 and the related governmental orders present fairly novel situations for which the ultimate legal outcome cannot be assured, and it is possible future governmental action could impact our rights under the lease agreements. The extent of tenant requests and actions, and the resulting impact to the Company’s results of operations and cash flows, is uncertain and cannot be predicted.
The COVID-19 pandemic, or a future pandemic, could also have further material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:
|
|
• |
a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant action; |
|
|
• |
the reduced economic activity severely impacts our tenants' businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations; |
|
|
• |
the reduced economic activity, as well as any lasting reduction in consumer activity at brick-and-mortar commercial establishments due to changed habits in response to the prolonged existence and threat of the COVID-19 pandemic, could result in a prolonged recession and could negatively impact consumer discretionary spending; |
|
|
• |
difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis and our tenants' ability to fund their business operations and meet their obligations to us; |
|
|
• |
permitting, inspections and reviews by jurisdictional planning commissions and authorities is also likely to be delayed or postponed which could materially impact the timeline and budgets for completing redevelopments; |
|
|
• |
projects in our redevelopment pipeline may not be pursued or may be completed later or with higher costs than anticipated, potentially causing a loss that exceeds our investment in the project; |
|
|
• |
the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our credit facility, indentures and other recourse and non-recourse debt agreements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to make additional borrowings under our revolving credit facility and pay dividends; |
|
|
• |
any impairment in value of our tangible assets and intangible lease assets that could be recorded as a result of weaker economic conditions; |
|
|
• |
a deterioration in our or our tenants' ability to operate in affected areas or delays in the supply of products or services to us or our tenants from vendors that are needed for our or our tenants' efficient operations could adversely affect our operations and those of our tenants; |
|
|
• |
the ability to renew leases or re-lease vacant spaces on favorable terms, or at all; and |
|
|
• |
the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption. |
The extent to which the COVID-19 pandemic impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Additional closures by our tenants of their stores and early terminations by our tenants of their leases could further reduce our cash flows, which could impact our ability to resume paying dividends to our stockholders at any point in the future.
The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. The COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance.
69
We have determined that there is substantial doubt about o u r ability to continue as a going concern.
In accordance with the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim reporting period, management evaluates whether there are conditions or events that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In making its assessment, management considered the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows and conditional and unconditional obligations due over the next twelve months.
The Operating Partnership received notices of default and reservation of rights letters from the administrative agent under the secured credit facility asserting that certain defaults and events of default have occurred and continue to exist as of June 30, 2020 by reason of the Operating Partnership’s failure to comply with certain restrictive covenants, including the liquidity covenant, in the secured credit facility. As of the date of this report, the lenders under the secured credit facility have not accelerated the outstanding amount due and payable on the loans or commenced foreclosure proceedings, but they may seek to exercise one or more of these remedies in the future.
Management has engaged Weil, Gotshal & Manges LLP and Moelis & Company LLC (the “Advisors”) to assist the Company in exploring several alternatives to reduce overall leverage and interest expense and to extend the maturity of its debt including (i) the senior secured credit facility, which includes a revolving facility with a balance of $675.9 million and term loan with a balance of $447.5 million as of June 30, 2020, that matures in July 2023 and (ii) the Notes with balances of $450.0 million, $300.0 million, and $625.0 million, as of June 30, 2020, that mature in December 2023, October 2024 and December 2026, respectively, as well as the cumulative unpaid dividends on the Company’s preferred stock and the special common units of limited partnership interest in the Operating Partnership. The Advisors commenced discussions in May 2020 with advisors to certain holders of the Notes and the credit committee of the senior secured credit facility. Management may pursue a comprehensive capital structure solution that will address the Company’s funded indebtedness and outstanding equity interests that may result in the reorganization of the Company.
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the condensed consolidated financial statements do not reflect any adjustments related to the recoverability of assets and satisfaction of liabilities that might be necessary should the Company be unable to continue as a going concern. Given the impact of the COVID-19 pandemic on the retail and broader markets, the ongoing weakness of the credit markets, and the Operating Partnership’s default of certain restrictive covenants, the Company believes that there is substantial doubt that it will continue to operate as a going concern within one year after the date these condensed consolidated financial statements are issued.
We identified a material weakness in internal control over financial reporting. We may not remediate this material weakness on a timely basis or may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal control over financial reporting, which may result in material misstatements of our financial statements or cause us to fail to meet our reporting obligations. As a result, stockholders could lose confidence in our financial and other public reporting, which would then be likely to negatively affect our business and the market price of our securities.
A material weakness in internal control over financial reporting was identified as of June 30, 2020. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. See Part I, Item 4 above for further details. We are planning to remediate the material weakness by hiring additional personnel to enable the Company and the Operating Partnership to meet their financial reporting requirements, and we may utilize outside advisors to assist on a short-term basis. These remediation measures may be time consuming and costly, and might place significant demands on our financial, accounting and operational resources. In addition, there is no assurance that we will be successful in hiring the necessary personnel in a timely manner, or at all.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and is important in helping to prevent mistakes in our financial statements and financial fraud. Any failure to implement required new or improved controls, or difficulties encountered in our implementation to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting, or identification of any additional material weaknesses that may exist, may adversely affect the accuracy and timing of our financial reporting, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, we may be unable to prevent fraud, investors may lose confidence in our financial reporting, and the price of our securities may decline as a result.
Any testing conducted by us, or any testing conducted by our independent registered public accounting firm, may reveal additional deficiencies in our internal control over financial reporting that are deemed to be new material weaknesses
70
or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. In addition, our reporting obligations as a public company could place a significant strain on our management, operational and financial resources and systems for the foreseeable future and may cause us to fail to timely achieve and maintain the adequacy of its internal control over financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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 and procedures may deteriorate. Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. 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. There is no assurance that the measures we are currently undertaking or may take in the future will be sufficient to maintain effective internal controls or to avoid potential future deficiencies in internal control, including material weaknesses.
Our common stock could be delisted from the NYSE if we fail to meet applicable continued listing requirements, which could have materially adverse effects on our business.
On February 5, 2020, we received notice from the New York Stock Exchange ("NYSE") that our common stock is no longer in compliance with NYSE continued listing criteria set forth in Section 802.01C of the Listed Company Manual of the NYSE, which require listed companies to maintain an average closing share price of at least $1.00 over a period of 30 consecutive trading days. We have until October 14, 2020, inclusive of extensions of the cure period provided by the NYSE in response to the COVID-19 pandemic, to regain compliance with the continued listing criteria. During this period, we expect our common stock to continue to trade on the NYSE, subject to the additional considerations discussed below, which will allow for flexibility in addressing this matter. On May 7, 2020, our shareholders voted to approve an amendment to our Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split at a ratio between 1-for-5 and 1-for-25, and a proportionate reduction in the number of authorized shares of common stock, to be determined at the discretion of the board of directors for the purpose of complying with NYSE Listing Standards, subject to the board of directors’ discretion to abandon this amendment. Our board of directors has not yet taken action to effect the reverse stock split. We intend to actively evaluate and monitor the price of our common stock between now and October 2020.
Our common stock could also be delisted if (i) our average market capitalization over a consecutive 30 trading-day period is less than $15 million, or (ii ) our commo n stoc k trade s a t a n “abnormall y low ” price . I n eithe r case , our commo n stoc k woul d b e suspende d fro m tradin g o n th e NYSE immediately , an d th e NYS E woul d begi n th e proces s t o delis t our commo n stock , subjec t t o our righ t t o appea l unde r NYS E rules . I f thi s wer e to occur , ther e i s n o assuranc e tha t an y appea l we undertak e i n thes e o r othe r circumstance s woul d b e successful , no r i s ther e an y assuranc e tha t we will continue to comply with the other NYSE continued listing standards. However, effective on March 20, 2020, the SEC granted the NYSE temporary relief until June 30, 2020 regarding the $15 million 30 trading day average minimum market cap threshold standard.
The threat of delisting and/or a delisting of our common stock could have adverse effects by, among other things:
|
|
• |
Reducing the liquidity and market price of our common stock; |
|
|
|
• |
reducing the number of investors willing to hold or acquire our common stock, thereby further restricting our ability to obtain equity financing; |
|
|
|
• |
causing an event of default or noncompliance under certain of our debt facilities and other agreements; and |
|
|
|
• |
reducing our ability to retain, attract and motivate our directors, officers and employees. |
|
As a result of the cumulative, unpaid dividends on our preferred stock we are no longer eligible to register the offer and sale of securities on SEC Form S-3, which will impair our capital raising activities and could result in the Company being required to repurchase a limited number of shares sold under our DRIP.
