UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
______________
FORM
10-Q
______________
|
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2010
Or
|
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
FOR
THE TRANSITION PERIOD FROM ____________ TO _______________
COMMISSION
FILE NO. 1-12494
______________
CBL
& ASSOCIATES PROPERTIES, INC.
(Exact
Name of registrant as specified in its charter)
______________
DELAWARE 62-1545718
(State
or other jurisdiction of incorporation or
organization) (I.R.S.
Employer Identification Number)
2030
Hamilton Place Blvd., Suite 500,
Chattanooga, TN 37421-6000
(Address
of principal executive office, including zip code)
423.855.0001
(Registrant’s
telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer x
Accelerated filer o
Non-accelerated
filer o(Do not
check if smaller reporting
company)
Smaller Reporting Company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No
x
As of May
4, 2010, there were 138,062,257 shares of common stock, par value $0.01 per
share, outstanding.
CBL
& Associates Properties, Inc.
Table
of Contents
PART I – FINANCIAL INFORMATION
CBL
& Associates Properties, Inc.
Condensed
Consolidated Balance Sheets
(In
thousands, except share data)
(Unaudited)
|
March
31,
2010
|
|
|
December
31,
2009
|
|
|
|
|
|
|
|
|
Real
estate assets:
|
|
|
|
|
|
|
Land
|
|
$ |
946,570 |
|
|
$ |
946,750 |
|
Buildings
and improvements
|
|
|
7,576,916 |
|
|
|
7,569,015 |
|
|
|
|
8,523,486 |
|
|
|
8,515,765 |
|
Less
accumulated depreciation
|
|
|
(1,568,868 |
) |
|
|
(1,505,840 |
) |
|
|
|
6,954,618 |
|
|
|
7,009,925 |
|
Developments
in progress
|
|
|
91,321 |
|
|
|
85,110 |
|
Net
investment in real estate assets
|
|
|
7,045,939 |
|
|
|
7,095,035 |
|
Cash
and cash equivalents
|
|
|
50,215 |
|
|
|
48,062 |
|
Receivables:
|
|
|
|
|
|
|
|
|
Tenant,
net of allowance for doubtful accounts of $3,217 in 2010
and
$3,101 in 2009
|
|
|
66,783 |
|
|
|
73,170 |
|
Other
|
|
|
8,668 |
|
|
|
8,162 |
|
Mortgage
and other notes receivable
|
|
|
39,051 |
|
|
|
38,208 |
|
Investments
in unconsolidated affiliates
|
|
|
186,628 |
|
|
|
186,523 |
|
Intangible
lease assets and other assets
|
|
|
270,656 |
|
|
|
279,950 |
|
|
|
$ |
7,667,940 |
|
|
$ |
7,729,110 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES,
REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
|
|
|
|
|
|
Mortgage
and other indebtedness
|
|
$ |
5,458,577 |
|
|
$ |
5,616,139 |
|
Accounts
payable and accrued liabilities
|
|
|
248,323 |
|
|
|
248,333 |
|
Total
liabilities
|
|
|
5,706,900 |
|
|
|
5,864,472 |
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Redeemable
noncontrolling interests:
|
|
|
|
|
|
|
|
|
Redeemable
noncontrolling partnership interests
|
|
|
28,520 |
|
|
|
22,689 |
|
Redeemable
noncontrolling preferred joint venture interest
|
|
|
421,506 |
|
|
|
421,570 |
|
Total
redeemable noncontrolling interests
|
|
|
450,026 |
|
|
|
444,259 |
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value, 15,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
7.75%
Series C Cumulative Redeemable Preferred Stock,
460,000
shares outstanding
|
|
|
5 |
|
|
|
5 |
|
7.375%
Series D Cumulative Redeemable Preferred Stock,
1,330,000
and 700,000 shares outstanding in 2010 and
2009,
respectively
|
|
|
13 |
|
|
|
7 |
|
Common
stock, $.01 par value, 350,000,000 shares authorized,
138,016,637
and 137,888,408 issued and outstanding
in
2010 and 2009, respectively
|
|
|
1,380 |
|
|
|
1,379 |
|
Additional
paid-in capital
|
|
|
1,512,607 |
|
|
|
1,399,654 |
|
Accumulated
other comprehensive income
|
|
|
2,665 |
|
|
|
491 |
|
Accumulated
deficit
|
|
|
(300,314 |
) |
|
|
(283,640 |
) |
Total
shareholders' equity
|
|
|
1,216,356 |
|
|
|
1,117,896 |
|
Noncontrolling
interests
|
|
|
294,658 |
|
|
|
302,483 |
|
Total
equity
|
|
|
1,511,014 |
|
|
|
1,420,379 |
|
|
|
$ |
7,667,940 |
|
|
$ |
7,729,110 |
|
The
accompanying notes are an integral part of these balance
sheets.
CBL
& Associates Properties, Inc.
Condensed
Consolidated Statements of Operations
(In
thousands, except per share data)
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Minimum
rents
|
|
$ |
168,821 |
|
|
$ |
171,937 |
|
Percentage
rents
|
|
|
4,013 |
|
|
|
4,804 |
|
Other
rents
|
|
|
4,576 |
|
|
|
4,280 |
|
Tenant
reimbursements
|
|
|
79,823 |
|
|
|
81,484 |
|
Management,
development and leasing fees
|
|
|
1,706 |
|
|
|
2,465 |
|
Other
|
|
|
7,237 |
|
|
|
6,090 |
|
Total
revenues
|
|
|
266,176 |
|
|
|
271,060 |
|
EXPENSES:
|
|
|
|
|
|
|
|
|
Property
operating
|
|
|
38,897 |
|
|
|
44,017 |
|
Depreciation
and amortization
|
|
|
72,012 |
|
|
|
78,311 |
|
Real
estate taxes
|
|
|
24,992 |
|
|
|
24,154 |
|
Maintenance
and repairs
|
|
|
16,184 |
|
|
|
15,994 |
|
General
and administrative
|
|
|
11,074 |
|
|
|
11,479 |
|
Other
|
|
|
6,701 |
|
|
|
5,157 |
|
Total
expenses
|
|
|
169,860 |
|
|
|
179,112 |
|
Income
from operations
|
|
|
96,316 |
|
|
|
91,948 |
|
Interest
and other income
|
|
|
1,051 |
|
|
|
1,581 |
|
Interest
expense
|
|
|
(73,460 |
) |
|
|
(71,885 |
) |
Loss
on impairment of investment
|
|
|
- |
|
|
|
(7,706 |
) |
Gain
(loss) on sales of real estate assets
|
|
|
866 |
|
|
|
(139 |
) |
Equity
in earnings of unconsolidated affiliates
|
|
|
539 |
|
|
|
1,534 |
|
Income
tax benefit (provision)
|
|
|
1,877 |
|
|
|
(603 |
) |
Income
from continuing operations
|
|
|
27,189 |
|
|
|
14,730 |
|
Operating
income (loss) of discontinued operations
|
|
|
14 |
|
|
|
(66 |
) |
Loss
on discontinued operations
|
|
|
- |
|
|
|
(60 |
) |
Net
income
|
|
|
27,203 |
|
|
|
14,604 |
|
Net income
attributable to noncontrolling interests in:
|
|
|
|
|
|
|
|
|
Operating
partnership
|
|
|
(4,110 |
) |
|
|
(1,306 |
) |
Other
consolidated subsidiaries
|
|
|
(6,137 |
) |
|
|
(6,131 |
) |
Net
income attributable to the Company
|
|
|
16,956 |
|
|
|
7,167 |
|
Preferred
dividends
|
|
|
(6,028 |
) |
|
|
(5,455 |
) |
Net
income available to common shareholders
|
|
$ |
10,928 |
|
|
$ |
1,712 |
|
CBL
& Associates Properties, Inc.
Condensed
Consolidated Statements of Operations
(In
thousands, except per share data)
(Unaudited)
(Continued)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Basic
earnings per share available to common shareholders:
|
|
|
|
|
|
|
Income
from continuing operations, net of preferred dividends
|
|
$ |
0.08 |
|
|
$ |
0.03 |
|
Discontinued
operations
|
|
|
- |
|
|
|
- |
|
Net
income available to common shareholders
|
|
$ |
0.08 |
|
|
$ |
0.03 |
|
Weighted
average common shares outstanding
|
|
|
137,967 |
|
|
|
66,407 |
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share available to common shareholders:
|
|
|
|
|
|
|
|
|
Income
from continuing operations, net of preferred dividends
|
|
$ |
0.08 |
|
|
$ |
0.03 |
|
Discontinued
operations
|
|
|
- |
|
|
|
- |
|
Net
income available to common shareholders
|
|
$ |
0.08 |
|
|
$ |
0.03 |
|
Weighted
average common and potential dilutive common shares
outstanding
|
|
|
138,006 |
|
|
|
66,439 |
|
|
|
|
|
|
|
|
|
|
Amounts
available to common shareholders:
|
|
|
|
|
|
|
|
|
Income
from continuing operations, net of preferred dividends
|
|
$ |
10,918 |
|
|
$ |
1,784 |
|
Discontinued
operations
|
|
|
10 |
|
|
|
(72 |
) |
Net
income available to common shareholders
|
|
$ |
10,928 |
|
|
$ |
1,712 |
|
|
|
|
|
|
|
|
|
|
Dividends
declared per common share
|
|
$ |
0.2000 |
|
|
$ |
0.3700 |
|
The
accompanying notes are an integral part of these statements.
CBL
& Associates Properties, Inc.
Condensed
Consolidated Statements of Equity
(In
thousands, except per share data)
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
Redeemable
Noncontrolling
Partnership
Interests
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Accumulated
Deficit
|
|
Total
Shareholders'
Equity
|
|
Noncontrolling
Interests
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,393
|
|
$
|
12
|
|
$
|
664
|
|
$
|
993,941
|
|
$
|
(12,786
|
)
|
$
|
(193,307
|
)
|
$
|
788,524
|
|
$
|
380,472
|
|
$
|
1,168,996
|
|
Net
income
|
|
971
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,167
|
|
|
7,167
|
|
|
1,411
|
|
|
8,578
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized loss on available-for-sale
securities
|
|
(28
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,191
|
)
|
|
-
|
|
|
(1,191
|
)
|
|
(884
|
)
|
|
(2,075
|
) |
Net
unrealized gain on hedging instruments
|
|
24
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,135
|
|
|
-
|
|
|
1,135
|
|
|
771
|
|
|
1,906
|
|
Realized
loss on foreign currency
translation
adjustment
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
27
|
|
|
-
|
|
|
27
|
|
|
20
|
|
|
47
|
|
Unrealized
gain on foreign currency
translation
adjustment
|
|
11
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
382
|
|
|
-
|
|
|
382
|
|
|
355
|
|
|
737
|
|
Total
other comprehensive income
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353
|
|
|
262
|
|
|
615
|
|
Dividends
declared - common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(24,576
|
)
|
|
(24,576
|
)
|
|
-
|
|
|
(24,576
|
) |
Dividends
declared - preferred stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,455
|
)
|
|
(5,455
|
)
|
|
-
|
|
|
(5,455
|
) |
Issuance
of common stock and restricted
common
stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
254
|
|
|
-
|
|
|
-
|
|
|
254
|
|
|
-
|
|
|
254
|
|
Cancellation
of restricted common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(11)
|
|
|
-
|
|
|
-
|
|
|
(11
|
)
|
|
-
|
|
|
(11
|
) |
Accrual
under deferred compensation
arrangements
|
|
-
|
|
|
-
|
|
|
-
|
|
|
19
|
|
|
-
|
|
|
-
|
|
|
19
|
|
|
-
|
|
|
19
|
|
Amortization
of deferred compensation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
774
|
|
|
-
|
|
|
-
|
|
|
774
|
|
|
-
|
|
|
774
|
|
Distributions
to noncontrolling interests
|
|
(1,430
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(18,796
|
)
|
|
(18,796
|
) |
Adjustment
for noncontrolling interest in
Operating
Partnership
|
|
305
|
|
|
-
|
|
|
-
|
|
|
2,429
|
|
|
-
|
|
|
-
|
|
|
2,429
|
|
|
(2,734
|
)
|
|
(305
|
) |
Adjustment
to record redeemable
noncontrolling interests
at redemption value
|
|
(400
|
)
|
|
-
|
|
|
-
|
|
|
400
|
|
|
-
|
|
|
-
|
|
|
400
|
|
|
-
|
|
|
400
|
|
Balance,
March 31, 2009
|
$
|
17,847
|
|
$
|
12
|
|
$
|
664
|
|
$
|
997,806
|
|
$
|
(12,433)
|
|
$
|
(216,171
|
)
|
$
|
769,878
|
|
$
|
360,615
|
|
$
|
1,130,493
|
|
CBL
& Associates Properties, Inc.
Condensed
Consolidated Statements of Equity
(In
thousands, except per share data)
(Continued)
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
Redeemable
Noncontrolling Partnership
Interests
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive Income
|
|
Accumulated
Deficit
|
|
Total
Shareholders'
Equity
|
|
Noncontrolling
Interests
|
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2010
|
$
|
22,689
|
|
$
|
12
|
|
$
|
1,379
|
|
$
|
1,399,654
|
|
$
|
491
|
|
$
|
(283,640
|
)
|
$ |
1,117,896
|
|
$
|
302,483
|
|
$
|
1,420,379
|
|
Net
income
|
|
1,055
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
16,956
|
|
|
16,956
|
|
|
4,086
|
|
|
21,042
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized gain on available-for-sale
securities
|
|
29
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,571
|
|
|
-
|
|
|
2,571
|
|
|
939
|
|
|
3,510
|
|
Net
unrealized gain on hedging instruments
|
|
5
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
442
|
|
|
-
|
|
|
442
|
|
|
162
|
|
|
604
|
|
Realized
loss on foreign currency
translation
adjustment
|
|
1
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
123
|
|
|
-
|
|
|
123
|
|
|
45
|
|
|
168
|
|
Unrealized
gain (loss) on foreign currency
translation
adjustment
|
|
(397
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(962
|
)
|
|
-
|
|
|
(962
|
)
|
|
1,203
|
|
|
241
|
|
Total
other comprehensive income (loss)
|
|
(362
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,174
|
|
|
2,349
|
|
|
4,523
|
|
Dividends
declared - common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(27,602
|
)
|
|
(27,602
|
)
|
|
-
|
|
|
(27,602
|
) |
Dividends
declared - preferred stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,028
|
)
|
|
(6,028
|
)
|
|
-
|
|
|
(6,028
|
) |
Issuance
of preferred stock for equity offering
|
|
-
|
|
|
6
|
|
|
-
|
|
|
121,035
|
|
|
-
|
|
|
-
|
|
|
121,041
|
|
|
-
|
|
|
121,041
|
|
Issuance
of common stock and restricted
common
stock
|
|
-
|
|
|
-
|
|
|
1
|
|
|
58
|
|
|
-
|
|
|
-
|
|
|
59
|
|
|
-
|
|
|
59
|
|
Cancellation
of restricted common stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(24
|
)
|
|
-
|
|
|
-
|
|
|
(24
|
)
|
|
-
|
|
|
(24
|
) |
Exercise
of stock options
|
|
-
|
|
|
-
|
|
|
-
|
|
|
133
|
|
|
-
|
|
|
-
|
|
|
133
|
|
|
-
|
|
|
133
|
|
Accrual
under deferred compensation
arrangements
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
3
|
|
Amortization
of deferred compensation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
931
|
|
|
-
|
|
|
-
|
|
|
931
|
|
|
-
|
|
|
931
|
|
Income
tax effect from share-based
compensation
|
|
(10
|
)
|
|
-
|
|
|
-
|
|
|
(923
|
)
|
|
-
|
|
|
-
|
|
|
(923
|
)
|
|
(337
|
)
|
|
(1,260
|
) |
Distributions
to noncontrolling interests
|
|
(1,893
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(15,142
|
)
|
|
(15,142
|
) |
Adjustment
for noncontrolling interest in
Operating
Partnership
|
|
712
|
|
|
-
|
|
|
-
|
|
|
(1,931
|
)
|
|
-
|
|
|
-
|
|
|
(1,931
|
)
|
|
1,219
|
|
|
(712
|
) |
Adjustment
to record redeemable
noncontrolling interest
at redemption value
|
|
6,329
|
|
|
-
|
|
|
-
|
|
|
(6,329
|
)
|
|
-
|
|
|
-
|
|
|
(6,329
|
)
|
|
-
|
|
|
(6,329
|
) |
Balance,
March 31, 2010
|
$
|
28,520
|
|
$
|
18
|
|
$
|
1,380
|
|
$
|
1,512,607
|
|
$
|
2,665
|
|
$
|
(300,314
|
)
|
$
|
1,216,356
|
|
$
|
294,658
|
|
$
|
1,511,014
|
|
The
accompanying notes are an integral part of these statements.
CBL
& Associates Properties, Inc.
Condensed
Consolidated Statements of Cash Flows
(In
thousands)
(Unaudited)
|
|
Three
Months Ended March
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
27,203 |
|
|
$ |
14,604 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
48,334 |
|
|
|
48,033 |
|
Amortization
|
|
|
24,549 |
|
|
|
31,196 |
|
Net
amortization of above and below market leases
|
|
|
(882 |
) |
|
|
(1,557 |
) |
Amortization
of deferred finance costs and debt premiums (discounts)
|
|
|
1,397 |
|
|
|
(623 |
) |
(Gain)
loss on sales of real estate assets
|
|
|
(866 |
) |
|
|
139 |
|
Realized
foreign currency loss
|
|
|
169 |
|
|
|
48 |
|
Loss
on discontinued operations
|
|
|
- |
|
|
|
60 |
|
Impairment
of investment
|
|
|
- |
|
|
|
7,706 |
|
Share-based
compensation expense
|
|
|
979 |
|
|
|
970 |
|
Income
tax effect from share-based compensation
|
|
|
(1,270 |
) |
|
|
- |
|
Equity
in earnings of unconsolidated affiliates
|
|
|
(539 |
) |
|
|
(1,534 |
) |
Distributions
of earnings from unconsolidated affiliates
|
|
|
1,022 |
|
|
|
3,727 |
|
Write-off
of development projects
|
|
|
99 |
|
|
|
76 |
|
Provision
for doubtful accounts
|
|
|
1,455 |
|
|
|
2,131 |
|
Change
in deferred tax asset
|
|
|
(486 |
) |
|
|
(309 |
) |
Changes
in:
|
|
|
|
|
|
|
|
|
Tenant
and other receivables
|
|
|
4,426 |
|
|
|
5,129 |
|
Other
assets
|
|
|
(2,206 |
) |
|
|
(4,110 |
) |
Accounts
payable and accrued liabilities
|
|
|
(14,974 |
) |
|
|
(13,951 |
) |
Net
cash provided by operating activities
|
|
|
88,410 |
|
|
|
91,735 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Additions
to real estate assets
|
|
|
(28,186 |
) |
|
|
(61,328 |
) |
Proceeds
from sales of real estate assets
|
|
|
1,266 |
|
|
|
4,721 |
|
Additions
to mortgage notes receivable
|
|
|
- |
|
|
|
(4,437 |
) |
Payments
received on mortgage notes receivable
|
|
|
205 |
|
|
|
3,083 |
|
Distributions
from restricted cash
|
|
|
9,932 |
|
|
|
11,208 |
|
Distributions
in excess of equity in earnings of unconsolidated
affiliates
|
|
|
11,379 |
|
|
|
21,339 |
|
Additional
investments in and advances to unconsolidated affiliates
|
|
|
(12,965 |
) |
|
|
(22,306 |
) |
Changes
in other assets
|
|
|
(1,292 |
) |
|
|
2,256 |
|
Net
cash used in investing activities
|
|
$ |
(19,661 |
) |
|
$ |
(45,464 |
) |
CBL
& Associates Properties, Inc.
Condensed
Consolidated Statements of Cash Flows
(In
thousands)
(Unaudited)
(Continued)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Proceeds
from mortgage and other indebtedness
|
|
$ |
161,391 |
|
|
$ |
105,276 |
|
Principal
payments on mortgage and other indebtedness
|
|
|
(317,291 |
) |
|
|
(104,020 |
) |
Additions
to deferred financing costs
|
|
|
(1,510 |
) |
|
|
(841 |
) |
Proceeds
from issuance of common stock
|
|
|
14 |
|
|
|
66 |
|
Proceeds
from issuance of preferred stock
|
|
|
121,041 |
|
|
|
- |
|
Proceeds
from exercise of stock options
|
|
|
133 |
|
|
|
- |
|
Income
tax effect from share-based compensation
|
|
|
1,270 |
|
|
|
- |
|
Distributions
to noncontrolling interests
|
|
|
(18,720 |
) |
|
|
(24,644 |
) |
Dividends
paid to holders of preferred stock
|
|
|
(6,028 |
) |
|
|
(5,455 |
) |
Dividends
paid to common shareholders
|
|
|
(6,895 |
) |
|
|
(24,568 |
) |
Net
cash used in financing activities
|
|
|
(66,595 |
) |
|
|
(54,186 |
) |
|
|
|
|
|
|
|
|
|
EFFECT
OF FOREIGN EXCHANGE RATE CHANGES ON CASH
|
|
|
(1 |
) |
|
|
761 |
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
2,153 |
|
|
|
(7,154 |
) |
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
48,062 |
|
|
|
51,227 |
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$ |
50,215 |
|
|
$ |
44,073 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid for interest, net of amounts capitalized
|
|
$ |
70,764 |
|
|
$ |
73,856 |
|
The
accompanying notes are an integral part of these statements.
