Note 5 – Unconsolidated Affiliates, Redeemable Interests, Noncontrolling Interests and Cost Method Investments
Unconsolidated Affiliates
At
June 30, 2016
, the Company had investments in the following
19
entities, which are accounted for using the equity method of accounting:
|
|
|
|
Joint Venture
|
Property Name
|
Company's
Interest
|
Ambassador Infrastructure, LLC
|
Ambassador Town Center - Infrastructure Improvements
|
65.0%
|
Ambassador Town Center JV, LLC
|
Ambassador Town Center
|
65.0%
|
CBL/T-C, LLC
|
CoolSprings Galleria, Oak Park Mall and West County Center
|
50.0%
|
CBL-TRS Joint Venture, LLC
|
Friendly Center, The Shops at Friendly Center and a portfolio
of four office buildings
|
50.0%
|
El Paso Outlet Outparcels, LLC
|
The Outlet Shoppes at El Paso (vacant land)
|
50.0%
|
Fremaux Town Center JV, LLC
|
Fremaux Town Center Phases I and II
|
65.0%
|
G&I VIII CBL Triangle LLC
|
Triangle Town Center, Triangle Town Commons and Triangle Town Place
|
10.0%
|
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%
|
JG Gulf Coast Town Center LLC
|
Gulf Coast Town Center Phase III
|
50.0%
|
Kentucky Oaks Mall Company
|
Kentucky Oaks Mall
|
50.0%
|
Mall of South Carolina L.P.
|
Coastal Grand
|
50.0%
|
Mall of South Carolina Outparcel L.P.
|
Coastal Grand Crossing and vacant land
|
50.0%
|
Port Orange I, LLC
|
The Pavilion at Port Orange Phase I and one office building
|
50.0%
|
River Ridge Mall JV, LLC
|
River Ridge Mall
|
25.0%
|
West Melbourne I, LLC
|
Hammock Landing Phases I and II
|
50.0%
|
York Town Center, LP
|
York Town Center
|
50.0%
|
Although the Company had majority ownership of certain joint ventures during
2016
and
2015
, it evaluated the investments and concluded that the other partners or owners in these joint ventures had substantive participating rights, such as approvals of:
|
|
•
|
the pro forma for the development and construction of the project and any material deviations or modifications thereto;
|
|
|
•
|
the site plan and any material deviations or modifications thereto;
|
|
|
•
|
the conceptual design of the project and the initial plans and specifications for the project and any material deviations or modifications thereto;
|
|
|
•
|
any acquisition/construction loans or any permanent financings/refinancings;
|
|
|
•
|
the annual operating budgets and any material deviations or modifications thereto;
|
|
|
•
|
the initial leasing plan and leasing parameters and any material deviations or modifications thereto; and
|
|
|
•
|
any material acquisitions or dispositions with respect to the project.
|
As a result of the joint control over these joint ventures, the Company accounts for these investments using the equity method of accounting.
CBL-TRS Joint Venture II, LLC
In April 2016, CBL-TRS Joint Venture II, LLC, a subsidiary of the Company, and its
50
/
50
joint venture partner sold Renaissance Center, a community center located in Durham, NC, for a gross sales price of
$129,200
and net proceeds of
$80,324
, of which
$40,162
represents each partner's share. In conjunction with the sale, the buyer assumed the
$16,000
loan secured by the property's second phase. The loan secured by the first phase, which had a balance of
$31,641
as of closing, was retired. The unconsolidated affiliate recognized a gain on sale of real estate assets of
$58,876
, of which each partner's share was approximately
$29,438
.
G&I VIII CBL Triangle LLC
In February 2016, G&I VIII CBL Triangle LLC, a newly formed
10
/
90
joint venture between the Company and DRA Advisors, acquired Triangle Town Center, Triangle Town Commons and Triangle Town Place from an existing
50
/
50
joint venture, Triangle Town Member LLC, between the Company and The R.E. Jacobs Group for
$174,000
, including the assumption of the
$171,092
loan, of which each selling partner's share was
$85,546
as of the closing date. Concurrent with the formation of the new joint venture, the new entity closed on a modification and restructuring of the
$171,092
loan, of which the Company's share is
$17,109
. See information on the new loan under
Financings
below. The Company also made an equity contribution of
$3,060
to the joint venture at closing to fund certain items. The Company continues to lease and manage the properties. The joint venture is accounted for using the equity method of accounting.
The following table summarizes the allocation of the estimated fair values of the tangible and identifiable intangible assets acquired as of the February 2016 acquisition date for the G&I VIII CBL Triangle LLC joint venture:
|
|
|
|
|
|
|
|
2016
|
Land
|
|
$
|
14,421
|
|
Buildings and improvements
|
|
132,230
|
|
Tenant improvements
|
|
1,206
|
|
Above-market leases
|
|
11,599
|
|
In-place leases
|
|
22,538
|
|
Total assets
|
|
181,994
|
|
Below-market leases
|
|
(7,994
|
)
|
Net assets acquired
|
|
$
|
174,000
|
|
River Ridge Mall JV, LLC
In the first quarter of 2016, the Company entered into a
25
/
75
joint venture, River Ridge Mall JV, LLC, ("River Ridge") with an unaffiliated partner. The Company contributed River Ridge Mall, located in Lynchburg, VA, to River Ridge and the partner contributed
$33,500
of cash and an anchor parcel at River Ridge Mall that it already owned having a value of
$7,000
. Of the
$33,500
of cash contributed to the Company, after closing costs,
$32,819
was used to reduce outstanding balances on our lines of credit. Following the initial formation, all required future contributions will be funded on a pro rata basis. The joint venture is accounted for using the equity method of accounting.
The Company has accounted for the formation of River Ridge as the sale of a partial interest and recorded a non-cash loss on impairment of real estate of
$9,510
in the first quarter of 2016, which includes a reserve of
$2,100
for future capital expenditures. See
Note 3
for more information. The Company continues to manage and lease the ma
ll. T
he Company has the right to require its
75%
partner to purchase its
25%
interest in River Ridge if the Company ceases to manage the property at the partner's election.
Condensed combined financial statement information of these unconsolidated affiliates is as follows:
|
|
|
|
|
|
|
|
|
|
As of
|
ASSETS
|
June 30,
2016
|
|
December 31,
2015
|
Investment in real estate assets
|
$
|
2,184,268
|
|
|
$
|
2,357,902
|
|
Accumulated depreciation
|
(549,935
|
)
|
|
(677,448
|
)
|
|
1,634,333
|
|
|
1,680,454
|
|
Developments in progress
|
17,709
|
|
|
59,592
|
|
Net investment in real estate assets
|
1,652,042
|
|
|
1,740,046
|
|
Other assets
|
241,951
|
|
|
168,540
|
|
Total assets
|
$
|
1,893,993
|
|
|
$
|
1,908,586
|
|
|
|
|
|
LIABILITIES
|
|
|
|
Mortgage and other indebtedness
|
$
|
1,333,293
|
|
|
$
|
1,546,272
|
|
Other liabilities
|
56,261
|
|
|
51,357
|
|
Total liabilities
|
1,389,554
|
|
|
1,597,629
|
|
|
|
|
|
OWNERS' EQUITY
|
|
|
|
The Company
|
236,005
|
|
|
184,868
|
|
Other investors
|
268,434
|
|
|
126,089
|
|
Total owners' equity
|
504,439
|
|
|
310,957
|
|
Total liabilities and owners' equity
|
$
|
1,893,993
|
|
|
$
|
1,908,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for the Three Months
Ended June 30,
|
|
Company's Share for the
Three Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Total revenues
|
$
|
62,854
|
|
|
$
|
63,111
|
|
|
$
|
29,836
|
|
|
$
|
32,958
|
|
Depreciation and amortization
|
(22,248
|
)
|
|
(19,641
|
)
|
|
(9,156
|
)
|
|
(10,303
|
)
|
Interest income
|
332
|
|
|
335
|
|
|
256
|
|
|
257
|
|
Interest expense
|
(14,181
|
)
|
|
(18,589
|
)
|
|
(7,093
|
)
|
|
(9,587
|
)
|
Operating expenses
|
(18,333
|
)
|
|
(17,468
|
)
|
|
(8,421
|
)
|
|
(9,045
|
)
|
Gain on extinguishment of debt
|
63,294
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Income from continuing operations before gain on sales of real estate assets
|
71,718
|
|
|
7,748
|
|
|
5,422
|
|
|
4,280
|
|
Gain on sales of real estate assets
|
60,377
|
|
|
619
|
|
|
58,927
|
|
|
601
|
|
Net income
|
$
|
132,095
|
|
|
$
|
8,367
|
|
|
$
|
64,349
|
|
|
$
|
4,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for the Six Months
Ended June 30,
|
|
Company's Share for the
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Total revenues
|
$
|
127,058
|
|
|
$
|
125,583
|
|
|
$
|
60,100
|
|
|
$
|
65,793
|
|
Depreciation and amortization
|
(42,858
|
)
|
|
(39,122
|
)
|
|
(18,334
|
)
|
|
(20,620
|
)
|
Interest income
|
668
|
|
|
667
|
|
|
512
|
|
|
512
|
|
Interest expense
|
(27,670
|
)
|
|
(37,383
|
)
|
|
(13,678
|
)
|
|
(19,272
|
)
|
Operating expenses
|
(38,405
|
)
|
|
(36,774
|
)
|
|
(17,183
|
)
|
|
(18,873
|
)
|
Gain on extinguishment of debt
|
63,294
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Income from continuing operations before gain on sales of real estate assets
|
82,087
|
|
|
12,971
|
|
|
11,417
|
|
|
7,540
|
|
Gain on sales of real estate assets
|
141,336
|
|
|
1,434
|
|
|
85,322
|
|
|
1,164
|
|
Net income
|
$
|
223,423
|
|
|
$
|
14,405
|
|
|
$
|
96,739
|
|
|
$
|
8,704
|
|
Financings
The following table presents the loan activity of the Company's unconsolidated affiliates in 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property
|
|
Stated
Interest
Rate
|
|
Maturity
Date
(1)
|
|
Amount
Financed or Extended
|
|
June
|
|
Fremaux Town Center
(2)
|
|
3.70%
|
(3)
|
June 2026
|
|
$
|
73,000
|
|
|
June
|
|
Ambassador Town Center
(4)
|
|
3.22%
|
(5)
|
June 2023
|
|
47,660
|
|
|
February
|
|
Port Orange
(6)
|
|
LIBOR + 2.0%
|
|
February 2018
|
(7)
|
58,628
|
|
|
February
|
|
Hammock Landing - Phase I
(6)
|
|
LIBOR + 2.0%
|
|
February 2018
|
(7)
|
43,347
|
|
(8)
|
February
|
|
Hammock Landing - Phase II
(6)
|
|
LIBOR + 2.0%
|
|
February 2018
|
(7)
|
16,757
|
|
|
February
|
|
Triangle Town Center, Triangle Town Place, Triangle Town Commons
(9)
|
|
4.00%
|
(10)
|
December 2018
|
(11)
|
171,092
|
|
|
|
|
(1)
|
Excludes any extension options.
|
|
|
(2)
|
Net proceeds from the non-recourse loan were used to retire the existing construction loans, secured by Phase I and Phase II of Fremaux Town Center, with an aggregate balance of
$71,125
.
|
|
|
(3)
|
The joint venture has an interest rate swap on a notional amount of
$73,000
, amortizing to
$52,130
over the term of the swap, related to Fremaux Town Center to effectively fix the interest rate on that variable-rate loan. Therefore, this amount is currently reflected as having a fixed rate.
|
|
|
(4)
|
The non-recourse loan was used to retire an existing construction loan with a balance of
$41,900
and excess proceeds were utilized to fund remaining construction costs.
|
|
|
(5)
|
The joint venture has an interest rate swap on a notional amount of
$47,660
, amortizing to
$38,866
over the term of the swap, related to Ambassador Town Center to effectively fix the interest rate on that variable-rate loan. Therefore, this amount is currently reflected as having a fixed rate.
|
|
|
(6)
|
The guaranty was reduced from
25%
to
20%
in conjunction with the refinancing. See
Note 12
for more information.
|
|
|
(7)
|
The loan was modified and extended to February 2018 with a
one
-year extension option.
|
|
|
(8)
|
The capacity was increased from
$39,475
to fund the expansion.
|
|
|
(9)
|
The loan was amended and modified in conjunction with the sale of the property to a newly formed joint venture. See previous section in
Note 5
for additional information.
|
|
|
(10)
|
The interest rate was reduced from
5.74%
to
4.00%
interest-only payments through the initial maturity date.
|
|
|
(11)
|
The loan was extended to December 2018 with
two
one
-year extension options.
|
All of the debt on the properties owned by the unconsolidated affiliates is non-recourse, except for Ambassador Infrastructure, West Melbourne and Port Orange. See
Note 12
for a description of guarantees the Company has issued related to certain unconsolidated affiliates.
Subsequent to
June 30, 2016
, an unconsolidated affiliate retired a loan. See
Note 16
for more information.
JG Gulf Coast Town Center LLC - Phases I and II
In June 2016, the foreclosure process was completed and the mortgage lender received title to the mall in satisfaction of the non-recourse mortgage loan secured by Phases I and II of Gulf Coast Town Center in Ft. Myers, FL. Gulf Coast Town Center generated insufficient cash flow to cover the debt service on the mortgage, which had a balance of
$190,800
(of which the Company's
50%
share was
$95,400
) and a contractual maturity date of July 2017. In the third quarter of 2015, the lender on the loan began receiving the net operating cash flows of the property each month in lieu of scheduled monthly mortgage payments. The Company recognized a gain on the net investment in Gulf Coast of
$29,267
, which is included in Equity in Earnings of Unconsolidated Affiliates in the condensed consolidated statements of operations.
Redeemable Interests of the Operating Partnership
Redeemable common units of
$15,079
and
$19,744
at
June 30, 2016
and
December 31, 2015
, respectively, include a partnership interest in the Operating Partnership for which the partnership agreement includes redemption provisions that may require the Operating Partnership to redeem the partnership interest for real property.
Redeemable noncontrolling interests of
$2,754
and
$5,586
at
June 30, 2016
and
December 31, 2015
, respectively, include the aggregate noncontrolling ownership interest in 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 change relates to the reclassification of AOCI upon the maturity of the Company's hedges. See
Note 7
.
Noncontrolling Interests of the Operating Partnership
Noncontrolling interests include the aggregate noncontrolling ownership interest in the Operating Partnership's 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. Total noncontrolling interests were
$13,992
and
$4,876
, as of
June 30, 2016
and
December 31, 2015
, respectively.
Noncontrolling Interests of the Company
The noncontrolling interests of the Company include the third party interests discussed above as well as 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. As of
June 30, 2016
, the Company's total noncontrolling interests of
$125,045
consisted of noncontrolling interests in the Operating Partnership and in other consolidated subsidiaries of
$111,053
and
$13,992
, respectively. The Company's total noncontrolling interests at
December 31, 2015
of
$114,629
consisted of noncontrolling interests in the Operating Partnership and in other consolidated subsidiaries of
$109,753
and
$4,876
, respectively.
In June 2016, the Company elected to pay cash of
$146
to
three
holders of
14,796
common units in the Operating Partnership upon the exercise of their conversion rights.
Cost Method Investment
The Company owns a
6.2%
noncontrolling interest in subsidiaries of Jinsheng, an established mall operating and real estate development company located in Nanjing, China. 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 carrying amount of this investment was
$5,325
at
June 30, 2016
and
December 31, 2015
. The noncontrolling interest is reflected as investment in unconsolidated affiliates in the accompanying condensed consolidated balance sheets.
Variable Interest Entities
As discussed in
Note 2
, effective January 1, 2016, the Company adopted ASU 2015-02. As a result, the Operating Partnership and certain of our subsidiaries are deemed to have the characteristics of a VIE primarily because the limited partners of these entities do not collectively possess substantive kick-out or participating rights. However, the Company was not required to consolidate any previously unconsolidated entities or deconsolidate any previously consolidated entities as a result of the change in classification. Accordingly, the adoption of ASU 2015-02 affected disclosure only and did not change amounts within the condensed consolidated financial statements.
The Company consolidates the Operating Partnership, which is a VIE, for which the Company is the primary beneficiary. The Company, through the Operating Partnership, consolidates all VIEs for which it is the primary beneficiary. Generally, a VIE, is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership is considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether the Company is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of the Company's investment; the obligation or likelihood for the Company or other investors to provide financial support; and the similarity with and significance to our business activities and the business activities of the other investors.
The table below lists the Company's VIEs as of
June 30, 2016
under ASC 2015-02:
|
|
Consolidated VIEs:
|
Atlanta Outlet Outparcels, LLC
|
Atlanta Outlet Shoppes, LLC
|
CBL Terrace LP
|
El Paso Outlet Center Holding, LLC
|
El Paso Outlet Center II, LLC
|
Foothills Mall Associates
|
Gettysburg Outlet Center Holding, LLC
|
Gettysburg Outlet Center, LLC
|
High Point Development LP II
|
Jarnigan Road LP
|
Laredo Outlet Shoppes, LLC
(1)
|
Lebcon Associates
|
Lebcon I, Ltd
|
Lee Partners
|
Louisville Outlet Outparcels, LLC
|
Louisville Outlet Shoppes, LLC
|
Madison Grandview Forum, LLC
|
The Promenade at D'Ilberville
|
Statesboro Crossing, LLC
|
Village at Orchard Hills, LLC
|
Woodstock Ga Investments, LLC
|
|
Unconsolidated VIEs:
(2)
|
Ambassador Infrastructure, LLC
|
G&I VIII CBL Triangle LLC
(3)
|
|
|
(1)
|
In May 2016, the Company formed a
65
/
35
joint venture, Laredo Outlet Shoppes, LLC, to develop, own and operate The Outlet Shoppes of Laredo in Laredo, TX. The Company initially contributed
$7,714
, which consisted of a cash contribution of
$2,434
and its interest in a note receivable of
$5,280
(see
Note 8
), and the third party partner contributed
$10,686
which included land and construction costs to date. The Company will be responsible for contributing
100%
of the capital to fund the project until the pro rata
65%
contribution is reached. All subsequent future contributions will be funded on a
65
/
35
pro rata basis. As of
June 30, 2016
, the Company had funded
$15,493
of the project costs and only
$4,353
remained to be funded by the company to reach the pro rata
65%
contribution level. The Company determined that the new consolidated affiliate represents an interest in a VIE based upon the criteria noted above.
|
|
|
(2)
|
In June 2016, the foreclosure process was completed and Phases I and II of Gulf Coast Town Center in Ft. Myers, FL were returned to the lender in satisfaction of the non-recourse mortgage loan. As of June 30, 2016, the Company determined that the unconsolidated affiliate, JG Gulf Coast Town Center LLC, no longer represents an interest in a VIE based upon the criteria noted above.
|
|
|
(3)
|
Upon, the sale of the Company's
50
% interest in Triangle Town Member LLC to G&I VIII CBL Triangle LLC, the Company determined that the new unconsolidated affiliate represents an interest in a VIE based upon the criteria noted above.
|
Note 6 – Mortgage and Other Indebtedness
Debt of the Company
CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries, that it has a direct or indirect ownership interest in, is the borrower on all of the Company's debt.