We are no longer eligible to use SEC Form S-3 to register offers and sales of our securities under the Securities Act, as a result of the existing dividend arrearage on our preferred stock, which will continue to accumulate following our board of directors’ decision in December 2019 to suspend such dividends. Historically, we have relied on shelf registration statements on Form S-3 for our public capital raising transactions, and also to register the offer and sale of shares of common stock under our DRIP. Our inability to use Form S-3 may harm our ability to raise capital in the future, as we will be required to use a registration statement on Form S-1 to register securities with the SEC, which may be expected to hinder our ability to act quickly in raising capital to take advantage of market conditions and to increase our cost of raising capital. Further, we inadvertently failed to suspend small monthly “cash option” investments in common stock under our DRIP during the months of March, April and May 2020, and as a result of this oversight, we issued a total of 6,134 shares of common stock that were not registered under the Securities Act for aggregate consideration of $1,346.94. The purchasers of these shares, issued pursuant to our DRIP when we were not eligible to issue shares on Form S-3, could bring claims against us for rescission and other damages under federal or state securities laws
71
ITEM 2: Unregistered Sales of Equ ity Securities and Use of Proceeds
Cash Option Investments Under DRIP Plan
While we had previously suspended quarterly dividend payments on our common stock during 2019, a very small amount of monthly “cash option” investments in shares continued pursuant to the terms of the Company’s DRIP. Due in part to impacts on the Company’s operations and staffing resulting from ongoing efforts to address the COVID-19 pandemic, we inadvertently failed to suspend the operation of these “cash option” investments during the months of March, April and May 2020, after we lost the ability to use the Form S-3 registration statement for the DRIP due to the existing dividend arrearage with respect to our preferred stock. We have now fully suspended the operation of our DRIP, including the cash option feature but, as a result of this oversight, we issued a total of 6,134 shares of common stock that were not registered under the Securities Act for aggregate consideration of $1,346.94 prior to such suspension. The purchasers of these shares, issued pursuant to our DRIP when we were not eligible to issue shares on Form S-3, could bring claims against us for rescission and other damages under federal or state securities laws.
Limitations on Payment of Dividends
See information presented under the heading “Equity” in the “Liquidity and Capital Resources” section of Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in PART I of this report for a discussion of current limitations on the payment of dividends by the Company.
ITEM 3: Defaults Upon Senior Securities
Defaults on Indebtedness
See information presented in Note 8 – Mortgage and Other Indebtedness, Net in the financial statements included in PART I of this report under the heading “Senior Unsecured Notes” for a discussion of certain defaults with respect to the Company’s senior unsecured notes and senior secured credit facility related to certain interest payments on the senior unsecured notes, and additional information presented under the heading “Financial Covenants and Restrictions” for a discussion of additional asserted defaults with respect to the Company’s senior secured credit facility.
Preferred Dividend and Special Common Unit Distribution Arrearages
Dividends on the Series D and the Series E preferred stock are cumulative and therefore will continue to accrue at an annual rate of $18.4375 per share and $16.5625 per share, respectively. As of June 30, 2020, the cumulative amount of unpaid dividends on the preferred stock totaled $33.7 million.
Distributions on the Series K and S special common units are cumulative and therefore will continue to accrue at an annual rate of $2.96875 per unit, $3.0288 per unit and $2.92875 per unit, respectively. Distributions on the Series L special common units were cumulative through and accrued at an annual rate of $3.0288 per unit. Pursuant to the terms of the Series L special common units, on June 1, 2020 the Series L special common units began receiving distributions at the same rate and on the same terms as the common units of limited partnership interest in the Operating Partnership. As of June 30, 2020, the cumulative amount of unpaid distributions on the special common units totaled $6.8 million.
ITEM 4: Mine Safety Disclosures
Not applicable.
ITEM 5: Other Information
None.
72
ITEM 6: Exhibits
INDEX TO EXHIBITS
|
Exhibit Number |
|
Description |
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
73
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
101.INS |
|
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. (Filed herewith.) |
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. (Filed herewith.) |
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.) |
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.) |
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.) |
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.) |
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*). (Filed herewith.) |
|
* |
Commission File No. 1-12494 and 333-182515-01. |
74
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
CBL & ASSOCIATES PROPERTIES, INC. |
|
|
|
/s/ Farzana Khaleel |
|
|
|
Farzana Khaleel |
|
Executive Vice President - |
|
Chief Financial Officer and Treasurer |
|
(Authorized Officer and Principal Financial Officer) |
|
|
|
CBL & ASSOCIATES LIMITED PARTNERSHIP |
|
|
|
By: CBL HOLDINGS I, INC., its general partner |
|
|
|
/s/ Farzana Khaleel |
|
|
|
Farzana Khaleel |
|
Executive Vice President - |
|
Chief Financial Officer and Treasurer |
|
(Authorized Officer and Principal Financial Officer) |
Date: August 17, 2020
75
Exhibit 31.1
CERTIFICATION
I, Stephen D. Lebovitz, certify that:
|
|
(1) |
I have reviewed this quarterly report on Form 10-Q of CBL & Associates Properties, Inc.; |
|
|
(2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
(3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
(4) |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
|
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
|
(5) |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 17, 2020
|
/s/ Stephen D. Lebovitz |
|
|
|
Stephen D. Lebovitz, Director and |
|
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Farzana Khaleel, certify that:
|
|
(1) |
I have reviewed this quarterly report on Form 10-Q of CBL & Associates Properties, Inc.; |
|
|
(2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
(3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
(4) |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
|
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
|
(5) |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 17, 2020
|
/s/ Farzana Khaleel |
|
|
|
Farzana Khaleel, Executive Vice President - |
|
Chief Financial Officer and Treasurer |
Exhibit 31.3
CERTIFICATION
I, Stephen D. Lebovitz, certify that:
|
|
(1) |
I have reviewed this quarterly report on Form 10-Q of CBL & Associates Limited Partnership; |
|
|
(2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
(3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
(4) |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
|
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
|
(5) |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 17, 2020
Exhibit 31.4
CERTIFICATION
I, Farzana Khaleel, certify that:
|
|
(1) |
I have reviewed this quarterly report on Form 10-Q of CBL & Associates Limited Partnership; |
|
|
(2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
(3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
(4) |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
|
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
|
(5) |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 17, 2020
|
/s/ Farzana Khaleel |
|
|
|
Farzana Khaleel, Executive Vice President - |
|
Chief Financial Officer and Treasurer of |
|
CBL Holdings I, Inc., |
|
the sole general partner of |
|
CBL & Associates Limited Partnership |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CBL & ASSOCIATES PROPERTIES, INC. (the “Company”) on Form 10‑Q for the three months ending June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen D. Lebovitz, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350 (as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002), that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CBL & ASSOCIATES PROPERTIES, INC. (the “Company”) on Form 10‑Q for the three months ending June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Farzana Khaleel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350 (as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002), that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Farzana Khaleel |
|
|
|
|
|
Farzana Khaleel, Executive Vice President - |
|
|
Chief Financial Officer and Treasurer |
|
|
|
|
|
August 17, 2020 |
|
|
|
|
|
Date |
|
Exhibit 32.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CBL & ASSOCIATES LIMITED PARTNERSHIP (the “Operating Partnership”) on Form 10-Q for the three months ending June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen D. Lebovitz, Chief Executive Officer of CBL Holdings I, Inc., the sole general partner of the Operating Partnership, certify, pursuant to 18 U.S.C. § 1350 (as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002), that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.
Exhibit 32.4
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CBL & ASSOCIATES LIMITED PARTNERSHIP (the “Operating Partnership”) on Form 10-Q for the three months ending June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Farzana Khaleel, Chief Financial Officer of CBL Holdings I, Inc., the sole general partner of the Operating Partnership, certify, pursuant to 18 U.S.C. § 1350 (as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002), that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.