CBL
& Associates Properties, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
(Dollars
in thousands, except share data)
CBL & Associates Properties, Inc.
(“CBL”), a Delaware corporation, is a self-managed, self-administered, fully
integrated real estate investment trust (“REIT”) that is engaged in the
ownership, development, acquisition, leasing, management and operation of
regional shopping malls, open-air centers, community centers and office
properties. Its shopping center properties are located in 27 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”).At March 31, 2010,
the Operating Partnership owned controlling interests in 76 regional
malls/open-air centers (including one mixed-use center), 30 associated centers
(each located adjacent to a regional mall), ten community centers, and 13 office
buildings, including CBL’s corporate office building. The Operating Partnership
consolidates the financial statements of all entities in which it has a
controlling financial interest or where it is the primary beneficiary of a
variable interest entity. At March 31, 2010, the Operating
Partnership owned non-controlling interests in nine regional malls, four
associated centers, four community centers and six office buildings. Because one
or more of the other partners have substantive participating rights, the
Operating Partnership does not control these partnerships and joint ventures
and, accordingly, accounts for these investments using the equity
method. The Operating Partnership had a controlling interest in one
community center, owned in a 75/25 joint venture that was under construction at
March 31, 2010. The Operating Partnership also holds options to
acquire certain development properties owned by third parties.
CBL is the 100% owner of two qualified
REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At March 31,
2010, CBL Holdings I, Inc., the sole general partner of the Operating
Partnership, owned a 1.1% general partner interest in the Operating Partnership
and CBL Holdings II, Inc. owned a 71.6% limited partner interest for a combined
interest held by CBL of 72.7%.
The
noncontrolling interest in the Operating Partnership is held primarily by CBL
& Associates, Inc. and its affiliates (collectively “CBL’s Predecessor”) and
by affiliates of The Richard E. Jacobs Group, Inc. (“Jacobs”). CBL’s Predecessor
contributed their interests in certain real estate properties and joint ventures
to the Operating Partnership in exchange for a limited partner interest when the
Operating Partnership was formed in November 1993. Jacobs contributed their
interests in certain real estate properties and joint ventures to the Operating
Partnership in exchange for limited partner interests when the Operating
Partnership acquired the majority of Jacobs’ interests in 23 properties in
January 2001 and the balance of such interests in February 2002. At March 31,
2010, CBL’s Predecessor owned a 9.8% limited partner interest, Jacobs owned a
12.1% limited partner interest and third parties owned a 5.4% limited partner
interest in the Operating Partnership. CBL’s Predecessor also owned
7.3 million shares of CBL’s common stock at March 31, 2010, for a total combined
effective interest of 13.6% in the Operating Partnership.
The
Operating Partnership conducts CBL’s property management and development
activities through CBL & Associates Management, Inc. (the “Management
Company”) to comply with certain requirements of the Internal Revenue Code of
1986, as amended (the “Code”). The Operating Partnership owns 100% of both of
the Management Company’s preferred stock and common stock.
CBL, the Operating Partnership and the Management
Company are collectively referred to herein as “the Company”.
The
accompanying condensed consolidated financial statements are unaudited; however,
they have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) for interim financial
information and in conjunction with the rules and regulations of the
Securities
and
Exchange Commission. Accordingly, they do not include all of the disclosures
required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting solely of normal recurring matters)
necessary for a fair presentation of the financial statements for these interim
periods have been included. Material intercompany transactions have been
eliminated. The results for the interim period ended March 31, 2010 are not
necessarily indicative of the results to be obtained for the full fiscal
year.
In April
2009, the Company paid its first quarter dividend on its common stock of $0.37
per share in cash and shares of common stock. The Company issued
4,754,355 shares of its common stock in connection with the dividend, which
resulted in an increase of approximately 7.2% in the number of shares
outstanding. The Company elected to treat the issuance of its common
stock as a stock dividend for earnings per share (“EPS”) purposes pursuant to
accounting guidance that was in effect at that time. Therefore, all
share and per share information related to EPS was adjusted proportionately to
reflect the additional common stock issued on a retrospective
basis. However, in January 2010, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-01, Accounting for Stock Dividends,
Including Distributions to Shareholders with Components of Stock and Cash
(“ASU 2010-01”) requiring that stock dividends such as the one the Company made
in April 2009 be treated as a stock issuance that is reflected in share and per
share information related to EPS on a prospective basis. Pursuant to
the provisions of ASU 2010-01, the Company adopted this guidance on a
retrospective basis. Thus, the share and per share information
related to EPS presented in the Company’s Form 10-Q for the quarterly period
ended March 31, 2009, has been revised to reflect this adoption.
The
Company has evaluated subsequent events through the date of issuance of these
financial statements.
These
condensed consolidated financial statements should be read in conjunction with
CBL’s audited consolidated financial statements and notes thereto included in
its Annual Report on Form 10-K for the year ended December 31, 2009, filed on
February 22, 2010, as amended.
Note
2 – Recent Accounting Pronouncements
Effective
January 1, 2010, the Company adopted ASU No. 2010-06, Fair Value Measurements and
Disclosures: Improving Disclosures about Fair Value Measurements (“ASU
2010-06”). ASU 2010-06 provides that significant transfers in or out
of measurements classified as Levels 1 or 2 should be disclosed separately along
with reasons for the transfers. Information regarding purchases,
sales, issuances and settlements related to measurements classified as Level 3
are also to be presented separately. Existing disclosures have been
updated to include fair value measurement disclosures for each class of assets
and liabilities and information regarding the valuation techniques and inputs
used to measure fair value in both measurements classified as Levels 2 or
3. The guidance was effective for fiscal years beginning after
December 15, 2009 excluding the provision relating to the rollforward of Level 3
activity which has been deferred until January 1, 2011. The adoption
did not have an impact on the Company’s condensed consolidated financial
statements.
Effective
January 1, 2010, the Company adopted ASU No. 2009-16, Transfers and Servicing: Accounting
for Transfers of Financial Assets (“ASU 2009-16”). The
guidance eliminates the concept of a “qualifying special-purpose entity,”
changes the requirements for derecognizing financial assets and requires
additional related disclosures. The adoption did not have an impact
on the Company’s condensed consolidated financial statements.
Effective
January 1, 2010, the Company adopted ASU No. 2009-17, Consolidations: Improvements to
Financial Reporting by Enterprises Involved with Variable Interest Entities
(“ASU 2009-17”). ASU 2009-17 modifies how a company determines
when an entity that is insufficiently capitalized or is not controlled through
voting, or similar, rights should be consolidated. The guidance
clarifies that the determination of whether a company is required to consolidate
an entity is based on, among other things, an entity’s purpose
and
design and a company’s ability to direct the activities of the entity that most
significantly impact the entity’s economic performance. This guidance
requires an ongoing reassessment of whether a company is the primary beneficiary
of a variable interest entity. It also requires additional disclosure
about a company’s involvement in variable interest entities and any significant
changes in risk exposure due to that involvement. The adoption did
not have an impact on the Company’s condensed consolidated financial
statements.
On
February 24, 2010, the FASB issued ASU No. 2010-09, Subsequent Events: Amendments to
Certain Recognition and Disclosure Requirements (“ASU
2010-09”). ASU 2010-09 amends the disclosure provision related to
subsequent events by removing the requirement for an SEC filer to disclose a
date through which subsequent events have been evaluated. The new
accounting guidance was effective immediately and was adopted by the Company
upon the date of issuance.
Note
3 – Fair Value Measurements
The
Company has categorized its financial assets and financial liabilities that are
recorded at fair value into a hierarchy based on whether the inputs to valuation
techniques are observable or unobservable. The fair value hierarchy
contains three levels of inputs that may be used to measure fair value as
follows:
Level 1 –
Inputs represent quoted prices in active markets for identical assets and
liabilities as of the measurement date.
Level 2 –
Inputs, other than those included in Level 1, represent observable measurements
for similar instruments in active markets, or identical or similar instruments
in markets that are not active, and observable measurements or market data for
instruments with substantially the full term of the asset or
liability.
Level 3 –
Inputs represent unobservable measurements, supported by little, if any, market
activity, and require considerable assumptions that are significant to the fair
value of the asset or liability. Market valuations must often be
determined using discounted cash flow methodologies, pricing models or similar
techniques based on the Company’s assumptions and best judgment.
The
following tables set forth information regarding the Company’s financial
instruments that are measured at fair value in the condensed consolidated
balance sheets as of March 31, 2010 and December 31, 2009:
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
Fair
Value at
March
31, 2010
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$ |
7,578 |
|
|
$ |
7,578 |
|
|
$ |
- |
|
|
$ |
- |
|
Privately
held debt and equity securities
|
|
|
2,475 |
|
|
|
- |
|
|
|
- |
|
|
|
2,475 |
|
Interest
rate caps
|
|
|
79 |
|
|
|
- |
|
|
|
79 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
$ |
2,148 |
|
|
$ |
- |
|
|
$ |
2,148 |
|
|
$ |
- |
|
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
Fair
Value at
December
31, 2009
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$ |
4,039 |
|
|
$ |
4,039 |
|
|
$ |
- |
|
|
$ |
- |
|
Privately
held debt and equity securities
|
|
|
2,475 |
|
|
|
- |
|
|
|
- |
|
|
|
2,475 |
|
Interest
rate cap
|
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
$ |
2,907 |
|
|
$ |
- |
|
|
$ |
2,907 |
|
|
$ |
- |
|
Intangible
lease assets and other assets in the condensed consolidated balance sheets
include marketable securities consisting of corporate equity securities that are
classified as available for sale. Net unrealized gains and losses on
available-for-sale securities that are deemed to be temporary in nature are
recorded as a component of accumulated other comprehensive income in redeemable
noncontrolling interests, shareholders’ equity and noncontrolling
interests. If a decline in the value of an investment is deemed to be
other than temporary, the investment is written down to fair value and an
impairment loss is recognized in the current period to the extent of the decline
in value. During the three months ended March 31, 2010 and 2009, the
Company did not recognize any realized gains and losses or write-downs related
to sales or disposals of marketable securities or other-than-temporary
impairments. The fair value of the Company’s available-for-sale
securities is based on quoted market prices and, thus, is classified under Level
1. The following is a summary of the equity securities held by the
Company as of March 31, 2010 and December 31, 2009:
|
|
|
|
|
Gross
Unrealized
|
|
|
|
|
|
|
Adjusted
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2010
|
|
$ |
4,207 |
|
|
$ |
3,373 |
|
|
$ |
2 |
|
|
$ |
7,578 |
|
December
31, 2009
|
|
$ |
4,207 |
|
|
$ |
- |
|
|
$ |
168 |
|
|
$ |
4,039 |
|
The
Company holds a secured convertible promissory note from, and a warrant to
acquire shares of, Jinsheng Group (“Jinsheng”), in which the Company also holds
a cost-method investment. The secured convertible note is
non-interest bearing and is secured by shares of Jinsheng. Since the
secured convertible note is non-interest bearing and there is no active market
for Jinsheng’s debt, the Company performed an analysis on the note considering
credit risk and discounting factors to determine the fair value. The
warrant was initially valued using estimated share price and volatility
variables in a Black Scholes model. Due to the significant estimates
and assumptions used in the valuation of the note and warrant, the Company has
classified these under Level 3. As part of its investment review as
of March 31, 2009, the Company determined that its investment in Jinsheng was
impaired on an other than temporary basis due to a decline in expected future
cash flows as a result of declining occupancy and sales related to the then
downturn of the real estate market in China. An impairment charge of
$2,400 was recorded in the Company’s condensed consolidated statement of
operations for the three month period ended March 31, 2009, to reduce the
carrying values of the secured convertible note and warrant to their estimated
fair values. The Company performed a qualitative analysis of its
investment as of March 31, 2010 and determined that the current balance of the
secured convertible note and warrant of $2,475 is not impaired. See
Note 4 for further discussion.
The
Company uses interest rate swaps to mitigate the effect of interest rate
movements on its variable-rate debt. The Company currently has two
interest rate swaps included in accounts payable and accrued liabilities and two
interest rate caps included in intangible lease assets and other assets in the
accompanying condensed consolidated balance sheets that qualify as hedging
instruments and are designated as cash flow hedges. The swaps and
caps have predominantly met the effectiveness test criteria since inception and
changes in their fair values are, thus, primarily reported in other
comprehensive income (loss) and are
reclassified
into earnings in the same period or periods during which the hedged items affect
earnings. The fair values of the Company’s interest rate hedge
instruments, classified under Level 2, are determined using a proprietary model
which is based on prevailing market data for contracts with matching durations,
current and anticipated London Interbank Offered Rate (“LIBOR”) information,
consideration of the Company’s credit standing, credit risk of the
counterparties and reasonable estimates about relevant future market
conditions. See Note 5 for further information regarding the
Company’s interest rate hedging activity.
The
carrying values of cash and cash equivalents, receivables, accounts payable and
accrued liabilities are reasonable estimates of their fair values because of the
short-term nature of these financial instruments. Based on the
interest rates for similar financial instruments, the carrying value of mortgage
notes receivable is a reasonable estimate of fair value. The
estimated fair value of mortgage and other indebtedness was $5,814,762 and
$5,830,722 at March 31, 2010 and December 31, 2009, respectively. The
estimated fair value was calculated by discounting future cash flows for the
notes payable using estimated market rates at which similar loans would be made
currently.
As of
March 31, 2010, the Company did not have any assets or liabilities measured at
fair value on a non-recurring basis for which the carrying value exceeded fair
value.
Note
4 – Unconsolidated Affiliates, Noncontrolling Interests and Cost Method
Investments
Unconsolidated
Affiliates
At March
31, 2010, the Company had investments in the following 20 entities, which are
accounted for using the equity method of accounting:
Joint
Venture
|
|
Property
Name
|
|
Company's
Interest
|
|
|
|
|
|
|
CBL-TRS
Joint Venture, LLC
|
|
Friendly
Center, The Shops at Friendly Center and a portfolio of six office
buildings
|
|
|
50.0
|
% |
CBL-TRS
Joint Venture II, LLC
|
|
Renaissance
Center
|
|
|
50.0
|
% |
Governor’s
Square IB
|
|
Governor’s
Plaza
|
|
|
50.0
|
% |
Governor’s
Square Company
|
|
Governor’s
Square
|
|
|
47.5
|
% |
High
Pointe Commons, LP
|
|
High
Pointe Commons
|
|
|
50.0
|
% |
High
Pointe Commons II-HAP, LP
|
|
High
Pointe Commons - Christmas Tree Shop
|
|
|
50.0
|
% |
Imperial
Valley Mall L.P.
|
|
Imperial
Valley Mall
|
|
|
60.0
|
% |
Imperial
Valley Peripheral L.P.
|
|
Imperial
Valley Mall (vacant land)
|
|
|
60.0
|
% |
JG
Gulf Coast Town Center
|
|
Gulf
Coast Town Center
|
|
|
50.0
|
% |
Kentucky
Oaks Mall Company
|
|
Kentucky
Oaks Mall
|
|
|
50.0
|
% |
Mall
of South Carolina L.P.
|
|
Coastal
Grand—Myrtle Beach
|
|
|
50.0
|
% |
Mall
of South Carolina Outparcel L.P.
|
|
Coastal
Grand—Myrtle Beach (vacant land)
|
|
|
50.0
|
% |
Mall
Shopping Center Company
|
|
Plaza
del Sol
|
|
|
50.6
|
% |
Parkway
Place L.P.
|
|
Parkway
Place
|
|
|
50.0
|
% |
Port
Orange I, LLC
|
|
The
Pavilion at Port Orange Phase I
|
|
|
50.0
|
% |
Port
Orange II, LLC
|
|
The
Pavilion at Port Orange Phase II
|
|
|
50.0
|
% |
Triangle
Town Member LLC
|
|
Triangle
Town Center, Triangle Town Commons and Triangle Town Place
|
|
|
50.0
|
% |
West
Melbourne I, LLC
|
|
Hammock
Landing Phase I
|
|
|
50.0
|
% |
West
Melbourne II, LLC
|
|
Hammock
Landing Phase II
|
|
|
50.0
|
% |
York
Town Center, LP
|
|
York
Town Center
|
|
|
50.0
|
% |
Although
the Company has majority ownership of certain of these joint ventures, it has
evaluated these investments and concluded that the other partners or owners in
these joint ventures have substantive participating rights, such as approvals
of:
·
|
the
pro forma for the development and construction of the project and any
material deviations or modifications
thereto;
|
·
|
the
site plan and any material deviations or modifications
thereto;
|
·
|
the
conceptual design of the project and the initial plans and specifications
for the project and any material deviations or modifications
thereto;
|
·
|
any
acquisition/construction loans or any permanent
financings/refinancings;
|
·
|
the
annual operating budgets and any material deviations or modifications
thereto;
|
·
|
the
initial leasing plan and leasing parameters and any material deviations or
modifications thereto; and
|
·
|
any
material acquisitions or dispositions with respect to the
project.
|
As a
result of the joint control over these joint ventures, the Company accounts for
these investments using the equity method of accounting.
Condensed
combined financial statement information for the unconsolidated affiliates is as
follows:
|
|
Total
for the Three
Months
Ended March 31,
|
|
|
Company's
Share for the Three
Months
Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
39,722 |
|
|
$ |
41,832 |
|
|
$ |
20,970 |
|
|
$ |
24,868 |
|
Depreciation
and amortization expense
|
|
|
(13,122 |
) |
|
|
(12,636 |
) |
|
|
(6,885 |
) |
|
|
(7,509 |
) |
Interest
expense
|
|
|
(13,972 |
) |
|
|
(12,688 |
) |
|
|
(7,228 |
) |
|
|
(7,865 |
) |
Other
operating expenses
|
|
|
(12,652 |
) |
|
|
(13,876 |
) |
|
|
(6,268 |
) |
|
|
(8,524 |
) |
Gain
(loss) on sales of real estate assets
|
|
|
(122 |
) |
|
|
988 |
|
|
|
(50 |
) |
|
|
564 |
|
Net
income (loss)
|
|
$ |
(146 |
) |
|
$ |
3,620 |
|
|
$ |
539 |
|
|
$ |
1,534 |
|
CBL
Macapa
In
September 2008, the Company entered into a condominium partnership agreement
with several individual investors to acquire a 60% interest in a new retail
development in Macapa, Brazil. The Company provided total funding of $1,189
related to the development. In December 2009, the Company entered
into an agreement to sell its 60% interest in this partnership with one of the
condominium partnership’s investors for a gross sales price of $1,263, less
closing costs for a net sales price of $1,201. The sale closed in
March 2010. Upon closing, the buyer paid $200 and gave the Company
two notes receivable totaling $1,001 for the remaining balance of the purchase
price. The notes receivable of $300 and $701 bear interest at 10%
each and are due on April 23, 2010 and June 8, 2010,
respectively. There was no gain or loss on this sale. On
April 22, 2010, the buyer paid the first note of $300, plus applicable interest,
to the Company.
Noncontrolling
Interests
Noncontrolling
interests includes the aggregate noncontrolling partnership interest in the
Operating Partnership that is not owned by the Company and for which each of the
noncontrolling limited partners has the right to exchange all or a portion of
its partnership interests for shares of the Company’s common stock, or at the
Company’s election, their cash equivalent. Noncontrolling interests
also includes the aggregate noncontrolling ownership interest in the Company’s
other consolidated subsidiaries that is held by third parties and for which the
related partnership agreements either do not include redemption provisions or
are subject to redemption provisions that do not require classification outside
of permanent equity. As of March 31, 2010, the total noncontrolling
interests of $294,658 consisted of third-party interests in the Operating
Partnership and in other consolidated subsidiaries of $293,883 and $775,
respectively. The total noncontrolling interests at December 31, 2009
of $302,483 consisted of third-party interests in the Operating Partnership and
in other consolidated subsidiaries of $301,808 and $675,
respectively.
Redeemable
noncontrolling interests include a noncontrolling partnership interest in the
Operating Partnership that is not owned by the Company and for which the
partnership agreement includes redemption provisions that may require the
Company to redeem the partnership interest for real
property. Redeemable noncontrolling interests also include the
aggregate noncontrolling ownership interest in other consolidated subsidiaries
that is held by third parties and for which the related partnership agreements
contain redemption provisions at the holder’s election that allow for redemption
through cash and/or properties. The total redeemable noncontrolling
partnership interests of $28,520 as of March 31, 2010 consisted of third-party
interests in the Operating Partnership and in the Company’s consolidated
subsidiary that provides security and maintenance services to third parties of
$22,080 and $6,440, respectively. At December 31, 2009, the total
redeemable noncontrolling partnership interests of $22,689 consisted of
third-party interests in the Operating Partnership and in the Company’s
consolidated security and maintenance services subsidiary of $16,194 and $6,495,
respectively.