CBL is a limited guarantor of the
5.25%
and
4.60%
senior unsecured notes, issued by the Operating Partnership in November 2013 and October 2014, respectively, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates. The Company also provides a similar limited guarantee of the Operating Partnership's obligations with respect to its unsecured credit facilities and
three
unsecured term loans as of
June 30, 2016
.
Debt of the Operating Partnership
Mortgage and other indebtedness consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
Amount
|
|
Weighted-
Average
Interest
Rate
(1)
|
|
Amount
|
|
Weighted-
Average
Interest
Rate
(1)
|
Fixed-rate debt:
|
|
|
|
|
|
|
|
Non-recourse loans on operating properties
(2) (3)
|
$
|
2,613,566
|
|
|
5.66%
|
|
$
|
2,736,538
|
|
|
5.68%
|
Senior unsecured notes due 2023
(4)
|
446,349
|
|
|
5.25%
|
|
446,151
|
|
|
5.25%
|
Senior unsecured notes due 2024
(5)
|
299,936
|
|
|
4.60%
|
|
299,933
|
|
|
4.60%
|
Other
|
—
|
|
|
—%
|
|
2,686
|
|
|
3.50%
|
Total fixed-rate debt
|
3,359,851
|
|
|
5.51%
|
|
3,485,308
|
|
|
5.53%
|
Variable-rate debt:
|
|
|
|
|
|
|
|
|
|
Non-recourse term loans on operating properties
|
19,266
|
|
|
2.88%
|
|
16,840
|
|
|
2.49%
|
Recourse term loans on operating properties
|
25,921
|
|
|
3.05%
|
|
25,635
|
|
|
2.97%
|
Unsecured lines of credit
|
388,912
|
|
|
1.65%
|
|
398,904
|
|
|
1.54%
|
Unsecured term loans
|
800,000
|
|
|
1.89%
|
|
800,000
|
|
|
1.82%
|
Total variable-rate debt
|
1,234,099
|
|
|
1.86%
|
|
1,241,379
|
|
|
1.76%
|
Total fixed-rate and variable-rate debt
|
4,593,950
|
|
|
4.53%
|
|
4,726,687
|
|
|
4.54%
|
Unamortized deferred financing costs
|
(15,234
|
)
|
|
|
|
(16,059
|
)
|
|
|
Liabilities related to assets held for sale
(3)
|
(38,237
|
)
|
|
|
|
—
|
|
|
|
Total mortgage and other indebtedness
|
$
|
4,540,479
|
|
|
|
|
$
|
4,710,628
|
|
|
|
|
|
(1)
|
Weighted-average interest rate includes the effect of debt premiums and discounts, but excludes amortization of deferred financing costs.
|
|
|
(2)
|
The Operating Partnership had
four
interest rate swaps on notional amounts totaling
$101,151
as of
December 31, 2015
related to
four
variable-rate loans on consolidated operating properties to effectively fix the interest rate on the respective loans. Therefore, these amounts were reflected in fixed-rate debt at
December 31, 2015
. The swaps matured April 1, 2016.
|
|
|
(3)
|
Includes a
$38,237
mortgage loan secured by Fashion Square that is classified on the condensed consolidated balance sheets as Liabilities Related to Assets Held for Sale. See
Note 4
.
|
|
|
(4)
|
The balance is net of an unamortized discount of
$3,651
and
$3,849
as of
June 30, 2016
and
December 31, 2015
, respectively.
|
|
|
(5)
|
The balance is net of an unamortized discount of
$64
and
$67
as of
June 30, 2016
and
December 31, 2015
, respectively.
|
Senior Unsecured Notes
In the fourth quarter of 2014, the Operating Partnership issued
$300,000
of senior unsecured notes, which bear interest at
4.60%
payable semiannually beginning April 15, 2015 and mature on October 15, 2024 (the “2024 Notes”). In the fourth quarter of 2013, the Operating Partnership issued
$450,000
of senior unsecured notes, which bear interest at
5.25%
payable semiannually beginning June 1, 2014 and mature on December 1, 2023 (the “2023 Notes”). The respective interest rate on each of the 2024 Notes and the 2023 Notes (collectively, the “Notes”) will be subject to an increase ranging from
0.25%
to
1.00%
from time to time if, on or after January 1, 2016 and prior to January 1, 2020, the ratio of secured debt to total assets of the Company, as defined, is greater than
40%
but less than
45%
.
The Notes are redeemable at the Operating Partnership's election, in whole or in part from time to time, on not less than
30
days’ notice to the holders of the Notes to be redeemed. The 2024 Notes may be redeemed prior to July 15, 2024 for cash, at a redemption price equal to the greater of (1)
100%
of the aggregate principal amount of the 2024 Notes to be redeemed or (2) an amount equal to the sum of the present values of the remaining scheduled payments of principal and interest on the 2024 Notes to be redeemed, discounted to the redemption date on a semi-annual basis at the treasury rate, as defined, plus
0.35%
, plus accrued and unpaid interest. On or after July 15, 2024, the 2024 Notes are redeemable for cash at a redemption price equal to
100%
of the aggregate principal amount of the 2024 Notes to be redeemed plus accrued and unpaid interest. The 2023 Notes may be redeemed prior to September 1, 2023 for cash, at a redemption price equal to the greater of (1)
100%
of the aggregate principal amount of the 2023 Notes to be redeemed or (2) an amount equal to the sum of the present values of the remaining scheduled payments of principal and interest on the 2023 Notes to be redeemed, discounted to the redemption date on a semi-annual basis at the treasury rate, as defined, plus
0.40%
, plus accrued and unpaid interest. On or after September 1, 2023, the 2023 Notes are redeemable for cash at a redemption price equal to
100%
of the aggregate principal amount of the 2023 Notes to be redeemed plus accrued and unpaid interest.
Unsecured Lines of Credit
The Company has
three
unsecured credit facilities that are used for retirement of secured loans, repayment of term loans, working capital, construction and acquisition purposes, as well as issuances of letters of credit.
Each facility bears interest at LIBOR plus a spread of
0.875%
to
1.55%
based on the Company's credit ratings. As of
June 30, 2016
, the Company's interest rate based on its credit ratings of Baa3 from Moody's Investors Service ("Moody's") and BBB- from Standard & Poor's ("S&P") and Fitch Ratings ("Fitch") is LIBOR plus 120 basis points. Additionally, the Company pays an annual facility fee that ranges from
0.125%
to
0.3%
of the total capacity of each facility based on the Company's credit ratings. As of
June 30, 2016
, the annual facility fee was
0.25%
. The
three
unsecured lines of credit had a weighted-average interest rate of
1.65%
at
June 30, 2016
.
The following summarizes certain information about the Company's unsecured lines of credit as of
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capacity
|
|
Total
Outstanding
|
|
Maturity
Date
|
|
Extended
Maturity
Date
|
|
Wells Fargo - Facility A
|
|
$
|
500,000
|
|
|
$
|
—
|
|
(1)
|
October 2019
|
|
October 2020
|
(2)
|
First Tennessee
|
|
100,000
|
|
|
3,200
|
|
(3)
|
October 2019
|
|
October 2020
|
(4)
|
Wells Fargo - Facility B
|
|
500,000
|
|
|
385,712
|
|
(5)
|
October 2020
|
|
|
|
|
|
$
|
1,100,000
|
|
|
$
|
388,912
|
|
|
|
|
|
|
|
|
(1)
|
There was
$350
outstanding on this facility as of
June 30, 2016
for letters of credit. Up to
$30,000
of the capacity on this facility can be used for letters of credit.
|
|
|
(2)
|
The extension option is at the Company's election, subject to continued compliance with the terms of the facility, and has a one-time extension fee of
0.15%
of the commitment amount of the credit facility.
|
|
|
(3)
|
Up to
$20,000
of the capacity on this facility can be used for letters of credit.
|
|
|
(4)
|
The extension option on the facility is at the Company's election, subject to continued compliance with the terms of the facility, and has a one-time extension fee of
0.20%
of the commitment amount of the credit facility.
|
|
|
(5)
|
There was an additional
$5,464
outstanding on this facility as of
June 30, 2016
for letters of credit. Up to
$30,000
of the capacity on this facility can be used for letters of credit.
|
Unsecured Term Loans
The Company has a
$350,000
unsecured term loan, which bears interest at a variable rate of LIBOR plus
1.35%
based on the Company's current credit ratings. The loan matures in
October 2017
and has
two
one
-year extension options for an outside maturity date of
October 2019
. At
June 30, 2016
, the outstanding borrowings of
$350,000
had an interest rate of
1.80%
.
The Company has a
$400,000
unsecured term loan, which bears interest at a variable rate of LIBOR plus
1.50%
based on the Company's current credit ratings and has a maturity date of
July 2018
. At
June 30, 2016
, the outstanding borrowings of
$400,000
had an interest rate of
1.96%
.
The Company also has a
$50,000
unsecured term loan that matures in February 2018. The term loan bears interest at a variable rate of LIBOR plus
1.55%
. At
June 30, 2016
, the outstanding borrowings of
$50,000
had a weighted-average interest rate of
2.02%
.
Covenants and Restrictions
The agreements for the unsecured lines of credit, the Notes and unsecured term loans contain, among other restrictions, certain financial covenants including the maintenance of certain financial coverage ratios, minimum unencumbered asset and interest ratios, maximum secured indebtedness ratios, maximum total indebtedness ratios and limitations on cash flow distributions. The Company believes that it was in compliance with all financial covenants and restrictions at
June 30, 2016
.
Unsecured Lines of Credit and Unsecured Term Loans
The following presents the Company's compliance with key covenant ratios, as defined, of the credit facilities and term loans as of
June 30, 2016
:
|
|
|
|
|
|
Ratio
|
|
Required
|
|
Actual
|
Debt to total asset value
|
|
< 60%
|
|
48%
|
Unencumbered asset value to unsecured indebtedness
|
|
> 1.6x
|
|
2.3x
|
Unencumbered NOI to unsecured interest expense
|
|
> 1.75x
|
|
5.0x
|
EBITDA to fixed charges (debt service)
|
|
> 1.5x
|
|
2.4x
|
The agreements for the unsecured credit facilities and unsecured term loans described above contain default provisions customary for transactions of this nature (with applicable customary grace periods). Additionally, any default in the payment of any recourse indebtedness greater than or equal to
$50,000
or any non-recourse indebtedness greater than
$150,000
(for the Company's ownership share) of CBL, the Operating Partnership or any Subsidiary, as defined, will constitute an event of default under the agreements to the credit facilities. The credit facilities also restrict the Company's ability to enter into any transaction that could result in certain changes in its ownership or structure as described under the heading “Change of Control/Change in Management” in the agreements for the credit facilities.
Senior Unsecured Notes
The following presents the Company's compliance with key covenant ratios, as defined, of the Notes as of
June 30, 2016
:
|
|
|
|
|
|
Ratio
|
|
Required
|
|
Actual
|
Total debt to total assets
|
|
< 60%
|
|
53%
|
Secured debt to total assets
|
|
< 45%
(1)
|
|
31%
|
Total unencumbered assets to unsecured debt
|
|
> 150%
|
|
223%
|
Consolidated income available for debt service to annual debt service charge
|
|
> 1.5x
|
|
3.3x
|
|
|
(1)
|
On January 1, 2020 and thereafter, secured debt to total assets must be less than
40%
.
|
The agreements for the Notes described above contain default provisions customary for transactions of this nature (with applicable customary grace periods). Additionally, any default in the payment of any recourse indebtedness greater than or equal to
$50,000
of the Operating Partnership will constitute an event of default under the Notes.
Other
Several of the Company’s malls/open-air centers, associated centers and community centers, in addition to the corporate office building, are owned by special purpose entities, created as a requirement under certain loan agreements, that are included in the Company’s condensed 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
Financings
The following table presents the loans, secured by the related consolidated properties, that were entered into in 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property
|
|
Stated
Interest
Rate
|
|
Maturity Date
|
|
Amount
Financed
or Extended
|
June
|
|
Hamilton Place
(1)
|
|
4.36%
|
|
June 2026
|
|
$
|
107,000
|
|
June
|
|
Statesboro Crossing
(2)
|
|
LIBOR + 1.80%
|
|
June 2017
|
(3)
|
11,035
|
|
April
|
|
Hickory Point Mall
(4)
|
|
5.85%
|
|
December 2018
|
(5)
|
27,446
|
|
|
|
(1)
|
Proceeds from the non-recourse loan were used to retire an existing
$98,181
loan with an interest rate of
5.86%
that was scheduled to mature in August 2016. The Company's share of excess proceeds was used to reduce outstanding balances on its credit facilities.
|
|
|
(2)
|
The loan was modified to extend the maturity date.
|
|
|
(3)
|
The loan has a
one
-year extension option at the Company's election for an outside maturity date of June 2018.
|
|
|
(4)
|
The loan was modified to extend the maturity date. The interest rate remains at
5.85%
but future amortization payments have been eliminated.
|
|
|
(5)
|
The loan has a one-year extension option at the Company's election for an outside maturity date of December 2019.
|
Construction Loan
The following table presents the construction loan, secured by the related consolidated property, that was entered into in 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property
|
|
Stated
Interest
Rate
|
|
Maturity Date
|
|
Amount
Financed
|
May
|
|
The Outlet Shoppes of Laredo
(1)
|
|
LIBOR + 2.5%
|
(2)
|
May 2019
|
(3)
|
$
|
91,300
|
|
|
|
(1)
|
The consolidated
65
/
35
joint venture closed on a construction loan for the development of The Outlet Shoppes of Laredo, an outlet center located in Laredo, TX. The Operating Partnership has guaranteed
100%
of the loan.
|
|
|
(2)
|
The interest rate will be reduced to LIBOR +
2.25%
once the development is complete and certain debt and operational metrics are met.
|
|
|
(3)
|
The loan has
one
24
-month extension option, which is at the joint venture's election, for an outside maturity date of May 2021.
|
Loan Repayments
The Company repaid the following fixed-rate loans, secured by the related consolidated Properties, in 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property
|
|
Interest
Rate at
Repayment Date
|
|
Scheduled
Maturity Date
|
|
Principal
Balance
Repaid
|
June
|
|
Hamilton Place
(1)
|
|
5.86%
|
|
August 2016
|
|
$
|
98,181
|
|
April
|
|
CoolSprings Crossing
(2)
|
|
4.54%
|
|
April 2016
|
|
11,313
|
|
April
|
|
Gunbarrel Pointe
(2)
|
|
4.64%
|
|
April 2016
|
|
10,083
|
|
April
|
|
Stroud Mall
(2)
|
|
4.59%
|
|
April 2016
|
|
30,276
|
|
April
|
|
York Galleria
(2)
|
|
4.55%
|
|
April 2016
|
|
48,337
|
|
|
|
(1)
|
The Company retired the loan with proceeds from a
$107,000
fixed-rate non-recourse loan. See above for more information.
|
|
|
(2)
|
The Company used proceeds from dispositions to retire the loan.
|
Scheduled Principal Payments
As of
June 30, 2016
, the scheduled principal amortization and balloon payments on all of the Company’s consolidated mortgage and other indebtedness, excluding extensions available at the Company’s option, are as follows:
|
|
|
|
|
|
2016
|
|
$
|
327,669
|
|
2017
|
|
842,315
|
|
2018
|
|
710,542
|
|
2019
|
|
126,468
|
|
2020
|
|
596,563
|
|
Thereafter
|
|
1,990,738
|
|
|
|
4,594,295
|
|
Net unamortized premiums
|
|
(345
|
)
|
|
|
$
|
4,593,950
|
|
Of the
$327,669
of scheduled principal payments in
2016
,
$298,485
relates to the maturing principal balance of
four
operating property loans and
$29,184
represents scheduled principal amortization. Excluding the loans secured by Midland Mall and Chesterfield Mall, which the Company plans to return to the respective lenders, the Company has
$126,464
of loan maturities in 2016 that must be retired or refinanced. The Company is in discussions with the lender to extend the maturity date of the
$71,265
loan secured by Greenbrier Mall and plans to retire the
$55,199
loan secured by Dakota Square Mall using availability on its credit lines.
The Company’s mortgage and other indebtedness had a weighted-average maturity of
4.2
years as of
June 30, 2016
and
4.4
years as of
December 31, 2015
.
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 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.
The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Such derivatives were used to hedge the variable cash flows associated with variable-rate debt.