Exhibit 99.1
The Combined Guarantor Subsidiaries of
CBL & Associates Limited Partnership
Table of Contents
|
|
||
|
|
Condensed Combined Balance Sheets as of June 30, 2020 and December 31, 2019 |
1 |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
Condensed Combined Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 |
4 |
|
|
|
|
|
|
5 |
|
The Combined Guarantor Subsidiaries of
CBL & Associates Limited Partnership
Condensed Combined Balance Sheets
(In thousands)
(Unaudited)
|
|
|
|
|
|||||
|
ASSETS |
|
June 30, 2020 |
|
|
December 31, 2019 |
|
||
|
Real estate assets: |
|
|
|
|
|
|
|
|
|
Land |
|
$ |
230,654 |
|
|
$ |
229,423 |
|
|
Buildings and improvements |
|
|
2,168,418 |
|
|
|
2,160,628 |
|
|
|
|
|
2,399,072 |
|
|
|
2,390,051 |
|
|
Accumulated depreciation |
|
|
( 935,836 |
) |
|
|
( 899,500 |
) |
|
|
|
|
1,463,236 |
|
|
|
1,490,551 |
|
|
Developments in progress |
|
|
11,620 |
|
|
|
14,503 |
|
|
Net investment in real estate assets |
|
|
1,474,856 |
|
|
|
1,505,054 |
|
|
Cash and cash equivalents |
|
|
3,525 |
|
|
|
6,456 |
|
|
Receivables: |
|
|
|
|
|
|
|
|
|
Tenant |
|
|
50,888 |
|
|
|
30,374 |
|
|
Other |
|
|
2,133 |
|
|
|
1,496 |
|
|
Mortgage and other notes receivable |
|
|
73,786 |
|
|
|
75,016 |
|
|
Intangible lease assets and other assets |
|
|
37,023 |
|
|
|
38,717 |
|
|
|
|
$ |
1,642,211 |
|
|
$ |
1,657,113 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND OWNERS' EQUITY |
|
|
|
|
|
|
|
|
|
Mortgage notes payable, net |
|
$ |
247,635 |
|
|
$ |
249,879 |
|
|
Accounts payable and accrued liabilities |
|
|
40,968 |
|
|
|
50,663 |
|
|
Total liabilities |
|
|
288,603 |
|
|
|
300,542 |
|
|
Commitments and contingencies ( Note 6 and Note 10 ) |
|
|
|
|
|
|
|
|
|
Owners' equity |
|
|
1,353,608 |
|
|
|
1,356,571 |
|
|
|
|
$ |
1,642,211 |
|
|
$ |
1,657,113 |
|
The accompanying notes are an integral part of these condensed combined statements.
1
The Combined Guarantor Subsidiaries of
CBL & Associates Limited Partnership
Condensed Combined Statements of Operations
(In thousands)
(Unaudited)
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues |
|
$ |
46,849 |
|
|
$ |
67,316 |
|
|
$ |
110,680 |
|
|
$ |
138,588 |
|
|
Other |
|
|
1,134 |
|
|
|
1,552 |
|
|
|
2,730 |
|
|
|
3,271 |
|
|
Total revenues |
|
|
47,983 |
|
|
|
68,868 |
|
|
|
113,410 |
|
|
|
141,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating |
|
|
( 7,033 |
) |
|
|
( 10,342 |
) |
|
|
( 17,806 |
) |
|
|
( 21,550 |
) |
|
Depreciation and amortization |
|
|
( 21,437 |
) |
|
|
( 22,717 |
) |
|
|
( 43,301 |
) |
|
|
( 46,818 |
) |
|
Real estate taxes |
|
|
( 6,379 |
) |
|
|
( 5,994 |
) |
|
|
( 12,981 |
) |
|
|
( 12,795 |
) |
|
Maintenance and repairs |
|
|
( 2,345 |
) |
|
|
( 4,085 |
) |
|
|
( 6,966 |
) |
|
|
( 8,841 |
) |
|
Loss on impairment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( 22,770 |
) |
|
Other |
|
|
— |
|
|
|
( 627 |
) |
|
|
— |
|
|
|
( 627 |
) |
|
Total operating expenses |
|
|
( 37,194 |
) |
|
|
( 43,765 |
) |
|
|
( 81,054 |
) |
|
|
( 113,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
|
|
952 |
|
|
|
1,084 |
|
|
|
1,992 |
|
|
|
2,027 |
|
|
Interest expense |
|
|
( 4,334 |
) |
|
|
( 3,412 |
) |
|
|
( 8,106 |
) |
|
|
( 7,397 |
) |
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
61,796 |
|
|
Gain on sales of real estate assets |
|
|
650 |
|
|
|
— |
|
|
|
650 |
|
|
|
— |
|
|
Total other income (expenses) |
|
|
( 2,732 |
) |
|
|
( 2,328 |
) |
|
|
( 5,464 |
) |
|
|
56,426 |
|
|
Net income |
|
$ |
8,057 |
|
|
$ |
22,775 |
|
|
$ |
26,892 |
|
|
$ |
84,884 |
|
The accompanying notes are an integral part of these condensed combined statements.
2
The Combined Guarantor Subsidiaries of
CBL & Associates Limited Partnership
Condensed Combined Statements of Owners' Equity
(In thousands)
(Unaudited)
|
Balance, January 1, 2019 |
|
$ |
1,404,623 |
|
|
Net income |
|
|
62,109 |
|
|
Contributions |
|
|
17,363 |
|
|
Distributions |
|
|
( 41,658 |
) |
|
Noncash distributions |
|
|
( 8,835 |
) |
|
Balance, March 31, 2019 |
|
$ |
1,433,602 |
|
|
Net income |
|
|
22,775 |
|
|
Contributions |
|
|
16,558 |
|
|
Distributions |
|
|
( 54,312 |
) |
|
Noncash distributions |
|
|
( 2,620 |
) |
|
Balance, June 30, 2019 |
|
$ |
1,416,003 |
|
|
|
|
|
|
|
|
Balance, January 1, 2020 |
|
$ |
1,356,571 |
|
|
Net income |
|
|
18,835 |
|
|
Contributions |
|
|
32,814 |
|
|
Distributions |
|
|
( 56,868 |
) |
|
Balance, March 31, 2020 |
|
$ |
1,351,352 |
|
|
Net income |
|
|
8,057 |
|
|
Contributions |
|
|
18,100 |
|
|
Distributions |
|
|
( 23,901 |
) |
|
Balance, June 30, 2020 |
|
$ |
1,353,608 |
|
The accompanying notes are an integral part of these condensed combined statements.
3
The Combined Guarantor Subsidiaries of
CBL & Associates Limited Partnership
Condensed Combined Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
26,892 |
|
|
$ |
84,884 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
43,301 |
|
|
|
46,818 |
|
|
Net amortization of deferred financing costs, debt premiums and discounts |
|
|
35 |
|
|
|
124 |
|
|
Net amortization of intangible lease assets and liabilities |
|
|
( 404 |
) |
|
|
( 983 |
) |
|
Gain on sales of real estate assets |
|
|
( 650 |
) |
|
|
— |
|
|
Gain on insurance proceeds |
|
|
— |
|
|
|
( 9 |
) |
|
Write-off of development projects |
|
|
132 |
|
|
|
— |
|
|
Loss on impairment |
|
|
— |
|
|
|
22,770 |
|
|
Gain on extinguishment of debt |
|
|
— |
|
|
|
( 61,796 |
) |
|
Change in estimate of uncollectable rental revenues |
|
|
18,273 |
|
|
|
1,168 |
|
|
Changes in: |
|
|
|
|
|
|
|
|
|
Tenant and other receivables |
|
|
( 39,424 |
) |
|
|
116 |
|
|
Other assets |
|
|
( 318 |
) |
|
|
( 703 |
) |
|
Accounts payable and accrued liabilities |
|
|
( 8,167 |
) |
|
|
( 8,423 |
) |
|
Net cash provided by operating activities |
|
|
39,670 |
|
|
|
83,966 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Additions to real estate assets |
|
|
( 11,338 |
) |
|
|
( 14,280 |
) |
|
Proceeds from sales of real estate assets |
|
|
650 |
|
|
|
— |
|
|
Proceeds from insurance |
|
|
— |
|
|
|
653 |
|
|
Payments received on mortgage and other notes receivable |
|
|
— |
|
|
|
177 |
|
|
Changes in other assets |
|
|
( 394 |
) |
|
|
( 329 |
) |
|
Net cash used in investing activities |
|
|
( 11,082 |
) |
|
|
( 13,779 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Principal payments on mortgage notes payable |
|
|
( 2,279 |
) |
|
|
( 8,916 |
) |
|
Distributions to owners |
|
|
( 80,769 |
) |
|
|
( 95,970 |
) |
|
Contributions from owners |
|
|
50,914 |
|
|
|
33,921 |
|
|
Net cash used in financing activities |
|
|
( 32,134 |
) |
|
|
( 70,965 |
) |
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
( 3,546 |
) |
|
|
( 778 |
) |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period |
|
|
10,590 |
|
|
|
13,020 |
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period |
|
$ |
7,044 |
|
|
$ |
12,242 |
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation from condensed combined statements of cash flows to condensed combined balance sheets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,525 |
|
|
$ |
8,808 |
|
|
Restricted cash (1): |
|
|
|
|
|
|
|
|
|
Mortgage escrows |
|
|
3,519 |
|
|
|
3,434 |
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period |
|
$ |
7,044 |
|
|
$ |
12,242 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized |
|
$ |
5,822 |
|
|
$ |
6,751 |
|
|
(1) |
Included in intangible lease assets and other assets in the condensed combined balance sheets. |
The accompanying notes are an integral part of these condensed combined statements.