The
redeemable noncontrolling preferred joint venture interest includes the
preferred joint venture units (“PJV units”) issued to the Westfield Group
(“Westfield”) for the acquisition of certain properties during
2007. Activity related to the redeemable noncontrolling preferred
joint venture interest represented by the PJV units is as follows:
|
|
Three
Months Ended
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
Beginning
Balance
|
|
$ |
421,570 |
|
|
$ |
421,279 |
|
Net
income attributable to redeemable noncontrolling
preferred
joint venture interest
|
|
|
5,105 |
|
|
|
5,055 |
|
Distributions
to redeemable noncontrolling preferred
joint
venture interest
|
|
|
(5,169 |
) |
|
|
(5,169 |
) |
Ending
Balance
|
|
$ |
421,506 |
|
|
$ |
421,165 |
|
Cost Method
Investments
In
February 2007, the Company acquired a 6.2% noncontrolling interest in
subsidiaries of Jinsheng Group (“Jinsheng”), an established mall operating and
real estate development company located in Nanjing, China, for $10,125. As of
March 31, 2010, Jinsheng owns controlling interests in four home decoration
shopping centers, two general retail shopping centers and four development
sites.
Jinsheng
also issued to the Company a secured convertible promissory note in exchange for
cash of $4,875. The note is secured by 16,565,534 Series 2 Ordinary Shares of
Jinsheng. The secured note is non-interest bearing and matures upon the earlier
to occur of (i) January 22, 2012, (ii) the closing of the sale, transfer or
other disposition of substantially all of Jinsheng’s assets, (iii) the closing
of a merger or consolidation of Jinsheng or (iv) an event of default, as defined
in the secured note. In lieu of the Company’s right to demand payment on the
maturity date, the Company may, at its sole option, convert the outstanding
amount of the secured note into 16,565,534 Series A-2 Preferred Shares of
Jinsheng (which equates to a 2.275% ownership interest).
Jinsheng
also granted the Company a warrant to acquire 5,461,165 Series A-3 Preferred
Shares for $1,875. The warrant expired on January 22, 2010.
The
Company accounts for its noncontrolling interest in Jinsheng using the cost
method because the Company does not exercise significant influence over Jinsheng
and there is no readily determinable market value of Jinsheng’s shares since
they are not publicly traded. The Company recorded the secured note at its
estimated fair value of $4,513, which reflects a discount of $362 due to the
fact that it is non-interest bearing. The discount is amortized to interest
income over the term of the secured note using the effective interest method.
The noncontrolling interest and the secured note are reflected as investment in
unconsolidated affiliates in the accompanying condensed consolidated balance
sheets.
As part of its investment
review as of March 31, 2009, the Company determined that its noncontrolling
interest in Jinsheng was impaired on an other-than-temporary basis due to a
decline in expected future cash flows. The decrease resulted from
declining occupancy rates and sales due to the then downturn of the real estate
market in China. An impairment charge of $5,306 is recorded in
the Company’s condensed consolidated statements of operations for the three
months ended March 31, 2009 to reduce the carrying value of the Company’s
cost-method investment to its estimated fair value. The Company
performed a qualitative analysis of its noncontrolling investment as of March
31, 2010 and determined that the current balance of its investment is not
impaired.
Note
5 – Mortgage and Other Indebtedness
Mortgage
and other indebtedness consisted of the following:
|
|
March
31, 2010
|
|
December
31, 2009
|
|
|
Amount
|
|
|
Weighted
Average
Interest
Rate (1)
|
|
Amount
|
|
|
Weighted
Average
Interest
Rate (1)
|
Fixed-rate
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse
loans on operating properties
|
|
$ |
3,774,126 |
|
|
|
6.01 |
% |
|
$ |
3,888,822 |
|
|
|
6.02 |
% |
Recourse
loans on operating properties (2)
|
|
|
160,170 |
|
|
|
4.96 |
% |
|
|
160,896 |
|
|
|
4.97 |
% |
Total
fixed-rate debt
|
|
|
3,934,296 |
|
|
|
5.97 |
% |
|
|
4,049,718 |
|
|
|
5.98 |
% |
Variable-rate
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse
term loans on operating properties
|
|
|
72,000 |
|
|
|
4.25 |
% |
|
|
- |
|
|
|
- |
|
Recourse
term loans on operating properties
|
|
|
373,905 |
|
|
|
2.11 |
% |
|
|
242,763 |
|
|
|
1.89 |
% |
Secured
lines of credit
|
|
|
640,882 |
|
|
|
3.76 |
% |
|
|
759,206 |
|
|
|
4.19 |
% |
Unsecured
term facilities
|
|
|
437,494 |
|
|
|
1.73 |
% |
|
|
437,494 |
|
|
|
1.73 |
% |
Construction
loans
|
|
|
- |
|
|
|
- |
|
|
|
126,958 |
|
|
|
2.48 |
% |
Total
variable-rate debt
|
|
|
1,524,281 |
|
|
|
2.80 |
% |
|
|
1,566,421 |
|
|
|
3.01 |
% |
Total
|
|
$ |
5,458,577 |
|
|
|
5.08 |
% |
|
$ |
5,616,139 |
|
|
|
5.15 |
% |
(1)
|
Weighted-average
interest rate includes the effect of debt premiums (discounts), but
excludes amortization of deferred financing
costs.
|
(2)
|
The
Company has entered into interest rate swaps on notional amounts totaling
$127,500 as of March 31, 2010 and December 31, 2009 related to two of its
variable-rate loans on operating properties to effectively fix the
interest rates on those loans. Therefore, these amounts are
currently reflected in fixed-rate
debt.
|
Secured Lines of
Credit
The Company has three secured lines of
credit that are used for mortgage retirement, working capital, construction and
acquisition purposes, as well as issuances of letters of credit. Each of these
lines is secured by mortgages on certain of the Company’s operating properties.
Borrowings under the secured lines of credit bear interest at LIBOR, subject to
a floor of 1.50%, plus a margin ranging from 0.75% to 4.25% and had a weighted
average interest rate of 3.76% at March 31, 2010. The Company also pays fees
based on the amount of unused availability under its two largest secured lines
of credit at a rate of 0.35% of unused availability. The following summarizes
certain information about the secured lines of credit as of March 31,
2010:
|
Total
Capacity
|
|
|
Total
Outstanding
|
|
Maturity
Date
|
|
Extended
Maturity
Date
|
$
|
560,000
|
|
$
|
376,532
|
|
August
2011
|
|
April
2014
|
|
525,000
|
|
|
262,850
|
(1)
|
February
2012
|
|
February
2013
|
|
105,000
|
|
|
1,500
|
|
June
2011
|
|
June
2011
|
$
|
1,190,000
|
|
$
|
640,882
|
|
|
|
|
(1)
|
There
was an additional $7,291 outstanding on this secured line of credit as of
March 31, 2010 for letters of credit. Up to $50,000 of the
capacity on this line can be used for letters of
credit.
|
Unsecured Term
Facilities
In April
2008, the Company entered into an unsecured term facility with total capacity of
$228,000 that bears interest at LIBOR plus a margin of 1.50% to 1.80% based on
the Company’s leverage ratio, as defined in the agreement to the
facility. At March 31, 2010, the outstanding borrowings of $228,000
under the unsecured term facility had a weighted average interest rate of
1.95%. The facility matures in April 2011 and has two one-year
extension options, which are at the Company’s election, for an outside maturity
date of April 2013.
The
Company has an unsecured term facility that was obtained for the exclusive
purpose of acquiring certain properties from the Starmount Company or its
affiliates. At March 31, 2010, the outstanding borrowings of $209,494
under this facility had a weighted average interest rate of
1.50%. The Company completed its acquisition of the properties in
February 2008 and, as a result, no further draws can be made against the
facility. The unsecured term facility bears interest at LIBOR plus a
margin of 0.95% to 1.40% based on the Company’s leverage ratio, as defined in
the agreement to the facility. Net proceeds from a sale, or the
Company’s share of excess proceeds from any refinancings, of any of the
properties originally purchased with borrowings from this unsecured term
facility must be used to pay down any remaining outstanding
balance. The facility matures in November 2010 and has two one-year
extension options, which are at the Company’s election, for an outside maturity
date of November 2012.
Letters of
Credit
At March 31, 2010, the Company had
additional secured and unsecured lines of credit with a total commitment of
$30,971 that can only be used for issuing letters of credit. The letters of
credit outstanding under these lines of credit totaled $11,387 at March 31,
2010.
Covenants and
Restrictions
The
$560,000 and $525,000 secured line of credit agreements contain, among other
restrictions, certain financial covenants including the maintenance of certain
financial coverage ratios, minimum net worth requirements, and limitations on
cash flow distributions. The Company was in compliance with all
covenants and restrictions at March 31, 2010.
The
agreements to the $560,000 and $525,000 secured credit facilities and the two
unsecured term facilities described above, each with the same lender, contain
default and cross-default provisions customary for transactions of this nature
(with applicable customary grace periods) in the event (i) there is a default in
the payment of any indebtedness owed by the Company to any institution which is
a part of the lender groups for the credit facilities, or (ii) there is any
other type of default with respect to any indebtedness owed by the Company to
any institution which is a part of the lender groups for the credit facilities
and such lender accelerates the payment of the indebtedness owed to it as a
result of such default. The credit facility agreements provide that,
upon the occurrence and continuation of an event of default, payment of all
amounts outstanding under these credit facilities and those facilities with
which these agreements reference cross-default provisions may be accelerated and
the lenders’ commitments may be terminated. Additionally, any default
in the payment of any recourse indebtedness greater than $50,000 or any
non-recourse indebtedness greater than $100,000, regardless of whether the
lending institution is a part of the lender groups for the credit facilities,
will constitute an event of default under the agreements to the credit
facilities.
Forty-five malls/open-air centers, nine
associated centers, three community centers and the corporate office building
are owned by special purpose entities that are included in the Company’s
consolidated financial statements. The sole business purpose of the special
purpose entities is to own and operate these properties. The real estate and
other assets owned by these special purpose entities are restricted under the
loan agreements in that they are not available to settle other debts of the
Company. However, so long as the loans are not under an event of default, as
defined in the loan agreements, the cash flows from these properties, after
payments of debt service, operating expenses and reserves, are available for
distribution to the Company.
Mortgages on Operating
Properties
During the first quarter of 2010, the
Company closed on a $72,000 non-recourse loan secured by St. Clair Square in
Fairview Heights, IL with a new lender and received excess proceeds of $13,230,
net of closing costs and payment of accrued interest, after the payoff of the
existing mortgage with a principal balance of $57,237. The excess
proceeds from the refinancing were used to pay down the secured credit
facilities. Also during the first quarter, we repaid a commercial
mortgage-backed securities (“CMBS”) loan secured by Park Plaza Mall in Little
Rock, AR with a principal balance of $38,856 with borrowings from the $560,000
credit facility and the property was added to the collateral pool securing that
facility.
Subsequent to the end of the first
quarter, we retired a CMBS loan with a principal balance of $8,988 secured by
WestGate Crossing in Spartanburg, SC with borrowings from the $560,000 credit
facility and the property was added to the collateral pool securing that
facility.
Scheduled Principal
Payments
As of March 31, 2010, the scheduled
principal 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 lines of credit, are as
follows:
2010
|
|
$ |
923,049 |
|
2011
|
|
|
1,128,730 |
|
2012
|
|
|
870,202 |
|
2013
|
|
|
446,417 |
|
2014
|
|
|
183,442 |
|
Thereafter
|
|
|
1,900,362 |
|
|
|
|
5,452,202 |
|
Net
unamortized premiums
|
|
|
6,375 |
|
|
|
$ |
5,458,577 |
|
Of the $923,049 of scheduled principal
payments in 2010, $873,551 relates to the maturing principal balances of twelve
operating property loans and an unsecured term facility. Maturing
debt with principal balances of $482,930 outstanding as of March 31, 2010 have
extensions available at the Company’s option, leaving approximately $390,621 of
loan maturities in 2010 that must be retired or refinanced. One loan
secured by an operating property with a principal balance of $8,988 as of March
31, 2010 was retired subsequent to the end of the quarter with borrowings from
the $560,000 credit facility and the property was added to the collateral pool
securing that facility. The remaining $381,633 of loan maturities in
2010 represents eight operating property mortgage loans. The Company
has obtained term sheets or commitments on its remaining loan maturities for
2010 and expects to close on the loans on or before their respective maturity
dates.
The Company’s mortgage and other
indebtedness had a weighted average maturity of 3.52 years as of March 31, 2010
and 3.66 years as of December 31, 2009.
Interest Rate Hedge
Instruments
The
Company records its derivative instruments in its condensed consolidated balance
sheets at fair value. The accounting for changes in the fair value of
derivatives depends on the intended use of the derivative, whether the
derivative has been designated as a hedge and, if so, whether the hedge has met
the criteria necessary to apply hedge accounting.
The
Company’s objectives in using interest rate derivatives are to add stability to
interest expense and to manage its exposure to interest rate
movements. To accomplish these objectives, the Company
primarily
uses
interest rate swaps and caps as part of its interest rate risk management
strategy. Interest rate swaps designated as cash flow hedges involve
the receipt of variable-rate amounts from a counterparty in exchange for the
Company making fixed-rate payments over the life of the agreements without
exchange of the underlying notional amount. Interest rate caps
designated as cash flow hedges involve the receipt of variable-rate amounts from
a counterparty if interest rates rise above the strike rate on the contract in
exchange for an up-front premium.
The
effective portion of changes in the fair value of derivatives designated as, and
that qualify as, cash flow hedges is recorded in accumulated other comprehensive
income (“AOCI”) and is subsequently reclassified into earnings in the period
that the hedged forecasted transaction affects earnings. Such
derivatives are used to hedge the variable cash flows associated with
variable-rate debt.
As of
March 31, 2010, the Company had the following outstanding interest rate
derivatives that were designated as cash flow hedges of interest rate
risk:
Interest
Rate Derivative
|
|
Number
of Instruments
|
|
Notional
Amount
|
|
Interest
Rate Swaps
|
|
|
2 |
|
|
$ |
127,500 |
|
Interest
Rate Caps
|
|
|
2 |
|
|
$ |
152,000 |
|
Instrument
Type
|
Location
in Consolidated
Balance
Sheet
|
|
Notional
Amount
|
|
Designated
Benchmark
Interest
Rate
|
|
Strike
Rate
|
|
|
Fair
Value
at
3/31/10
|
|
|
Fair
Value
at 12/31/09
|
|
Maturity
Date
|
Cap
|
Intangible
lease assets and other assets
|
|
$ 72,000
(amortizing
to
$69,375)
|
|
3-month
LIBOR
|
|
|
3.000 |
% |
|
$ |
77 |
|
|
$ |
- |
|
Jan-12
|
Cap
|
Intangible
lease assets and other assets
|
|
|
80,000 |
|
USD-SIFMA
Municipal
Swap Index
|
|
|
4.000 |
% |
|
|
2 |
|
|
|
2 |
|
Dec-10
|
Pay
fixed/ Receive
variable
Swap
|
Accounts
payable and accrued liabilities
|
|
|
40,000 |
|
1-month
LIBOR
|
|
|
2.175 |
% |
|
|
(511 |
) |
|
|
(636 |
) |
Nov-10
|
Pay
fixed/ Receive
variable
Swap
|
Accounts
payable and accrued liabilities
|
|
|
87,500 |
|
1-month
LIBOR
|
|
|
3.600 |
% |
|
|
(1,637 |
) |
|
|
(2,271 |
) |
Sep-10
|
Hedging
Instrument
|
|
Gain
Recognized in OCI/L
(Effective
Portion)
|
|
Location
of Losses Reclassified from AOCI/L into Earnings (Effective
Portion)
|
|
Loss
Recognized
in Earnings
(Effective
Portion)
|
|
Location
of Gain Recognized in Earnings (Ineffective Portion)
|
|
Gain
Recognized in Earnings
(Ineffective
Portion)
|
|
|
|
Three
Months Ended
March
31,
|
|
|
Three
Months Ended
March
31,
|
|
|
Three
Months Ended
March
31,
|
|
|
|
2010
|
|
2009
|
|
|
2010
|
|
2009
|
|
|
2010
|
|
2009
|
|
|
Interest
rate hedges
|
|
$609
|
|
$1,930
|
|
Interest
Expense
|
|
$(943)
|
|
$(4,104)
|
|
Interest
Expense
|
|
$8
|
|
$13
|
|
|
In addition, the Company has a $129,000 notional amount interest rate cap
agreement to hedge the risk of changes in cash flows on a loan of one of its
properties up to the cap notional amount. The interest rate cap
protects the Company from increases in the hedged cash flows attributable to
overall changes in 1-month LIBOR above the strike rate of the cap on the
debt. The strike rate associated with the interest rate cap is
3.25%. The Company did not designate this cap as a hedge under GAAP
and, thus, records any changes in fair value on the cap as interest expense in
the condensed consolidated statements of operations. The Company recognized a
loss of $71 during the three months ended March 31, 2009. No
gain or loss was recognized during the three months ended March 31,
2010. The interest rate cap had a nominal value as of March 31, 2010
and December 31, 2009 and matures in July 2010.
Note
6 – Comprehensive Income
Comprehensive
income includes all changes in redeemable noncontrolling interests and total
equity during the period, except those resulting from investments by
shareholders and partners, distributions to shareholders and partners and
redemption valuation adjustments. Other comprehensive income (“OCI”) includes
changes in unrealized gains (losses) on available-for-sale securities, interest
rate hedge agreements and foreign currency translation
adjustments. The computation of comprehensive income is as
follows:
|
|
Three
Months Ended
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
Net
income
|
|
$ |
27,203 |
|
|
$ |
14,604 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
Net
unrealized gain on hedging agreements
|
|
|
609 |
|
|
|
1,930 |
|
Net
unrealized gain (loss) on available-for-sale securities
|
|
|
3,539 |
|
|
|
(2,103 |
) |
Realized
loss on foreign currency translation adjustment
|
|
|
169 |
|
|
|
48 |
|
Net
unrealized gain (loss) on foreign currency translation
adjustment
|
|
|
(156 |
) |
|
|
748 |
|
Total
other comprehensive income
|
|
|
4,161 |
|
|
|
623 |
|
Comprehensive
income
|
|
$ |
31,364 |
|
|
$ |
15,227 |
|
The components of accumulated other
comprehensive income (loss) as of March 31, 2010 and December 31, 2009 are as
follows:
|
|
March
31, 2010
|
|
|
|
As
reported in:
|
|
|
|
|
|
|
Redeemable
Noncontrolling
Interests
|
|
|
Shareholders'
Equity
|
|
|
Noncontrolling
Interests
|
|
|
Total
|
|
Net
unrealized gain (loss) on hedging agreements
|
|
$ |
405 |
|
|
$ |
123 |
|
|
$ |
(2,879 |
) |
|
$ |
(2,351 |
) |
Net
unrealized gain on available-for-sale securities
|
|
|
290 |
|
|
|
2,542 |
|
|
|
539 |
|
|
|
3,371 |
|
Accumulated
other comprehensive income
(loss)
|
|
$ |
695 |
|
|
$ |
2,665 |
|
|
$ |
(2,340 |
) |
|
$ |
1,020 |
|
|
|
December
31, 2009
|
|
|
|
As
reported in:
|
|
|
|
|
|
|
Redeemable
Noncontrolling
Interests
|
|
|
Shareholders'
Equity
|
|
|
Noncontrolling
Interests
|
|
|
Total
|
|
Net
unrealized gain (loss) on hedging agreements
|
|
$ |
400 |
|
|
$ |
(319 |
) |
|
$ |
(3,041 |
) |
|
$ |
(2,960 |
) |
Net
unrealized gain (loss) on available-for-sale
securities
|
|
|
261 |
|
|
|
(29 |
) |
|
|
(400 |
) |
|
|
(168 |
) |
Net
unrealized gain (loss) on foreign currency
translation adjustment
|
|
|
396 |
|
|
|
839 |
|
|
|
(1,248 |
) |
|
|
(13 |
) |
Accumulated
other comprehensive income
(loss)
|
|
$ |
1,057 |
|
|
$ |
491 |
|
|
$ |
(4,689 |
) |
|
$ |
(3,141 |
) |
Note
7 – Segment Information
The Company measures performance and
allocates resources according to property type, which is determined based on
certain criteria such as type of tenants, capital requirements, economic risks,
leasing terms, and short and long-term returns on capital. Rental income and
tenant reimbursements from tenant leases provide the majority of revenues from
all segments. Information on the Company’s reportable segments is presented as
follows:
Three
Months Ended March 31, 2010
|
|
Malls
|
|
|
Associated
Centers
|
|
|
Community
Centers
|
|
|
All
Other (2)
|
|
|
Total
|
|
Revenues
|
|
$ |
237,756 |
|
|
$ |
10,371 |
|
|
$ |
6,619 |
|
|
$ |
11,430 |
|
|
$ |
266,176 |
|
Property
operating expenses (1)
|
|
|
(80,438 |
) |
|
|
(2,862 |
) |
|
|
(2,837 |
) |
|
|
6,064 |
|
|
|
(80,073 |
) |
Interest
expense
|
|
|
(58,337 |
) |
|
|
(2,044 |
) |
|
|
(1,805 |
) |
|
|
(11,274 |
) |
|
|
(73,460 |
) |
Other
expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,701 |
) |
|
|
(6,701 |
) |
Gain
(loss) on sales of real estate assets
|
|
|
(36 |
) |
|
|
- |
|
|
|
984 |
|
|
|
(82 |
) |
|
|
866 |
|
Segment
profit (loss)
|
|
$ |
98,945 |
|
|
$ |
5,465 |
|
|
$ |
2,961 |
|
|
$ |
(563 |
) |
|
|
106,808 |
|
Depreciation
and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72,012 |
) |
General
and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,074 |
) |
Interest
and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,051 |
|
Equity
in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
539 |
|
Income
tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,877 |
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,189 |
|
Total
assets
|
|
$ |
6,605,741 |
|
|
$ |
331,025 |
|
|
$ |
68,262 |
|
|
$ |
662,912 |
|
|
$ |
7,667,940 |
|
Capital
expenditures (3)
|
|
$ |
24,194 |
|
|
$ |
2,069 |
|
|
$ |
1,036 |
|
|
$ |
6,517 |
|
|
$ |
33,816 |
|
Three
Months Ended March 31, 2009
|
|
Malls
|
|
|
Associated
Centers
|
|
|
Community
Centers
|
|
|
All
Other (2)
|
|
|
Total
|
|
Revenues
|
|
$ |
244,031 |
|
|
$ |
10,454 |
|
|
$ |
5,370 |
|
|
$ |
11,205 |
|
|
$ |
271,060 |
|
Property
operating expenses (1)
|
|
|
(84,092 |
) |
|
|
(3,054 |
) |
|
|
(2,067 |
) |
|
|
5,048 |
|
|
|
(84,165 |
) |
Interest
expense
|
|
|
(60,839 |
) |
|
|
(2,167 |
) |
|
|
(1,024 |
) |
|
|
(7,855 |
) |
|
|
(71,885 |
) |
Other
expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,157 |
) |
|
|
(5,157 |
) |
Gain
(loss) on sales of real estate assets
|
|
|
(5 |
) |
|
|
- |
|
|
|
89 |
|
|
|
(223 |
) |
|
|
(139 |
) |
Segment
profit
|
|
$ |
99,095 |
|
|
$ |
5,233 |
|
|
$ |
2,368 |
|
|
$ |
3,018 |
|
|
|
109,714 |
|
Depreciation
and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,311 |
) |
General
and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,479 |
) |
Interest
and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,581 |
|
Loss
on impairment of investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,706 |
) |
Equity
in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,534 |
|
Income
tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(603 |
) |
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
14,730 |
|
Total
assets
|
|
$ |
6,867,725 |
|
|
$ |
339,489 |
|
|
$ |
71,266 |
|
|
$ |
694,390 |
|
|
$ |
7,972,870 |
|
Capital
expenditures (3)
|
|
$ |
47,192 |
|
|
$ |
6,195 |
|
|
$ |
22,740 |
|
|
$ |
26,458 |
|
|
$ |
102,585 |
|
(1) |
Property operating
expenses include property operating, real estate taxes and maintenance and
repairs. |
(2) |
The
All Other category includes mortgage notes receivable, Office Buildings,
the Management Company and the Company’s subsidiary that provides security
and maintenance services. |
(3) |
Amounts
include acquisitions of real estate assets and investments in
unconsolidated affiliates. Developments in progress are included in the
All Other category.