The Company's outstanding interest rate derivatives, that were designated as cash flow hedges of interest rate risk, matured on April 1, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instrument Type
|
|
Location in
Condensed
Consolidated
Balance Sheet
|
|
Notional
Amount
Outstanding
|
|
Designated
Benchmark
Interest Rate
|
|
Strike
Rate
|
|
Fair
Value at
6/30/16
|
|
Fair
Value at
12/31/15
|
|
Maturity
Date
|
Pay fixed/ Receive
variable Swap
|
|
Accounts payable and
accrued liabilities
|
|
$48,337
(amortizing
to $48,337)
|
|
1-month
LIBOR
|
|
2.149%
|
|
$
|
—
|
|
|
$
|
(208
|
)
|
|
April 2016
|
Pay fixed/ Receive
variable Swap
|
|
Accounts payable and
accrued liabilities
|
|
$30,276
(amortizing
to $30,276)
|
|
1-month
LIBOR
|
|
2.187%
|
|
—
|
|
|
(133
|
)
|
|
April 2016
|
Pay fixed/ Receive
variable Swap
|
|
Accounts payable and
accrued liabilities
|
|
$11,313
(amortizing
to $11,313)
|
|
1-month
LIBOR
|
|
2.142%
|
|
—
|
|
|
(48
|
)
|
|
April 2016
|
Pay fixed/ Receive
variable Swap
|
|
Accounts payable and
accrued liabilities
|
|
$10,083
(amortizing
to $10,083)
|
|
1-month
LIBOR
|
|
2.236%
|
|
—
|
|
|
(45
|
)
|
|
April 2016
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
(434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
Recognized in OCI/L
(Effective Portion)
|
|
Location of
Losses
Reclassified
from AOCI into
Earnings
(Effective
Portion)
|
|
Loss Recognized in
Earnings (Effective
Portion)
|
|
Location of
Gain
Recognized in
Earnings
(Ineffective
Portion)
|
|
Gain Recognized
in Earnings
(Ineffective
Portion)
|
Hedging
Instrument
|
|
Three Months Ended
June 30,
|
|
|
Three Months Ended
June 30,
|
|
|
Three Months Ended
June 30,
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
Interest rate contracts
|
|
$
|
—
|
|
|
$
|
570
|
|
|
Interest
Expense
|
|
$
|
—
|
|
|
$
|
(646
|
)
|
|
Interest
Expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
Recognized in OCI/L
(Effective Portion)
|
|
Location of
Losses
Reclassified
from AOCI into
Earnings
(Effective
Portion)
|
|
Loss Recognized in
Earnings (Effective
Portion)
|
|
Location of
Gain
Recognized in
Earnings
(Ineffective
Portion)
|
|
Gain Recognized
in Earnings
(Ineffective
Portion)
|
Hedging
Instrument
|
|
Six Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
Interest rate contracts
|
|
$
|
434
|
|
|
$
|
930
|
|
|
Interest
Expense
|
|
$
|
(443
|
)
|
|
$
|
(1,169
|
)
|
|
Interest
Expense
|
|
$
|
—
|
|
|
$
|
—
|
|
Note 7 – Comprehensive Income
Accumulated Other Comprehensive Income of the Company
Comprehensive income (loss) of the Company 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. OCI/L includes changes in unrealized gains (losses) on available-for-sale securities and interest rate hedge agreements.
The Company did not have any AOCI for the three months ended
June 30, 2016
.
The changes in the components of AOCI for the
three
months ended
June 30, 2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Noncontrolling
Interests
|
|
The Company
|
|
Noncontrolling
Interests
|
|
|
|
Unrealized Gains (Losses) - Hedging Agreements
|
|
Total
|
Beginning balance, April 1, 2015
|
$
|
404
|
|
|
$
|
607
|
|
|
$
|
(3,000
|
)
|
|
$
|
(1,989
|
)
|
OCI before reclassifications
|
6
|
|
|
1,148
|
|
|
62
|
|
|
1,216
|
|
Amounts reclassified from AOCI
(1)
|
—
|
|
|
(646
|
)
|
|
—
|
|
|
(646
|
)
|
Net current quarterly period OCI
|
6
|
|
|
502
|
|
|
62
|
|
|
570
|
|
Ending balance, June 30, 2015
|
$
|
410
|
|
|
$
|
1,109
|
|
|
$
|
(2,938
|
)
|
|
$
|
(1,419
|
)
|
|
|
(1)
|
Reclassified
$646
of interest on cash flow hedges to Interest Expense in the condensed consolidated statement of operations.
|
The changes in the components of AOCI for the
six
months ended
June 30, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Noncontrolling
Interests
|
|
The Company
|
|
Noncontrolling
Interests
|
|
|
|
Unrealized Gains (Losses) - Hedging Agreements
|
|
Total
|
Beginning balance, January 1, 2016
|
$
|
433
|
|
|
$
|
1,935
|
|
|
$
|
(2,802
|
)
|
|
$
|
(434
|
)
|
OCI before reclassifications
|
3
|
|
|
814
|
|
|
60
|
|
|
877
|
|
Amounts reclassified from AOCI
(1)
|
(436
|
)
|
|
(2,749
|
)
|
|
2,742
|
|
|
(443
|
)
|
Net current year-to-date period OCI
|
(433
|
)
|
|
(1,935
|
)
|
|
2,802
|
|
|
434
|
|
Ending balance, June 30, 2016
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(1)
|
Reclassified
$443
of interest on cash flow hedges to Interest Expense in the condensed consolidated statement of operations. The cash flow hedges matured April 1, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Noncontrolling
Interests
|
|
The Company
|
|
Noncontrolling
Interests
|
|
|
|
Unrealized Gains (Losses)
|
|
|
|
Hedging Agreements
|
|
Available-for-Sale
Securities
|
|
Hedging
Agreements
|
|
Available-for-Sale
Securities
|
|
Hedging
Agreements
|
|
Available-for-Sale
Securities
|
|
Total
|
Beginning balance, January 1, 2015
|
$
|
401
|
|
|
$
|
384
|
|
|
$
|
303
|
|
|
$
|
13,108
|
|
|
$
|
(3,053
|
)
|
|
$
|
2,826
|
|
|
$
|
13,969
|
|
OCI before reclassifications
|
9
|
|
|
10
|
|
|
1,975
|
|
|
160
|
|
|
115
|
|
|
72
|
|
|
2,341
|
|
Amounts reclassified from AOCI
(1)
|
—
|
|
|
(394
|
)
|
|
(1,169
|
)
|
|
(13,268
|
)
|
|
—
|
|
|
(2,898
|
)
|
|
(17,729
|
)
|
Net current year-to-date period OCI
|
9
|
|
|
(384
|
)
|
|
806
|
|
|
(13,108
|
)
|
|
115
|
|
|
(2,826
|
)
|
|
(15,388
|
)
|
Ending balance, June 30, 2015
|
$
|
410
|
|
|
$
|
—
|
|
|
$
|
1,109
|
|
|
$
|
—
|
|
|
$
|
(2,938
|
)
|
|
$
|
—
|
|
|
$
|
(1,419
|
)
|
|
|
(1)
|
Reclassified
$16,560
realized gain on sale of available-for-sale securities to Gain on Investment and reclassified
$1,169
of interest on cash flow hedges to Interest Expense in the condensed consolidated statement of operations.
|
Accumulated Other Comprehensive Income (Loss) of the Operating Partnership
Comprehensive income (loss) of the Operating Partnership includes all changes in redeemable common units and partners' capital during the period, except those resulting from investments by unitholders, distributions to unitholders and redemption valuation adjustments. OCI/L includes changes in unrealized gains (losses) on available-for-sale securities and interest rate hedge agreements.
The Operating Partnership did not have any AOCI for the three months ended
June 30, 2016
.
The changes in the components of AOCI for the
three
months ended
June 30, 2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Common
Units
|
|
Partners'
Capital
|
|
|
|
Unrealized Gains (Losses) - Hedging Agreements
|
|
Total
|
Beginning balance, April 1, 2015
|
$
|
404
|
|
|
$
|
(2,393
|
)
|
|
$
|
(1,989
|
)
|
OCI before reclassifications
|
7
|
|
|
1,209
|
|
|
1,216
|
|
Amounts reclassified from AOCI
(1)
|
—
|
|
|
(646
|
)
|
|
(646
|
)
|
Net current quarterly period OCI
|
7
|
|
|
563
|
|
|
570
|
|
Ending balance, June 30, 2015
|
$
|
411
|
|
|
$
|
(1,830
|
)
|
|
$
|
(1,419
|
)
|
|
|
(1)
|
Reclassified
$646
of interest on cash flow hedges to Interest Expense in the condensed consolidated statement of operations.
|
The changes in the components of AOCI for the
six
months ended
June 30, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Common
Units
|
|
Partners'
Capital
|
|
|
|
Unrealized Gains (Losses) - Hedging Agreements
|
|
Total
|
Beginning balance, January 1, 2016
|
$
|
434
|
|
|
$
|
(868
|
)
|
|
$
|
(434
|
)
|
OCI before reclassifications
|
3
|
|
|
874
|
|
|
877
|
|
Amounts reclassified from AOCI
(1)
|
(437
|
)
|
|
(6
|
)
|
|
(443
|
)
|
Net current year-to-date period OCI
|
(434
|
)
|
|
868
|
|
|
434
|
|
Ending balance, June 30, 2016
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(1)
|
Reclassified
$443
of interest on cash flow hedges to Interest Expense in the condensed consolidated statement of operations. The cash flow hedges matured April 1, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
Common
Units
|
|
Partners'
Capital
|
|
|
|
Unrealized Gains (Losses)
|
|
|
|
Hedging Agreements
|
|
Available-for-Sale Securities
|
|
Hedging Agreements
|
|
Available-for-Sale Securities
|
|
Total
|
Beginning balance, January 1, 2015
|
$
|
401
|
|
|
$
|
384
|
|
|
$
|
(2,750
|
)
|
|
$
|
15,934
|
|
|
$
|
13,969
|
|
OCI before reclassifications
|
10
|
|
|
10
|
|
|
2,089
|
|
|
232
|
|
|
2,341
|
|
Amounts reclassified from AOCI
(1)
|
—
|
|
|
(394
|
)
|
|
(1,169
|
)
|
|
(16,166
|
)
|
|
(17,729
|
)
|
Net current year-to-date period OCI
|
10
|
|
|
(384
|
)
|
|
920
|
|
|
(15,934
|
)
|
|
(15,388
|
)
|
Ending balance, June 30, 2015
|
$
|
411
|
|
|
$
|
—
|
|
|
$
|
(1,830
|
)
|
|
$
|
—
|
|
|
$
|
(1,419
|
)
|
|
|
(1)
|
Reclassified
$16,560
realized gain on sale of available-for-sale securities to Gain on Investment and reclassified
$1,169
of interest on cash flow hedges to Interest Expense in the condensed consolidated statement of operations.
|
Note 8 – Mortgage and Other Notes Receivable
Each of the Company’s mortgage notes receivable is collateralized by either a first mortgage, a second mortgage, or by an assignment of
100%
of the partnership interests that own the real estate assets. Other notes receivable include amounts due from tenants or government-sponsored districts and unsecured notes received from third parties as whole or partial consideration for property or investments. The Company believes that its mortgage and other notes receivable balance is fully collectable as of
June 30, 2016
. Mortgage and other notes receivable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
As of December 31, 2015
|
|
|
Maturity
Date
|
|
Interest Rate
|
|
Balance
|
|
Interest Rate
|
|
Balance
|
Mortgages:
|
|
|
|
|
|
|
|
|
|
|
Columbia Place Outparcel
|
|
Feb 2022
|
|
5.00%
|
|
$
|
330
|
|
|
5.00%
|
|
$
|
342
|
|
Park Place
|
|
May 2022
|
|
5.00%
|
|
1,290
|
|
|
5.00%
|
|
1,369
|
|
Village Square
(1)
|
|
Mar 2018
|
|
3.75%
|
|
1,667
|
|
|
3.50%
|
|
1,685
|
|
Other
|
|
Dec 2016 - Jan 2047
|
|
2.93% - 9.50%
|
|
4,368
|
|
|
2.93% - 9.50%
|
|
4,380
|
|
|
|
|
|
|
|
7,655
|
|
|
|
|
7,776
|
|
Other Notes Receivable:
|
|
|
|
|
|
|
|
|
|
|
Horizon Group
(2)
|
|
Nov 2016
|
|
—%
|
|
—
|
|
|
7.00%
|
|
3,096
|
|
RED Development Inc.
|
|
Nov 2023
|
|
5.00%
|
|
6,982
|
|
|
5.00%
|
|
7,366
|
|
Southwest Theaters
|
|
Apr 2026
|
|
5.00%
|
|
766
|
|
|
—%
|
|
—
|
|
Other
|
|
Jan 2017
|
|
7.00%
|
|
300
|
|
|
—%
|
|
—
|
|
|
|
|
|
|
|
8,048
|
|
|
|
|
10,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,703
|
|
|
|
|
$
|
18,238
|
|
|
|
(1)
|
In May 2016, the mortgage note receivable related to Village Square was extended to March 2018. The interest rate increased from
3.5%
to
3.75%
for the period from April 2016 through March 2017, with an increase to a rate of
4.0%
from April 2017 through the maturity date.
|
|
|
(2)
|
In May 2016, in conjunction with the formation of the Laredo joint venture (see
Note 5
), the Company contributed its interest in the note of
$5,280
as a capital contribution to the joint venture.
|
Note 9 – 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 June 30, 2016
|
|
Malls
|
|
Associated
Centers
|
|
Community
Centers
|
|
All Other
(1)
|
|
Total
|
Revenues
|
|
$
|
232,746
|
|
|
$
|
9,857
|
|
|
$
|
4,488
|
|
|
$
|
7,874
|
|
|
$
|
254,965
|
|
Property operating expenses
(2)
|
|
(65,409
|
)
|
|
(2,127
|
)
|
|
(1,260
|
)
|
|
3,112
|
|
|
(65,684
|
)
|
Interest expense
|
|
(35,486
|
)
|
|
(1,431
|
)
|
|
(66
|
)
|
|
(16,204
|
)
|
|
(53,187
|
)
|
Other expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,052
|
)
|
|
(5,052
|
)
|
Gain on sales of real estate assets
|
|
140
|
|
|
478
|
|
|
3,281
|
|
|
5,678
|
|
|
9,577
|
|
Segment profit (loss)
|
|
$
|
131,991
|
|
|
$
|
6,777
|
|
|
$
|
6,443
|
|
|
$
|
(4,592
|
)
|
|
140,619
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
(72,205
|
)
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
(16,475
|
)
|
Interest and other income
|
|
|
|
|
|
|
|
|
|
251
|
|
Loss on impairment
|
|
|
|
|
|
|
|
|
|
(43,493
|
)
|
Equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
64,349
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
51
|
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
$
|
73,097
|
|
Capital expenditures
(3)
|
|
$
|
12,770
|
|
|
$
|
1,671
|
|
|
$
|
540
|
|
|
$
|
16,393
|
|
|
$
|
31,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015
|
|
Malls
|
|
Associated
Centers
|
|
Community
Centers
|
|
All Other
(1)
|
|
Total
|
Revenues
|
|
$
|
223,744
|
|
|
$
|
10,064
|
|
|
$
|
5,013
|
|
|
$
|
15,022
|
|
|
$
|
253,843
|
|
Property operating expenses
(2)
|
|
(65,048
|
)
|
|
(2,350
|
)
|
|
(1,154
|
)
|
|
730
|
|
|
(67,822
|
)
|
Interest expense
|
|
(43,882
|
)
|
|
(1,873
|
)
|
|
(1,035
|
)
|
|
(11,964
|
)
|
|
(58,754
|
)
|
Other expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,928
|
)
|
|
(5,928
|
)
|
Gain on sales of real estate assets
|
|
—
|
|
|
13,491
|
|
|
—
|
|
|
682
|
|
|
14,173
|
|
Segment profit (loss)
|
|
$
|
114,814
|
|
|
$
|
19,332
|
|
|
$
|
2,824
|
|
|
$
|
(1,458
|
)
|
|
135,512
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71,239
|
)
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,215
|
)
|
Interest and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
256
|
|
Loss on impairment
|
|
|
|
|
|
|
|
|
|
(2,781
|
)
|
Equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,881
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,472
|
)
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,331
|
|
Capital expenditures
(3)
|
|
$
|
229,931
|
|
|
$
|
4,518
|
|
|
$
|
1,197
|
|
|
$
|
17,340
|
|
|
$
|
252,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
Malls
|
|
Associated
Centers
|
|
Community
Centers
|
|
All Other
(1)
|
|
Total
|
Revenues
|
|
$
|
471,488
|
|
|
$
|
20,099
|
|
|
$
|
9,970
|
|
|
$
|
16,486
|
|
|
$
|
518,043
|
|
Property operating expenses
(2)
|
|
(140,786
|
)
|
|
(4,699
|
)
|
|
(2,403
|
)
|
|
6,000
|
|
|
(141,888
|
)
|
Interest expense
|
|
(69,881
|
)
|
|
(3,133
|
)
|
|
(364
|
)
|
|
(35,040
|
)
|
|
(108,418
|
)
|
Other expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,737
|
)
|
|
(14,737
|
)
|
Gain on sales of real estate assets
|
|
140
|
|
|
478
|
|
|
3,281
|
|
|
5,678
|
|
|
9,577
|
|
Segment profit (loss)
|
|
$
|
260,961
|
|
|
$
|
12,745
|
|
|
$
|
10,484
|
|
|
$
|
(21,613
|
)
|
|
262,577
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
(148,711
|
)
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
(33,643
|
)
|
Interest and other income
|
|
|
|
|
|
|
|
|
|
611
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
6
|
|
Loss on impairment
|
|
|
|
|
|
|
|
|
|
(63,178
|
)
|
Equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
96,739
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
588
|
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
$
|
114,989
|
|
Capital expenditures
(3)
|
|
$
|
61,321
|
|
|
$
|
3,097
|
|
|
$
|
968
|
|
|
$
|
17,134
|
|
|
$
|
82,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015
|
|
Malls
|
|
Associated
Centers
|
|
Community
Centers
|
|
All Other
(1)
|
|
Total
|
Revenues
|
|
$
|
454,015
|
|
|
$
|
20,471
|
|
|
$
|
9,694
|
|
|
$
|
30,572
|
|
|
$
|
514,752
|
|
Property operating expenses
(2)
|
|
(138,997
|
)
|
|
(4,946
|
)
|
|
(2,278
|
)
|
|
2,494
|
|
|
(143,727
|
)
|
Interest expense
|
|
(87,580
|
)
|
|
(3,829
|
)
|
|
(2,230
|
)
|
|
(24,272
|
)
|
|
(117,911
|
)
|
Other expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,404
|
)
|
|
(12,404
|
)
|
Gain on sales of real estate assets
|
|
264
|
|
|
13,491
|
|
|
—
|
|
|
1,175
|
|
|
14,930
|
|
Segment profit (loss)
|
|
$
|
227,702
|
|
|
$
|
25,187
|
|
|
$
|
5,186
|
|
|
$
|
(2,435
|
)
|
|
255,640
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(147,505
|
)
|
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,445
|
)
|
Interest and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,663
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
256
|
|
Loss on impairment
|
|
|
|
|
|
|
|
|
|
(2,781
|
)
|
Gain on investment
|
|
|
|
|
|
|
|
|
|
16,560
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,704
|
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,556
|
)
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
101,536
|
|
Capital expenditures
(3)
|
|
$
|
260,297
|
|
|
$
|
1,390
|
|
|
$
|
1,395
|
|
|
$
|
13,429
|
|
|
$
|
276,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
Malls
|
|
Associated
Centers
|
|
Community
Centers
|
|
All Other
(1)
|
|
Total
|
June 30, 2016
|
|
$
|
5,538,204
|
|
|
$
|
247,326
|
|
|
$
|
266,368
|
|
|
$
|
228,238
|
|
|
$
|
6,280,136
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
$
|
5,766,084
|
|
|
$
|
252,188
|
|
|
$
|
263,614
|
|
|
$
|
198,105
|
|
|
$
|
6,479,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The All Other category includes mortgage and other notes receivable, office buildings, the Management Company and the Company’s subsidiary that provides security and maintenance services.