4
The Combined Guarantor Subsidiaries of
CBL & Associates Limited Partnership
Notes to Unaudited Condensed Combined Financial Statements
(Dollars in thousands)
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 and office properties. Its properties are located in 26 states, but are primarily in the southeastern and midwestern United States.
CBL conducts substantially all of its business through CBL & Associates Limited Partnership (the “Operating Partnership”), which is a variable interest entity ("VIE"). 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.
In January 2019, the Operating Partnership entered into a new $1,185,000 senior secured credit facility which replaced all of the Operating Partnership’s prior unsecured bank facilities. 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 four 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”. In addition to the secured credit facility, the Operating Partnership’s debt includes three separate series of senior unsecured notes (the “Notes”). Based on the terms of the Notes, 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 a guarantee agreement with the issuer of the Notes to satisfy the guaranty requirement. The guarantees related to the secured credit facility and the Notes expire upon maturity of the secured credit facility and repayment of the debt under the secured credit facility. The Combined Guarantor Subsidiaries maximum guarantee related to the secured credit facility is $1,185,000 as of June 30, 2020, and the maximum guarantee related to the Notes is $1,375,000 as of June 30, 2020.
The percentage of actual Guarantor Properties that are pledged as collateral on the secured credit facility in relation to the Combined Guarantor Subsidiaries is shown in the table below:
|
|
|
As of June 30, 2020 |
|
|
For the three months ended June 30, 2020 |
|
|
For the six months ended June 30, 2020 |
|
|||||||||||||||
|
|
|
Assets |
|
|
Liabilities |
|
|
Revenue |
|
|
Net income |
|
|
Revenue |
|
|
Net income |
|
||||||
|
Guarantor Properties pledged as collateral on the secured credit facility |
|
$ |
1,314,801 |
|
|
$ |
31,098 |
|
|
$ |
37,955 |
|
|
$ |
8,202 |
|
|
$ |
89,173 |
|
|
$ |
23,604 |
|
|
Combined Guarantor Subsidiaries |
|
$ |
1,642,211 |
|
|
$ |
288,603 |
|
|
$ |
47,983 |
|
|
$ |
8,057 |
|
|
$ |
113,410 |
|
|
$ |
26,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor Properties pledged as collateral on the secured credit facility as % of Combined Guarantor Subsidiaries |
|
|
80.1 |
% |
|
|
10.8 |
% |
|
|
79.1 |
% |
|
|
101.8 |
% |
|
|
78.6 |
% |
|
|
87.8 |
% |
5
The Combined Guarantor Subsidiaries and Guarantor Properties consist of the following:
|
Combined Guarantor Subsidiaries |
|
Guarantor Properties |
|
Location |
|
CW Joint Venture, LLC (1) Arbor Place Limited Partnership Multi-GP Holdings, LLC |
|
Arbor Place (2) Greenbrier Mall (2) Park Plaza (2) Shoppes at St. Claire Square (2) St. Claire Square (2) |
|
Douglasville, GA Chesapeake, VA Little Rock, AR Fairview Heights, IL Fairview Heights, IL |
|
CBL/Westmoreland, L.P. CBL/Westmoreland I, LLC CBL/Westmoreland II, LLC CW Joint Venture, LLC Arbor Place Limited Partnership Multi-GP Holdings, LLC |
|
Westmoreland Mall Westmoreland Crossing |
|
Greensburg, PA Greensburg, PA |
|
Cherryvale Mall, LLC |
|
CherryVale Mall |
|
Rockford, IL |
|
Madison/East Towne, LLC Madison Joint Venture, LLC CBL/Madison I, LLC |
|
East Towne Mall |
|
Madison, WI |
|
Frontier Mall Associates Limited Partnership Mortgage Holdings LLC (3) |
|
Frontier Mall |
|
Cheyenne, WY |
|
JG Winston-Salem, LLC |
|
Hanes Mall |
|
Winston-Salem, NC |
|
Imperial Valley Mall II, L.P. Imperial Valley Mall GP, LLC Imperial Valley Mall, L.P. CBL/Imperial Valley, GP, LLC |
|
Imperial Valley Mall |
|
El Centro, CA |
|
Kirkwood Mall Acquisition LLC Kirkwood Mall Mezz LLC CBL/Kirkwood Mall, LLC |
|
Kirkwood Mall |
|
Bismarck, ND |
|
Layton Hills Mall CMBS, LLC |
|
Layton Hills Mall and Cinema Layton Hills Plaza Layton Hills Convenience Center |
|
Layton, UT Layton, UT Layton, UT |
|
Mall del Norte, LLC MDN/Laredo GP, LLC |
|
Mall del Norte and Cinema |
|
Laredo, TX |
|
Mayfaire Town Center, LP Mayfaire GP, LLC |
|
Mayfaire Town Center |
|
Wilmington, NC |
|
Mortgage Holdings, LLC (3) |
|
Four mortgage notes receivable (2) |
|
Chattanooga, TN |
|
Hixson Mall, LLC |
|
Northgate Mall |
|
Chattanooga, TN |
|
Pearland Town Center Limited Partnership Pearland Ground, LLC Pearland Town Center GP, LLC |
|
Pearland Town Center - Retail Pearland Town Center - Office |
|
Pearland, TX |
|
POM-College Station, LLC Mortgage Holdings, LLC (3) |
|
Post Oak Mall |
|
College Station, TX |
|
CBL RM-Waco, LLC CBL/Richland G.P., LLC |
|
Richland Mall |
|
Waco, TX |
|
CBL SM - Brownsville, LLC CBL/Sunrise GP, LLC |
|
Sunrise Mall |
|
Brownsville, TX |
|
Turtle Creek Limited Partnership Mortgage Holdings, LLC (3) |
|
Turtle Creek Mall |
|
Hattiesburg, MS |
|
Madison/West Towne, LLC Madison Joint Venture, LLC CBL/Madison I, LLC |
|
West Towne Mall |
|
Madison, WI |
|
Madison Joint Venture, LLC (4) CBL/Madison I, LLC |
|
West Town Crossing (2) |
|
Madison, WI |
|
(1) |
CW Joint Venture, LLC is a Guarantor Subsidiary because it is an entity in the ownership chain of Westmoreland Mall and Westmoreland Crossing. |
|
|
|
(2) |
Property/asset is not collateral on the secured credit facility. |
|
|
|
|
|
( 3 ) |
Mortgage Holdings, LLC is a Guarantor Subsidiary because it is an entity in the ownership chains of Frontier Mall, Post Oak Mall and Turtle Creek Mall. |
|
|
|
( 4 ) |
Madison Joint Venture, LLC is a Guarantor Subsidiary because it is an entity in the ownership chain of East Towne Mall and West Towne Mall. |
6
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 condensed consolidated financial statements or within Management’s Discussion and Analysis which accompanies the condensed 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 these condensed combined financial statements and accompanying notes for the Combined Guarantor Subsidiaries in lieu of including the condensed consolidating financial information in the notes to its condensed consolidated financial statements. These combined financial statements and notes are presented as an exhibit to the Operating Partnership's quarterly report on Form 10-Q for ease of reference.