|
|
|
Note
8 – Earnings Per Share
During
the first quarter of 2010, the Company completed an underwritten public offering
of 6,300,000 depositary shares, each representing 1/10th of a
share of the Company’s 7.375% Series D Cumulative Redeemable Preferred Stock,
having a liquidation preference of $25.00 per depositary share. The
depositary shares were sold at $20.30 per share including accrued dividends of
$0.37 per share. The net proceeds, after underwriting costs and
related expenses, of approximately $123,372 were used to reduce outstanding
borrowings under the Company’s credit facilities and for general corporate
purposes. The net proceeds included aggregate accrued dividends of
$2,331 that were received as part of the offering price.
Including
the shares issued in this offering, the Company now has 13,300,000 depositary
shares outstanding, each representing 1/10th of a share of its 7.375% Series D
Cumulative Redeemable Preferred Stock. The securities are redeemable at
liquidation preference, plus accrued and unpaid dividends, at any time at the
option of the Company. These securities have no stated maturity, sinking fund or
mandatory redemption provisions and are not convertible into any other
securities of the Company.
In June
2009, the Company completed a public offering of 66,630,000 shares of its $0.01
par value common stock for $6.00 per share. The net proceeds, after underwriting
costs and related expenses, of approximately $381,823 were used to repay
outstanding borrowings under the Company’s credit facilities.
In
February 2009, the Company’s Board of Directors declared a quarterly dividend
for the Company's common stock of $0.37 per share for the quarter ended March
31, 2009, to be paid in a combination of cash and shares of the Company’s common
stock. The dividend was paid on 66,407,096 shares of common stock
outstanding on the record date. The Company issued 4,754,355 shares
of its common stock in connection with the dividend, which resulted in an
increase of 7.2% in the number of shares outstanding. The Company
initially elected to treat the issuance of its common stock as a stock dividend
for per share purposes and adjusted all share and per share information related
to earnings per share on a retrospective basis to reflect the additional common
stock issued. However, in January 2010, the FASB issued ASU No.
2010-01, requiring that stock dividends such as the one the Company made in
April 2009 be treated as a stock issuance that is reflected in share and per
share information related to EPS on a prospective basis. Pursuant to
its provisions, the Company adopted this guidance effective January 1, 2009 on a
retrospective basis. Thus, the information presented for the three
months ended March 31, 2009, has been revised to reflect this
guidance.
Basic EPS
is computed by dividing net income available 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.
The
following summarizes the impact of potential dilutive common shares on the
denominator used to compute earnings per share:
|
|
Three
Months Ended
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
Denominator
– basic earnings per share
|
|
|
137,967 |
|
|
|
66,407 |
|
Dilutive
effect of deemed shares related to deferred
compensation arrangements
|
|
|
39 |
|
|
|
32 |
|
Denominator
– diluted earnings per share
|
|
|
138,006 |
|
|
|
66,439 |
|
Note
9 – Contingencies
The
Company is currently involved in certain litigation that arises in the ordinary
course of business. It is management’s opinion that the pending litigation will
not materially affect the financial position or results of operations of the
Company.
The
Company consolidates its investment in a joint venture, CW Joint Venture, LLC
(“CWJV”), with Westfield. The terms of the joint venture agreement
require that CWJV pay an annual preferred distribution at a rate of 5.0%, which
increases to 6.0% on July 1, 2013, on the preferred liquidation value of the PJV
units of CWJV that are held by Westfield. Westfield has the right to
have all or a portion of the PJV units redeemed by CWJV with property owned by
CWJV, and subsequent to October 16, 2012, with either cash or property owned by
CWJV, in each case for a net equity amount equal to the preferred liquidation
value of the PJV units. At any time after January 1, 2013, Westfield may propose
that CWJV acquire certain qualifying property that would be used to redeem the
PJV units at their preferred liquidation value. If CWJV does not redeem the PJV
units with such qualifying property (a “Preventing Event”), then the annual
preferred distribution rate on the PJV units increases to 9.0% beginning July 1,
2013. The Company will have the right, but not the obligation, to
offer to redeem the PJV units after January 31, 2013 at their preferred
liquidation value, plus accrued and unpaid distributions. If the Company fails
to make such offer, the annual preferred distribution rate on the PJV units
increases to 9.0% for the period from July 1, 2013 through June 30, 2016, at
which time it decreases to 6.0% if a Preventing Event has not
occurred. If, upon redemption of the PJV units, the fair value of the
Company’s common stock is
greater
than $32.00 per share, then such excess (but in no case greater than $26,000 in
the aggregate) shall be added to the aggregate preferred liquidation value
payable on account of the PJV units. The Company accounts for this
contingency using the method prescribed for earnings or other performance
measure contingencies. As such, should this contingency result in
additional consideration to Westfield, the Company will record the current fair
value of the consideration issued as a purchase price adjustment at the time the
consideration is paid or payable.
Guarantees
The
Company 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 Company’s investment in the joint
venture. The Company may receive a fee from the joint venture for providing the
guaranty. Additionally, when the Company issues a guaranty, the terms of the
joint venture agreement typically provide that the Company may receive
indemnification from the joint venture.
The
Company owns a parcel of land that it is ground leasing to a third party
developer for the purpose of developing a shopping center. The
Company has guaranteed 27% of the third party’s construction loan and bond line
of credit (the “loans”) of which the maximum guaranteed amount is
$31,554. The total amount outstanding at March 31, 2010 on the loans
was $73,703 of which the Company has guaranteed $19,900. The Company
recorded an obligation of $315 in the accompanying condensed consolidated
balance sheets as of March 31, 2010 and December 31, 2009 to reflect the
estimated fair value of the guaranty.
The
Company has guaranteed 100% of the construction and land loans of West Melbourne
I, LLC (“West Melbourne”), an unconsolidated affiliate in which the Company owns
a 50% interest, of which the maximum guaranteed amount is
$50,678. West Melbourne developed and, in April 2009, opened Hammock
Landing, a community center in West Melbourne, FL. The total amount outstanding
at March 31, 2010 on the loans was $44,878. The guaranty will expire upon
repayment of the debt. The loans mature in August 2010 and have
extension options available. The Company recorded an obligation of $670 in the
accompanying condensed consolidated balance sheets as of March 31, 2010 and
December 31, 2009 to reflect the estimated fair value of this
guaranty.
We have
guaranteed 100% of the construction loan of Port Orange I, LLC (“Port Orange”),
an unconsolidated affiliate in which the Company owns a 50% interest, of which
the maximum guaranteed amount is $97,183. Port Orange developed and,
in March 2010, opened The Pavilion at Port Orange, a community center in Port
Orange, FL. The total amount outstanding at March 31, 2010 on the loan was
$69,363. The guaranty will expire upon repayment of the debt. The
loan matures in December 2011 and has extension options available. The Company
has recorded an obligation of $1,120 in the accompanying condensed consolidated
balance sheets as of March 31, 2010 and December 31, 2009 to reflect the
estimated fair value of this guaranty.
The
Company has guaranteed the lease performance of York Town Center, LP (“YTC”), an
unconsolidated affiliate in which we own a 50% interest, under the terms of an
agreement with a third party that owns property as part of York Town Center.
Under the terms of that agreement, YTC is obligated to cause performance of the
third party’s obligations as landlord under its lease with its sole tenant,
including, but not limited to, provisions such as co-tenancy and exclusivity
requirements. Should YTC fail to cause performance, then the tenant under the
third party landlord’s lease may pursue certain remedies ranging from rights to
terminate its lease to receiving reductions in rent. The Company has guaranteed
YTC’s performance under this agreement up to a maximum of $22,000, which
decreases by $800 annually until the guaranteed amount is reduced to $10,000.
The guaranty expires on December 31, 2020. The maximum guaranteed
obligation was $19,600 as of March 31, 2010. The Company entered into
an agreement with its joint venture partner under which the joint venture
partner has agreed to reimburse the Company 50% of any amounts it is obligated
to fund under the guaranty. The Company did not record an obligation
for this guaranty because it determined that the fair value of the guaranty is
not material.
Performance
Bonds
The
Company has issued various bonds that it would have to satisfy in the event of
non-performance. At March 31, 2010 and December 31, 2009, the total amount
outstanding on these bonds was $34,454 and $34,429, respectively.
Note
10 – Share-Based Compensation
The
share-based compensation expense was $929 and $962 for the three months ended
March 31, 2010 and 2009, respectively. Share-based compensation cost capitalized
as part of real estate assets was $46 and $71 for the three months ended March
31, 2010 and 2009.
The
Company’s stock option activity for the three months ended March 31, 2010 is
summarized as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at January 1, 2010
|
|
|
566,334 |
|
|
$ |
16.06 |
|
Exercised
|
|
|
(11,200 |
) |
|
|
15.20 |
|
Outstanding
at March 31, 2010
|
|
|
555,134 |
|
|
|
16.15 |
|
Vested
and exercisable at March 31, 2010
|
|
|
555,134 |
|
|
|
16.15 |
|
A summary
of the status of the Company’s stock awards as of March 31, 2010, and changes
during the three months ended March 31, 2010, is presented below:
|
|
Shares
|
|
|
Weighted
Average
Grant-
Date
Fair Value
|
|
Nonvested
at January 1, 2010
|
|
|
156,120 |
|
|
$ |
33.16 |
|
Granted
|
|
|
118,100 |
|
|
|
10.30 |
|
Vested
|
|
|
(20,800 |
) |
|
|
7.26 |
|
Nonvested
at March 31, 2010
|
|
|
253,420 |
|
|
|
23.46 |
|
As of
March 31, 2010, there was $3,141 of total unrecognized compensation cost related
to nonvested stock awards granted under the plan, which is expected to be
recognized over a weighted average period of 2.7 years. In February
2010, the Company granted restricted stock awards for 118,100 shares of common
stock to employees that will vest in equal installments over the next five
years.
Note
11 – Noncash Investing and Financing Activities
The
Company’s noncash investing and financing activities were as follows for the
three months ended March 31, 2010 and 2009:
|
|
Three
Months Ended
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Accrued
dividends and distributions payable
|
|
$ |
43,893 |
|
|
$ |
44,354 |
|
Additions
to real estate assets accrued but not yet paid
|
|
$ |
10,904 |
|
|
$ |
16,082 |
|
Notes
receivable from sale of interest in unconsolidated
affiliate
|
|
$ |
1,001 |
|
|
$ |
1,750 |
|
Additions
to real estate assets from forgiveness of mortgage note
receivable
|
|
$ |
- |
|
|
$ |
6,502 |
|
Note
12 – Income Taxes
The
Company is qualified as a REIT under the provisions of the Code. To maintain
qualification as a REIT, the Company is required to distribute at least 90% of
its taxable income to shareholders and meet certain other
requirements.
As a
REIT, the Company is generally not liable for federal corporate income taxes. If
the Company fails to qualify as a REIT in any taxable year, the Company will be
subject to federal and state income taxes on its taxable income at regular
corporate tax rates. Even if the Company maintains its qualification as a REIT,
the Company may be subject to certain state and local taxes on its income and
property, and to federal income and excise taxes on its undistributed income.
State tax expense was $940 and $1,656 during the three months ended March 31,
2010 and 2009, respectively.
The
Company has also elected taxable REIT subsidiary status for some of its
subsidiaries. This enables the Company to receive income and provide
services that would otherwise be impermissible for REITs. For these entities,
deferred tax assets and liabilities are established for temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities at the enacted tax rates expected to be in effect when the temporary
differences reverse. A valuation allowance for deferred tax assets is provided
if the Company believes all or some portion of the deferred tax asset may not be
realized. An increase or decrease in the valuation allowance resulting from
changes in circumstances that may affect the realizability of the related
deferred tax asset is included in income or expense, as applicable.
The
Company recorded an income tax benefit of $1,877 and an income tax provision of
$603 for the three months ended March 31, 2010 and 2009, respectively. The
income tax benefit in 2010 consisted of a current and deferred income tax
benefit of $1,390 and $487, respectively. The income tax provision in
2009 consisted of a current income tax provision of $1,326 and a deferred income
tax benefit of $723.
The
Company had a net deferred tax asset of $4,121 at March 31, 2010 and $3,634 at
December 31, 2009. The net deferred tax asset at March 31, 2010 and December 31,
2009 is included in other assets and primarily consisted of operating expense
accruals, share-based compensation and differences between book and tax
depreciation.
The
Company reports any income tax penalties attributable to its properties as
property operating expenses and any corporate-related income tax penalties as
general and administrative expenses in its statement of
operations. In addition, any interest incurred on tax assessments is
reported as interest expense. The Company reported nominal interest
and penalty amounts for the three months ended March 31, 2010 and 2009,
respectively.
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”, “our” and the
“Company” refer to CBL & Associates Properties, Inc. and its
subsidiaries.
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.
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,” or similar expressions. Any
forward-looking statement speaks only as of the date on which it is made and is
qualified in its entirety by reference to the factors discussed throughout this
report.
Although
we believe the expectations reflected in any forward-looking statements are
based on reasonable assumptions, forward-looking statements are not guarantees
of future performance or results and we can give no assurance that these
expectations will be attained. It is possible that actual results may
differ materially from those indicated by these forward-looking statements due
to a variety of known and unknown risks and uncertainties. In addition to the
risk factors described in Part II, Item 1A. of this report, such known risks and
uncertainties include, without limitation:
·
|
general
industry, economic and business
conditions;
|
·
|
interest
rate fluctuations, costs and availability of capital and capital
requirements;
|
·
|
costs
and availability of real estate;
|
·
|
inability
to consummate acquisition
opportunities;
|
·
|
competition
from other companies and retail
formats;
|
·
|
changes
in retail rental rates in our
markets;
|
·
|
shifts
in customer demands;
|
·
|
tenant
bankruptcies or store closings;
|
·
|
changes
in vacancy rates at our properties;
|
·
|
changes
in operating expenses;
|
·
|
changes
in applicable laws, rules and regulations;
and
|
·
|
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 business.
|
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 real estate investment trust
(“REIT”) that is engaged in the ownership, development, acquisition, leasing,
management and operation of regional shopping malls, open-air centers, community
centers and office properties. Our shopping centers are located in 27 domestic
states, but are primarily in the southeastern and midwestern United
States. We have elected to be taxed as a REIT for federal income tax
purposes.
As of
March 31, 2010, we owned controlling interests in 76 regional malls/open-air
centers (including one mixed-use center), 30 associated centers (each located
adjacent to a regional mall), ten community centers and 13 office buildings,
including our corporate office building. We consolidate the financial statements
of all entities in which we have a controlling financial interest or where we
are the primary beneficiary of a variable interest entity. As of March 31, 2010,
we owned noncontrolling interests in nine regional malls, four associated
centers, four community centers and six office buildings. Because one or more of
the other partners have substantive participating rights, we do not control
these partnerships and joint ventures and, accordingly, account for these
investments using the equity method. We had one community center,
owned in a 75/25 joint venture, under construction at March 31, 2010. We also
hold options to acquire certain development properties owned by third
parties.
During
the first quarter of 2010, we continued to build on our core leasing and
operational strengths. Our overall portfolio and mall occupancy levels increased
over the prior year period as a result of strategic decisions to stabilize our
occupancy. Other highlights of the first quarter included the
completion of leases for more than 1.1 million square feet of space in our
operating properties and new developments, same-store sales growth of 4.7% and
the opening of The Pavilion at Port Orange, our 415,000-square-foot open-air
development in Port Orange, FL, at 92% leased or committed. These
accomplishments continue to emphasize the strength of our company and validate
our strategy.
We are
also accessing the capital markets on favorable terms with the completion of a
$72.0 million financing secured by St. Clair Square and commitments or term
sheets for all of our remaining 2010 property-level mortgage
maturities. Additionally, we were pleased to complete our preferred
stock offering which resulted in net proceeds, after underwriting costs and
related expenses, of $123.4 million, including accrued dividends of $2.3
million. As a result of this offering and the other steps we have
taken to decrease our leverage position, we have reduced our debt levels by over
$600.0 million as compared to March 31, 2009. While there are still challenges
to be faced, we are confident that CBL is poised to benefit from an improving
economy and emerging growth opportunities.
RESULTS
OF OPERATIONS
Comparison
of the Three Months Ended March 31, 2010 to the Three Months Ended March 31,
2009
We have opened five community centers
since January 1, 2009 (collectively referred to as the “New Properties”). These
transactions impact the comparison of the results of operations for the three
months ended March 31, 2010 to the results of operations for the comparable
period ended March 31, 2009. Properties that were in operation as of
January 1, 2009 and March 31, 2010 are referred to as the “Comparable
Properties.” We do not consider a property to be one of the
Comparable Properties until it has been owned or open for one complete calendar
year. Any reference to the New Properties in this section excludes those
properties that are accounted for using the equity method of
accounting. The New Properties are as follows:
Property
|
|
Location
|
|
Date
Opened
|
New
Developments:
|
|
|
|
|
Hammock
Landing (1)
|
|
West
Melbourne, FL
|
|
April
2009
|
Summit
Fair (2)
|
|
Lee's
Summit, MO
|
|
August
2009
|
Settlers
Ridge
|
|
Robinson
Township, PA
|
|
October
2009
|
The
Promenade
|
|
D'Iberville,
MS
|
|
October
2009
|
The
Pavilion at Port Orange (1)
|
|
Port
Orange, FL
|
|
March
2010
|
(1) |
This
property represents a 50/50 joint venture that is accounted for using the
equity method of accounting and is included in equity in earnings of
unconsolidated affiliates in the accompanying consolidated statements of
operations.
|
(2) |
CBL’s
interest represents cost of the land underlying the project for which it
will receive ground rent and a percentage of the net operating cash
flows.
|
Revenues
Total revenues declined by $4.9
million for the three months ended March 31, 2010 compared to the prior year
period. Rental revenues and tenant reimbursements declined by $5.3
million due to a decrease of $7.2 million from the Comparable Properties,
partially offset by an increase of $1.9 million from the New
Properties. The decrease in revenues of the Comparable Properties was
driven by declines of $2.2 million in tenant reimbursements, $1.9 million in
lease termination fees, $1.6 million in base rents and $0.7 million in net below
market lease amortization. Base rents have declined primarily as a
result of negative leasing spreads over the past year. Tenant
reimbursements decreased due to positive billing adjustments that were made in
the prior year quarter.