|
|
|
(2)
|
Property operating expenses include property operating, real estate taxes and maintenance and repairs.
|
|
|
(3)
|
Amounts include acquisitions of real estate assets and investments in unconsolidated affiliates. Developments in progress are included in the All Other category.
|
Note 10 – Equity and Capital
At-The-Market Equity Program
On March 1, 2013, the Company entered into separate controlled equity offering sales agreements (collectively, the "Sales Agreements") with a number of sales agents to sell shares of CBL's common stock, having an aggregate offering price of up to
$300,000
, from time to time in "at-the-market" equity offerings (as defined in Rule 415 of the Securities Act of 1933, as amended) or in negotiated transactions (the "ATM program"). In accordance with the Sales Agreements, the Company sets the parameters for the sales of shares, including the number of shares to be issued, the time period during which sales are to be made and any minimum price below which sales may not be made. The Sales Agreements provide that the sales agents are entitled to compensation for their services at a mutually agreed commission rate not to exceed
2.0%
of the gross proceeds from the sales of shares sold through the ATM program. For each share of common stock issued by CBL, the Operating Partnership issues a corresponding number of common units of limited partnership interest to CBL in exchange for the contribution of the proceeds from the stock issuance. The Company includes only share issuances that have settled in the calculation of shares outstanding at the end of each period.
The Company has not sold any shares under the ATM program since 2013. Since the commencement of the ATM program, CBL has issued
8,419,298
shares of common stock, at a weighted-average sales price of
$25.12
per share, and approximately
$88,507
remains available that may be sold under this program as of
June 30, 2016
. Actual future sales under this program, if any, will depend on a variety of factors including but not limited to market conditions, the trading price of CBL's common stock and the Company's capital needs. The Company has no obligation to sell the remaining shares available under the ATM program.
Common Stock Repurchase Program
In July 2015, CBL's Board of Directors authorized a common stock repurchase program. Under the program, the Company may purchase up to
$200,000
of CBL's common stock from time to time, in the open market, in privately negotiated transactions or otherwise, depending on market prices and other conditions, through August 31, 2016. The Company is not obligated to repurchase any shares of stock under the program and it may terminate the program at any time. As of
June 30, 2016
,
no
shares were repurchased under the program.
Note 11 – Earnings per Share and Earnings per Unit
Earnings per Share of the Company
Basic earnings per share (“EPS”) is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS assumes the issuance of common stock for all potential dilutive common shares outstanding. The limited partners’ rights to convert their noncontrolling interests in the Operating Partnership into shares of common stock are not dilutive.
The following summarizes the impact of potential dilutive common shares on the denominator used to compute EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Denominator – basic
|
170,792
|
|
|
170,494
|
|
|
170,731
|
|
|
170,457
|
|
Effect of performance stock units
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Denominator – diluted
|
170,792
|
|
|
170,494
|
|
|
170,731
|
|
|
170,457
|
|
|
|
(1)
|
Performance stock units are contingently issuable common shares and are included in earnings per share if the effect is dilutive. See
Note 13
for a description of the long-term incentive program, which was adopted in 2015, that these units relate to.
|
Earnings per Unit of the Operating Partnership
Basic earnings per unit (“EPU”) is computed by dividing net income attributable to common unitholders by the weighted-average number of common units outstanding for the period. Diluted EPU assumes the issuance of common units for all potential dilutive common units outstanding.
The following summarizes the impact of potential dilutive common units on the denominator used to compute EPU:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Denominator – basic
|
200,045
|
|
|
199,751
|
|
|
199,986
|
|
|
199,716
|
|
Effect of performance stock units
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Denominator – diluted
|
200,045
|
|
|
199,751
|
|
|
199,986
|
|
|
199,716
|
|
|
|
(1)
|
Performance stock units are contingently issuable common units and are included in earnings per unit if the effect is dilutive. See
Note 13
for a description of the long-term incentive program, which was adopted in 2015, that these units relate to.
|
Note 12 – Contingencies
Litigation
The Company is currently involved in certain litigation that arises in the ordinary course of business, most of which is expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.
On May 27, 2016, Tommy French filed a putative class action in the United States District Court for the Eastern District of Tennessee on behalf of himself and all persons who purchased the Company's common stock between August 8, 2013 and May 24, 2016.
Two
additional suits were filed shortly thereafter with similar allegations. On June 9, 2016, The Allan J. and Sherry R. Potts Living Trust filed a putative class action in the same Court on behalf of the trust and all persons who purchased the Company's common stock between August 8, 2013 and May 24, 2016, and on June 24, 2016, International Union of Painters & Allied Trades District Council No. 35 Pension Plan filed another putative class action in the same Court on behalf of itself and all persons who purchased the Company's common stock between August 9, 2011 and May 24, 2016, containing similar allegations. On July 26, 2016, motions were submitted to the Court for the consolidation of these
three
cases, as well as for the appointment of a lead plaintiff. The deadline for the Court to act to appoint a lead plaintiff is September 1, 2016. All three of these complaints are based on substantially similar allegations that certain of the Company’s financing arrangements were obtained through fraud and/or misrepresentation, and that the Company and certain of its officers and directors made materially misleading statements to the market by failing to disclose material information concerning these alleged misrepresentations, and concerning the supposed involvement by insiders of the Company in alleged trading in the Company’s stock by a United States senator on the basis of material nonpublic information. Based on these allegations, these complaints assert claims for violation of the securities laws and seek a variety of relief, including unspecified monetary damages as well as costs and attorneys’ fees. The Company believes these complaints are without merit and intends to defend itself vigorously.
On July 29, 2016, Henry Shebitz filed a shareholder derivative suit in the Chancery Court for Hamilton County, Tennessee alleging that the Company's directors,
three
former directors and certain current and former officers breached their fiduciary duties by causing the Company to make materially misleading statements to the market by failing to disclose material information concerning these alleged misrepresentations, and concerning the supposed involvement by insiders of the Company in alleged trading in the Company’s stock by a United States senator on the basis of material nonpublic information. The complaint further alleges that certain of the Company's current and former officers and directors improperly engaged in transactions in the Company’s stock while in possession of material nonpublic information concerning the Company’s alleged misleading statements. The complaint purports to seek relief on behalf of the Company for unspecified damages as well as costs and attorneys’ fees. The Company believes that this complaint is without merit and intend to defend against it vigorously.
Environmental Contingencies
The Company evaluates potential loss contingencies related to environmental matters using the same criteria described above related to litigation matters. Based on current information, an unfavorable outcome concerning such environmental matters, both individually and in the aggregate, is considered to be reasonably possible. However, the Company believes its maximum potential exposure to loss would not be material to its results of operations or financial condition. The Company has a master insurance policy that provides coverage through
2022
for certain environmental claims up to
$10,000
per occurrence and up to
$50,000
in the aggregate, subject to deductibles and certain exclusions. At certain locations, individual policies are in place.
Guarantees
The Operating Partnership may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on the Operating Partnership’s investment in the joint venture. The Operating Partnership may receive a fee from the joint venture for providing the guaranty. Additionally, when the Operating Partnership issues a guaranty, the terms of the joint venture agreement typically provide that the Operating Partnership may receive indemnification from the joint venture partner or have the ability to increase its ownership interest. The guarantees expire upon repayment of the debt, unless noted otherwise.
The following table represents the Operating Partnership's guarantees of unconsolidated affiliates' debt as reflected in the accompanying condensed consolidated balance sheets as of
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
Obligation recorded to reflect guaranty
|
Unconsolidated Affiliate
|
|
Company's
Ownership
Interest
|
|
Outstanding
Balance
|
|
Percentage
Guaranteed
by the
Operating
Partnership
|
|
Maximum
Guaranteed
Amount
|
|
Debt
Maturity
Date
(1)
|
|
6/30/2016
|
|
12/31/2015
|
West Melbourne I, LLC -
Phase I
|
|
50%
|
|
$
|
43,147
|
|
|
20%
|
(2)
|
$
|
8,629
|
|
|
Feb-2018
|
(3)
|
$
|
86
|
|
|
$
|
99
|
|
West Melbourne I, LLC -
Phase II
|
|
50%
|
|
16,677
|
|
|
20%
|
(2)
|
3,335
|
|
|
Feb-2018
|
(3)
|
33
|
|
|
87
|
|
Port Orange I, LLC
|
|
50%
|
|
58,348
|
|
|
20%
|
(2)
|
11,670
|
|
|
Feb-2018
|
(3)
|
117
|
|
|
148
|
|
Fremaux Town Center JV,
LLC - Phase I
|
|
65%
|
|
—
|
|
|
—%
|
(4)
|
—
|
|
|
Aug-2016
|
|
—
|
|
|
62
|
|
Fremaux Town Center JV,
LLC - Phase II
|
|
65%
|
|
—
|
|
|
—%
|
(4)
|
—
|
|
|
Aug-2016
|
|
—
|
|
|
161
|
|
Ambassador Town Center JV, LLC
|
|
65%
|
|
—
|
|
|
—%
|
(4)
|
—
|
|
|
Dec-2017
|
|
—
|
|
|
462
|
|
Ambassador Infrastructure,
LLC
|
|
65%
|
|
11,700
|
|
|
100%
|
(5)
|
11,700
|
|
|
Dec-2017
|
(6)
|
177
|
|
|
177
|
|
|
|
|
|
|
|
Total guaranty liability
|
|
$
|
413
|
|
|
$
|
1,196
|
|
|
|
(1)
|
Excludes any extension options.
|
|
|
(2)
|
The guaranty was reduced from
25%
to
20%
when the loan was modified and extended in February 2016. See
Note 5
.
|
|
|
(3)
|
The loan has a
one
-year extension option, which is at the unconsolidated affiliate's election, for an outside maturity date of February 2019.
|
|
|
(4)
|
The guaranty was removed in June 2016 when the construction loan was retired using proceeds from a non-recourse mortgage loan. See
Note 5
for additional information.
|
|
|
(5)
|
The guaranty will be reduced to
50%
on March 1st of such year as payment-in-lieu of taxes ("PILOT") payments received and attributed to the prior calendar year by Ambassador Infrastructure and delivered to the lender are
$1,200
or more, provided no event of default exists. The guaranty will be reduced to
20%
when the PILOT payments are
$1,400
or more, provided no event of default exists.
|
|
|
(6)
|
The loan has
two
one
-year extension options, which are the unconsolidated affiliate's election, for an outside maturity date of December 2019.
|
The Company has guaranteed the lease performance of York Town Center, LP ("YTC"), an unconsolidated affiliate in which the Company owns a
50%
interest, under the terms of an agreement with a third party that owns property as part of York Town Center. Under the terms of that agreement, YTC is obligated to cause performance of the third party’s obligations as landlord under its lease with its sole tenant, including, but not limited to, provisions such as co-tenancy and exclusivity requirements. Should YTC fail to cause performance, then the tenant under the third party landlord’s lease may pursue certain remedies ranging from rights to terminate its lease to receiving reductions in rent. The Company has guaranteed YTC’s performance under this agreement up to a maximum of
$22,000
, which decreases by
$800
annually until the guaranteed amount is reduced to
$10,000
. The guaranty expires on December 31, 2020. The maximum guaranteed obligation was
$14,800
as of
June 30, 2016
. The Company entered into an agreement with its joint venture partner under which the joint venture partner has agreed to reimburse the Company
50%
of any amounts it is obligated to fund under the guaranty. The Company did not include an obligation for this guaranty because it determined that the fair value of the guaranty was not material as of
June 30, 2016
and
December 31, 2015
.
Performance Bonds
The Company has issued various bonds that it would have to satisfy in the event of non-performance. The total amount outstanding on these bonds was
$16,250
and
$16,452
at
June 30, 2016
and
December 31, 2015
, respectively.
Note 13 – Share-Based Compensation
As of
June 30, 2016
, there were
two
share-based compensation plans under which the Company has outstanding awards, the CBL & Associates Properties, Inc. 2012 Stock Incentive Plan ("the 2012 Plan") and the CBL & Associates Properties, Inc. Second Amended and Restated Stock Incentive Plan ("the 1993 Plan"). The Company can only make new awards under the 2012 Plan, which was approved by the Company's shareholders in May 2012. The 2012 Plan permits the Company to issue stock options and common stock to selected officers, employees and non-employee directors of the Company up to a total of
10,400,000
shares. The Company did not issue any new awards under the 1993 Plan, which was approved by the Company's shareholders in May 2003, between the adoption of the 2012 Plan to replace the 1993 Plan in May 2012 and the termination of the 1993 Plan (as to new awards) on May 5, 2013. As the primary operating subsidiary of the Company, the Operating Partnership participates in and bears the compensation expense associated with the Company's share-based compensation plans.
Restricted Stock Awards
The Company may make restricted stock awards to independent directors, officers and its employees under the 2012 Plan. These awards are generally granted based on the performance of the Company and its employees. None of these awards have performance requirements other than a service condition of continued employment, unless otherwise provided. Compensation expense is recognized on a straight-line basis over the requisite service period.
Share-based compensation expense related to the restricted stock awards was
$707
and
$679
for the
three
months ended
June 30, 2016
and
2015
, respectively, and
$1,948
and
$2,923
for the
six
months ended
June 30, 2016
and
2015
, respectively. Share-based compensation cost capitalized as part of real estate assets was
$77
and
$74
for the
three
months ended
June 30, 2016
and
2015
, respectively, and
$191
and
$153
for the
six
months ended
June 30, 2016
and
2015
, respectively.
A summary of the status of the Company’s nonvested restricted stock awards as of
June 30, 2016
, and changes during the
six
months ended
June 30, 2016
, is presented below:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant-Date
Fair Value
|
Nonvested at January 1, 2016
|
533,404
|
|
|
$
|
19.19
|
|
Granted
|
319,660
|
|
|
$
|
10.02
|
|
Vested
|
(200,889
|
)
|
|
$
|
16.46
|
|
Forfeited
|
(9,560
|
)
|
|
$
|
17.04
|
|
Nonvested at June 30, 2016
|
642,615
|
|
|
$
|
15.52
|
|
As of
June 30, 2016
, there was
$8,603
of total unrecognized compensation cost related to nonvested stock awards granted under the plans, which is expected to be recognized over a weighted-average period of
3.1
years.
Long-Term Incentive Program
In 2015, the Company adopted a long-term incentive program ("LTIP") for its named executive officers, which consists of performance stock unit ("PSU") awards and annual restricted stock awards, that may be issued under the 2012 Plan. The number of shares related to the PSU awards that each named executive officer may receive upon the conclusion of a
three
-year performance period is determined based on the Company's achievement of specified levels of long-term total stockholder return ("TSR") performance relative to the National Association of Real Estate Investment Trusts ("NAREIT") Retail Index, provided that at least a "Threshold" level must be attained for any shares to be earned. Shares earned pursuant to the PSU awards vest
60%
at the conclusion of the performance period while the remaining
40%
of the PSU award vests
20%
on each of the first two anniversaries thereafter.
Annual Restricted Stock Awards
Under the LTIP, annual restricted stock awards consist of shares of time-vested restricted stock awarded based on a qualitative evaluation of the performance of the Company and the named executive officer during the fiscal year. Annual restricted stock awards under the LTIP vest
20%
on the date of grant with the remainder vesting in
four
equal annual installments.
Performance Stock Units
The fair value of the PSU awards are estimated on the date of grant using a Monte Carlo Simulation model. The valuation consists of computing the fair value using CBL's simulated stock price as well as TSR over a
three
-year performance period. The award is modeled as a contingent claim in that the expected return on the underlying shares is risk-free and the rate of discounting the payoff of the award is also risk-free.
In February 2016, the Company granted
282,995
PSUs at a grant-date fair value of
$4.98
per PSU. In March 2015, the Company granted
138,680
PSUs at a grant-date fair value of
$15.52
per PSU.
Compensation cost is recognized on a tranche-by-tranche basis using the accelerated attribution method. The resulting expense is recorded regardless of whether any PSU awards are earned as long as the required service period is met. Share-based compensation expense related to the PSUs was
$258
and
$156
for the three months ended
June 30, 2016
and
2015
, respectively. Share-based compensation expense related to the PSUs was
$516
and
$312
for the six months ended
June 30, 2016
and
2015
, respectively. Unrecognized compensation costs related to the PSUs was
$2,421
as of
June 30, 2016
.