COVID-19
The current novel coronavirus (“COVID-19”) pandemic has had, and likely will continue to have, repercussions across local, national and global economies and financial markets. COVID-19 has impacted all states where the Combined Guarantor Subsidiaries’ tenants operate their businesses or where their properties are located and measures taken to prevent or remediate COVID-19, including “shelter-in place” or “stay-at-home” orders or other quarantine mandates issued by local, state or federal authorities, have had an adverse effect on their business and the businesses of their tenants. The full extent of the adverse impact on, among other things, the Combined Guarantor Subsidiaries’ results of operations, liquidity (including their ability to access capital markets), the possibility of future impairments of long-lived assets, their compliance with debt covenants, their ability to renew and re-lease their leased space, the outlook for the retail environment, potential bankruptcies or other store closings and their ability to develop, acquire, dispose or lease properties for their portfolio, is unknown and will depend on future developments, which are highly uncertain and cannot be predicted. The Combined Guarantor Subsidiaries expect a material adverse impact on their revenues, results of operations, and cash flows for the year ended December 31, 2020. The situation is rapidly changing and additional impacts to the business may arise that the Combined Guarantor Subsidiaries are not aware of currently.
Liquidity and Going Concern Considerations
In accordance with the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim reporting period, management evaluates whether there are conditions or events that, when considered in the aggregate, raise substantial doubt about the Combined Guarantor Subsidiaries’ ability to continue as a going concern within one year after the date that the financial statements are issued. In making its assessment, management considered the Combined Guarantor Subsidiaries’ current financial condition and liquidity sources, including current funds available, forecasted future cash flows and conditional and unconditional obligations due over the next twelve months.
As described above, the Operating Partnership’s senior secured credit facility and the Notes are secured by 17 malls and 3 associated centers that are owned by the Combined Guarantor Subsidiaries, which represent a substantial portion of the real estate assets owned by the Combined Guarantor Subsidiaries.
The Operating Partnership received notices of default and reservation of rights letters from the administrative agent under the secured credit facility asserting that certain defaults and events of default have occurred and continue to exist as of June 30, 2020 by reason of the Operating Partnership’s failure to comply with certain restrictive covenants, including the liquidity covenant, in the secured credit facility. As of the date of this report, the lenders under the secured credit facility have not accelerated the outstanding amount due and payable on the loans or commenced foreclosure proceedings, but they may seek to exercise one or more of these remedies in the future.
Management of CBL has engaged Weil, Gotshal & Manges LLP and Moelis & Company LLC (the “Advisors”) to assist CBL in exploring several alternatives to reduce overall leverage and interest expense and to extend the maturity of its debt including (i) the senior secured credit facility, which includes a revolving facility with a balance of $675,925 and term loan with a balance of $447,500 as of June 30, 2020, that matures in July 2023 and (ii) the Notes with balances of $450,000, $300,000, and $625,000, as of June 30, 2020, that mature in December 2023, October 2024 and December 2026, respectively, as well as the cumulative unpaid dividends on CBL’s preferred stock and the special common units of limited partnership interest in the Operating Partnership. The Advisors commenced discussions in May 2020 with advisors to certain holders of the Notes and the credit committee of the senior secured credit facility. Management may pursue a comprehensive capital structure solution that will address the Operating Partnership’s funded indebtedness and outstanding equity interests that may result in the reorganization of CBL and the Operating Partnership.
7
Given the impact of the COVID-19 pandemic on the retail and broader markets, the ongoing weakness of the credit markets, and the Operating Partnership’s default of certain restrictive covenants, CBL and the Operating Partnership believe that there is substantial doubt that they will each continue to operate as a going concern within one year after the date their condensed consolidated financial statements are issued. Since the Operating Partnership’s senior secured credit facility and the Notes are secured by 17 malls and 3 associated centers that are owned by the Combined Guarantor Subsidiaries, the Combined Guarantor Subsidiaries believe that there is substantial doubt that they will continue to operate as a going concern within one year after the date their condensed combined financial statements are issued. The accompanying condensed combined financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the condensed combined financial statements do not reflect any adjustments related to the recoverability of assets and satisfaction of liabilities that might be necessary should the Combined Guarantor Subsidiaries be unable to continue as a going concern.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements represent the combined financial statements of the Combined Guarantor Subsidiaries on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. All intercompany transactions have been eliminated. 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.
Accounting Guidance Adopted
|
Description |
|
Date Adopted & Application Method |
|
Financial Statement Effect and Other Information |
|
ASU 2016-13, Measurement of Credit Losses on Financial Instruments |
|
January 1, 2020 - Prospective |
|
The guidance replaces the current incurred loss impairment model, which reflects credit events, with a current expected credit loss model, which recognizes an allowance for credit losses based on an entity's estimate of contractual cash flows not expected to be collected.
The Combined Guarantor Subsidiaries have determined that the guarantees, mortgage and other notes receivable and receivables within the scope of ASC 606 fall under the scope of this standard. The adoption of this guidance did not have a material impact on the Combined Guarantor Subsidiaries' combined financial statements or disclosures. |
|
|
|
|
|
|
|
ASU 2018-13, Fair Value Measurement |
|
January 1, 2020 - Prospective |
|
The guidance eliminates, adds and modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.
The adoption of this guidance did not have a material impact on the Combined Guarantor Subsidiaries' combined financial statements or disclosures. |
|
|
|
|
|
|
8
|
Lease Modification Q & A |
|
April 1, 2020 - Prospective |
|
In April 2020, the FASB issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance related to lease concessions provided as a result of COVID-19. Under existing lease guidance, the Combined Guarantor Subsidiaries would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A clarifies that entities may elect to not evaluate whether lease-related relief that lessors provide to mitigate the economic effects of COVID-19 on lessees is a lease modification under Topic 842, Leases. Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 is a modification can then elect whether to apply the modification guidance (i.e. assume the relief was always contemplated by the contract or assume the relief was not contemplated by the contract). Both lessees and lessors may make this election.
The Combined Guarantor Subsidiaries have elected to apply the relief provided under the Lease Modification Q&A and have elected to avoid performing a lease by lease analysis for the lease concessions that were (1) granted as relief due to the COVID-19 pandemic and (2) result in the cash flows remaining substantially the same or less than the original contract. The Lease Modification Q&A had a material impact on the Combined Guarantor Subsidiaries' condensed combined financial statements as of and for the three and six months ended June 30, 2020. However, its future impact to the Combined Guarantors Subsidiaries is dependent upon the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by the Combined Guarantor Subsidiaries at the time of entering such concessions.
The Lease Modification Q&A allows the Combined Guarantor Subsidiaries to determine accounting policy elections at a disaggregated level, and the elections should be applied consistently by either the type of concession, underlying asset class or on another reasonable basis. As a result, the Combined Guarantor Subsidiaries have made the following policy elections based on the type of concession agreed to with respective tenant.
Rent Deferrals The Combined Guarantor Subsidiaries will account for rental deferrals using the receivables model as described within the Lease Modification Q&A. Under the receivables model, the Combined Guarantor Subsidiaries will continue to recognize lease revenue in a manner that is unchanged from the original lease agreement and continue to recognize lease receivables and rental revenue during the deferral period.
Rent Abatements The Combined Guarantor Subsidiaries will account for rental abatements using the negative variable income model as described within the Lease Modification Q&A. Under the negative variable income model, the Combined Guarantor Subsidiaries will recognize negative variable rent for the current period reduction of rental revenue associated with any lease concessions we provide
At June 30, 2020, the Combined Guarantor Subsidiaries’ Receivables include $3,789 related to receivables that have been deferred and are to be repaid over periods generally starting in late 2020 and extending for some portion of 2021 months. The Combined Guarantor Subsidiaries granted abatements of $870 for the three and six months ended June 30, 2020. As of early August 2020, the Combined Guarantor Subsidiaries estimate that they will defer $6,100 of rents that were billed for April, May and June 2020 based on agreements that have been executed or are in active negotiation. The Combined Guarantor Subsidiaries continue to assess rent relief requests from tenants but are unable to predict the resolution or impact of these discussions. |
9
Accounts Receivable
Receivables include amounts billed and currently due from tenants pursuant to lease agreements and receivables attributable to straight-line rents associated with those lease agreements. Individual leases where the collection of rents is in dispute are assessed for collectability based on management’s best estimate of collection considering the anticipated outcome of the dispute. Individual leases that are not in dispute are assessed for collectability and upon the determination that the collection of rents over the remaining lease term is not probable, accounts receivable are reduced as an adjustment to rental revenues. Revenue from leases where collection is deemed to be less than probable is recorded on a cash basis until collectability is determined to be probable. Further, management assesses whether operating lease receivables, at a portfolio level, are appropriately valued based upon an analysis of balances outstanding, historical collection levels and current economic trends. An allowance for the uncollectible portion of the portfolio is recorded as an adjustment to rental revenues. Management’s estimate of the collectability of accounts receivable from tenants is based on the best information available to management at the time of evaluation.