Our cost recovery ratio improved to
99.7% for the quarter ended March 31, 2010 from 96.8% for the prior-year period.
While tenant reimbursements declined from the prior period level, the cost
recovery ratio has been positively impacted by operating expense reductions,
including lower bad debt expense.
The decrease in management,
development and leasing fees of $0.8 million was mainly attributable to lower
development fee income due to the completion in the prior year of certain joint
venture developments that were under construction during the first quarter of
2009.
Other revenues increased $1.1 million
primarily due to higher revenues related to our subsidiary that provides
security and maintenance services to third parties.
Operating
Expenses
Total expenses decreased $9.3 million
for the three months ended March 31, 2010 compared to the prior year
period. Property operating expenses, including real estate taxes and
maintenance and repairs, decreased $4.1 million due to lower expenses of $5.1
million related to the Comparable Properties, partially offset by an increase of
$1.0 million of expenses attributable to the New Properties. The decrease in
property operating expenses of the Comparable Properties is primarily
attributable to reductions of $2.3 million in promotion costs, $1.3 million in
utilities expense, $1.1 million in contracted security and maintenance and $0.5
million in bad debt expense, partially offset by increased snow removal expense
of $0.6 million. Property operating expenses continued to benefit
from the incremental improvements in the cost containment program that we
implemented in late 2008 and 2009 and we are still experiencing success in
controlling costs.
The decrease in depreciation and
amortization expense of $6.3 million resulted from a decrease of $7.5 million
from the Comparable Properties, partially offset by an increase of $1.2 million
related to the New Properties. The decrease attributable to the Comparable
Properties is due to a decline in amortization of tenant allowances compared to
the prior year period, which included write-offs of certain unamortized tenant
allowances related to several store closings.
General and administrative expenses
decreased $0.4 million primarily as a result of declines of $0.7 million in
payroll and related expenses and $0.6 million in state tax expense, partially
offset by a reduction in capitalized overhead of $0.7 million. As a percentage
of revenues, general and administrative expenses were 4.2% for the first quarter
of 2010 and 2009.
Other
Income and Expenses
Interest expense increased $1.6
million for the three months ended March 31, 2010 compared to the prior year
period. Although we have reduced our debt levels substantially since
the prior year period, the resulting interest savings were partially offset by
an increase in the variable rates on our credit facilities. Our
weighted average interest rate on total variable-rate debt increased 111 basis
points compared to the prior year period. Additionally, capitalized
interest declined due to the opening of the New Properties subsequent to the end
of the first quarter of 2009. Furthermore, interest expense during
the first quarter of 2010 included amounts related to the fees incurred in
connection with the extension of our credit facilities in the latter half of
2009.
During the first quarter of 2009, we
incurred an impairment loss of $7.7 million on our investment in Jinsheng Group
(“Jinsheng”), an established mall operating and real estate development company
located in Nanjing, China, due to a decline in expected future cash
flows. The decrease was a result of declining occupancy and sales due
to the then downturn of the real estate market in China.
During the first quarter of 2010, we
recognized a gain on sales of real estate assets of $0.9 million related to the
sale of one parcel of land. We recognized a loss on sales of real
estate assets of $0.1 million during the first quarter of 2009 due to the
disposition of one of our investments in Brazil.
Equity in earnings of unconsolidated
affiliates decreased by $1.0 million during the first quarter of 2010, primarily
due to a decline in outparcel sales compared to the prior year
period.
The income tax benefit of $1.9
million for the three months ended March 31, 2010 relates to our taxable REIT
subsidiary and consists of a benefit for current and deferred income taxes of
$1.4 million and $0.5 million, respectively. During the three months
ended March 31, 2009, we recorded an income tax provision $0.6 million,
consisting of a provision for current income taxes of $1.3 million, partially
offset by a deferred tax benefit of $0.7 million.
Discontinued operations for the three
months ended March 31, 2010 and 2009 include the true up of estimated expenses
to actual amounts for properties sold during previous years.
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 “temporary” rents
(rents from short-term tenants) during the holiday period. Thus, occupancy
levels and revenue production are generally the highest in the fourth quarter of
each year. Results of operations realized in any one quarter may not be
indicative of the results likely to be experienced over the course of the fiscal
year.
We
classify our regional malls into two categories – malls that have completed
their initial lease-up are referred to as stabilized malls and malls that are in
their initial lease-up phase and have not been open for three calendar years are
referred to as non-stabilized malls. Alamance Crossing in Burlington, NC, which
opened in August 2007, and our mixed-use center, Pearland Town Center (the
financial results of which are classified in Malls), which opened in July 2008,
are our only non-stabilized malls as of March 31, 2010.
We derive
a significant amount of our revenues from the mall properties. The sources of
our revenues by property type were as follows:
|
|
Three
Months Ended
March
31,
|
|
|
2010
|
|
2009
|
Malls
|
|
|
89.3
|
% |
|
|
90.0
|
% |
Associated
centers
|
|
|
3.9
|
% |
|
|
3.9
|
% |
Community
centers
|
|
|
2.5
|
% |
|
|
2.0
|
% |
Mortgages,
office buildings and other
|
|
|
4.3
|
% |
|
|
4.1
|
% |
Mall
store sales in the first quarter of 2010 for our portfolio increased 4.7% from
the prior year period. Mall store sales for the trailing twelve
months ended March 31, 2010 on a comparable per square foot basis were $316 per
square foot compared with $326 per square foot in the prior year period, a
decline of 3.1%.
Occupancy
Our
portfolio occupancy is summarized in the following table:
|
|
At
March 31,
|
|
|
2010
|
|
2009
|
Total
portfolio occupancy
|
|
|
88.8
|
% |
|
|
88.6
|
% |
Total
mall portfolio
|
|
|
89.4
|
% |
|
|
88.9
|
% |
Stabilized
malls
|
|
|
89.7
|
% |
|
|
89.1
|
% |
Non-stabilized
malls
|
|
|
76.6
|
% |
|
|
80.3
|
% |
Associated
centers
|
|
|
89.5
|
% |
|
|
89.0
|
% |
Community
centers
|
|
|
84.4
|
% |
|
|
86.5
|
% |
Occupancy
levels in the first quarter of 2010 were positively impacted by the increase in
leasing activity in the mall portfolio. Stabilized mall occupancy
increased 60 basis points to 89.7% compared with the prior year
period. Total portfolio occupancy increased 20 basis points from the
prior year period to 88.8%.
During
the first quarter of 2010, we experienced limited tenant bankruptcy
activity. We are optimistic that tenant bankruptcy and store closure
rates will continue to decline over the year and remain below the average rates
experienced since 2008.
Leasing
During
the first quarter of 2010, we signed more than 1.1 million square feet of leases
including 0.9 million square feet of leases in our operating portfolio and 0.2
million square feet of development leases. The leases signed in our
operating portfolio included 0.4 million square feet of new leases and 0.5
million square
feet of
renewals. Total leasing activity in the operating portfolio was down
slightly from the 1.2 million square feet signed in the prior year
quarter.
Average
annual base rents per square foot were as follows for each property
type:
|
|
At
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Stabilized
malls
|
|
$ |
28.87 |
|
|
$ |
29.34 |
|
Non-stabilized
malls
|
|
|
25.41 |
|
|
|
26.68 |
|
Associated
centers
|
|
|
11.89 |
|
|
|
12.08 |
|
Community
centers
|
|
|
15.06 |
|
|
|
14.62 |
|
Office
Buildings
|
|
|
19.21 |
|
|
|
19.05 |
|
During
the three months ended March 31, 2010, we experienced negative overall results
from the leasing spreads of comparable small shop space as summarized in the
following table:
|
|
Square
Feet
|
|
|
Prior
Gross
Rent
PSF
|
|
|
New
Initial
Gross
Rent
PSF
|
|
|
%
Change
Initial
|
|
|
New
Average
Gross
Rent
PSF
|
|
|
%
Change
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Property Types (1)
|
|
|
682,061 |
|
|
$ |
38.47 |
|
|
$ |
33.66 |
|
|
|
(12.5 |
)
% |
|
$ |
34.48 |
|
|
|
(10.4 |
)
% |
Stabilized
malls
|
|
|
648,530 |
|
|
|
39.37 |
|
|
|
34.43 |
|
|
|
(12.5 |
)
% |
|
|
35.28 |
|
|
|
(10.4 |
)
% |
New
leases
|
|
|
134,930 |
|
|
|
45.66 |
|
|
|
38.92 |
|
|
|
(14.8 |
)
% |
|
|
41.10 |
|
|
|
(10.0 |
)
% |
Renewal
leases
|
|
|
513,600 |
|
|
|
37.72 |
|
|
|
33.25 |
|
|
|
(11.9 |
)
% |
|
|
33.75 |
|
|
|
(10.5 |
)
% |
(1)
|
Includes
stabilized malls, associated centers, community centers and office
buildings.
|
Although
leasing spreads were negative, we were pleased that the decline was less than
the prior quarters. Compared with prior quarters, spreads are
trending in the right direction and average spreads on leases signed with a term
greater than five years were positive. For the first quarter of 2010,
on a same space basis, rental rates were signed at an average decrease of 10.4%
from the prior gross rent per square foot. Several retailers have indicated that
they plan to renovate their stores and sign longer terms on renewals, which
should positively impact our leasing results. We believe this trend
will continue throughout the year as the economy recovers. We will
also be looking to improve the rental rates on shorter term deals that we have
signed over the last twelve months as they expire.
LIQUIDITY
AND CAPITAL RESOURCES
During
the first quarter of 2010, we completed an equity offering of 6,300,000
depositary shares, each representing 1/10th of a share of our 7.375% Series D
Cumulative Redeemable Preferred Stock, having a liquidation preference of $25.00
per share. The depositary shares were sold at $20.30 per share
including accrued dividends of $0.37 per share. The net proceeds,
after underwriting costs and related expenses, of approximately $123.4 million
were used to reduce outstanding borrowings under our credit facilities and for
general corporate purposes. The net proceeds included accrued
dividends of $2.3 million that were received as part of the offering
price.
During
the first quarter of 2010, we refinanced the loan secured by St. Clair Square in
Fairview Heights, IL with a new lender and received excess proceeds of
approximately $13.2 million, net of closing costs and payment of accrued
interest, after the payoff of the existing mortgage with a principal balance of
$57.2 million. The new $72.0 million non-recourse, five-year loan
bears interest at a variable rate of 400 basis points above the London Interbank
Offered Rate (“LIBOR”). Concurrent with the closing, we entered into a two-year
LIBOR cap with a strike rate of 3.0% to effectively limit the interest rate to
7.0%. Also during the first quarter, we repaid a commercial
mortgage-backed securities (“CMBS”) loan with a principal balance of $38.8
million secured by Park Plaza Mall in Little Rock, AR with borrowings from our
$560.0 million credit facility and the property was added to the collateral pool
securing that facility.
Subsequent
to the end of the first quarter, we retired a CMBS loan with a principal balance
of $9.0 million secured by WestGate Crossing in Spartanburg, SC with borrowings
from our $560.0 million credit facility and the property was added to the
collateral pool securing that facility.
We are
encouraged by the improvements in the capital markets. We are
actively making progress to refinance our remaining mortgage maturities for 2010
and are experiencing increased demand from lending institutions including
interest in the re-emerging CMBS market. We have term sheets or
commitments on the remaining loan maturities for this year and anticipate
closing those loans on or before the maturity date.
We derive a majority of our revenues
from leases with retail tenants, which has 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 and
dividends and distributions. We believe that the combination of our cash flows
generated from our operations, combined with our debt and equity sources and the
availability under our lines of credit will, for the foreseeable future, provide
adequate liquidity to meet our cash needs. In addition to these
factors, we have options available to us to generate additional liquidity,
including but not limited to, equity offerings, joint venture investments,
issuances of noncontrolling interests in our Operating Partnership, decreasing
the amount of expenditures we make related to tenant construction allowances and
other capital expenditures and implementing further cost containment
initiatives. We also generate revenues from sales of peripheral land
at the properties and from sales of real estate assets when it is determined
that we can realize an optimal value for the assets.
Cash
Flows From Operations
There was
$50.2 million of unrestricted cash and cash equivalents as of March 31, 2010, an
increase of $2.1 million from December 31, 2009. Cash provided by
operating activities during the three months ended March 31, 2010, decreased
$3.3 million to $88.4 million from $91.7 million during the three months ended
March 31, 2009. The decrease was primarily attributable to the decline in rental
revenues, partially offset by lower operating expenses and the operations of the
New Properties.
Debt
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):
|
|
Consolidated
|
|
|
Noncontrolling
Interests
|
|
|
Unconsolidated
Affiliates
|
|
|
Total
|
|
|
Weighted
Average
Interest
Rate
(1)
|
|
March
31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse
loans on operating properties
|
|
$ |
3,774,126 |
|
|
$ |
(23,731 |
) |
|
$ |
402,570 |
|
|
$ |
4,152,965 |
|
|
|
5.97
|
% |
Recourse
term loans on operating properties (2)
|
|
|
160,170 |
|
|
|
- |
|
|
|
- |
|
|
|
160,170 |
|
|
|
4.96
|
% |
Total
fixed-rate debt
|
|
|
3,934,296 |
|
|
|
(23,731 |
) |
|
|
402,570 |
|
|
|
4,313,135 |
|
|
|
5.94
|
% |
Variable-rate
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse
term loans on operating properties
|
|
|
72,000 |
|
|
|
- |
|
|
|
- |
|
|
|
72,000 |
|
|
|
4.25
|
% |
Recourse
term loans on operating properties
|
|
|
373,905 |
|
|
|
(928 |
) |
|
|
191,604 |
|
|
|
564,581 |
|
|
|
2.62
|
% |
Secured
lines of credit
|
|
|
640,882 |
|
|
|
- |
|
|
|
- |
|
|
|
640,882 |
|
|
|
3.76
|
% |
Unsecured
term facilities
|
|
|
437,494 |
|
|
|
- |
|
|
|
- |
|
|
|
437,494 |
|
|
|
1.73
|
% |
Total
variable-rate debt
|
|
|
1,524,281 |
|
|
|
(928 |
) |
|
|
191,604 |
|
|
|
1,714,957 |
|
|
|
2.89
|
% |
Total
|
|
$ |
5,458,577 |
|
|
$ |
(24,659 |
) |
|
$ |
594,174 |
|
|
$ |
6,028,092 |
|
|
|
5.07
|
% |
|
|
Consolidated
|
|
|
Noncontrolling
Interests
|
|
|
Unconsolidated
Affiliates
|
|
|
Total
|
|
|
Weighted
Average
Interest
Rate
(1)
|
|
December
31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse
loans on operating properties
|
|
$ |
3,888,822 |
|
|
$ |
(23,737 |
) |
|
$ |
404,104 |
|
|
$ |
4,269,189 |
|
|
|
5.99
|
% |
Recourse
loans on operating properties (2)
|
|
|
160,896 |
|
|
|
- |
|
|
|
- |
|
|
|
160,896 |
|
|
|
4.97
|
% |
Total
fixed-rate debt
|
|
|
4,049,718 |
|
|
|
(23,737 |
) |
|
|
404,104 |
|
|
|
4,430,085 |
|
|
|
5.95
|
% |
Variable-rate
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recourse
term loans on operating properties
|
|
|
242,763 |
|
|
|
(928 |
) |
|
|
98,708 |
|
|
|
340,543 |
|
|
|
2.12
|
% |
Construction
loans
|
|
|
126,958 |
|
|
|
- |
|
|
|
88,179 |
|
|
|
215,137 |
|
|
|
3.37
|
% |
Land
loans
|
|
|
- |
|
|
|
- |
|
|
|
3,276 |
|
|
|
3,276 |
|
|
|
2.23
|
% |
Secured
lines of credit
|
|
|
759,206 |
|
|
|
- |
|
|
|
- |
|
|
|
759,206 |
|
|
|
4.19
|
% |
Unsecured
term facilities
|
|
|
437,494 |
|
|
|
- |
|
|
|
- |
|
|
|
437,494 |
|
|
|
1.73
|
% |
Total
variable-rate debt
|
|
|
1,566,421 |
|
|
|
(928 |
) |
|
|
190,163 |
|
|
|
1,755,656 |
|
|
|
3.07
|
% |
Total
|
|
$ |
5,616,139 |
|
|
$ |
(24,665 |
) |
|
$ |
594,267 |
|
|
$ |
6,185,741 |
|
|
|
5.13
|
% |
(1) |
Weighted average
interest rate includes the effect of debt premiums (discounts), but
excludes amortization of deferred financing costs. |
(2) |
We
have entered into interest rate swaps on notional amounts totaling
$127,500 as of March 31, 2010 and December 31, 2009 related to two of our
variable-rate loans on operating properties to effectively fix the
interest rates on these loans. Therefore, these amounts are
currently reflected in fixed-rate
debt.
|
During
2010, $922.5 million of our pro rata share of consolidated and unconsolidated
debt is scheduled to mature. However, we have extensions of $486.2
million available at our option that we intend to exercise, leaving
approximately $436.3 million of maturities in 2010 that must be retired or
refinanced. Subsequent to the end of the first quarter, we retired a CMBS loan
with a principal balance of $9.0 million secured by an operating property with
borrowings from our $560.0 million credit facility and the property was added to
the collateral pool securing that facility.
The
remaining loans due in 2010, totaling $427.3 million, include eleven
property-specific loans that have maturity dates ranging from June 2010 to
December 2010. We currently have term sheets or commitments on these
remaining loan maturities and anticipate closing on or before each loan’s
maturity date.
The
weighted average remaining term of our total share of consolidated and
unconsolidated debt was 3.5 years at March 31, 2010 and 3.7 years at December
31, 2009. The weighted average remaining term of our pro rata share of
fixed-rate debt was 4.3 years and 4.5 years at March 31, 2010 and December 31,
2009, respectively.
As of March 31, 2010 and December 31,
2009, our pro rata share of consolidated and unconsolidated variable-rate debt
represented 28.4% of our total pro rata share of debt. As of March 31, 2010, our
share of consolidated and unconsolidated variable-rate debt represented 18.9% of
our total market capitalization (see Equity below) as compared to
21.1% as of December 31, 2009.
Secured Lines of
Credit
We have three secured lines of credit
that are used for retirement of loans, working capital, construction and
acquisition purposes, as well as issuances of letters of credit. Each of these
lines is secured by mortgages on certain of our operating properties. Borrowings
under the secured lines of credit bear interest at LIBOR, subject to a floor of
1.50%, plus a margin ranging from 0.75% to 4.25% and had a weighted average
interest rate of 3.76% at March 31, 2010. The Company also pays fees based on
the amount of unused availability under its two largest secured lines of credit
at a rate of 0.35% of unused availability. The following summarizes certain
information about the secured lines of credit as of March 31, 2010 (in
thousands):
|
Total
Capacity
|
|
|
Total
Outstanding
|
|
Maturity
Date
|
|
Extended
Maturity
Date
|
$
|
560,000
|
|
$
|
376,532
|
|
August
2011
|
|
April
2014
|
|
525,000
|
|
|
262,850
|
(1)
|
February
2012
|
|
February
2013
|
|
105,000
|
|
|
1,500
|
|
June
2011
|
|
June
2011
|
$
|
1,190,000
|
|
$
|
640,882
|
|
|
|
|
(1)
|
There was an additional $7,291
outstanding on this secured line of credit as of March 31, 2010 for
letters of credit. Up to $50,000 of the capacity on this line
can be used for letters of
credit.
|
We
also have secured and unsecured lines of credit with total availability of $31.0
million that are used only to issue letters of credit. There was $11.4 million
outstanding under these lines at March 31, 2010.
Unsecured Term
Facilities
In April
2008, we entered into an unsecured term facility with total availability of
$228.0 million that bears interest at LIBOR plus a margin of 1.50% to 1.80%
based on our leverage ratio, as defined in the agreement to the
facility. At March 31, 2010, the outstanding borrowings of $228.0
million under the unsecured term facility had a weighted average interest rate
of 1.95%. The facility matures in April 2011 and has two one-year
extension options, which are at our election, for an outside maturity date of
April 2013.