Note 14 – Noncash Investing and Financing Activities
The Company’s noncash investing and financing activities were as follows for the
six
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
Accrued dividends and distributions payable
|
$
|
54,565
|
|
|
$
|
54,490
|
|
Additions to real estate assets accrued but not yet paid
|
12,571
|
|
|
10,301
|
|
Assumption of mortgage loan from sale of EastGate Crossing
(1)
|
—
|
|
|
14,570
|
|
Note 15 – Income Taxes
The Company is qualified as a REIT under the provisions of the Internal Revenue Code. To maintain qualification as a REIT, the Company is required to distribute at least
90%
of its taxable income to shareholders and meet certain other requirements.
As a REIT, the Company is generally not liable for federal corporate income taxes. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal and state income taxes on its taxable income at regular corporate tax rates and it may not be able to qualify as a REIT for four subsequent years. 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
$997
and
$742
during the
three
months ended
June 30, 2016
and
2015
, respectively, and
$2,025
and
$1,820
during the
six
months ended
June 30, 2016
and
2015
, 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 (provision) as follows for the three and six month periods ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Current tax benefit (provision)
|
$
|
(368
|
)
|
|
$
|
(2,826
|
)
|
|
$
|
268
|
|
|
$
|
(1,403
|
)
|
Deferred tax benefit (provision)
|
419
|
|
|
354
|
|
|
320
|
|
|
(153
|
)
|
Income tax benefit (provision)
|
$
|
51
|
|
|
$
|
(2,472
|
)
|
|
$
|
588
|
|
|
$
|
(1,556
|
)
|
The Company had a net deferred tax asset of
$3,264
at
June 30, 2016
and a net deferred tax liability of
$672
at
December 31, 2015
. The net deferred tax asset at
June 30, 2016
is included in intangible lease assets and other assets. The net deferred tax liability at
December 31, 2015
is included in accounts payable and accrued liabilities. These balances primarily consisted of operating expense accruals 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 condensed consolidated statements 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
six
month periods ended
June 30, 2016
and
2015
, respectively.
Note 16 – Subsequent Events
In July 2016, the Company sold The Lakes Mall and Fashion Square,
two
malls located in Michigan, for an aggregate sales price of
$66,500
, including the assumption of a
$38,237
loan secured by Fashion Square. The Company recognized a non-cash impairment of real estate of
$32,096
in the second quarter of 2016 when it adjusted the book value to the aggregate net sales price. See
Note 3
and
Note 4
for additional information related to these malls.
In July 2016, Kentucky Oaks Mall Company, a
50
/
50
unconsolidated joint venture, retired a loan secured by Kentucky Oaks Mall, which had a balance of
$19,912
(of which the Company's share was
$9,956
). The loan bore interest at a fixed-rate of
5.27%
and was scheduled to mature in January 2017.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and accompanying notes that are included in this Form 10-Q. Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as defined in the notes to the condensed consolidated financial statements. In this discussion, the terms “we,” “us” and “our” refer to the Company or the Company and the Operating Partnership collectively, as the text requires.
Certain statements made in this section or elsewhere in this report may be deemed “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical fact should be considered to be forward-looking statements. In many cases, these forward-looking statements may be identified by the use of words such as “will,” “may,” “should,” “could,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “projects,” “goals,” “objectives,” “targets,” “predicts,” “plans,” “seeks,” 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 I, Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2015
, 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 and other risks associated with acquisitions;
|
|
|
•
|
competition from other companies and retail formats;
|
|
|
•
|
changes in retail demand and rental rates in our markets;
|
|
|
•
|
shifts in customer demands;
|
|
|
•
|
tenant bankruptcies or store closings;
|
|
|
•
|
changes in vacancy rates at our properties;
|
|
|
•
|
changes in operating expenses;
|
|
|
•
|
changes in applicable laws, rules and regulations;
|
|
|
•
|
sales of real property;
|
|
|
•
|
changes in our credit ratings; 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 refinancing requirements and 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 REIT that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers and office properties. Our properties are located in
27
states, but are primarily in the southeastern and midwestern United States. We have elected to be taxed as a REIT for federal income tax purposes.
We consolidate the financial statements of all entities in which we have a controlling financial interest or where we are the primary beneficiary of a VIE. As of
June 30, 2016
, we owned interests in the following properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Malls
(1)
|
|
Associated
Centers
|
|
Community
Centers
|
|
Office
Buildings
(2)
|
|
Total
|
Consolidated properties
|
70
|
|
|
20
|
|
|
5
|
|
|
8
|
|
|
103
|
|
Unconsolidated properties
(3)
|
10
|
|
|
4
|
|
|
5
|
|
|
5
|
|
|
24
|
|
Total
|
80
|
|
|
24
|
|
|
10
|
|
|
13
|
|
|
127
|
|
|
|
(1)
|
Category consists of regional malls, open-air centers and outlet centers (including
one
mixed-use center).
|
|
|
(2)
|
Includes our corporate office buildings.
|
|
|
(3)
|
We account for these investments using the equity method because one or more of the other partners have substantive participating rights.
|
At
June 30, 2016
, we had interests in the following properties under development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Properties
|
|
Unconsolidated
Properties
|
|
Malls
|
|
Community Centers
|
|
Malls
|
|
Community Centers
|
Development
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expansions
|
3
|
|
|
1
|
|
|
1
|
|
|
2
|
|
Redevelopments
|
4
|
|
|
—
|
|
|
1
|
|
|
—
|
|
We also hold options to acquire certain development properties owned by third parties.
Second quarter 2016 reflects the benefit of our portfolio transformation and disposition program as we continue the upward trend in our key metrics. Net income for the quarter ended June 30, 2016 increased 51.2% to $73.1 million as compared to $48.3 million for the quarter ended June 30, 2015. Same-center NOI (see below) grew 3.4% for the quarter as we realized rental growth through occupancy increases and higher base rents.
Net income attributable to common shareholders increased 68.5% from $51.7 million for the quarter ended June 30, 2016 to $30.7 million for the quarter ended June 30, 2015. We realized a 9.3% increase in FFO, as adjusted, (see below) to $0.59 per share for the quarter and an increase of 9.5% for the year-to-date period to $1.15 per share as compared to prior-year periods.
Leasing spreads for our stabilized malls were 7.8% for leases signed in the second quarter of 2016, including a 0.2% increase in renewal spreads, and new lease spreads were 25.8%. For the trailing twelve months ended June 30, 2016, same-center sales increased 1.1% to $377 per square foot as compared to $373 per square foot in the prior-year period. Occupancy for our same-center malls improved by 150 basis points to 91.7% as of June 30, 2016 as compared to 90.2% for the prior quarter ended June 30, 2015 and average annual base rents per square foot for our same-center malls increased to $31.95 compared to $31.26 in the prior-year period.
Year-to-date, we completed over $300 million in dispositions, at our pro rata share, including the sale of interests in five malls and two community centers. The proceeds realized from these dispositions enable us to reduce the leverage on our balance sheet as we retire maturing loans and add to our unencumbered pool of properties.
We continue to invest in our existing portfolio through expansion and redevelopment projects to broaden the uses of our shopping centers and evolve to meet changing consumer preference.
Same-center NOI and FFO are non-GAAP measures. For a description of Same-center NOI, a reconciliation from net income to Same-center NOI, and an explanation of why we believe this is a useful performance measure, see Non-GAAP Measure - Same-center Net Operating Income in “
Results of Operations
.” For a description of FFO, a reconciliation from net income attributable to common shareholders to FFO allocable to Operating Partnership common unitholders, and an explanation of why we believe this is a useful performance measure, see Non-GAAP Measure - Funds from Operations in “
Critical Accounting Policies
.”
RESULTS OF OPERATIONS
Properties that were in operation for the entire year during
2015
and the
six
months ended
June 30, 2016
are referred to as the “Comparable Properties.” Since January 1, 2015, we have opened two community center developments and acquired one mall as follows:
|
|
|
|
|
|
Property
|
|
Location
|
|
Date
Opened/
Acquired
|
New Developments:
|
|
|
|
|
Ambassador Town Center
(1)
|
|
Lafayette, LA
|
|
April 2016
|
Parkway Plaza
|
|
Fort Oglethorpe, GA
|
|
March 2015
|
|
|
|
|
|
Acquisition:
|
|
|
|
|
Mayfaire Town Center
|
|
Wilmington, NC
|
|
June 2015
|
|
|
(1)
|
Ambassador Town Center is a 65/35 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.
|
The properties listed above, with the exception of Ambassador Town Center, are included in our operations on a consolidated basis and are collectively referred to as the “New Properties.” The transactions related to the New Properties impact the comparison of the results of operations for the
three
and
six
months ended
June 30, 2016
to the results of operations for the three and
six
months ended
June 30, 2015
.
Comparison of the Three Months Ended June 30, 2016 to the Three Months Ended June 30, 2015
Revenues
Total revenues increased
$1.1 million
for the three months ended
June 30, 2016
compared to the prior-year period. Rental revenues and tenant reimbursements increased by
$1.3 million
primarily due to increases of $3.8 million related to the Comparable Properties and $2.5 million attributable to the New Properties, which were partially offset by a decrease of $5.0 million from dispositions. The $3.8 million increase in revenues at the Comparable Properties was primarily due to a $5.0 million increase at our core properties, partially offset by a $1.3 decrease related to non-core properties. Positive leasing spreads, increases in base rents from occupancy gains and incremental sales growth led to increases in minimum and percentage rents, while increases in occupancy and annual contractual increases contributed to the increase in tenant reimbursements, driving the $5.0 million increase at our core properties.
Our cost recovery ratio for the quarter ended
June 30, 2016
was 106.7% compared with 103.5% for the prior-year period due to lower expenses.
The increase of
$1.4 million
in management, development and leasing fees was primarily attributable to a $0.7 million increase from financing fees related to the loans secured by Ambassador Town Center and Fremaux Town Center, which closed in June 2016, and an increase of $0.7 million in management fees from new contracts to manage six malls and one community center for third parties.
Other revenues decreased
$1.6 million
primarily due to a decrease in revenue related to our subsidiary that provides security and maintenance services to third parties.
Operating Expenses
Total operating expenses increased
$38.9 million
for the three months ended
June 30, 2016
compared to the prior-year period. Property operating expenses, including real estate taxes and maintenance and repairs, decreased $2.1 million primarily due to decreases of $1.4 million related to dispositions and $1.2 million attributable to the Comparable Properties, which were partially offset by $0.5 million related to the New Properties. The $1.2 million decrease at our Comparable Properties was primarily driven by decreases in payroll and marketing costs, maintenance and repairs expense, bad debt expense and legal fees. These decreases were partially offset by an increase in real estate taxes expense.
The increase in depreciation and amortization expense of
$1.0 million
resulted from an increase of $1.9 million related to the New Properties and $0.3 million related to the Comparable Properties, partially offset by a decrease of $1.3 million related to dispositions. The $0.3 million increase from the Comparable Properties includes an increase of $1.0 million attributable to our core properties, which was partially offset by a $0.7 million decrease related to non-core properties.
General and administrative expenses increased
$0.3 million
. General and administrative expenses in the second quarter of 2016 include $1.1 million of non-recurring professional fees expense (which represent one-time expenses that are not part of our normal operations) related to the SEC investigation. General and administrative expenses in the second quarter of 2015 includ
e $3.0 million of expense related to a litigation settlement. After considering the impact of these items, general and administrative expenses increased primarily due to increases in consulting expenses and an increase in payroll and related compensation expenses, partially offset by a decrease in legal fees.
In the
second
quarter of
2016
, we recognized impairments of real estate of
$43.5 million
to write down the book value of three malls and two outparcels. In the second quarter of 2015, we recognized an impairment of real estate of
$2.8 million
which was primarily related to the disposition of one mall. See
Note 3
and
Note 4
to the condensed consolidated financial statements for additional information.
Other expenses decreased
$0.9 million
primarily due to a decrease in expenses related to our subsidiary that provides security and maintenance services to third parties.
Other Income and Expenses
Interest expense decreased
$5.6 million
for the three months ended
June 30, 2016
compared to the prior-year period. Interest expense related to property-level debt declined $7.3 million from the retirement of secured debt with borrowings from our lines of credit. This decline was partially offset by an increase in our corporate-level debt primarily due to an increase in interest related to a new $350.0 million unsecured term loan entered into in the fourth quarter of 2015, the proceeds of which were used to reduce outstanding borrowings on our lines of credit.
During the second quarter of 2015, we recorded a gain on extinguishment of debt of
$0.3 million
due to the early retirement of a mortgage loan.
Equity in earnings of unconsolidated affiliates increased by
$59.5 million
during the
second
quarter of
2016
compared to the prior-year period. The increase is primarily due to a gain of $29.2 million related to the foreclosure of Gulf Coast Town Center (owned in a 50/50 joint venture) and $29.4 million from the sale of an unconsolidated affiliate in April 2016. See
Note 5
for more information.
The income tax benefit of
$0.1 million
for the three months ended
June 30, 2016
relates to the Management Company, which is a taxable REIT subsidiary, and consists of a current tax provision of less than
$0.4 million
and a deferred tax benefit of
$0.4 million
. During the three months ended
June 30, 2015
, we recorded an income tax provision of
$2.5 million
, consisting of a current tax provision of
$2.8 million
and a deferred tax benefit of less than
$0.4 million
.
In the second quarter of 2016, we recognized a
$9.6 million
gain on sale of real estate assets, which consisted primarily of $7.3 million related to the sale of a community center, an associated center and two outparcels and $2.2 million related to a parking deck project. We recognized a
$14.2 million
gain on sale of real estate assets in the
second
quarter of
2015
which consisted primarily of $13.5 million from the sale of an associated center and $0.7 million related to the sale of an outparcel.
Comparison of the Six Months Ended June 30, 2016 to the Six Months Ended June 30, 2015
Revenues
Total revenues increased
$3.3 million
for the
six
months ended
June 30, 2016
compared to the prior-year period. Rental revenues and tenant reimbursements increased by
$4.5 million
primarily due to increases of $7.3 million related to the Comparable Properties and $6.2 million attributable to the New Properties. These increases were partially offset by a decrease of $8.8 million from dispositions. The $7.3 million increase in revenue at our Comparable Properties primarily consists of an $8.7 million increase related to our core properties partially offset by a decrease of $1.6 million attributable to non-core properties. Positive leasing spreads, increases in base rents from occupancy gains and incremental sales growth led to increases in minimum and percentage rents, while increases in occupancy and annual contractual increases contributed to the increase in tenant reimbursements leading to the $8.7 million increase at our core properties.
Our cost recovery ratio for the
six
months ended
June 30, 2016
was 101.1% compared with 99.0% for the prior-year period due to lower expenses.
The increase of
$1.2 million
in management, development, financing and leasing fees for the
six
months ended
June 30, 2016
compared to the prior-year period was primarily attributable to a $0.7 million increase from financing fees related to the loans secured by Ambassador Town Center and Fremaux Town Center, which closed in June 2016, and an increase of $0.7 million in management fees from new contracts to manage six malls and one community center for third parties.
Other revenues decreased
$2.5 million
for the
six
months ended
June 30, 2016
compared to the prior-year period primarily due to a decrease in revenue related to our subsidiary that provides security and maintenance services to third parties.
Operating Expenses
Total operating expenses increased
$62.3 million
for the
six
months ended
June 30, 2016
compared to the prior-year period. Property operating expenses, including real estate taxes and maintenance and repairs, decreased $1.8 million primarily due
to decreases of $2.6 million attributable to dispositions and $0.5 million related to the Comparable Properties, partially offset by an increase of $1.3 million related to the New Properties. The $0.5 million decrease at our Comparable Properties was primarily driven by decreases in payroll and utilities expenses, partially offset by increases in real estate taxes, bad debt and insurance expense.
The increase in depreciation and amortization expense of
$1.2 million
for the
six
months ended
June 30, 2016
compared to the prior-year period resulted from an increase of $4.0 million related to the New Properties, partially offset by decreases of $1.8 million attributable to dispositions and $1.1 million related to the Comparable Properties. The $1.1 million decrease attributable to the Comparable Properties was primarily related to a decrease of $1.0 million from our non-core properties.
General and administrative expenses increased
$0.2 million
. General and administrative expenses in the six months ended June 30, 2016 include $1.1 million of non-recurring professional fees expense (which represent one-time expenses that are not part of our normal operations) related to the SEC investigation and $1.7 million of expense related to a litigation settlement. General and administrative expenses in the six months ended June 30, 2015 include $3.2 million of expense related to a litigation settlement. After considering the impact of these items, general and administrative expenses increased primarily due to a decrease in capitalized overhead related to development projects, partially offset by a decrease in legal fees and consulting fees related to business and technology improvement projects that were completed in the prior-year period.
In the
six
months ended
June 30, 2016
, we recognized impairments of real estate of
$63.2 million
to write down the book value of six malls, an associated center and three outparcels. In the
six
months ended
June 30, 2015
, we recognized a non-cash impairment of real estate of
$2.8 million
which was primarily related to the disposition of one mall. See
Note 3
and
Note 4
to the condensed consolidated financial statements for additional information.
Other expenses increased
$2.3 million
primarily due to an increase in expenses related to our subsidiary that provides security and maintenance services to third parties.
Other Income and Expenses
Interest and other income decreased
$5.1 million
compared to the prior-year period primarily due to $4.9 million received in the prior year as a partial settlement of a lawsuit.
Interest expense decreased
$9.5 million
for the
six
months ended
June 30, 2016
compared to the prior-year period. Interest expense related to property-level debt declined $13.4 million from the retirement of secured debt with borrowings from our lines of credit. This decline was partially offset by an increase in our corporate-level debt primarily due to an increase in interest related to a new $350.0 million unsecured term loan entered into in the fourth quarter of 2015, the proceeds of which were used to reduce outstanding borrowings on our lines of credit.
During the
six
months ended
June 30, 2015
, we recorded a gain on extinguishment of debt of
$0.3 million
due to the early retirement of a mortgage loan.
We recorded a gain on investment of
$16.6 million
during the six months ended
June 30, 2015
related to the sale of all of our available-for-sale securities.