The duration of the COVID-19 pandemic and our tenants’ ability to resume operations once governmental and legislative restrictions are lifted has caused uncertainty in our ongoing ability to collect rents when due. Considering the potential impact of these uncertainties, our collection assessment also took into consideration the type of retailer and current discussions with the tenants, as well as recent rent collection experience and tenant bankruptcies based on the best information available to management at the time of evaluation. For the three and six months ended June 30, 2020, we have recorded $15,808 and $17,637, respectively, associated with potentially uncollectible revenues, which includes $753 and $1,206, respectively, for straight-line rent receivables.
Carrying Value of Long-Lived Assets
The Combined Guarantor Subsidiaries evaluate their real estate assets for impairment indicators whenever events or changes in circumstances indicate that recoverability of their investment in the asset is not reasonably assured. Furthermore, this evaluation is conducted no less frequently than quarterly, irrespective of changes in circumstances. The prolonged outbreak of the COVID-19 pandemic has resulted in sustained closure of the Combined Guarantor Subsidiaries’ properties as well as the cessation of the operations of certain of their tenants, which will likely result in a reduction in the revenues and cash flows of their properties due to the adverse financial impacts on their tenants, as well as other sources of income generated by their properties. In addition to reduced revenues, the Combined Guarantor Subsidiaries ability to obtain sufficient financing for such properties may be impaired as well as their ability to lease or re-lease properties as a result of worsening market and economic conditions resulting from the COVID-19 pandemic.
As of June 30, 2020, the Combined Guarantor Subsidiaries’ evaluation of impairment considered their estimate of cash flow declines caused by the COVID-19 pandemic, but their other assumptions, including estimated hold period, were generally unchanged given the highly uncertain environment. The worsening of estimated future cash flows due to a change in the Combined Guarantor Subsidiaries’ plans, policies, or views of market and economic conditions as it relates to one or more of their properties adversely impacted by the COVID-19 pandemic could result in the recognition of substantial impairment charges imposed on their assets which could adversely impact their financial results. For the three and six months ended June 30, 2020, the Combined Guarantor Subsidiaries did not record impairment charges.
10
Note 3 – Revenues
Revenues
The following table presents the Combined Guarantor Subsidiaries' revenues disaggregated by revenue source:
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
|
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Rental revenues (1) |
|
|
|
|
|
$ |
46,849 |
|
|
$ |
67,316 |
|
|
$ |
110,680 |
|
|
$ |
138,588 |
|
|
Revenues from contracts with customers (ASC 606): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense reimbursements (2) |
|
|
|
|
|
|
882 |
|
|
|
693 |
|
|
|
1,953 |
|
|
|
1,844 |
|
|
Marketing revenues (3) |
|
|
|
|
|
|
196 |
|
|
|
549 |
|
|
|
586 |
|
|
|
986 |
|
|
|
|
|
|
|
|
|
1,078 |
|
|
|
1,242 |
|
|
|
2,539 |
|
|
|
2,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
|
|
|
|
56 |
|
|
|
310 |
|
|
|
191 |
|
|
|
441 |
|
|
Total revenues (4) |
|
|
|
|
|
$ |
47,983 |
|
|
$ |
68,868 |
|
|
$ |
113,410 |
|
|
$ |
141,859 |
|
|
( 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. |
|
( 2 ) |
Operating expense reimbursements solely relate to the Malls segment for the three months ended June 30, 2020 and includes $688 in the Malls segment and $5 in the All Other segment for the three months ended June 30, 2019. Includes $1,928 in the Malls segment and $25 in the All Other segment for the six months ended June 30, 2020 and includes $1,839 in the Malls segment and $5 in the All Other segment for the six months ended June 30, 2019. |
|
( 3 ) |
Marketing revenues solely relate to the Malls segment for all periods presented. |
|
( 4 ) |
Sales taxes are excluded from revenues. |
See Note 9 for information on the Combined Guarantor Subsidiaries' segments.
Revenue from Contracts with Customers
Expected credit losses
During the three and six months ended June 30, 2020, the Combined Guarantor Subsidiaries individually evaluated tenant receivables within the scope of ASC 606, of which a significant portion are short term. These receivables are assessed for collectability based on management’s best estimate of collection considering balances outstanding, historical collection levels and current economic trends. The Combined Guarantor Subsidiaries wrote off $530 and $636 that was deemed uncollectable related to this class of receivables for the three and six months ended June 30, 2020, respectively.
Outstanding Performance Obligations
The Combined Guarantor Subsidiaries have outstanding performance obligations related to certain noncancellable contracts with customers for which they will receive fixed operating expense reimbursements for providing certain maintenance and other services as described above. As of June 30, 2020, the Combined Guarantor Subsidiaries expect to recognize these amounts as revenue over the following periods:
|
Performance obligation |
|
Less than 5 years |
|
|
5-20 years |
|
|
Over 20 years |
|
|
Total |
|
||||
|
Fixed operating expense reimbursements |
|
$ |
12,839 |
|
|
$ |
25,383 |
|
|
$ |
33,641 |
|
|
$ |
71,863 |
|
The Combined Guarantor Subsidiaries evaluate performance obligations each period and make adjustments to reflect any known additions or cancellations. Performance obligations related to variable consideration, which is based on sales, are constrained.
11
Note 4 – Leases
Lessor
The components of rental revenues are as follows:
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
|
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Fixed lease payments |
|
|
|
|
|
$ |
37,096 |
|
|
$ |
54,755 |
|
|
$ |
91,751 |
|
|
$ |
115,062 |
|
|
Variable lease payments |
|
|
|
|
|
|
9,753 |
|
|
|
12,561 |
|
|
|
18,929 |
|
|
|
23,526 |
|
|
Total rental revenues |
|
|
|
|
|
$ |
46,849 |
|
|
$ |
67,316 |
|
|
$ |
110,680 |
|
|
$ |
138,588 |
|
The undiscounted future fixed lease payments to be received under the Combined Guarantor Subsidiaries' operating leases as of June 30, 2020, are as follows:
|
Year Ending December 31, |
|
Operating Leases |
|
|
|
2020 (1) |
|
$ |
92,809 |
|
|
2021 |
|
|
171,662 |
|
|
2022 |
|
|
143,967 |
|
|
2023 |
|
|
121,591 |
|
|
2024 |
|
|
96,184 |
|
|
2025 |
|
|
71,132 |
|
|
Thereafter |
|
|
158,064 |
|
|
Total undiscounted lease payments |
|
$ |
855,409 |
|
|
(1) |
Reflects rental payments for the fiscal period July 1, 2020 to December 31, 2020. |
Note 5 – Fair Value Measurements
The Combined Guarantor Subsidiaries have categorized 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 Combined Guarantor Subsidiaries' 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 the note receivable is a reasonable estimate of fair value. The estimated fair value of mortgage notes payable was $202,163 and $202,772 at June 30, 2020 and
12
December 31, 201 9 , respectively. The fair value was calculated using Level 2 inputs by discounting future cash flows for mortgage notes payable using estimated market rates at which similar loans would be made currently.
Fair Value Measurements on a Nonrecurring Basis
The Combined Guarantor Subsidiaries measure 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 Combined Guarantor Subsidiaries consider both quantitative and qualitative factors in their impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each property such as net operating income ("NOI"), occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the property and tenant mix. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experience impairment, the Combined Guarantor Subsidiaries classify 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.