We have
an unsecured term facility that was obtained for the exclusive purpose of
acquiring certain properties from the Starmount Company or its
affiliates. At March 31, 2010, the outstanding borrowings of $209.5
million under this facility had a weighted average interest rate of
1.50%. We completed our acquisition of the properties in February
2008 and, as a result, no further draws can be made against the
facility. The unsecured term facility bears interest at LIBOR plus a
margin of 0.95% to 1.40% based on our leverage ratio, as defined in the
agreement to the facility. Net proceeds from a sale or our share of
excess proceeds from any refinancings of any of the properties originally
purchased with borrowings from this unsecured term facility must be used to pay
down any remaining outstanding balance. The facility matures in
November 2010 and has two one-year extension options, which are at our election,
for an outside maturity date of November 2012.
The
agreements to the $560.0 million and $525.0 million secured credit facilities
and the two unsecured term facilities described above, each with the same
lender, contain default and cross-default provisions customary for transactions
of this nature (with applicable customary grace periods) in the event (i) there
is a default in the payment of any indebtedness owed by us to any institution
which is a part of the lender groups for the credit facilities, or (ii) there is
any other type of default with respect to any indebtedness owed by us to any
institution which is a part of the lender groups for the credit facilities and
such lender accelerates the payment of the indebtedness owed to it as a result
of such default. The credit facility agreements provide that, upon
the occurrence and continuation of an event of default, payment of all amounts
outstanding under these credit facilities and those facilities with which these
agreements reference cross-default provisions may be accelerated and the
lenders’ commitments may be terminated. Additionally, any default in
the payment of any recourse indebtedness greater than $50.0 million or any
non-recourse indebtedness greater than $100.0 million, regardless of whether the
lending institution is a part of the lender groups for the credit facilities,
will constitute an event of default under the agreements to the credit
facilities. The Company was not in default with regard to any of
these provisions as of March 31, 2010.
Mortgages on Operating
Properties
During
the first quarter of 2010, we closed on a $72.0 million non-recourse loan
secured by St. Clair Square in Fairview Heights, IL with a new lender and
received excess proceeds of approximately $13.2 million, net of closing costs
and payment of accrued interest, after the payoff of the existing mortgage with
a principal balance of $57.2 million. The excess proceeds from the
refinancing were used to pay down our secured credit facilities. Also
during the first quarter, we repaid a CMBS loan secured by Park Plaza Mall in
Little Rock, AR with a principal balance of $38.8 million with borrowings from
our $560.0 million credit facility and the property was added to the collateral
pool securing that facility.
Subsequent
to the end of the first quarter, we retired a CMBS loan with a principal balance
of $9.0 million secured by WestGate Crossing in Spartanburg, SC with borrowings
from our $560.0 million credit facility and the property was added to the
collateral pool securing that facility.
Interest Rate Hedging
Instruments
Instrument
Type
|
|
Notional
Amount
|
|
Designated
Benchmark
Interest
Rate
|
|
Strike
Rate
|
|
|
Fair
Value
at
3/31/10
|
|
|
Fair
Value
at
12/31/09
|
|
Maturity
Date
|
Cap
|
|
$ 72,000
(amortizing to $69,375)
|
|
3-month
LIBOR
|
|
|
3.000 |
% |
|
$ |
77 |
|
|
$ |
- |
|
Jan-12
|
Cap
|
|
|
80,000 |
|
USD-SIFMA
Municipal Swap Index
|
|
|
4.000 |
% |
|
|
2 |
|
|
|
2 |
|
Dec-10
|
Pay
fixed/ Receive variable
Swap
|
|
|
40,000 |
|
1-month
LIBOR
|
|
|
2.175 |
% |
|
|
(511 |
) |
|
|
(636 |
) |
Nov-10
|
Pay
fixed/ Receive variable
Swap
|
|
|
87,500 |
|
1-month
LIBOR
|
|
|
3.600 |
% |
|
|
(1,637 |
) |
|
|
(2,271 |
) |
Sep-10
|
In
addition, we have a $129.0 million notional amount interest rate cap agreement
to hedge the risk of changes in cash flows on a loan of one of our properties up
to the cap notional amount. The interest rate cap protects us from
increases in the hedged cash flows attributable to overall changes in 1-month
LIBOR above the strike rate of the cap on the debt. The strike rate
associated with the interest rate cap is 3.25%. We did not designate
this cap as a hedge under generally accepted accounting practices (“GAAP”) and,
thus, record any unrealized gain or loss on the cap as interest expense in our
condensed consolidated statements of operations. The interest rate
cap had a nominal fair value as of March 31, 2010 and December 31, 2009 and
matures on July 12, 2010.
Equity
In March
2010, we completed an underwritten public offering of 6,300,000 depositary
shares, each representing 1/10th of a
share of our 7.375% Series D Cumulative Redeemable Preferred Stock, having a
liquidation preference of $25.00 per depositary share. The depositary
shares were sold at $20.30 per share including accrued dividends of $0.37 per
share. The net proceeds, after underwriting costs and related
expenses, of approximately $123.4 million, including accrued dividends of $2.3
million, were used to reduce outstanding borrowings under our credit facilities
and for general corporate purposes.
Including
the shares issued in this offering, we now have 13,300,000 depositary shares
outstanding, each representing 1/10th of a share of our 7.375% Series D
Cumulative Redeemable Preferred Stock. The securities are redeemable at
liquidation preference, plus accrued and unpaid dividends, at any time at our
option. These securities have no stated maturity, sinking fund or mandatory
redemption provisions and are not convertible into any of our other
securities.
During
the three months ended March 31, 2010, we received $0.1 million in proceeds from
exercises of stock options. In addition, we paid cash dividends of
$12.9 million to holders of our common stock and our preferred stock, as well as
$18.7 million in distributions to the noncontrolling interest investors in our
Operating Partnership and other consolidated subsidiaries.
In April
2009, we issued 4,754,355 shares of our common stock in connection with the
payment of our dividend for the first quarter of 2009, which resulted in an
increase of 7.2% in the number of shares outstanding. Our Operating Partnership
issued 1,338,079 additional common units in connection with its quarterly
distribution to unitholders, which resulted in an increase of 2.6% in the number
of common units and special common units outstanding. We initially
elected to treat the issuance of our common stock as a stock
dividend
for earnings per share purposes. Therefore, all share and per share information
related to earnings per share for all periods presented was adjusted
proportionately to reflect the additional common stock issued. In
January 2010, new accounting guidance was issued that requires stock
distributions such as the one we made in connection with our first quarter
dividend be treated as a stock issuance. The guidance was effective
for interim and annual periods ending on or after December 15, 2009 and required
retrospective application. Thus, all share and per share amounts that
were previously reported in our Form 10-Q for the quarterly period ended March
31, 2009 to reflect the distribution as a stock dividend, have been revised to
appropriately reflect the distribution as a stock issuance on the date of
payment.
On
February 22, 2010, we announced a first quarter 2010 common stock dividend of
$0.20 per share payable in cash. The dividend was paid on April 16,
2010. Future dividends payable will be determined by our Board of
Directors based upon circumstances at the time of declaration.
As a
publicly traded company, we have access to capital through both the public
equity and debt markets. We currently have a shelf registration statement on
file with the Securities and Exchange Commission authorizing us to publicly
issue senior and/or subordinated debt securities, shares of preferred stock (or
depositary shares representing fractional interests therein), shares of common
stock, warrants or rights to purchase any of the foregoing securities, and units
consisting of two or more of these classes or series of
securities. There is no limit to the offering price or number of
securities that we may issue under this shelf registration
statement.
Our
strategy is to maintain a conservative debt-to-total-market capitalization ratio
in order to enhance our access to the broadest range of capital markets, both
public and private. Based on our share of total consolidated and unconsolidated
debt and the market value of equity, our debt-to-total-market capitalization
(debt plus market value of equity) ratio was as follows at March 31, 2010 (in
thousands, except stock prices):
|
|
Shares
Outstanding
|
|
|
Stock
Price (1)
|
|
|
Value
|
|
Common
stock and operating partnership units
|
|
|
189,965 |
|
|
$ |
13.70 |
|
|
$ |
2,602,521 |
|
7.75%
Series C Cumulative Redeemable Preferred Stock
|
|
|
460 |
|
|
|
250.00 |
|
|
|
115,000 |
|
7.375%
Series D Cumulative Redeemable Preferred Stock
|
|
|
1,330 |
|
|
|
250.00 |
|
|
|
332,500 |
|
Total
market equity
|
|
|
|
|
|
|
|
|
|
|
3,050,021 |
|
Company’s
share of total debt
|
|
|
|
|
|
|
|
|
|
|
6,028,092 |
|
Total
market capitalization
|
|
|
|
|
|
|
|
|
|
$ |
9,078,113 |
|
Debt-to-total-market
capitalization ratio
|
|
|
|
|
|
|
|
|
|
|
66.4 |
% |
(1) |
Stock
price for common stock and operating partnership units equals the closing
price of the common stock on March 31, 2010. The stock price for the
preferred stock represents the liquidation preference of each respective
series of preferred stock. |
Capital
Expenditures
Including
our share of unconsolidated affiliates’ capital expenditures, we spent $4.2
million during the three months ended March 31, 2010 for tenant allowances,
which generally generate increased rents from tenants over the terms of their
leases. Deferred maintenance expenditures were $3.2 million for the three months
ended March 31, 2010 and included $0.5 million for roof replacements and $2.7
million for various other capital expenditures. Renovation expenditures were
$0.1 million for the three months ended March 31, 2010.
Deferred
maintenance expenditures are generally billed to tenants as common area
maintenance expense, and most are recovered over a 5 to 15-year period.
Renovation expenditures are primarily for remodeling and upgrades of malls, of
which approximately 30% is recovered from tenants over a 5 to 15-year
period. We are recovering these costs through fixed amounts with
annual increases or pro rata cost reimbursements based on the tenant’s occupied
space.
As part
of our strategy to strengthen our liquidity position, we have focused on
reducing capital expenditures related to renovations and tenant
allowances. Since the vast majority of our properties have been
renovated within the last ten years, we decided to delay any renovation plans
during 2009 and do not have any renovations currently scheduled for
2010.
We
completed one development project during the first quarter of 2010 and have one
project under development as of March 31, 2010.
Annual
capital expenditures budgets are prepared for each of our properties that are
intended to provide for all necessary recurring and non-recurring capital
expenditures. We believe that property operating cash flows, which include
reimbursements from tenants for certain expenses, will provide the necessary
funding for these expenditures.
Developments
and Expansions
The
following table summarizes our development projects as of March 31, 2010
(dollars in thousands):
Properties
Opened During the Three Months Ended March 31, 2010
(Dollars
in thousands)
|
|
|
|
|
|
CBL's
Share of |
|
|
|
|
|
Property
|
|
Location
|
|
Total
Project
Square
Feet
|
|
Total
Cost
(b)
|
|
Cost
to
Date
(c)
|
|
Date
Opened
|
|
Initial
Yield
|
|
Community/Open-Air
Centers:
|
|
|
|
|
|
|
|
|
|
|
|
The
Pavilion at Port Orange (Phase I and Phase 1A) (a)
|
|
Port
Orange, FL
|
|
492,296
|
|
$67,438
|
|
$66,562
|
|
Fall-09/Spring-10
|
|
7.3%*
|
|
|
|
|
|
492,296
|
|
$67,438
|
|
$66,562
|
|
|
|
|
|
Properties
Under Development at March 31, 2010
(Dollars
in thousands)
|
|
|
|
|
|
CBL's
Share of |
|
|
|
|
|
Property
|
|
Location
|
|
Total
Project
Square
Feet
|
|
Total
Cost
(b)
|
|
Cost
to
Date
(c)
|
|
Date
Opened
|
|
Initial
Yield
|
|
Community/Open-Air
Centers:
|
|
|
|
|
|
|
|
|
|
|
|
The
Forum at Grandview (Phase I) (a)
|
|
|
|
110,690
|
|
$16,798
|
|
$9,234
|
|
Fall-10
|
|
7.0%*
|
|
|
|
|
|
|
|
$16,798
|
|
$9,234
|
|
|
|
|
|
(a) The
Pavilion at Port Orange is a 50/50 joint venture and The Forum at
Grandview is a 75/25 joint venture.
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) Total
Cost is presented net of reimbursements to be received.
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Cost
to Date does not reflect reimbursements until they are
received.
|
|
|
|
|
|
|
|
|
|
|
|
|
*Pro
Forma initial yields for phased projects reflect full land cost in Phase
I. Combined pro forma yields are higher than Phase I project
yields.
|
|
|
|
We
celebrated the grand opening of The Pavilion at Port Orange, a
492,000-square-foot-open-air development in Port Orange, FL, on March 10,
2010. The project opened approximately 92% leased or committed with
anchors including Hollywood Theaters, Belk, HomeGoods, Marshalls, Michaels,
PETCO and ULTA. The center is off to an excellent start in terms of
sales and reception from the community.
In March
2010, we started construction on the first phase of a 75/25 joint venture
community center project in Madison, MS. We converted our ground
lease position into a 75% ownership interest in the development. This
project will serve to meet the strong retail demand in the Madison
area. The first phase of this project is 110,000 square feet
comprised of anchors including Dick’s Sporting Goods, Best Buy and Stein
Mart. The project is 100% leased and is expected to open in the
fourth quarter of 2010.
We have
entered into one option agreement for the development of a future shopping
center. Except for the project presented above, we do not have any
other material capital commitments as of March 31, 2010.
Off-Balance
Sheet Arrangements
Unconsolidated
Affiliates
We have
ownership interests in 20 unconsolidated affiliates that are described in Note 4
to the consolidated financial statements. The unconsolidated affiliates are
accounted for using the equity method of accounting and are reflected in the
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.
We own a
parcel of land that we are ground leasing to a third party developer for the
purpose of developing a shopping center. We have guaranteed 27% of
the third party’s construction loan and bond line of credit (the “loans”) of
which the maximum guaranteed amount is $31.6 million. The total
amount outstanding at March 31, 2010 on the loans was $73.7 million of which we
have guaranteed $19.9 million. We have recorded an obligation of $0.3
million in our condensed consolidated balance sheets as of March 31, 2010 and
December 31, 2009 to reflect the estimated fair value of the
guaranty.
We have
guaranteed 100% of the construction and land loans of West Melbourne I, LLC
(“West Melbourne”), an unconsolidated affiliate in which we own a 50% interest,
of which the maximum guaranteed amount is $50.7 million. West
Melbourne developed and, in April 2009, opened Hammock Landing, a community
center in West Melbourne, FL. The total amount outstanding at March 31, 2010 on
the loans was $44.9 million. The guaranty will expire upon repayment of the
debt. The loans mature in August 2010 and have extension options
available. We have recorded an obligation of $0.7 million in the
accompanying condensed consolidated balance sheets as of March 31, 2010 and
December 31, 2009 to reflect the estimated fair value of this
guaranty.
We have
guaranteed 100% of the construction loan of Port Orange I, LLC (“Port Orange”),
an unconsolidated affiliate in which we own a 50% interest, of which the maximum
guaranteed amount is $97.2 million. Port Orange developed and, in
March 2010, opened The Pavilion at Port Orange, a community center in Port
Orange, FL. The total amount outstanding at March 31, 2010 on the loan was $69.4
million. The guaranty will expire upon repayment of debt. The loan
matures in December 2011 and has extension options
available. We
have recorded an obligation of $1.1 million in the accompanying condensed
consolidated balance sheets as of March 31, 2010 and December 31, 2009 to
reflect the estimated fair value of this guaranty.
We have
guaranteed the lease performance of York Town Center, LP (“YTC”), an
unconsolidated affiliate in which we own a 50% interest, under the terms of an
agreement with a third party that owns property as part of York Town Center.
Under the terms of that agreement, YTC is obligated to cause performance of the
third party’s obligations as landlord under its lease with its sole tenant,
including, but not limited to, provisions such as co-tenancy and exclusivity
requirements. Should YTC fail to cause performance, then the tenant under the
third party landlord’s lease may pursue certain remedies ranging from rights to
terminate its lease to receiving reductions in rent. We have guaranteed YTC’s
performance under this agreement up to a maximum of $22.0 million, which
decreases by $0.8 million annually until the guaranteed amount is reduced to
$10.0 million. The guaranty expires on December 31, 2020. The maximum
guaranteed obligation was $19.6 million as of March 31, 2010. We
entered into an agreement with our joint venture partner under which the joint
venture partner has agreed to reimburse us 50% of any amounts we are obligated
to fund under the guaranty. We did not record an obligation for this
guaranty because we determined that the fair value of the guaranty is not
material.
Our
guarantees and the related accounting are more fully described in Note 9 to the
condensed consolidated financial statements.
CRITICAL
ACCOUNTING POLICIES
Our
significant accounting policies are disclosed in Note 2 to the consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2009. The following discussion describes our most critical
accounting policies, which are those that are both important to the presentation
of our financial condition and results of operations and that require
significant judgment or use of complex estimates.
Revenue
Recognition
Minimum
rental revenue from operating leases is recognized on a straight-line basis over
the initial terms of the related leases. Certain tenants are required to pay
percentage rent if their sales volumes exceed thresholds specified in their
lease agreements. Percentage rent is recognized as revenue when the thresholds
are achieved and the amounts become determinable.
We
receive reimbursements from tenants for real estate taxes, insurance, common
area maintenance, and other recoverable operating expenses as provided in the
lease agreements. Tenant reimbursements are recognized as revenue in the period
the related operating expenses are incurred. Tenant reimbursements related to
certain capital expenditures are billed to tenants over periods of 5 to 15 years
and are recognized as revenue when billed.
We receive management, leasing and
development fees from third parties and unconsolidated affiliates. Management
fees are charged as a percentage of revenues (as defined in the management
agreement) and are recognized as revenue when earned. Development fees are
recognized as revenue on a pro rata basis over the development period. Leasing
fees are charged for newly executed leases and lease renewals and are recognized
as revenue when earned. Development and leasing fees received from
unconsolidated affiliates during the development period are recognized as
revenue to the extent of the third-party partners’ ownership interest. Fees to
the extent of our ownership interest are recorded as a reduction to our
investment in the unconsolidated affiliate.
Gains on
sales of real estate assets are recognized when it is determined that the sale
has been consummated, the buyer’s initial and continuing investment is adequate,
our receivable, if any, is not subject to future subordination, and the buyer
has assumed the usual risks and rewards of ownership of the asset. When we have
an ownership interest in the buyer, gain is recognized to the extent of the
third party partner’s ownership interest and the portion of the gain
attributable to our ownership interest is deferred.
Real
Estate Assets
We
capitalize predevelopment project costs paid to third parties. All previously
capitalized predevelopment costs are expensed when it is no longer probable that
the project will be completed. Once development of a project commences, all
direct costs incurred to construct the project, including interest and real
estate taxes, are capitalized. Additionally, certain general and administrative
expenses are allocated to the projects and capitalized based on the amount of
time applicable personnel work on the development project. Ordinary repairs and
maintenance are expensed as incurred. Major replacements and improvements are
capitalized and depreciated over their estimated useful lives.
All
acquired real estate assets are accounted for using the purchase method of
accounting and accordingly, the results of operations are included in the
consolidated statements of operations from the respective dates of
acquisition. The purchase price is allocated to (i) tangible assets,
consisting of land, buildings and improvements, as if vacant, and tenant
improvements and (ii) identifiable intangible assets and liabilities generally
consisting of above- and below-market leases and in-place leases. We
use estimates of fair value based on estimated cash flows, using appropriate
discount rates, and other valuation methods to allocate the purchase price to
the acquired tangible and intangible assets. Liabilities assumed
generally consist of mortgage debt on the real estate assets
acquired. Assumed debt with a stated interest rate that is
significantly different from market interest rates is recorded at its fair value
based on estimated market interest rates at the date of
acquisition.
Depreciation
is computed on a straight-line basis over estimated lives of 40 years for
buildings, 10 to 20 years for certain improvements and 7 to 10 years for
equipment and fixtures. Tenant improvements are capitalized and depreciated on a
straight-line basis over the term of the related lease. Lease-related
intangibles from acquisitions of real estate assets are amortized over the
remaining terms of the related leases. The amortization of above- and
below-market leases is recorded as an adjustment to minimum rental revenue,
while the amortization of all other lease-related intangibles is recorded as
amortization expense. Any difference between the face value of the
debt assumed and its fair value is amortized to interest expense over the
remaining term of the debt using the effective interest method.
Carrying
Value of Long-Lived Assets
We
periodically evaluate long-lived assets to determine if there has been any
impairment in their carrying values and record impairment losses if the
undiscounted cash flows estimated to be generated by those assets are less than
their carrying amounts or if there are other indicators of impairment. If it is
determined that an impairment has occurred, the excess of the asset’s carrying
value over its estimated fair value is charged to operations. No impairments of
the carrying values of long-lived assets were incurred during the three months
ended March 31, 2010 and 2009.
Allowance
for Doubtful Accounts
We
periodically perform a detailed review of amounts due from tenants to determine
if accounts receivable balances are impaired based on factors affecting the
collectibility of those balances. Our estimate of the allowance for
doubtful accounts requires significant judgment about the timing, frequency and
severity of collection losses, which affects the allowance and net
income. We recorded a provision for doubtful accounts of $1.5 million
and $2.1 million for the three months ended March 31, 2010 and 2009,
respectively.