Equity in earnings of unconsolidated affiliates increased by
$88.0 million
during the six months ended
June 30, 2016
compared to the prior-year period. The increase is primarily due to a gain of $29.2 related to the foreclosure of Gulf Coast Town Center (owned in a 50/50 joint venture) million and $55.8 million from the sale of two unconsolidated affiliates in February 2016 and April 2016. See
Note 5
for more information.
The income tax benefit of
$0.6 million
for the
six
months ended
June 30, 2016
relates to the Management Company, which is a taxable REIT subsidiary, and consists of a current tax benefit of
$0.3 million
and a deferred tax benefit of
$0.3 million
. During the
six
months ended
June 30, 2015
, we recorded an income tax provision of
$1.6 million
, consisting of a current and deferred tax provision of
$1.4 million
and
$0.2 million
, respectively.
During the
six
months ended
June 30, 2016
, we recognized a
$9.6 million
gain on sale of real estate assets which consisted primarily of $7.3 million related to the sale of a community center, an associated center and two outparcels and $2.2 million related to a parking deck project. We recognized a
$14.9 million
gain on sale of real estate assets during the
six
months ended
June 30, 2015
which consisted primarily of $13.5 million from the sale of an associated center and $1.3 million associated with the sale of two outparcels.
Non-GAAP Measure
Same-Center Net Operating Income
NOI is a supplemental non-GAAP measure of the operating performance of our shopping centers and other properties. We define NOI as property operating revenues (rental revenues, tenant reimbursements and other income) less property operating expenses (property operating, real estate taxes and maintenance and repairs).
We compute NOI based on the Operating Partnership's pro rata share of both consolidated and unconsolidated properties. We believe that presenting NOI and same-center NOI (described below) based on our Operating Partnership’s pro rata share of both consolidated and unconsolidated properties is useful since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests
of our common shareholders and the noncontrolling interest in the Operating Partnership. Our definition of NOI may be different than that used by other companies, and accordingly, our calculation of NOI may not be comparable to that of other companies.
Since NOI includes only those revenues and expenses related to the operations of our shopping center properties, we believe that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates, sales at the malls and operating costs and the impact of those trends on our results of operations. Our calculation of same-center NOI excludes lease termination income, straight-line rent adjustments, and amortization of above and below market lease intangibles in order to enhance the comparability of results from one period to another.
We include a property in our same-center pool when we have owned all or a portion of the property since January 1 of the preceding calendar year and it has been in operation for both the entire preceding calendar year and current year-to-date period. New Properties are excluded from same-center NOI, until they meet this criteria. Properties excluded from the same-center pool that would otherwise meet this criteria are properties which are being considered for repositioning, where we intend to renegotiate the terms of the debt secured by the related property or return the property to the lender and those in which we own a minority interest of 25% or less. Lender properties consisted of Chesterfield Mall, Midland Mall and Wausau Center as of
June 30, 2016
. Properties where we are considering alternatives to reposition the property include Cary Towne Center and Hickory Point Mall at
June 30, 2016
. Properties in which we own a minority interest at
June 30, 2016
include Triangle Town Center, Triangle Town Place and River Ridge Mall.
Due to the exclusions noted above, same-center NOI should only be used as a supplemental measure of our performance and not as an alternative to GAAP operating income (loss) or net income (loss). A reconciliation of our same-center NOI to net income for the three and
six
month periods ended
June 30, 2016
and
2015
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income
|
$
|
73,097
|
|
|
$
|
48,331
|
|
|
$
|
114,989
|
|
|
$
|
101,536
|
|
Adjustments:
(1)
|
|
|
|
|
|
|
|
Depreciation and amortization
|
79,306
|
|
|
79,391
|
|
|
162,597
|
|
|
163,343
|
|
Interest expense
|
58,602
|
|
|
66,639
|
|
|
118,739
|
|
|
133,786
|
|
Abandoned projects expense
|
32
|
|
|
—
|
|
|
33
|
|
|
125
|
|
Gain on sales of real estate assets
|
(68,504
|
)
|
|
(14,774
|
)
|
|
(94,899
|
)
|
|
(16,094
|
)
|
Gain on investment
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,560
|
)
|
Gain on extinguishment of debt
|
—
|
|
|
(256
|
)
|
|
(6
|
)
|
|
(256
|
)
|
Loss on impairment
|
43,493
|
|
|
2,781
|
|
|
63,178
|
|
|
2,781
|
|
Income tax (benefit) provision
|
(51
|
)
|
|
2,472
|
|
|
(588
|
)
|
|
1,556
|
|
Lease termination fees
|
(394
|
)
|
|
(1,731
|
)
|
|
(1,345
|
)
|
|
(3,037
|
)
|
Straight-line rent and above- and below-market lease amortization
|
(2,317
|
)
|
|
(1,071
|
)
|
|
(3,542
|
)
|
|
(2,401
|
)
|
Net (income) loss attributable to noncontrolling interests in other consolidated subsidiaries
|
(1,695
|
)
|
|
(1,490
|
)
|
|
1,432
|
|
|
(2,359
|
)
|
General and administrative expenses
|
16,475
|
|
|
16,215
|
|
|
33,643
|
|
|
33,445
|
|
Management fees and non-property level revenues
|
(6,293
|
)
|
|
(5,580
|
)
|
|
(11,069
|
)
|
|
(17,038
|
)
|
Operating Partnership's share of property NOI
|
191,751
|
|
|
190,927
|
|
|
383,162
|
|
|
378,827
|
|
Non-comparable NOI
|
(9,468
|
)
|
|
(14,702
|
)
|
|
(23,165
|
)
|
|
(29,839
|
)
|
Total same-center NOI
|
$
|
182,283
|
|
|
$
|
176,225
|
|
|
$
|
359,997
|
|
|
$
|
348,988
|
|
|
|
(1)
|
Adjustments are based on our Operating Partnership's pro rata ownership share, including our share of unconsolidated affiliates and excluding noncontrolling interests' share of consolidated properties.
|
Same-center NOI increased 3.4% for the three months ended
June 30, 2016
as compared to the prior-year period. The $6.1 million increase for the three month period ended
June 30, 2016
compared to the same period in 2015 consisted of a $5.6 million increase in revenue, primarily due to an increase in minimum rents as we realized benefits from rent growth and occupancy increases, and a $0.5 million decrease in operating expenses due to improved operating efficiency.
The 3.2% increase in same-center NOI for the six months ended
June 30, 2016
as compared to the prior-year period included a $10.4 million increase in revenue, which included favorable variances of $7.2 million in minimum rents and $2.2 million in tenant reimbursements. We also benefited from a $1.8 million decline in property operating costs due to savings from costs controls offset by $1.1 million in higher real estate taxes.
The growth in revenues for the three and six months ended
June 30, 2016
was driven by increases of 1.3% in average annual base rents and 1.5% in occupancy in our same-center mall portfolio as well as a 1.1% increase in stabilized mall same-center sales per square foot for the rolling 12-month period ended
June 30, 2016
.
Operational Review
The shopping center business is, to some extent, seasonal in nature with tenants typically achieving the highest levels of sales during the fourth quarter due to the holiday season, which generally results in higher percentage rents in the fourth quarter. Additionally, the malls earn most of their rents from short-term tenants during the holiday period. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of the fiscal year.
We classify our regional malls into three categories:
|
|
(1)
|
Stabilized malls – Malls that have completed their initial lease-up and have been open for more than three complete calendar years.
|
|
|
(2)
|
Non-stabilized malls - Malls that are in their initial lease-up phase. After three complete calendar years of operation, they are reclassified on January 1 of the fourth calendar year to the stabilized mall category. The Outlet Shoppes of the Bluegrass and The Outlet Shoppes at Atlanta were classified as non-stabilized malls as of
June 30, 2016
. The Outlet Shoppes of the Bluegrass, The Outlet Shoppes at Atlanta and Fremaux Town Center were classified as non-stabilized malls as of
June 30, 2015
.
|
|
|
(3)
|
Excluded malls - We exclude malls from our core portfolio if they fall in the following categories, for which operational metrics are excluded:
|
|
|
a.
|
Lender Properties - Properties for which we are working or intend to work with the lender on a restructure of the terms of the loan secured by the property or convey the secured property to the lender. As of
June 30, 2016
, Chesterfield Mall, Midland Mall and Wausau Center were classified as Lender Properties. As of
June 30, 2015
, Gulf Coast Town Center, Triangle Town Center and Triangle Town Place were classified as Lender Properties. In the first quarter of 2016, Triangle Town Center and Triangle Town Place were recategorized as Minority Interest Properties as described below. In the second quarter of 2016, the foreclosure of Gulf Coast Town Center was complete. Lender Properties are excluded from our same-center pool as decisions made while in discussions with the lender may lead to metrics that do not provide relevant information related to the condition of these properties or they may be under cash management agreements with the respective servicers.
|
|
|
b.
|
Repositioning Properties - Properties where we have determined that the current format of the property no longer represents the best use of the property and we are in the process of evaluating alternative strategies for the property, which may include major redevelopment or an alternative retail or non-retail format, or after evaluating alternative strategies for the property, we have determined that the property no longer meets our criteria for long-term investment. The steps taken to reposition these properties, such as signing tenants to short-term leases, which are not included in occupancy percentages, or leasing to regional or local tenants, which typically do not report sales, may lead to metrics which do not provide relevant information related to the condition of these properties. Therefore, traditional performance measures, such as occupancy percentages and leasing metrics, exclude Repositioning Properties. Cary Towne Center and Hickory Point are classified as Repositioning Properties as of
June 30, 2016
. Chesterfield Mall and Wausau Center were categorized as Repositioning Properties as of
June 30, 2015
. Chesterfield Mall was reclassified to the Lender Property category as of March 31, 2016. Wausau Center was moved from Repositioning to the Lender Property category as of June 30, 2016 when it was determined after evaluating redevelopment options that an appropriate risk-adjusted return was not achievable and the mall should be returned to the lender
|
|
|
c.
|
Minority Interest Properties - Properties in which we have a 25% or less ownership interest. As of
June 30, 2016
, we had two malls and an associated center in the Minority Interest Property category. Triangle Town Center and Triangle Town Place were reclassified from the Lender Property category in February 2016 upon the Company's sale of its 50% interest in these properties to a newly formed joint venture in which the Company has a 10% ownership interest. The associated debt on these properties was restructured in conjunction with the sale. The Company also sold a 75% interest in River Ridge Mall to a new joint venture in March 2016. See
Note 5
to the condensed consolidated financial statements for more information on these unconsolidated affiliates.
|
We derive the majority of our revenues from the mall properties. The sources of our revenues by property type were as follows:
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
Malls
|
91.3
|
%
|
|
88.2
|
%
|
Associated centers
|
3.9
|
%
|
|
4.0
|
%
|
Community centers
|
1.7
|
%
|
|
1.9
|
%
|
Mortgages, office buildings and other
|
3.1
|
%
|
|
5.9
|
%
|
Mall Store Sales
Mall store sales include reporting mall tenants of 10,000 square feet or less for stabilized malls and exclude license agreements, which are retail contracts that are temporary or short-term in nature and generally last more than three months but less than twelve months. Stabilized Mall store sales for the trailing twelve months ended
June 30, 2016
on a comparable per square foot basis increased approximately
1.1%
to $377 per square foot compared to $373 per square foot for the trailing twelve months ended
June 30, 2015
. We expect flat to slightly positive sales for the remainder of the year.
Occupancy
Our portfolio occupancy is summarized in the following table
(1)
:
|
|
|
|
|
|
|
|
As of June 30,
|
|
2016
|
|
2015
|
Total portfolio
|
92.6
|
%
|
|
91.0
|
%
|
Total mall portfolio
|
91.6
|
%
|
|
90.0
|
%
|
Same-center malls
|
91.7
|
%
|
|
90.2
|
%
|
Stabilized malls
|
91.6
|
%
|
|
89.9
|
%
|
Non-stabilized malls
(2)
|
92.3
|
%
|
|
95.5
|
%
|
Associated centers
|
95.6
|
%
|
|
94.1
|
%
|
Community centers
|
96.8
|
%
|
|
96.8
|
%
|
|
|
(1)
|
As noted above, excluded properties are not included in occupancy metrics.
|
|
|
(2)
|
Represents occupancy for The Outlet Shoppes of the Bluegrass and The Outlet Shoppes at Atlanta as of
June 30, 2016
and occupancy for The Outlet Shoppes of the Bluegrass, The Outlet Shoppes at Atlanta and Fremaux Town Center as of
June 30, 2015
. Fremaux Town Center was classified as a community center as of
June 30, 2016
.
|
Leasing
The following is a summary of the total square feet of leases signed in the three and
six
month periods ended
June 30, 2016
as compared to the prior-year period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Operating portfolio:
|
|
|
|
|
|
|
|
New leases
|
492,265
|
|
|
344,889
|
|
|
821,864
|
|
|
705,684
|
|
Renewal leases
|
673,185
|
|
|
473,721
|
|
|
1,434,110
|
|
|
1,224,792
|
|
Development portfolio:
|
|
|
|
|
|
|
|
New leases
|
378,382
|
|
|
105,582
|
|
|
510,068
|
|
|
278,618
|
|
Total leased
|
1,543,832
|
|
|
924,192
|
|
|
2,766,042
|
|
|
2,209,094
|
|
Average annual base rents per square foot are based on contractual rents in effect as of
June 30, 2016
and
2015
, including the impact of any rent concessions. Average annual base rents per square foot for comparable small shop space of less than 10,000 square feet were as follows for each property type
(1)
:
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
2016
|
|
2015
|
Same-center malls
|
$
|
31.82
|
|
|
$
|
31.42
|
|
Stabilized malls
|
31.95
|
|
|
31.26
|
|
Non-stabilized malls
(2)
|
26.06
|
|
|
25.19
|
|
Associated centers
(3)
|
13.99
|
|
|
13.23
|
|
Community centers
(3)
|
15.60
|
|
|
15.74
|
|
Office buildings
(3)
|
19.67
|
|
|
19.50
|
|
|
|
(1)
|
As noted above, excluded properties are not included in base rent.
|
|
|
(2)
|
Represents average annual base rents for The Outlet Shoppes of the Bluegrass and The Outlet Shoppes at Atlanta as of
June 30, 2016
and average annual base rents for The Outlet Shoppes of the Bluegrass, The Outlet Shoppes at Atlanta and Fremaux Town Center as of
June 30, 2015
. Fremaux Town Center was classified as a community center as of
June 30, 2016
.
|
|
|
(3)
|
Includes annual base rent per square foot for all leased locations regardless of size.
|
Results from new and renewal leasing of comparable small shop space of less than 10,000 square feet during the
six
month period ended
June 30, 2016
for spaces that were previously occupied, based on the contractual terms of the related leases inclusive of the impact of any rent concessions, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type
|
|
Square
Feet
|
|
Prior
Gross
Rent PSF
|
|
New
Initial
Gross
Rent PSF
|
|
% Change
Initial
|
|
New
Average
Gross
Rent PSF
(1)
|
|
% Change
Average
|
Quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
All Property Types
(2)
|
|
513,851
|
|
|
$
|
42.60
|
|
|
$
|
44.20
|
|
|
3.8
|
%
|
|
$
|
45.90
|
|
|
7.7
|
%
|
Stabilized malls
|
|
473,342
|
|
|
44.10
|
|
|
45.75
|
|
|
3.7
|
%
|
|
47.54
|
|
|
7.8
|
%
|
New leases
|
|
167,979
|
|
|
36.72
|
|
|
43.75
|
|
|
19.1
|
%
|
|
46.20
|
|
|
25.8
|
%
|
Renewal leases
|
|
305,363
|
|
|
48.18
|
|
|
46.84
|
|
|
(2.8
|
)%
|
|
48.28
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date:
|
|
|
|
|
|
|
|
|
|
|
|
|
All Property Types
(2)
|
|
1,066,765
|
|
|
$
|
40.80
|
|
|
$
|
41.62
|
|
|
2.0
|
%
|
|
$
|
43.00
|
|
|
5.4
|
%
|
Stabilized malls
|
|
994,143
|
|
|
42.10
|
|
|
42.88
|
|
|
1.9
|
%
|
|
44.31
|
|
|
5.2
|
%
|
New leases
|
|
280,218
|
|
|
38.20
|
|
|
45.26
|
|
|
18.5
|
%
|
|
47.83
|
|
|
25.2
|
%
|
Renewal leases
|
|
713,925
|
|
|
43.62
|
|
|
41.94
|
|
|
(3.9
|
)%
|
|
42.93
|
|
|
(1.6
|
)%
|
|
|
(1)
|
Average gross rent does not incorporate allowable future increases for recoverable common area expenses.
|
|
|
(2)
|
Includes stabilized malls, associated centers, community centers and office buildings.
|
New and renewal leasing activity of comparable small shop space of less than 10,000 square feet for the
six
month period ended
June 30, 2016
based on commencement date is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Leases
|
|
Square
Feet
|
|
Term
(in years)
|
|
Initial
Rent
PSF
|
|
Average
Rent
PSF
|
|
Expiring
Rent
PSF
|
|
Initial Rent
Spread
|
|
Average Rent
Spread
|
Commencement 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
|
104
|
|
|
324,391
|
|
|
8.65
|
|
|
$
|
48.76
|
|
|
$
|
51.42
|
|
|
$
|
40.46
|
|
|
$
|
8.30
|
|
|
20.5
|
%
|
|
$
|
10.96
|
|
|
27.1
|
%
|
Renewal
|
401
|
|
|
1,190,328
|
|
|
3.67
|
|
|
40.81
|
|
|
41.65
|
|
|
41.44
|
|
|
(0.63
|
)
|
|
(1.5
|
)%
|
|
0.21
|
|
|
0.5
|
%
|
Commencement 2016 Total
|
505
|
|
|
1,514,719
|
|
|
4.70
|
|
|
$
|
42.51
|
|
|
$
|
43.74
|
|
|
$
|
41.23
|
|
|
$
|
1.28
|
|
|
3.1
|
%
|
|
$
|
2.51
|
|
|
6.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commencement 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
|
7
|
|
|
14,147
|
|
|
9.70
|
|
|
$
|
73.43
|
|
|
$
|
77.84
|
|
|
$
|
67.62
|
|
|
$
|
5.81
|
|
|
8.6
|
%
|
|
$
|
10.22
|
|
|
15.1
|
%
|
Renewal
|
40
|
|
|
113,927
|
|
|
4.38
|
|
|
40.97
|
|
|
41.77
|
|
|
39.64
|
|
|
1.33
|
|
|
3.4
|
%
|
|
2.13
|
|
|
5.4
|
%
|
Commencement 2017 Total
|
47
|
|
|
128,074
|
|
|
5.17
|
|
|
$
|
44.56
|
|
|
$
|
45.76
|
|
|
$
|
42.73
|
|
|
$
|
1.83
|
|
|
4.3
|
%
|
|
$
|
3.03
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2016/2017
|
552
|
|
|
1,642,793
|
|
|
4.74
|
|
|
$
|
42.67
|
|
|
$
|
43.90
|
|
|
$
|
41.35
|
|
|
$
|
1.32
|
|
|
3.2
|
%
|
|
$
|
2.55
|
|
|
6.2
|
%
|
LIQUIDITY AND CAPITAL RESOURCES
As of
June 30, 2016
, we had approximately
$388.9 million
outstanding on our three unsecured credit facilities leaving approximately
$711.1 million
of availability. Our borrowing rate continues to improve as we refinance maturing loans at lower interest rates. In June 2016, we closed on three non-recourse loans with an aggregate total of $227.7 million and a weighted-average fixed rate of 3.9%. We have used proceeds from dispositions to retire
$100 million
of maturing loans on two malls and two associated centers. We also completed the foreclosure process on Gulf Coast Town Center during the quarter.