Long-lived Assets Measured at Fair Value in 2019
The following table sets forth information regarding the Combined Guarantor Subsidiaries’ assets that were measured at fair value on a nonrecurring basis and related impairment charges for the six months ended June 30, 2019:
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using |
|
|
|
|
|
|||||||||
|
|
|
Total |
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total Loss on Impairment |
|
|||||
|
Long-lived assets |
|
$ |
56,300 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
56,300 |
|
|
$ |
22,770 |
|
During the six months ended June 30, 2019, the Combined Guarantor Subsidiaries recognized an impairment of real estate of $22,770 related to one mall.
|
Impairment Date |
|
Property |
|
Location |
|
Segment Classification |
|
Loss on Impairment |
|
|
Fair Value |
|
||
|
March |
|
Greenbriar Mall (1) |
|
Chesapeake, VA |
|
Malls |
|
$ |
22,770 |
|
|
$ |
56,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
In accordance with the Combined Guarantor Subsidiaries' quarterly impairment process, the Combined Guarantor Subsidiaries 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%. |
13
Note 6 – Mortgage Notes Payable, Net
Mortgage notes payable, net, consisted of the following:
|
|
|
Interest Rate (1) |
|
|
Maturity Date |
|
June 30, 2020 |
|
|
December 31, 2019 |
|
|||
|
Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenbrier Mall (2) |
|
5.41% |
|
|
Dec-19 |
|
$ |
64,501 |
|
|
$ |
64,801 |
|
|
|
Park Plaza |
|
5.28% |
|
|
Apr-21 |
|
|
77,577 |
|
|
|
78,339 |
|
|
|
Arbor Place |
|
5.10% |
|
|
May-22 |
|
|
105,634 |
|
|
|
106,851 |
|
|
|
Total mortgage notes payable |
|
5.23% |
|
|
|
|
|
247,712 |
|
|
|
249,991 |
|
|
|
Unamortized deferred financing costs |
|
|
|
|
|
|
|
|
( 77 |
) |
|
|
( 112 |
) |
|
Total mortgage notes payable, net |
|
|
|
|
|
|
|
$ |
247,635 |
|
|
$ |
249,879 |
|
|
(1) |
Weighted-average interest rate includes the effect of debt premiums and discounts, but excludes amortization of deferred financing costs. |
|
( 2 ) |
The non-recourse loan is in default. The default interest rate is an additional 3.00% above the stated interest rate. |
Scheduled Principal Payments
As of June 30, 2020, the scheduled principal amortization and balloon payments of the Combined Guarantor Subsidiaries' mortgage notes payable, excluding extensions available at the Combined Guarantor Subsidiaries' option, are as follows:
|
2020 (1) |
|
$ |
2,803 |
|
|
2021 |
|
|
78,637 |
|
|
2022 |
|
|
101,771 |
|
|
|
|
|
183,211 |
|
|
Unamortized deferred financing costs |
|
|
( 77 |
) |
|
Principal balance of loan with a maturity date prior to June 30, 2020 (2) |
|
|
64,501 |
|
|
Total mortgage notes payable, net |
|
$ |
247,635 |
|
|
(1) |
Reflects payments for the fiscal period July 1, 2020 through December 31, 2020. |
|
(2) |
Represents the aggregate principal balance as of June 30, 2020 of the non-recourse loan secured by Greenbrier Mall, which was in default. The loan matured in December 2019 . |
The Combined Guarantor Subsidiaries' mortgage notes payable had a weighted-average maturity of 0.9 year as of June 30, 2020 and 1.4 years as of December 31, 2019.
Financial Covenants and Restrictions
Each of the mortgage notes payable are subject to certain financial covenants under the respective loan agreements. The applicable Guarantor Properties were in compliance with all financial covenants as of June 30, 2020, except as it relates to Park Plaza and Greenbrier Mall. Park Plaza has failed to meet the required minimum net operating income, as defined in the agreement, and as a result, the lender retains excess cash flow until such time the required minimum net operating income is met for two consecutive calendar quarters. Greenbrier Mall failed to retire its mortgage note payable at the scheduled maturity date and the lender has placed the loan in default.
14
Note 7 – Mortgage and Other Notes Receivable
Each of the mortgage notes receivable is collateralized by a first mortgage. Other note receivable includes an amount due from a government sponsored district for reimbursable costs pursuant to an agreement with the district. The Combined Guarantor Subsidiaries review the 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 discussion with obligors. Mortgage and other notes receivable consist of the following:
|
|
|
|
|
As of June 30, 2020 |
|
|
As of December 31, 2019 |
|
||||||||||
|
|
|
Maturity Date |
|
Interest Rate |
|
|
Balance |
|
|
Interest Rate |
|
|
Balance |
|
||||
|
Mortgages: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Promenade (1) |
|
Dec 2020 |
|
5.00% |
|
|
$ |
47,514 |
|
|
5.00% |
|
|
$ |
47,514 |
|
||
|
Hamilton Corner (1) |
|
Aug 2020 |
|
5.67% |
|
|
|
14,295 |
|
|
5.67% |
|
|
|
14,295 |
|
||
|
The Terrace (1) |
|
Dec 2020 |
|
7.25% |
|
|
|
11,977 |
|
|
7.25% |
|
|
|
11,977 |
|
||
|
|
|
|
|
|
|
|
|
|
73,786 |
|
|
|
|
|
|
|
73,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Note Receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community improvement district |
|
Aug 2028 |
|
|
|
|
|
|
— |
|
|
6.75% |
|
|
|
1,230 |
|
|
|
|
|
|
|
|
|
|
|
$ |
73,786 |
|
|
|
|
|
|
$ |
75,016 |
|
|
|
(1) |
The mortgaged property is owned by an entity that is controlled by the Operating Partnership and included in the Operating Partnership's condensed consolidated financial statements. The mortgage note receivable is interest only. |
Expected credit losses
The Combined Guarantor Subsidiaries applied the zero-loss expectation exception to their mortgage receivables because, even in the case of default by the borrower, a loss would not be expected based on the value of the property that serves as collateral for each mortgage. During the three and six months ended June 30, 2020, the Combined Guarantor Subsidiaries evaluated the current and potential future fair values of the properties secured as collateral against each mortgage receivable, as well as taking in account their historical loss experience with similar assets. Based on this information, the Combined Guarantor Subsidiaries did not record a credit loss for this class of receivables for the three and six months ended June 30, 2020.
During the six months ended June 30, 2020, the Combined Guarantor Subsidiaries assessed their other note receivable factoring in credit quality indicators such as collection experience and future expectations of performance to determine whether a credit loss should be recorded. Based on this information, the Combined Guarantor Subsidiaries wrote off the $1,230 n ote receivable .
Note 8 – Related Party Transactions
The Combined Guarantor Subsidiaries are party to management agreements with CBL & Associates Management, Inc. (“CBL Management”), which is controlled by the Operating Partnership, to manage the Guarantor Properties. The agreements provide that the Guarantor Properties pay management fees equal to a percentage of gross revenues as defined by the respective management agreements. The management fee percentage ranges from 2.5% to 3.5% based on the agreements. Within property operating expenses, management fee expense was $606 and $1,522 for the three months ended June 30, 2020 and 2019, respectively, and $1,974 and $3,014 for the six months ended June 30, 2020 and 2019, respectively.
Amounts payable to CBL Management for management fees were $42 and $394 as of June 30, 2020 and December 31, 2019, respectively.
The Combined Guarantor Subsidiaries have mortgage notes receivable with entities under common control totaling $73,786 as of June 30, 2020 and December 31, 2019. See Note 7 for more information. Interest income earned under the notes receivable were $1,014 and $959 for the three months ended June 30, 2020 and 2019, respectively, and $2,027 and $1,919 for the six months ended June 30, 2020 and 2019, respectively.
At June 30, the Combined Guarantor Subsidiaries had a receivable of $1,264 from the Operating Partnership related to credits to current tenants that were taken during the three months ended June 30, 2020 in connection with the litigation matter discussed in more detail in Note 10- Contingencies .
15
Note 9 – Segment Information
The Combined Guarantor Subsidiaries measure performance and allocate resources according to property type, which is determined based on certain criteria such as type of tenants, capital requirements, economic risks, leasing terms, and short and long-term returns on capital. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments.