Investments
in Unconsolidated Affiliates
Initial
investments in joint ventures that are in economic substance a capital
contribution to the joint venture are recorded in an amount equal to our
historical carryover basis in the real estate contributed. Initial investments
in joint ventures that are in economic substance the sale of a portion of our
interest in the real estate are accounted for as a contribution of real estate
recorded in an amount equal to our historical carryover basis in the ownership
percentage retained and as a sale of real estate with profit recognized to the
extent of the other joint venturers’ interests in the joint venture. Profit
recognition assumes that we have no commitment to reinvest with respect to the
percentage of the real estate sold and the accounting requirements of the full
accrual method are met.
We
account for our investment in joint ventures where we own a non-controlling
interest or where we are not the primary beneficiary of a variable interest
entity using the equity method of accounting. Under the equity method, our cost
of investment is adjusted for our share of equity in the earnings of the
unconsolidated affiliate and reduced by distributions received. Generally,
distributions of cash flows from operations and capital events are first made to
partners to pay cumulative unpaid preferences on unreturned capital balances and
then to the partners in accordance with the terms of the joint venture
agreements.
Any
differences between the cost of our investment in an unconsolidated affiliate
and our underlying equity as reflected in the unconsolidated affiliate’s
financial statements generally result from costs of our investment that are not
reflected on the unconsolidated affiliate’s financial statements, capitalized
interest on our investment and our share of development and leasing fees that
are paid by the unconsolidated affiliate to us for development and leasing
services provided to the unconsolidated affiliate during any development
periods. The net difference between our investment in unconsolidated affiliates
and the underlying equity of unconsolidated affiliates is generally amortized
over a period of 40 years.
On a
periodic basis, we assess whether there are any indicators that the fair value
of our investments in unconsolidated affiliates may be impaired. An investment
is impaired only if our estimate of the fair value of the investment is less
than the carrying value of the investment, and such decline in value is deemed
to be other than temporary. To the extent impairment has occurred, the loss is
measured as the excess of the carrying amount of the investment over the fair
value of the investment. Our estimates of fair value for each investment are
based on a number of assumptions such as future leasing expectations, operating
forecasts, discount rates and capitalization rates, among
others. These assumptions are subject to economic and market
uncertainties including, but not limited to, demand for space, competition for
tenants, changes in market rental rates, and operating costs. As these factors
are difficult to predict and are subject to future events that may alter our
assumptions, the fair values estimated in the impairment analyses may not be
realized.
During
the three months ended March 31, 2009, we recorded a non-cash impairment charge
of $7.7 million related to our cost-method investment in Jinsheng, an
established mall operating and real estate development company located in
Nanjing, China, due to a decline in expected future cash flows. The
projected decrease was a result of declining occupancy and sales due to the
downturn of the real estate market in China in early 2009. No
impairments of investments in unconsolidated affiliates were incurred during the
three months ended March 31, 2010.
Recent
Accounting Pronouncements
Accounting Guidance
Adopted
Effective
January 1, 2010, we adopted ASU No. 2010-06, Fair Value Measurements and
Disclosures: Improving Disclosures about Fair Value Measurements (“ASU
2010-06”). ASU 2010-06 provides that significant transfers in or out
of measurements classified as Levels 1 or 2 should be disclosed separately along
with reasons for the transfers. Information regarding purchases,
sales, issuances and settlements related to measurements classified as Level 3
are also to be presented separately. Existing disclosures have been
updated to include fair value measurement disclosures for each class of assets
and liabilities and information regarding the valuation techniques and inputs
used to measure fair value in both measurements classified as Levels 2 or
3. The guidance is effective for fiscal years beginning after
December 15, 2009. The adoption of this guidance did not have an
impact on our condensed consolidated financial statements.
Effective
January 1, 2010, we adopted ASU No. 2009-16, Transfers and Servicing: Accounting
for Transfers of Financial Assets (“ASU 2009-16”). The
guidance eliminates the concept of a “qualifying special-purpose entity,”
changes the requirements for derecognizing financial assets and requires
additional related disclosures. The new accounting guidance is
effective for fiscal years beginning after November 15, 2009. The
adoption of this guidance did not have an impact on our condensed consolidated
financial statements.
Effective
January 1, 2010, we adopted ASU No. 2009-17, Consolidations: Improvements to
Financial Reporting by Enterprises Involved with Variable Interest
Entities (“ASU 2009-17”). ASU 2009-17 modifies how a company
determines when an entity that is insufficiently capitalized or is not
controlled through voting, or similar, rights should be
consolidated. The guidance clarifies that the determination of
whether a company is required to consolidate an entity is based on, among other
things, an entity’s purpose and design and a company’s ability to direct the
activities of the entity that most significantly impact the entity’s economic
performance. This guidance requires an ongoing reassessment of
whether a company is the primary beneficiary of a variable interest
entity. It also requires additional disclosure about a company’s
involvement in variable interest entities and any significant changes in risk
exposure due to that involvement. The guidance is effective for
fiscal years beginning after November 15, 2009. The adoption of this
guidance did not have an impact on our condensed consolidated financial
statements.
On
February 24, 2010, the FASB issued ASU No. 2010-09, Subsequent Events: Amendments to
Certain Recognition and Disclosure Requirements (“ASU
2010-09”). ASU 2010-09 amends the disclosure provision related to
subsequent events by removing the requirement for an SEC filer to disclose a
date through which subsequent events have been evaluated. The new
accounting guidance was effective immediately and we adopted ASU No. 2010-09
upon the date of issuance.
Impact
of Inflation
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
late 2009, the markets that were impacted by the economic crisis that arose
primarily in the fourth quarter of 2008 seemed to stabilize and related
bankruptcy activity started to decline. The credit and investment
markets have been slowly, but steadily, showing signs of
improvement. Retailers seem to have revised their business plans to
better adapt to the current economic environment and are starting to report
improving margins and profitability. The primary focus has begun to shift to
planning for a market recovery.
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, or their share of, operating
expenses, including common area maintenance, real estate taxes, insurance and
certain capital expenditures, which reduces our exposure to increases in costs
and operating expenses resulting from inflation.
Funds
From Operations
Funds
From Operations (“FFO”) is a widely used measure of the operating performance of
real estate companies that supplements net income determined in accordance with
GAAP. The National Association of Real Estate Investment Trusts (“NAREIT”)
defines FFO as net income (computed in accordance with GAAP) excluding gains or
losses on sales of operating properties, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures and
noncontrolling interests. Adjustments for unconsolidated partnerships and joint
ventures and noncontrolling interests are calculated on the same basis. We
define FFO allocable to common shareholders as defined above by NAREIT less
dividends on preferred stock. Our method of calculating FFO allocable to common
shareholders may be different from methods used by other REITs and, accordingly,
may not be comparable to such other REITs.
We
believe that FFO provides an additional indicator of the operating performance
of our Properties without giving effect to real estate depreciation and
amortization, which assumes the value of real estate assets declines predictably
over time. Since values of well-maintained real estate assets have historically
risen with market conditions, we believe that FFO enhances investors’
understanding of our operating performance. The use of FFO as an indicator of
financial performance is influenced not only by the operations of our properties
and interest rates, but also by our capital structure.
We
present both FFO of our Operating Partnership and FFO allocable to common
shareholders, as we believe that both are useful performance
measures. We believe FFO of our Operating Partnership 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 available to common shareholders.
In our
reconciliation of net income available to common shareholders to FFO allocable
to common shareholders that is presented below, we make an adjustment to add
back noncontrolling interest in earnings of our Operating Partnership in order
to arrive at FFO of our Operating Partnership. We then apply a
percentage to FFO of our Operating Partnership 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 outstanding 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 for purposes of evaluating our
operating performance or to cash flow as a measure of liquidity.
FFO of
the Operating Partnership increased to $93.6 million during the three months
ended March 31, 2010 compared to $88.5 million in the prior year period,
representing an increase of 5.8%.
The reconciliation of FFO to net
income available to common shareholders is as follows (in
thousands):
|
|
Three
Months Ended
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$ |
10,928 |
|
|
$ |
1,712 |
|
Noncontrolling
interest in earnings of Operating Partnership
|
|
|
4,110 |
|
|
|
1,306 |
|
Depreciation
and amortization expense of:
|
|
|
|
|
|
|
|
|
Consolidated
properties
|
|
|
72,012 |
|
|
|
78,311 |
|
Unconsolidated
affiliates
|
|
|
6,885 |
|
|
|
7,509 |
|
Non-real
estate assets
|
|
|
(219 |
) |
|
|
(247 |
) |
Noncontrolling
interests' share of depreciation and amortization
|
|
|
(145 |
) |
|
|
(201 |
) |
Loss
on discontinued operations
|
|
|
- |
|
|
|
60 |
|
Funds
from operations of the Operating Partnership
|
|
|
93,571 |
|
|
|
88,450 |
|
Percentage
allocable to Company shareholders (1)
|
|
|
72.65 |
% |
|
|
56.75 |
% |
Funds
from operations allocable to Company shareholders
|
|
$ |
67,979 |
|
|
$ |
50,195 |
|
(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 and
foreign exchange 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 and foreign
exchange rates. Caution should be used in evaluating our overall
market risk from the information presented below, as actual results may
differ. We employ various derivative programs to manage certain
portions of our market risk associated with interest rates. See Note
5 of the notes to consolidated financial statements for further discussions of
the qualitative aspects of market risk, including derivative financial
instrument activity.
Based on
our proportionate share of consolidated and unconsolidated variable-rate debt at
March 31, 2010, a 0.5% increase or decrease in interest rates on variable rate
debt would increase or decrease annual cash flows by approximately $8.6 million
and, after the effect of capitalized interest, annual earnings by approximately
$8.5 million.
Based on our proportionate share of
total consolidated and unconsolidated debt at March 31, 2010, a 0.5% increase in
interest rates would decrease the fair value of debt by approximately $81.8
million, while a 0.5% decrease in interest rates would increase the fair value
of debt by approximately $83.8 million.
ITEM 4: Controls and Procedures
Disclosure
Controls and Procedures
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of its
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
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 our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
effective to ensure that information that we are required to disclose in the
reports we file or submit under the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission rules and forms.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our 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.
None
The
following information updates the information disclosed in “Item 1A – Risk
Factors” of our Annual Report on Form 10-K for the year ended December 31, 2009,
by providing information that is current as of March 31, 2010:
RISKS
RELATED TO REAL ESTATE INVESTMENTS
Real
property investments are subject to various risks, many of which are beyond our
control, that could cause declines in the operating revenues and/or the
underlying value of one or more of our Properties.
A number
of factors may decrease the income generated by a retail shopping center
property, including:
|
·
|
National,
regional and local economic climates, which may be negatively impacted by
loss of jobs, production slowdowns, adverse weather conditions, natural
disasters, acts of violence, war or terrorism, declines in residential
real estate activity and other factors which tend to reduce consumer
spending on retail goods.
|
|
·
|
Adverse
changes in levels of consumer spending, consumer confidence and seasonal
spending (especially during the holiday season when many retailers
generate a disproportionate amount of their annual
profits).
|
|
·
|
Local
real estate conditions, such as an oversupply of, or reduction in demand
for, retail space or retail goods, and the availability and
creditworthiness of current and prospective
tenants.
|
|
·
|
Increased
operating costs, such as increases in repairs and maintenance, real
property taxes, utility rates and insurance
premiums.
|
|
·
|
Delays
or cost increases associated with the opening of new or renovated
properties, due to higher than estimated construction costs, cost
overruns, delays in receiving zoning, occupancy or other governmental
approvals, lack of availability of materials and labor, weather
conditions, and similar factors which may be outside our ability to
control.
|
|
·
|
Perceptions
by retailers or shoppers of the safety, convenience and attractiveness of
the shopping center.
|
|
·
|
The
willingness and ability of the shopping center’s owner to provide capable
management and maintenance
services.
|
|
·
|
The
convenience and quality of competing retail properties and other retailing
options, such as the Internet.
|
In
addition, other factors may adversely affect the value of our Properties without
affecting their current revenues, including:
|
·
|
Adverse
changes in governmental regulations, such as local zoning and land use
laws, environmental regulations or local tax structures that could inhibit
our ability to proceed with development, expansion, or renovation
activities that otherwise would be beneficial to our
Properties.
|
|
·
|
Potential
environmental or other legal liabilities that reduce the amount of funds
available to us for investment in our
Properties.
|
|
·
|
Any
inability to obtain sufficient financing (including construction financing
and permanent debt), or the inability to obtain such financing on
commercially favorable terms, to fund repayment of maturing
|
|
|
loans, new developments, acquisitions, and property
expansions and renovations which otherwise would benefit our
Properties.
|
|
·
|
An
environment of rising interest rates, which could negatively impact both
the value of commercial real estate such as retail shopping centers and
the overall retail climate.
|
Illiquidity
of real estate investments could significantly affect our ability to respond to
adverse changes in the performance of our Properties and harm our financial
condition.
Substantially
all of our total consolidated assets consist of investments in real
properties. Because real estate investments are relatively illiquid,
our ability to quickly sell one or more properties in our portfolio in response
to changing economic, financial and investment conditions is
limited. The real estate market is affected by many factors, such as
general economic conditions, availability of financing, interest rates and other
factors, including supply and demand for space, that are beyond our
control. We cannot predict whether we will be able to sell any
property for the price or on the terms we set, or whether any price or other
terms offered by a prospective purchaser would be acceptable to
us. We also cannot predict the length of time needed to find a
willing purchaser and to close the sale of a property. In addition,
current economic and capital market conditions might make it more difficult for
us to sell properties or might adversely affect the price we receive for
properties that we do sell, as prospective buyers might experience increased
costs of debt financing or other difficulties in obtaining debt
financing.
Moreover,
there are some limitations under federal income tax laws applicable to REITs
that limit our ability to sell assets. In addition, because our
properties are generally mortgaged to secure our debts, we may not be able to
obtain a release of a lien on a mortgaged property without the payment of the
associated debt and/or a substantial prepayment penalty, which restricts our
ability to dispose of a property, even though the sale might otherwise be
desirable. Furthermore, the number of prospective buyers interested
in purchasing shopping centers is limited. Therefore, if we want to
sell one or more of our Properties, we may not be able to dispose of it in the
desired time period and may receive less consideration than we originally
invested in the Property.
Before a
property can be sold, we may be required to make expenditures to correct defects
or to make improvements. We cannot assure you that we will have funds
available to correct those defects or to make those improvements, and if we
cannot do so, we might not be able to sell the property, or might be required to
sell the property on unfavorable terms. In acquiring a property, we
might agree to provisions that materially restrict us from selling that property
for a period of time or impose other restrictions, such as limitations on the
amount of debt that can be placed or repaid on that property. These
factors and any others that would impede our ability to respond to adverse
changes in the performance of our Properties could adversely affect our
financial condition and results of operations.
We
may elect not to proceed with certain development or expansion projects once
they have been undertaken, resulting in charges that could have a material
adverse effect on our results of operations for the period in which the charge
is taken.
We intend
to pursue development and expansion activities as opportunities arise. In
connection with any development or expansion, we will incur various risks,
including the risk that development or expansion opportunities explored by us
may be abandoned for various reasons including, but not limited to, credit
disruptions that require the Company to conserve its cash until the capital
markets stabilize or alternative credit or funding arrangements can be
made. Developments or expansions also include the risk that
construction costs of a project may exceed original estimates, possibly making
the project unprofitable. Other risks include the risk that we may not be able
to refinance construction loans which are generally with full recourse to us,
the risk that occupancy rates and rents at a completed project will not meet
projections and will be insufficient to make the project profitable, and the
risk that we will not be able to obtain anchor, mortgage lender and property
partner approvals for certain expansion activities.
When we
elect not to proceed with a development opportunity, the development costs
ordinarily are charged against income for the then-current period. Any such
charge could have a material adverse effect on our results of operations for the
period in which the charge is taken.
Certain
of our Properties are subject to ownership interests held by third parties,
whose interests may conflict with ours and thereby constrain us from taking
actions concerning these properties which otherwise would be in the best
interests of the Company and our stockholders.
We own
partial interests in 23 malls, twelve associated centers, six community centers
and eight office buildings. We manage all but three of these
properties. Governor’s Square, Governor’s Plaza and Kentucky Oaks are
all owned by joint ventures and are managed by a property manager that is
affiliated with the third party managing general partner. The
property manager performs the property management and leasing services for these
three Properties and receives a fee for its services. The managing partner of
the Properties controls the cash flow distributions, although our approval is
required for certain major decisions.
Where we
serve as managing general partner (or equivalent) of the entities that own our
Properties, we may have certain fiduciary responsibilities to the other owners
of those entities. In certain cases, the approval or consent of the other owners
is required before we may sell, finance, expand or make other significant
changes in the operations of such Properties. To the extent such approvals or
consents are required, we may experience difficulty in, or may be prevented
from, implementing our plans with respect to expansion, development, financing
or other similar transactions with respect to such Properties.
With
respect to those Properties for which we do not serve as managing general
partner (or equivalent), we do not have day-to-day operational control or
control over certain major decisions, including leasing and the timing and
amount of distributions, which could result in decisions by the managing entity
that do not fully reflect our interests. This includes decisions relating to the
requirements that we must satisfy in order to maintain our status as a REIT for
tax purposes. However, decisions relating to sales, expansion and disposition of
all or substantially all of the assets and financings are subject to approval by
the Operating Partnership.
Bankruptcy
of joint venture partners could impose delays and costs on us with respect to
the jointly owned retail properties.
In
addition to the possible effects on our joint ventures of a bankruptcy filing by
us, the bankruptcy of one of the other investors in any of our jointly owned
shopping centers could materially and adversely affect the relevant property or
properties. Under the bankruptcy laws, we would be precluded from
taking some actions affecting the estate of the other investor without prior
approval of the bankruptcy court, which would, in most cases, entail prior
notice to other parties and a hearing in the bankruptcy court. At a
minimum, the requirement to obtain court approval may delay the actions we would
or might want to take. If the relevant joint venture through which we
have invested in a property has incurred recourse obligations, the discharge in
bankruptcy of one of the other investors might result in our ultimate liability
for a greater portion of those obligations than we would otherwise
bear.
We
may incur significant costs related to compliance with environmental laws, which
could have a material adverse effect on our results of operations, cash flows
and the funds available to us to pay dividends.
Under
various federal, state and local laws, ordinances and regulations, a current or
previous owner or operator of real estate may be liable for the costs of removal
or remediation of petroleum, certain hazardous or toxic substances on, under or
in such real estate. Such laws typically impose such liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such substances. The costs of remediation or removal of such substances may be
substantial. The presence of such substances, or the failure to promptly remove
or remediate such substances, may adversely affect the owner’s or operator’s
ability to lease or sell such real estate or to borrow using such real estate as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs of removal or remediation of
such substances at the disposal or treatment facility, regardless of whether
such facility is owned or operated by such person. Certain laws also impose
requirements on conditions and activities that may affect the environment or the
impact of the environment on human health. Failure to comply with such
requirements could result in the imposition of monetary penalties (in addition
to the costs to achieve compliance) and potential liabilities to third parties.
Among other things, certain laws require abatement or removal of friable and
certain non-friable asbestos-containing materials in the event of demolition or
certain renovations or remodeling. Certain laws regarding asbestos-containing
materials require building owners and
lessees,
among other things, to notify and train certain employees working in areas known
or presumed to contain asbestos-containing materials. Certain laws also impose
liability for release of asbestos-containing materials into the air and third
parties may seek recovery from owners or operators of real properties for
personal injury or property damage associated with asbestos-containing
materials. In connection with the ownership and operation of properties, we may
be potentially liable for all or a portion of such costs or
claims.
All of
our Properties (but not properties for which we hold an option to purchase but
do not yet own) have been subject to Phase I environmental assessments or
updates of existing Phase I environmental assessments. Such assessments
generally consisted of a visual inspection of the Properties, review of federal
and state environmental databases and certain information regarding historic
uses of the property and adjacent areas and the preparation and issuance of
written reports. Some of the Properties contain, or contained, underground
storage tanks used for storing petroleum products or wastes typically associated
with automobile service or other operations conducted at the Properties. Certain
Properties contain, or contained, dry-cleaning establishments utilizing
solvents. Where believed to be warranted, samplings of building materials or
subsurface investigations were undertaken. At certain Properties, where
warranted by the conditions, we have developed and implemented an operations and
maintenance program that establishes operating procedures with respect to
asbestos-containing materials. The cost associated with the development and
implementation of such programs was not material. We have also obtained
environmental insurance coverage at certain of our Properties.