Excluding the loans secured by Chesterfield Mall and Midland Mall, which we plan to return to the respective lenders, we only have $133.3 million in 2016 maturities remaining. These consist of a $71.3 million loan secured by Greenbrier Mall, where we are in discussions with the lender to extend the maturity date, a $55.2 million loan secured by Dakota Square Mall and a $6.9 million loan secured by Governor's Square Mall. We plan to retire the loans on Dakota Square and Governor's Square using availability on our credit lines. Our balance sheet continues to improve as we deleverage and add to our unencumbered pool of properties.
We derive a majority of our revenues from leases with retail tenants, which have historically been the primary source for funding short-term liquidity and capital needs such as operating expenses, debt service, tenant construction allowances, recurring capital expenditures, dividends and distributions. We believe that the combination of cash flows generated from our operations, combined with our debt and equity sources and the availability under our credit facilities 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, debt and equity offerings, joint venture investments, issuances of noncontrolling interests in our Operating Partnership, and decreasing expenditures related to tenant construction allowances and other capital expenditures. We also generate revenues from sales of peripheral land at our properties and from sales of real estate assets when it is determined that we can realize an optimal value for the assets.
Cash Flows - Operating, Investing and Financing Activities
There was
$21.1 million
of unrestricted cash and cash equivalents as of
June 30, 2016
, a decrease of $15.8 million from
December 31, 2015
. Our cash flow activities are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2016
|
|
2015
|
|
Change
|
Net cash provided by operating activities
|
$
|
214,161
|
|
|
$
|
219,393
|
|
|
$
|
(5,232
|
)
|
Net cash provided by (used in) investing activities
|
28,365
|
|
|
(240,808
|
)
|
|
269,173
|
|
Net cash provided by (used in) financing activities
|
(258,279
|
)
|
|
14,078
|
|
|
(272,357
|
)
|
Net cash flows
|
$
|
(15,753
|
)
|
|
$
|
(7,337
|
)
|
|
$
|
(8,416
|
)
|
Cash Provided by Operating Activities
Cash provided by operating activities decreased
$5.2 million
primarily due to decreases in cash flow from dispositions and timing differences related to working capital items as compared to the prior-year period. These decreases were partially offset by lower cash paid for interest as we continued our strategy of retiring higher-rate secured debt with lower-rate unsecured debt.
Cash Used in Investing Activities
Cash flows provided by investing activities was
$28.4 million
, representing a
$269.2 million
difference as compared to cash used in investing activities of
$240.8 million
during the prior year period, primarily due to proceeds received from the sale of several consolidated and unconsolidated properties as well as a decrease in acquisition activities.
Cash Used in Financing Activities
Cash flows used in financing activities increased by
$272.4 million
as we continue to retire maturing mortgage debt and take advantage of low interest rates.
Debt
Debt of the Company
CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries, that it has a direct or indirect ownership interest in, is the borrower on all of our debt. CBL is a limited guarantor of the Notes, issued by the Operating Partnership in November 2013 and October 2014, respectively, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates. We also provide a similar limited guarantee of the Operating Partnership's obligations with respect to our unsecured credit facilities and three unsecured term loans as of
June 30, 2016
.
Debt of the Operating Partnership
The following tables summarize debt based on our pro rata ownership share, including our pro rata share of unconsolidated affiliates and excluding noncontrolling investors’ share of consolidated properties, because we believe this provides investors and lenders a clearer understanding of our total debt obligations and liquidity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
Consolidated
|
|
Noncontrolling
Interests
|
|
Unconsolidated
Affiliates
|
|
Total
|
|
Weighted-
Average
Interest
Rate
(1)
|
Fixed-rate debt:
|
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating properties
(2) (3)
|
|
$
|
2,613,566
|
|
|
$
|
(110,236
|
)
|
|
$
|
551,369
|
|
|
$
|
3,054,699
|
|
|
5.39%
|
Senior unsecured notes due 2023
(4)
|
|
446,349
|
|
|
—
|
|
|
—
|
|
|
446,349
|
|
|
5.25%
|
Senior unsecured notes due 2024
(5)
|
|
299,936
|
|
|
—
|
|
|
—
|
|
|
299,936
|
|
|
4.60%
|
Total fixed-rate debt
|
|
3,359,851
|
|
|
(110,236
|
)
|
|
551,369
|
|
|
3,800,984
|
|
|
5.31%
|
Variable-rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse term loans on operating properties
|
|
19,266
|
|
|
(7,575
|
)
|
|
2,399
|
|
|
14,090
|
|
|
2.94%
|
Recourse term loans on operating properties
|
|
25,921
|
|
|
—
|
|
|
71,471
|
|
|
97,392
|
|
|
2.62%
|
Unsecured lines of credit
|
|
388,912
|
|
|
—
|
|
|
—
|
|
|
388,912
|
|
|
1.65%
|
Unsecured term loans
|
|
800,000
|
|
|
—
|
|
|
—
|
|
|
800,000
|
|
|
1.89%
|
Total variable-rate debt
|
|
1,234,099
|
|
|
(7,575
|
)
|
|
73,870
|
|
|
1,300,394
|
|
|
1.89%
|
Total fixed-rate and variable-rate debt
|
|
4,593,950
|
|
|
(117,811
|
)
|
|
625,239
|
|
|
5,101,378
|
|
|
4.44%
|
Unamortized deferred financing costs
|
|
(15,234
|
)
|
|
739
|
|
|
(3,001
|
)
|
|
(17,496
|
)
|
|
|
Liabilities related to assets held for sale
(3)
|
|
(38,237
|
)
|
|
—
|
|
|
—
|
|
|
(38,237
|
)
|
|
|
Total mortgage and other indebtedness
|
|
$
|
4,540,479
|
|
|
$
|
(117,072
|
)
|
|
$
|
622,238
|
|
|
$
|
5,045,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Consolidated
|
|
Noncontrolling
Interests
|
|
Unconsolidated
Affiliates
|
|
Total
|
|
Weighted-
Average
Interest
Rate
(1)
|
Fixed-rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse loans on operating properties
(2)
|
|
$
|
2,736,538
|
|
|
$
|
(110,411
|
)
|
|
$
|
664,249
|
|
|
$
|
3,290,376
|
|
|
5.51%
|
Senior unsecured notes due 2023
(4)
|
|
446,151
|
|
|
—
|
|
|
—
|
|
|
446,151
|
|
|
5.25%
|
Senior unsecured notes due 2024
(5)
|
|
299,933
|
|
|
—
|
|
|
—
|
|
|
299,933
|
|
|
4.60%
|
Other
|
|
2,686
|
|
|
(1,343
|
)
|
|
—
|
|
|
1,343
|
|
|
3.50%
|
Total fixed-rate debt
|
|
3,485,308
|
|
|
(111,754
|
)
|
|
664,249
|
|
|
4,037,803
|
|
|
5.41%
|
Variable-rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse term loans on operating properties
|
|
16,840
|
|
|
(6,981
|
)
|
|
2,546
|
|
|
12,405
|
|
|
2.55%
|
Recourse term loans on operating properties
|
|
25,635
|
|
|
—
|
|
|
102,377
|
|
|
128,012
|
|
|
2.51%
|
Construction loans
|
|
—
|
|
|
—
|
|
|
30,047
|
|
|
30,047
|
|
|
2.12%
|
Unsecured lines of credit
|
|
398,904
|
|
|
—
|
|
|
—
|
|
|
398,904
|
|
|
1.54%
|
Unsecured term loans
|
|
800,000
|
|
|
—
|
|
|
—
|
|
|
800,000
|
|
|
1.82%
|
Total variable-rate debt
|
|
1,241,379
|
|
|
(6,981
|
)
|
|
134,970
|
|
|
1,369,368
|
|
|
1.81%
|
Total fixed-rate and variable-rate debt
|
|
4,726,687
|
|
|
(118,735
|
)
|
|
799,219
|
|
|
5,407,171
|
|
|
4.50%
|
Unamortized deferred financing costs
|
|
(16,059
|
)
|
|
855
|
|
|
(1,486
|
)
|
|
(16,690
|
)
|
|
|
Total mortgage and other indebtedness
|
|
$
|
4,710,628
|
|
|
$
|
(117,880
|
)
|
|
$
|
797,733
|
|
|
$
|
5,390,481
|
|
|
|
|
|
(1)
|
Weighted-average interest rate includes the effect of debt premiums (discounts), but excludes amortization of deferred financing costs.
|
|
|
(2)
|
We had
four
interest rate swaps with notional amounts outstanding totaling
$101,151
as of
December 31, 2015
related to
four
of our variable-rate loans on consolidated operating properties to effectively fix the interest rates on these loans. Therefore, these amounts are reflected in fixed-rate debt at
December 31, 2015
. The swaps matured April 1, 2016. We have two interest rate swaps with notional amounts outstanding totaling
$120,660
as of
June 30, 2016
related to two of our variable-rate loans on unconsolidated operating properties to effectively fix the interest rates on these loans. Therefore, there amounts are reflected in fixed-rate debt at
June 30, 2016
.
|
|
|
(3)
|
Includes a
$38,237
mortgage loan secured by Fashion Square that is classified on the condensed consolidated balance sheets as Liabilities Related to Assets Held for Sale. See
Note 4
to the condensed consolidated financial statements.
|
|
|
(4)
|
Net of unamortized discount of
$3,651
and
$3,849
as of
June 30, 2016
and
December 31, 2015
, respectively.
|
|
|
(5)
|
Net of unamortized discount of
$64
and
$67
as of
June 30, 2016
and
December 31, 2015
, respectively.
|
The following table presents our pro rata share of consolidated and unconsolidated debt as of
June 30, 2016
, excluding debt premiums and discounts, that is scheduled to mature in 2016:
|
|
|
|
|
|
|
Balance
|
|
|
As of June 30, 2016
(1)
|
|
Consolidated Properties:
|
|
|
Greenbrier Mall
|
$
|
71,265
|
|
(2)
|
Midland Mall
|
32,021
|
|
(3)
|
Chesterfield Mall
|
140,000
|
|
(3)
|
Dakota Square Mall
|
55,199
|
|
(4)
|
|
298,485
|
|
|
Unconsolidated Property:
|
|
|
Governor's Square Mall
|
6,874
|
|
(4)
|
|
|
|
2016 Maturities at pro rata share
|
$
|
305,359
|
|
|
|
|
(1)
|
Based on original maturity date.
|
|
|
(2)
|
We are in discussions with the lender to extend the maturity date on this loan.
|
|
|
(3)
|
We plan to return these properties to the respective lenders as part of the foreclosure process.
|
|
|
(4)
|
We plan to retire these loans using availability on our credit lines.
|
The weighted-average remaining term of our total share of consolidated and unconsolidated debt was 4.1 years at
June 30, 2016
and at
December 31, 2015
. The weighted-average remaining term of our pro rata share of fixed-rate debt was 4.5 years at
June 30, 2016
and
December 31, 2015
.
As of
June 30, 2016
and
December 31, 2015
, our pro rata share of consolidated and unconsolidated variable-rate debt represented 25.5% and
25.3%
, respectively, of our total pro rata share of debt. As of
June 30, 2016
, our share of consolidated and unconsolidated variable-rate debt represented 17.1% of our total market capitalization (see
Equity
below) as compared to 16.1% as of
December 31, 2015
. The increase is primarily due to the decline in our stock price from $12.37 at
December 31, 2015
to $9.31 at
June 30, 2016
.
See
Note 6
to the condensed consolidated financial statements for additional information concerning the amount and terms of our outstanding indebtedness and compliance with applicable covenants and restrictions as of
June 30, 2016
.
Mortgages on Operating Properties
Financings
The following table presents loans, secured by the related properties, that were entered into in 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property
|
|
Consolidated/
Unconsolidated
Property
|
|
Stated
Interest
Rate
|
|
Maturity
Date
(1)
|
|
Amount
Financed
or
Extended
|
|
June
|
|
Hamilton Place
(2)
|
|
Consolidated
|
|
4.36%
|
|
June 2026
|
|
$
|
107,000
|
|
|
June
|
|
Statesboro Crossing
(3)
|
|
Consolidated
|
|
LIBOR + 1.80%
|
|
June 2017
|
(4)
|
11,035
|
|
|
June
|
|
Fremaux Town Center
(5)
|
|
Unconsolidated
|
|
3.70%
|
(6)
|
June 2026
|
|
73,000
|
|
|
June
|
|
Ambassador Town Center
(7)
|
|
Unconsolidated
|
|
3.22%
|
(8)
|
June 2023
|
|
47,660
|
|
|
May
|
|
The Outlet Shoppes of Laredo
(9)
|
|
Consolidated
|
|
LIBOR + 2.5%
|
(10)
|
May 2019
|
(11)
|
91,300
|
|
|
April
|
|
Hickory Point Mall
(12)
|
|
Consolidated
|
|
5.85%
|
(13)
|
December 2018
|
(13)
|
27,446
|
|
|
February
|
|
Port Orange
(14)
|
|
Unconsolidated
|
|
LIBOR + 2.0%
|
|
February 2018
|
(15)
|
58,628
|
|
|
February
|
|
Hammock Landing - Phase I
(14)
|
|
Unconsolidated
|
|
LIBOR + 2.0%
|
|
February 2018
|
(15)
|
43,347
|
|
(16)
|
February
|
|
Hammock Landing - Phase II
(14)
|
|
Unconsolidated
|
|
LIBOR + 2.0%
|
|
February 2018
|
(15)
|
16,757
|
|
|
February
|
|
Triangle Town Center, Triangle Town Place, Triangle Town Commons
(17)
|
|
Unconsolidated
|
|
4.00%
|
(18)
|
December 2018
|
(19)
|
171,092
|
|
|
|
|
(1)
|
Excludes any extension options.
|
|
|
(2)
|
Proceeds from the non-recourse loan were used to retire an existing
$98,181
loan with an interest rate of
5.86%
that was scheduled to mature in August 2016. Our share of excess proceeds was used to reduce outstanding balances on our credit facilities.
|
|
|
(3)
|
The loan was modified to extend the maturity date.
|
|
|
(4)
|
The loan has a one-year extension option at our election for an outside maturity date of June 2018.
|
|
|
(5)
|
Net proceeds from the non-recourse loan were used to retire two existing construction loans with an aggregate balance of
$71,125
.
|
|
|
(6)
|
The joint venture has an interest rate swap on a notional amount of
$73,000
, amortizing to
$52,130
over the term of the swap, related to Fremaux Town Center to effectively fix the interest rate on that variable-rate loan. Therefore, this amount is currently reflected as having a fixed rate.
|
|
|
(7)
|
The non-recourse loan was used to retire an existing construction loan with a balance of
$41,900
and excess proceeds were utilized to fund remaining construction costs.
|
|
|
(8)
|
The joint venture has an interest rate swap on a notional amount of
$47,660
, amortizing to
$38,866
over the term of the swap, related to Ambassador Town Center to effectively fix the interest rate on that variable-rate loan. Therefore, this amount is currently reflected as having a fixed rate.
|
|
|
(9)
|
The consolidated
65
/
35
joint venture closed on a construction loan for the development of The Outlet Shoppes of Laredo, an outlet center located in Laredo, TX. The Operating Partnership has guaranteed
100%
of the loan.
|
|
|
(10)
|
The interest rate will be reduced to LIBOR + 2.25% once the development is complete and certain debt and operational metrics are met.
|
|
|
(11)
|
The loan has one 24-month extension option, which is at the joint venture's election, for an outside maturity date of May 2021.
|
|
|
(12)
|
The loan was modified to extend the maturity date. The interest rate remains at
5.85%
but future amortization payments have been eliminated.
|
|
|
(13)
|
The loan has a one-year extension option at our election for an outside maturity date of December 2019.
|
|
|
(14)
|
The guaranty was reduced from 25% to 20% in conjunction with the refinancing. See
Note 12
to the condensed consolidated financial statements for more information.
|
|
|
(15)
|
The loan was modified and extended to February 2018 with a one-year extension option.
|
|
|
(16)
|
The capacity was increased from $39,475 to fund the expansion.
|
|
|
(17)
|
The loan was amended and modified in conjunction with the sale of the property to a newly formed joint venture. See
Note 5
to the condensed consolidated financial statements for more information.
|
|
|
(18)
|
The interest rate was reduced from
5.74%
to
4.00%
interest-only payments through the initial maturity date.
|
|
|
(19)
|
The loan was extended to December 2018 with two one-year extension options.
|
Loan Repayments
We repaid the following fixed-rate loans, secured by the related consolidated Properties, in 2016:
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Property
|
|
Interest
Rate at
Repayment Date
|
|
Scheduled
Maturity Date
|
|
Principal
Balance
Repaid
|
June
|
|
Hamilton Place
(1)
|
|
5.86%
|
|
August 2016
|
|
$
|
98,181
|
|
April
|
|
CoolSprings Crossing
(2)
|
|
4.54%
|
|
April 2016
|
|
11,313
|
|
April
|
|
Gunbarrel Pointe
(2)
|
|
4.64%
|
|
April 2016
|
|
10,083
|
|
April
|
|
Stroud Mall
(2)
|
|
4.59%
|
|
April 2016
|
|
30,276
|
|
April
|
|
York Galleria
(2)
|
|
4.55%
|
|
April 2016
|
|
48,337
|
|
|
|
(1)
|
We retired the loan with proceeds from a
$107,000
fixed-rate non-recourse loan. See above for more information.
|
|
|
(2)
|
We used proceeds from dispositions to retire the loan.
|
Subsequent to
June 30, 2016
, an unconsolidated affiliate retired a loan. See
Note 16
to the condensed consolidated financial statements for more information.