Information on the Combined Guarantor Subsidiaries' segments is presented as follows:
|
Three Months Ended June 30, 2020 |
|
Malls |
|
|
All Other (1) |
|
|
Total |
|
|||
|
Revenues |
|
$ |
45,941 |
|
|
$ |
2,042 |
|
|
$ |
47,983 |
|
|
Property operating expenses (2) |
|
|
( 15,329 |
) |
|
|
( 428 |
) |
|
|
( 15,757 |
) |
|
Interest expense |
|
|
( 4,334 |
) |
|
|
— |
|
|
|
( 4,334 |
) |
|
Gain on sales of real estate assets |
|
|
650 |
|
|
|
— |
|
|
|
650 |
|
|
Segment profit |
|
$ |
26,928 |
|
|
$ |
1,614 |
|
|
|
28,542 |
|
|
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
( 21,437 |
) |
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
952 |
|
|
Net income |
|
|
|
|
|
|
|
|
|
$ |
8,057 |
|
|
Capital expenditures (3) |
|
$ |
4,312 |
|
|
$ |
34 |
|
|
$ |
4,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019 |
|
Malls |
|
|
All Other (1) |
|
|
Total |
|
|||
|
Revenues |
|
$ |
66,403 |
|
|
$ |
2,465 |
|
|
$ |
68,868 |
|
|
Property operating expenses (2) |
|
|
( 19,840 |
) |
|
|
( 581 |
) |
|
|
( 20,421 |
) |
|
Interest expense |
|
|
( 3,412 |
) |
|
|
— |
|
|
|
( 3,412 |
) |
|
Other expense |
|
|
( 627 |
) |
|
|
— |
|
|
|
( 627 |
) |
|
Segment profit |
|
$ |
42,524 |
|
|
$ |
1,884 |
|
|
|
44,408 |
|
|
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
( 22,717 |
) |
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
1,084 |
|
|
Net income |
|
|
|
|
|
|
|
|
|
$ |
22,775 |
|
|
Capital expenditures (3) |
|
$ |
15,911 |
|
|
$ |
23 |
|
|
$ |
15,934 |
|
|
Six Months Ended June 30, 2020 |
|
Malls |
|
|
All Other (1) |
|
|
Total |
|
|||
|
Revenues |
|
$ |
108,985 |
|
|
$ |
4,425 |
|
|
$ |
113,410 |
|
|
Property operating expenses (2) |
|
|
( 36,719 |
) |
|
|
( 1,034 |
) |
|
|
( 37,753 |
) |
|
Interest expense |
|
|
( 8,106 |
) |
|
|
— |
|
|
|
( 8,106 |
) |
|
Gain on sales of real estate assets |
|
|
650 |
|
|
|
— |
|
|
|
650 |
|
|
Segment profit |
|
$ |
64,810 |
|
|
$ |
3,391 |
|
|
|
68,201 |
|
|
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
( 43,301 |
) |
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
1,992 |
|
|
Net income |
|
|
|
|
|
|
|
|
|
$ |
26,892 |
|
|
Capital expenditures (3) |
|
$ |
11,615 |
|
|
$ |
659 |
|
|
$ |
12,274 |
|
|
Six Months Ended June 30, 2019 |
|
Malls |
|
|
All Other (1) |
|
|
Total |
|
|||
|
Revenues |
|
$ |
136,803 |
|
|
$ |
5,056 |
|
|
$ |
141,859 |
|
|
Property operating expenses (2) |
|
|
( 42,009 |
) |
|
|
( 1,177 |
) |
|
|
( 43,186 |
) |
|
Interest expense |
|
|
( 7,397 |
) |
|
|
— |
|
|
|
( 7,397 |
) |
|
Other expense |
|
|
( 627 |
) |
|
|
— |
|
|
|
( 627 |
) |
|
Segment profit |
|
$ |
86,770 |
|
|
$ |
3,879 |
|
|
|
90,649 |
|
|
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
( 46,818 |
) |
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
2,027 |
|
|
Gain on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
61,796 |
|
|
Loss on impairment |
|
|
|
|
|
|
|
|
|
|
( 22,770 |
) |
|
Net income |
|
|
|
|
|
|
|
|
|
$ |
84,884 |
|
|
Capital expenditures (3) |
|
$ |
18,529 |
|
|
$ |
23 |
|
|
$ |
18,552 |
|
16
|
Total Assets |
|
Malls |
|
|
All Other (1) |
|
|
Total |
|
|||
|
June 30, 2020 |
|
$ |
1,505,640 |
|
|
$ |
136,571 |
|
|
$ |
1,642,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 |
|
$ |
1,519,558 |
|
|
$ |
137,555 |
|
|
$ |
1,657,113 |
|
|
(1) |
The All Other category includes associated centers and notes receivable. |
|
(2) |
Property operating expenses include property operating, real estate taxes and maintenance and repairs. |
|
(3) |
Amounts include acquisitions of real estate assets. Developments in progress are included in the All Other category. |
Note 10 – Contingencies
Litigation
On March 20, 2019, the board of directors of CBL, the parent of the Operating Partnership, approved the structure of a settlement of a class action lawsuit filed on March 16, 2016 in the United States District Court for the Middle District of Florida (the “Court”) by Wave Lengths Hair Salons of Florida, Inc. d/b/a Salon Adrian. The CBL entities that were the defendants in the action (and which are responsible for payments under the settlement) are CBL & Associates Properties, Inc., CBL & Associates Limited Partnership, CBL & Associates Management, Inc. and JG Gulf Coast Town Center, LLC (collectively, the “CBL Defendant Entities”). In its action, plaintiff sought unspecified monetary damages as well as costs and attorneys’ fees, based on allegations that the CBL Defendant Entities overcharged tenants at bulk metered malls for electricity. Under the terms of the proposed settlement, the CBL Defendant Entities have denied all allegations of wrongdoing and have asserted that their actions have at all times been lawful and proper. No Combined Guarantor Subsidiary is a CBL Defendant Entity and no Combined Guarantor Subsidiary is responsible for payment of amounts under the above-referenced settlement. The Court granted final approval to the proposed settlement terms on August 22, 2019.
Class members include past and current tenants of certain Guarantor Properties (the “Guarantor Class Subsidiaries”) during the class period, which extended from January 1, 2011 through the date of the Court's preliminary approval of the settlement. Under the terms of the settlement, 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 for a five-year period that will begin at the time set forth in the settlement agreement (the “credit period”). Any amounts under the settlement allocated to tenants with outstanding amounts payable to the Guarantor Class Subsidiaries, the CBL Defendant Entities or any other affiliate of those entities, including tenants which have declared bankruptcy or declare bankruptcy over the credit period, will first be deducted from the amounts owed to the Guarantor Class Subsidiaries, the CBL Defendant Entities, or any other affiliate of those entities. CBL Defendant Entities will be responsible for directly paying all cash payments that are made to past tenants who have made a claim. CBL Defendant Entities will be responsible for directly funding to the Guarantor Class Subsidiaries an amount equal to any credits that are due to and taken by current tenants of the Guarantor Class Subsidiaries during the credit period. CBL Defendant Entities have funded or will fund all amounts due to past and current tenants under the settlement such that the Guarantor Class Subsidiaries' cash flows and results of operations are not impacted by the settlement. At June 30, the Combined Guarantor Subsidiaries had a receivable of $1,264 from the Operating Partnership related to credits to current tenants that were taken during the three months ended June 30, 2020.
The Combined Guarantor Subsidiaries 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. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Combined Guarantor Subsidiaries record 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 Combined Guarantor Subsidiaries accrue the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Combined Guarantor Subsidiaries accrue the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Combined Guarantor Subsidiaries disclose the nature of the litigation and indicate 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 Combined Guarantor Subsidiaries disclose 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 Combined Guarantor Subsidiaries.
Environmental Contingencies
The Combined Guarantor Subsidiaries evaluate potential loss contingencies related to environmental matters using the same criteria described above related to litigation matters. Based on current information, an
17
unfavorable outcome concerning such environmental matters, both individually and in the aggregate, is considered to be reasonably possible. However, the Combined Guarantor Subsidiaries believe the maximum potential exposure to loss would not be material to results of operations or financial condition.
The Combined Guarantor Subsidiaries have 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.
Note 11 – Noncash Investing and Financing Activities
The Combined Guarantor Subsidiaries' noncash investing and financing activities were as follows:
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Additions to real estate assets accrued but not yet paid |
|
$ |
7,460 |
|
|
$ |
10,423 |
|
|
Distribution of properties to owners |
|
|
— |
|
|
|
11,455 |
|
|
Increase (decrease) in lease liabilities arising from right-of-use assets |
|
|
( 20 |
) |
|
|
489 |
|
|
Transfer of real estate assets in settlement of mortgage debt obligation: |
|
|
|
|
|
|
|
|
|
Decrease in real estate assets |
|
|
— |
|
|
|
( 60,058 |
) |
|
Decrease in mortgage and other indebtedness |
|
|
— |
|
|
|
115,271 |
|
|
Decrease in operating assets and liabilities |
|
|
— |
|
|
|
8,246 |
|
|
Decrease in intangible lease and other assets |
|
|
— |
|
|
|
( 1,663 |
) |
18