We
believe that our Properties are in compliance in all material respects with all
federal, state and local ordinances and regulations regarding the handling,
discharge and emission of hazardous or toxic substances. As of March 31, 2010,
we have recorded in our financial statements a liability of $2.8 million related
to potential future asbestos abatement activities at our Properties which are
not expected to have a material impact on our financial condition or results of
operations. We have not been notified by any governmental authority, and are not
otherwise aware, of any material noncompliance, liability or claim relating to
hazardous or toxic substances in connection with any of our present or former
Properties. Therefore, we have not recorded any liability related to hazardous
or toxic substances. Nevertheless, it is possible that the environmental
assessments available to us do not reveal all potential environmental
liabilities. It is also possible that subsequent investigations will identify
material contamination, that adverse environmental conditions have arisen
subsequent to the performance of the environmental assessments, or that there
are material environmental liabilities of which management is unaware. Moreover,
no assurances can be given that (i) future laws, ordinances or regulations
will not impose any material environmental liability or (ii) the current
environmental condition of the Properties has not been or will not be affected
by tenants and occupants of the Properties, by the condition of properties in
the vicinity of the Properties or by third parties unrelated to us, the
Operating Partnership or the relevant Property’s partnership.
Possible
terrorist activity or other acts of violence could adversely affect our
financial condition and results of operations.
Future
terrorist attacks in the United States, and other acts of violence, including
terrorism or war, might result in declining consumer confidence and spending,
which could harm the demand for goods and services offered by our tenants and
the values of our Properties, and might adversely affect an investment in our
securities. A decrease in retail demand could make it difficult for
us to renew or re-lease our Properties at lease rates equal to or above
historical rates and, to the extent our tenants are affected, could adversely
affect their ability to continue to meet obligations under their existing
leases. Terrorist activities also could directly affect the value of
our Properties through damage, destruction or loss. Furthermore,
terrorist acts might result in increased volatility in national and
international financial markets, which could limit our access to capital or
increase our cost of obtaining capital.
RISKS
RELATED TO OUR BUSINESS AND THE MARKET FOR OUR STOCK
Declines
in economic conditions, including increased volatility in the capital and credit
markets, could adversely affect our business, results of operations and
financial condition.
An
economic recession can result in extreme volatility and disruption of our
capital and credit markets. The resulting economic environment
may be affected by dramatic declines in the stock and housing markets, increases
in foreclosures, unemployment and costs of living, as well as limited access to
credit. This economic situation can, and most often will, impact
consumer spending levels, which can result in decreased revenues for our tenants
and related decreases in the values of our Properties. A sustained
economic downward trend could impact our tenants’ ability to meet their lease
obligations due to poor operating results, lack of liquidity, bankruptcy or
other reasons. Our ability to lease space and negotiate rents at
advantageous rates could also be affected in this type of economic
environment. Additionally, access to capital and credit markets could
be disrupted over an extended period, which may make it difficult to obtain the
financing we may need for future growth and/or to meet our debt service
obligations as they mature. Any of these events could harm our
business, results of operations and financial condition.
Both
our June 2009 common stock offering and the payment of a portion of our common
stock dividend for the first quarter of 2009 in shares of common stock were
dilutive, and there may be future dilution of our common stock.
In June
2009,we completed a public offering of 66,630,000 shares of our newly-issued
common stock. In April 2009, we issued 4,754,355 shares of common
stock in connection with the payment of a portion of our first quarter 2009
common stock dividend. These transactions have had a dilutive effect
on our earnings per share and funds from operations per share for the three
months ended March 31, 2010. We are not restricted by our
organizational documents, contractual arrangements or otherwise from issuing
additional common stock, including any securities that are convertible into or
exchangeable or exercisable for, or that represent the right to receive, common
stock or any substantially similar securities in the future. Future
sales or issuances of substantial amounts of our common stock may be at prices
below the then-current market price of our common stock and may adversely impact
the market price of our common stock. Additionally, the market price
of our common stock could decline as a result of sales of a large number of
shares of our common stock in the market after our recent common stock offering
or the perception that such sales could occur.
The
market price of our common stock or other securities may fluctuate
significantly.
The
market price of our common stock or other securities may fluctuate significantly
in response to many factors, including:
·
|
actual
or anticipated variations in our operating results, funds from operations,
cash flows or liquidity;
|
·
|
changes
in our earnings estimates or those of
analysts;
|
·
|
changes
in our dividend policy;
|
·
|
impairment
charges affecting the carrying value of one or more of our Properties or
other assets;
|
·
|
publication
of research reports about us, the retail industry or the real estate
industry generally;
|
·
|
increases
in market interest rates that lead purchasers of our securities to seek
higher dividend or interest rate
yields;
|
·
|
changes
in market valuations of similar
companies;
|
·
|
adverse
market reaction to the amount of our outstanding debt at any time, the
amount of our maturing debt in the near and medium term and our ability to
refinance such debt and the terms thereof or our plans to incur additional
debt in the future;
|
·
|
additions
or departures of key management
personnel;
|
·
|
actions
by institutional security holders;
|
·
|
speculation
in the press or investment
community;
|
·
|
the
occurrence of any of the other risk factors included in, or incorporated
by reference in, this report; and
|
·
|
general
market and economic conditions.
|
Many of
the factors listed above are beyond our control. Those factors may
cause the market price of our common stock or other securities to decline
significantly, regardless of our financial performance and condition and
prospects. It is impossible to provide any assurance that the market
price of our common stock or other securities will not fall in the future, and
it may be difficult for holders to sell such securities at prices they find
attractive, or at all.
The
issuance of additional preferred stock may adversely affect the earnings per
share available to common shareholders and amounts available to common
shareholders for payments of dividends.
In March
2010, we completed an equity offering of 6,300,000 depositary shares, each
representing 1/10th of a share of our 7.375% Series D Cumulative Redeemable
Preferred Stock, having a liquidation preference of $25.00 per
share. The securities are redeemable at liquidation preference, plus
accrued and unpaid dividends, at any time at the option of the
Company. The shares issued in the March 2010 offering will accrue
dividends totaling approximately $11.6 million annually, decreasing earnings per
share available to our common shareholders and the amounts available to our
common shareholders for dividend payments.
We are
not restricted by our organizational documents, contractual arrangements or
otherwise from issuing additional preferred shares, including any securities
that are convertible into or exchangeable or exercisable for, or that represent
the right to receive, preferred stock or any substantially similar securities in
the future.
Competition
could adversely affect the revenues generated by our Properties, resulting in a
reduction in funds available for distribution to our stockholders.
There are
numerous shopping facilities that compete with our Properties in attracting
retailers to lease space. In addition, retailers at our Properties face
competition for customers from:
|
·
|
discount
shopping centers;
|
|
·
|
television
shopping networks; and
|
|
·
|
shopping
via the internet.
|
Each of
these competitive factors could adversely affect the amount of rents and tenant
reimbursements that we are able to collect from our tenants, thereby reducing
our revenues and the funds available for distribution to our
stockholders.
We
compete with many commercial developers, real estate companies and major
retailers for prime development locations and for tenants. New
regional malls or other retail shopping centers with more convenient locations
or better rents may attract tenants or cause them to seek more favorable lease
terms at, or prior to, renewal.
Increased
operating expenses and decreased occupancy rates may not allow us to recover the
majority of our common area maintenance (CAM) and other operating expenses from
our tenants, which could adversely affect our financial position, results of
operations and funds available for future distributions.
Energy
costs, repairs, maintenance and capital improvements to common areas of our
Properties, janitorial services, administrative, property and liability
insurance costs and security costs are typically allocable to our Properties’
tenants. Our lease agreements typically provide that the tenant is
liable for a portion of the CAM and other operating expenses. While
historically our lease agreements provided for variable CAM provisions,
the majority of our current leases require an equal periodic tenant
reimbursement amount for our cost recoveries which serves to fix our tenants’
CAM contributions to us. In these cases, a tenant will pay a single
specified rent amount, or a set expense reimbursement amount, subject to annual
increases, regardless of the actual amount of operating expenses. The
tenant’s payment remains the same regardless of whether operating expenses
increase or decrease, causing us to be responsible for any excess amounts or to
benefit from any declines. As a result, the CAM and tenant
reimbursements that we receive may or may not allow us to recover a substantial
portion of these operating costs.
Additionally,
in the event that our Properties are not fully occupied, we would be required to
pay the portion of any operating, redevelopment or renovation expenses allocable
to the vacant space(s) that would otherwise typically be paid by the residing
tenant(s).
The
loss of one or more significant tenants, due to bankruptcies or as a result of
ongoing consolidations in the retail industry, could adversely affect both the
operating revenues and value of our Properties.
Regional
malls are typically anchored by well-known department stores and other
significant tenants who generate shopping traffic at the mall. A decision by an
anchor tenant or other significant tenant to cease operations at one or more
Properties could have a material adverse effect on those Properties and, by
extension, on our financial condition and results of operations. The closing of
an anchor or other significant tenant may allow other anchors and/or tenants at
an affected Property to terminate their leases, to seek rent relief and/or cease
operating their stores or otherwise adversely affect occupancy at the Property.
In addition, key tenants at one or more Properties might terminate their leases
as a result of mergers, acquisitions, consolidations, dispositions or
bankruptcies in the retail industry. The bankruptcy and/or closure of one or
more significant tenants, if we are not able to successfully re-tenant the
affected space, could have a material adverse effect on both the operating
revenues and underlying value of the Properties involved, reducing the
likelihood that we would be able to sell the Properties if we decided to do so,
or we may be required to incur redevelopment costs in order to successfully
obtain new anchors or other significant tenants when such vacancies
exist.
Our
Properties may be subject to impairment charges which can adversely affect our
financial results.
We
periodically evaluate long-lived assets to determine if there has been any
impairment in their carrying values and record impairment losses if the
undiscounted cash flows estimated to be generated by those assets are less than
their carrying amounts or if there are other indicators of
impairment. If it is determined that an impairment has occurred, the
amount of the impairment charge is equal to the excess of the asset’s carrying
value over its estimated fair value, which could have a material adverse effect
on our financial results in the accounting period in which the adjustment is
made. Our estimates of undiscounted cash flows expected to be
generated by each property are based on a number of assumptions such as leasing
expectations, operating budgets, estimated useful lives, future maintenance
expenditures, intent to hold for use and capitalization rates. These
assumptions are subject to economic and market uncertainties including, but not
limited to, demand for space, competition for tenants, changes in market rental
rates and costs to operate each property. As these factors are difficult to
predict and are subject to future events that may alter our assumptions, the
future cash flows estimated in our impairment analyses may not be
achieved.
Inflation
or deflation may adversely affect our financial condition and results of
operations.
Increased
inflation could have a pronounced negative impact on our mortgage and debt
interest and general and administrative expenses, as these costs could increase
at a rate higher than our rents. Also, inflation may adversely affect
tenant leases with stated rent increases, which could be lower than the increase
in inflation at any given time. Inflation could also have an adverse effect on
consumer spending which could impact our tenants' sales and, in turn, our
percentage rents, where applicable.
Deflation
can result in a decline in general price levels, often caused by a decrease in
the supply of money or credit. The predominant effects of deflation
are high unemployment, credit contraction and weakened consumer
demand. Restricted lending practices could impact our ability to
obtain financings or refinancings for our properties and our tenants’ ability to
obtain credit. Decreases in consumer demand can have a direct impact
on our tenants and the rents we receive.
Certain agreements with prior
owners of Properties that we have acquired may inhibit our ability to enter into
future sale or refinancing transactions affecting such Properties, which
otherwise would be in the best interests of the Company and our
stockholders.
Certain Properties that we originally
acquired from third parties had unrealized gain attributable to the difference
between the fair market value of such Properties and the third parties’ adjusted
tax basis in the Properties immediately prior to their contribution of such
Properties to the Operating Partnership pursuant to our acquisition. For this
reason, a taxable sale by us of any of such Properties, or a significant
reduction in the debt encumbering such Properties, could result in adverse tax
consequences to the third parties who contributed these Properties in exchange
for interests in the Operating Partnership. Under the terms of these
transactions, we have generally agreed that we either will not sell or refinance
such an acquired Property for a number of years in any transaction that would
trigger adverse tax consequences for the parties from whom we acquired such
Property, or else we will reimburse such parties for all or a portion of the
additional taxes they are required to pay as a result of the transaction.
Accordingly, these agreements may cause us not to engage in future sale or
refinancing transactions affecting such Properties which otherwise would be in
the best interests of the Company and our stockholders, or may increase the
costs to us of engaging in such transactions.
Uninsured
losses could adversely affect our financial condition, and in the future our
insurance may not include coverage for acts of terrorism.
We carry
a comprehensive blanket policy for general liability, property casualty
(including fire, earthquake and flood) and rental loss covering all of the
Properties, with specifications and insured limits customarily carried for
similar properties. However, even insured losses could result in a serious
disruption to our business and delay our receipt of
revenue. Furthermore, there are some types of losses, including lease
and other contract claims, as well as some types of environmental losses, that
generally are not insured or are not economically insurable. If an
uninsured loss or a loss in excess of insured limits occurs, we could lose all
or a portion of the capital we have invested in a Property, as well as the
anticipated future revenues from the Property. If this happens, we,
or the applicable Property’s partnership, may still remain obligated for any
mortgage debt or other financial obligations related to the
Property.
The
general liability and property casualty insurance policies on our Properties
currently include coverage for losses resulting from acts of terrorism, whether
foreign or domestic. While we believe that the Properties are adequately insured
in accordance with industry standards, the cost of general liability and
property casualty insurance policies that include coverage for acts of terrorism
has risen significantly subsequent to September 11, 2001. The cost of
coverage for acts of terrorism is currently mitigated by the Terrorism Risk
Insurance Act (“TRIA”). If TRIA is not extended beyond its current expiration
date of December 31, 2014, we may incur higher insurance costs and greater
difficulty in obtaining insurance that covers terrorist-related damages. Our
tenants may also experience similar difficulties.
The
U.S. federal income tax treatment of corporate dividends may make our stock less
attractive to investors, thereby lowering our stock price.
The
maximum U.S. federal income tax rate for qualified dividends received by
individual taxpayers has been reduced generally from 38.6% to 15.0% (currently
effective from January 1, 2003 through December 31, 2010). However,
dividends payable by REITs are generally not eligible for such treatment.
Although this legislation did not have a directly adverse effect on the taxation
of REITs or dividends paid by REITs, the more favorable treatment for certain
non-REIT dividends could cause individual investors to consider investments in
non-REIT corporations as more attractive relative to an investment in a REIT,
which could have an adverse impact on the market price of our
stock.
RISKS
RELATED TO DEBT AND FINANCIAL MARKETS
A
deterioration of the capital and credit markets could adversely affect our
ability to access funds and the capital needed to refinance debt or obtain new
debt.
We are
significantly dependent upon external financing to fund the growth of our
business and ensure that we meet our debt servicing requirements. Our
access to financing depends on the willingness of lending institutions to grant
credit to us and conditions in the capital markets in general. An
economic recession may cause extreme volatility and disruption in the capital
and credit markets. We rely upon our largest credit facilities as
sources of funding for numerous transactions. Our access to
these funds is dependent upon the ability of each of the participants to the
credit facilities to meet their funding commitments. When markets are
volatile, access to capital and credit markets could be disrupted over an
extended period of time and many financial institutions may not have the
available capital to meet their previous commitments. The failure of
one or more significant participants to our credit facilities to meet their
funding commitments could have an adverse affect on our financial condition and
results of operations. This may make it difficult to obtain the
financing we may need for future growth and/or to meet our debt service
obligations as they mature. Although we have successfully obtained
debt for refinancings of our maturing debt, acquisitions and the construction of
new developments in the past, we cannot make any assurances as to whether we
will be able to obtain debt in the future, or that the financing options
available to us will be on favorable or acceptable terms.
Our
indebtedness is substantial and could impair our ability to obtain additional
financing.
We
received approximately $123.4 million in net proceeds, including accrued
dividends, from the sale of additional shares of our 7.375% Cumulative
Redeemable Preferred Stock in our recent offering which closed on March 1, 2010,
after payment of the underwriting discount and our other offering
expenses. These proceeds were used to reduce amounts outstanding
under our current credit facilities and for general corporate
purposes.
At March
31, 2010, our total share of consolidated and unconsolidated debt outstanding
was approximately $6,028.1 million, which represented approximately 66.4%
of our total market capitalization at that time, and our total share of
consolidated and unconsolidated debt maturing in 2010, 2011 and 2012, giving
effect to all maturity extensions received to date, was approximately $436.3
million, $440.4 million and $965.6 million, respectively. Our
substantial leverage could have important consequences. For example,
it could:
·
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result
in the acceleration of a significant amount of debt for non-compliance
with the terms of such debt or, if such debt contains cross-default or
cross-acceleration provisions, other
debt;
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·
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result
in the loss of assets due to foreclosure or sale on unfavorable terms,
which could create taxable income without accompanying cash
proceeds;
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·
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materially
impair our ability to borrow unused amounts under existing financing
arrangements or to obtain additional financing or refinancing on favorable
terms or at all;
|
·
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require
us to dedicate a substantial portion of our cash flow to paying principal
and interest on our indebtedness, reducing the cash flow available to fund
our business, to pay dividends, including those necessary to maintain our
REIT qualification, or to use for other
purposes;
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·
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increase
our vulnerability to an economic
downturn;
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·
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limit
our ability to withstand competitive pressures;
or
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·
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reduce
our flexibility to respond to changing business and economic
conditions.
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If any of
the foregoing occurs, our business, financial condition, liquidity, results of
operations and prospects could be materially and adversely affected, and the
trading price of our common stock or other securities could decline
significantly.
Rising
interest rates could both increase our borrowing costs, thereby adversely
affecting our cash flows and the amounts available for distributions to our
stockholders, and decrease our stock price, if investors seek higher yields
through other investments.
An
environment of rising interest rates could lead holders of our securities to
seek higher yields through other investments, which could adversely affect the
market price of our stock. One of the factors that may influence the price of
our stock in public markets is the annual distribution rate we pay as compared
with the yields on alternative investments. Numerous other factors, such
as governmental regulatory action and tax laws, could have a significant impact
on the future market price of our stock. In addition, increases in market
interest rates could result in increased borrowing costs for us, which may
adversely affect our cash flow and the amounts available for distributions to
our stockholders.
As of
March 31, 2010, our total share of consolidated and unconsolidated variable rate
debt was $1,715.0 million. Increases in interest rates will increase
our cash interest payments on the variable rate debt we have outstanding from
time to time. If we do not have sufficient cash flow from operations,
we might not be able to make all required payments of principal and interest on
our debt, which could result in a default or have a material adverse effect on
our financial condition and results of operations, and which might adversely
affect our cash flow and our ability to make distributions to
shareholders. These significant debt payment obligations might also
require us to use a significant portion of our cash flow from operations to make
interest and principal payments on our debt rather than for other purposes such
as working capital, capital expenditures or distributions on our common
equity.
Certain
of our credit facilities, the loss of which could have a material, adverse
impact on our financial condition and results of operations, are conditioned
upon the Operating Partnership continuing to be managed by certain members of
its current senior management and by such members of senior management
continuing to own a significant direct or indirect equity interest in the
Operating Partnership.
Certain
of the Operating Partnership’s lines of credit are conditioned upon the
Operating Partnership continuing to be managed by certain members of its current
senior management and by such members of senior management continuing to own a
significant direct or indirect equity interest in the Operating Partnership
(including both units of limited partnership in the Operating Partnership and
shares of our common stock owned by such members of senior management). If the
failure of one or more of these conditions resulted in the loss of these credit
facilities and we were unable to obtain suitable replacement financing, such
loss could have a material, adverse impact on our financial position and results
of operations.
Our
hedging arrangements might not be successful in limiting our risk exposure, and
we might be required to incur expenses in connection with these arrangements or
their termination that could harm our results of operations or financial
condition.
From time
to time, we use interest rate hedging arrangements to manage our exposure to
interest rate volatility, but these arrangements might expose us to additional
risks, such as requiring that we fund our contractual payment obligations under
such arrangements in relatively large amounts or on short
notice. Developing an effective interest rate risk strategy is
complex, and no strategy can completely insulate us from risks associated with
interest rate fluctuations. We cannot assure you that our hedging
activities will have a
positive impact on our results of operations or
financial condition. We might be subject to additional costs, such as
transaction fees or breakage costs, if we terminate these
arrangements. In addition, although our interest rate risk management
policy establishes minimum credit ratings for counterparties, this does not
eliminate the risk that a counterparty might fail to honor its obligations,
particularly given current market conditions.
The
covenants in our credit facilities might adversely affect us.
Our
credit facilities require us to satisfy certain affirmative and negative
covenants and to meet numerous financial tests. The financial
covenants under the credit facilities require, among other things, that our Debt
to Gross Asset Value ratio, as defined in the agreements to our credit
facilities, be less than 65%, that our Interest Coverage ratio, as defined, be
greater than 1.75, and that our Debt Service Coverage ratio, as defined, be
greater than 1.50. Compliance with each of these ratios is dependent
upon our financial performance. The Debt to Gross Asset Value ratio
is based, in part, on applying a capitalization rate to our earnings before
income taxes, depreciation and amortization (“EBITDA”), as defined in the
agreements to our credit facilities. Based on this calculation
method, decreases in EBITDA would result in an increased Debt to Gross Asset
Value ratio, although overall debt levels remain constant. As of
March 31, 2010, the Debt to Gross Asset Value ratio was 54% and we were in
compliance with all other covenants related to our credit
facilities.