Other
JG Gulf Coast Town Center LLC - Phases I and II
In June 2016, the foreclosure process was complete and the mortgage lender received title to the mall in satisfaction of the non-recourse mortgage loan secured by Phases I and II of Gulf Coast Town Center in Ft. Myers, FL. Gulf Coast Town Center generated insufficient cash flow to cover the debt service on the mortgage, which had a balance of
$190.8 million
(of which our
50.0%
share was
$95.4 million
) and a contractual maturity date of July 2017. In the third quarter of 2015, the lender on the loan began receiving the net operating cash flows of the property each month in lieu of scheduled monthly mortgage payments. We recognized a gain on the net investment in Gulf Coast of
$29.3 million
, which is included in equity in earnings of unconsolidated affiliates in the condensed consolidated statements of operations.
Interest Rate Hedging Instruments
Our outstanding interest rate derivatives, that were designated as cash flow hedges of interest rate risk, matured on April 1, 2016: (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instrument Type
|
|
Location in
Condensed
Consolidated
Balance Sheet
|
|
Notional
Amount
Outstanding
|
|
Designated
Benchmark
Interest Rate
|
|
Strike
Rate
|
|
Fair
Value at
6/30/16
|
|
Fair
Value at
12/31/15
|
|
Maturity
Date
|
Pay fixed/ Receive
variable Swap
|
|
Accounts payable and
accrued liabilities
|
|
$48,337
(amortizing
to $48,337)
|
|
1-month
LIBOR
|
|
2.149
|
%
|
|
$
|
—
|
|
|
$
|
(208
|
)
|
|
April 2016
|
Pay fixed/ Receive
variable Swap
|
|
Accounts payable and
accrued liabilities
|
|
$30,276
(amortizing
to $30,276)
|
|
1-month
LIBOR
|
|
2.187
|
%
|
|
—
|
|
|
(133
|
)
|
|
April 2016
|
Pay fixed/ Receive
variable Swap
|
|
Accounts payable and
accrued liabilities
|
|
$11,313
(amortizing
to $11,313)
|
|
1-month
LIBOR
|
|
2.142
|
%
|
|
—
|
|
|
(48
|
)
|
|
April 2016
|
Pay fixed/ Receive
variable Swap
|
|
Accounts payable and
accrued liabilities
|
|
$10,083
(amortizing
to $10,083)
|
|
1-month
LIBOR
|
|
2.236
|
%
|
|
—
|
|
|
(45
|
)
|
|
April 2016
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
(434
|
)
|
|
|
Equity
During the
six
months ended
June 30, 2016
, we paid dividends of
$112.9 million
to holders of CBL's common stock and preferred stock, as well as
$23.4 million
in distributions to the noncontrolling interest investors in the Operating Partnership and other consolidated subsidiaries. The Operating Partnership paid distributions of
$22.4 million
and
$106.8 million
on the preferred units and common units, respectively, as well as distributions of
$7.0 million
to the noncontrolling interests in other consolidated subsidiaries.
On June 28, 2016, we announced a second quarter 2016 common stock dividend of $0.265 per share payable on July 15, 2016. On February 26, 2016, we announced a first quarter 2016 common stock dividend of $0.265 per share payable in cash that was paid on April 15, 2016. Future dividends payable will be determined by our Board of Directors based upon circumstances at the time of declaration.
As a publicly traded company and, as a subsidiary of a publicly traded company, we have access to capital through both the public equity and debt markets. We currently have a shelf registration statement on file with the SEC authorizing us to publicly issue senior and/or subordinated debt securities, shares of preferred stock (or depositary shares representing fractional interests therein), shares of common stock, warrants or rights to purchase any of the foregoing securities, and units consisting of two or more of these classes or series of securities and limited guarantees of debt securities issued by the Operating Partnership. Pursuant to the shelf registration statement, the Operating Partnership is also authorized to publicly issue unsubordinated debt securities. There is no limit to the offering price or number of securities that we may issue under this shelf registration statement.
At-The-Market Equity Program
On March 1, 2013, we entered into Sales Agreements with a number of sales agents to sell shares of CBL's common stock, having an aggregate offering price of up to $300.0 million, from time to time through an ATM program. In accordance with the Sales Agreements, we set the parameters for the sales of shares, including the number of shares to be issued, the time period during which sales are to be made and any minimum price below which sales may not be made. The Sales Agreements provide that the sales agents are entitled to compensation for their services at a mutually agreed commission rate not to exceed 2.0% of the gross proceeds from the sales of shares sold through the ATM program. For each share of common stock issued by CBL, the Operating Partnership issues a corresponding number of common units of limited partnership interest to CBL in exchange for the contribution of the proceeds from the stock issuance. We include only share issuances that have settled in our calculation of shares outstanding at the end of each period.
We have not sold any shares under the ATM program since 2013. The net proceeds from the ATM sales were used to reduce the balances on our credit facilities. Since the commencement of the ATM program, CBL has issued
8,419,298
shares of common stock, at a weighted-average sales price of
$25.12
per share, and approximately
$88.5 million
remains available that may be sold under this program. Actual future sales under this program, if any, will depend on a variety of factors including but not limited to market conditions, the trading price of CBL's common stock and our capital needs. We have no obligation to sell the remaining shares available under the ATM program.
Common Stock Repurchase Program
In July 2015, CBL's Board of Directors authorized a common stock repurchase program. Under the program, we may purchase up to
$200.0 million
of CBL's common stock from time to time, in the open market, in privately negotiated transactions or otherwise, depending on market prices and other conditions, through August 31, 2016. We are not obligated to repurchase any shares of stock under the program and we may terminate the program at any time. As of
June 30, 2016
, no shares were repurchased under the program.
Debt-To-Total Market Capitalization
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
67.2%
at
June 30, 2016
, compared to 58.7% at
June 30, 2015
. The increase in the debt-to-market capitalization ratio is primarily due to a decrease in CBL's stock price to $9.31 at
June 30, 2016
from $16.20 at
June 30, 2015
. Our debt-to-market capitalization ratio at
June 30, 2016
was computed as follows (in thousands, except stock prices):
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding
|
|
Stock Price
(1)
|
|
Value
|
Common stock and operating partnership units
|
200,032
|
|
|
$
|
9.31
|
|
|
$
|
1,862,298
|
|
7.375% Series D Cumulative Redeemable Preferred Stock
|
1,815
|
|
|
250.00
|
|
|
453,750
|
|
6.625% Series E Cumulative Redeemable Preferred Stock
|
690
|
|
|
250.00
|
|
|
172,500
|
|
Total market equity
|
|
|
|
|
|
|
2,488,548
|
|
Company’s share of total debt
|
|
|
|
|
|
|
5,101,378
|
|
Total market capitalization
|
|
|
|
|
|
|
$
|
7,589,926
|
|
Debt-to-total-market capitalization ratio
|
|
|
|
|
|
|
67.2
|
%
|
|
|
(1)
|
Stock price for common stock and Operating Partnership units equals the closing price of CBL's common stock on
June 30, 2016
. The stock prices for the preferred stock represent the liquidation preference of each respective series of preferred stock.
|
Covenants and Restrictions
The agreements for the unsecured lines of credit, the Notes and unsecured term loans contain, among other restrictions, certain financial covenants including the maintenance of certain financial coverage ratios, minimum unencumbered asset and interest ratios, maximum secured indebtedness ratios, maximum total indebtedness ratios and limitations on cash flow distributions. We believe we were in compliance with all financial covenants and restrictions at
June 30, 2016
Unsecured Lines of Credit and Unsecured Term Loans
The following presents our compliance with key covenant ratios, as defined, of the credit facilities and term loans as of
June 30, 2016
:
|
|
|
|
|
|
Ratio
|
|
Required
|
|
Actual
|
Debt to total asset value
|
|
< 60%
|
|
48%
|
Unencumbered asset value to unsecured indebtedness
|
|
> 1.6x
|
|
2.3x
|
Unencumbered NOI to unsecured interest expense
|
|
> 1.75x
|
|
5.0x
|
EBITDA to fixed charges (debt service)
|
|
> 1.5x
|
|
2.4x
|
The agreements for the unsecured credit facilities and unsecured term loans described above contain default provisions customary for transactions of this nature (with applicable customary grace periods). Additionally, any default in the payment of any recourse indebtedness greater than or equal to
$50.0 million
or any non-recourse indebtedness greater than
$150.0 million
(for the pro rata ownership share) of CBL, the Operating Partnership or any Subsidiary, as defined, will constitute an event of default under the agreements to the credit facilities. The credit facilities also restrict our ability to enter into any transaction that could result in certain changes in our ownership or structure as described under the heading “Change of Control/Change in Management” in the agreements for the credit facilities.
Senior Unsecured Notes
The following presents our compliance with key covenant ratios, as defined, of the Notes as of
June 30, 2016
:
|
|
|
|
|
|
Ratio
|
|
Required
|
|
Actual
|
Total debt to total assets
|
|
< 60%
|
|
53%
|
Secured debt to total assets
|
|
< 45%
(1)
|
|
31%
|
Total unencumbered assets to unsecured debt
|
|
> 150%
|
|
223%
|
Consolidated income available for debt service to annual debt service charge
|
|
> 1.5x
|
|
3.3x
|
|
|
(1)
|
On January 1, 2020 and thereafter, secured debt to total assets must be less than
40%
.
|
The agreements for the Notes described above contain default provisions customary for transactions of this nature (with applicable customary grace periods). Additionally, any default in the payment of any recourse indebtedness greater than or equal to
$50.0 million
of the Operating Partnership will constitute an event of default under the Notes.
Capital Expenditures
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 a portion is recovered from tenants over a 5 to 15-year period. We recover these costs through fixed amounts with annual increases or pro rata cost reimbursements based on the tenant’s occupied space.
The following table, which excludes expenditures for developments and expansions, summarizes these capital expenditures, including our share of unconsolidated affiliates' capital expenditures, for the three and
six
month period ended
June 30, 2016
compared to the same period in
2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Tenant allowances
(1)
|
$
|
21,251
|
|
|
$
|
19,344
|
|
|
$
|
32,896
|
|
|
$
|
32,040
|
|
|
|
|
|
|
|
|
|
Renovations
|
1,507
|
|
|
9,883
|
|
|
4,621
|
|
|
12,046
|
|
|
|
|
|
|
|
|
|
Deferred maintenance:
|
|
|
|
|
|
|
|
Parking lot and parking lot lighting
|
2,045
|
|
|
5,535
|
|
|
2,765
|
|
|
7,447
|
|
Roof repairs and replacements
|
374
|
|
|
1,178
|
|
|
1,043
|
|
|
2,109
|
|
Other capital expenditures
|
1,703
|
|
|
1,093
|
|
|
5,828
|
|
|
2,159
|
|
Total deferred maintenance
|
4,122
|
|
|
7,806
|
|
|
9,636
|
|
|
11,715
|
|
|
|
|
|
|
|
|
|
Capitalized overhead
|
1,622
|
|
|
1,710
|
|
|
2,948
|
|
|
3,709
|
|
|
|
|
|
|
|
|
|
Capitalized interest
|
448
|
|
|
1,024
|
|
|
996
|
|
|
2,232
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
$
|
28,950
|
|
|
$
|
39,767
|
|
|
$
|
51,097
|
|
|
$
|
61,742
|
|
|
|
(1)
|
Tenant allowances primarily relate to new leases. Tenant allowances related to renewal leases were not material for the periods presented.
|
Our total investment in renovations that are scheduled for 2016 is projected to be $15.0 million, which includes approximately $7.0 million, at our share, of a $13.8 million renovation at CoolSprings Galleria in Nashville, TN as well as other eco-friendly green renovations. 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 tables summarize our development projects as of
June 30, 2016
.
Properties Opened During the Six Months Ended
June 30, 2016
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBL's Share of
|
|
|
|
|
Property
|
|
Location
|
|
CBL
Ownership
Interest
|
|
Total Project
Square Feet
|
|
Total
Cost
(1)
|
|
Cost to
Date
(2)
|
|
Opening Date
|
|
Initial
Unleveraged
Yield
|
Community Center:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambassador Town Center
|
|
Lafayette, LA
|
|
65%
|
|
431,139
|
|
|
$
|
40,295
|
|
|
$
|
28,929
|
|
|
Apr-16
|
|
8.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mall Expansion:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kirkwood Mall - Self Development (Panera Bread, Verizon, Caribou Coffee)
|
|
Bismarck, ND
|
|
100%
|
|
12,570
|
|
|
3,702
|
|
|
3,382
|
|
|
Mar-16
|
|
10.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mall Redevelopment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CoolSprings Galleria - Sears Redevelopment
(American Girl, Cheesecake Factory)
|
|
Nashville, TN
|
|
50%
|
|
193,137
|
|
|
37,091
|
|
|
9,269
|
|
|
May-16
|
|
7.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Properties Opened
|
|
|
|
|
|
636,846
|
|
|
$
|
81,088
|
|
|
$
|
41,580
|
|
|
|
|
|
|
|
(1)
|
Total cost is presented net of reimbursements to be received.
|
|
|
(2)
|
Cost to date does not reflect reimbursements until they are received.
|
Properties Under Development at
June 30, 2016
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CBL's Share of
|
|
|
|
|
Property
|
|
Location
|
|
CBL
Ownership
Interest
|
|
Total Project
Square Feet
|
|
Total
Cost
(1)
|
|
Cost to
Date
(2)
|
|
Expected
Opening Date
|
|
Initial
Unleveraged
Yield
|
Outlet Center:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Outlet Shoppes of Laredo
|
|
Laredo, TX
|
|
65%
|
|
357,756
|
|
|
$
|
69,630
|
|
|
$
|
10,515
|
|
|
Spring-17
|
|
9.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mall Expansions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dakota Square expansion
|
|
Minot, ND
|
|
100%
|
|
23,922
|
|
|
7,453
|
|
|
1,068
|
|
|
Fall-16
|
|
7.5%
|
Friendly Center - Cheesecake Factory
|
|
Greensboro, NC
|
|
50%
|
|
9,156
|
|
|
2,307
|
|
|
807
|
|
|
Fall-16
|
|
10.8%
|
Friendly Center - Shops
|
|
Greensboro, NC
|
|
50%
|
|
12,765
|
|
|
2,638
|
|
|
1,423
|
|
|
Fall-16
|
|
8.1%
|
Hamilton Place - Theatre
|
|
Chattanooga, TN
|
|
100%
|
|
30,169
|
|
|
5,409
|
|
|
3,085
|
|
|
Fall-16
|
|
9.1%
|
Mayfaire Town Center - Phase I
|
|
Wilmington, NC
|
|
100%
|
|
67,766
|
|
|
19,072
|
|
|
2,791
|
|
|
Fall-16
|
|
8.4%
|
|
|
|
|
|
|
143,778
|
|
|
36,879
|
|
|
9,174
|
|
|
|
|
|
Community Center Expansions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Forum at Grandview - Expansion
|
|
Madison, MS
|
|
75%
|
|
24,516
|
|
|
5,624
|
|
|
653
|
|
|
Fall-16
|
|
8.5%
|
Hammock Landing - Expansion
|
|
West Melbourne, FL
|
|
50%
|
|
23,717
|
|
|
2,351
|
|
|
1,374
|
|
|
Fall-16
|
|
10.7%
|
High Pointe Commons - (Petco)
|
|
Harrisburg, PA
|
|
50%
|
|
12,885
|
|
|
1,055
|
|
|
452
|
|
|
Oct-16
|
|
10.5%
|
|
|
|
|
|
|
61,118
|
|
|
9,030
|
|
|
2,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mall Redevelopments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
College Square - JCP Redevelopment (Dick's/ULTA)
|
|
Morristown, TN
|
|
100%
|
|
90,879
|
|
|
14,992
|
|
|
5,677
|
|
|
Fall-16
|
|
7.6%
|
Northpark Mall - (Dunham's Sports)
|
|
Joplin, MO
|
|
100%
|
|
80,524
|
|
|
3,362
|
|
|
1,523
|
|
|
Fall-16
|
|
9.5%
|
Oak Park Mall - Self Development
|
|
Overland Park, KS
|
|
50%
|
|
6,735
|
|
|
1,210
|
|
|
915
|
|
|
Summer-16
|
|
8.2%
|
Randolph Mall - JCP Redevelopment (Ross/ULTA)
|
|
Asheboro, NC
|
|
100%
|
|
33,796
|
|
|
4,372
|
|
|
3,928
|
|
|
Summer-16
|
|
7.8%
|
York Galleria Mall - Partial JCP Redevelopment (H&M/Shops)
|
|
York, PA
|
|
100%
|
|
42,672
|
|
|
5,582
|
|
|
913
|
|
|
Fall-16
|
|
7.8%
|
York Galleria Mall - Partial JCP Redevelopment (Gold's Gym/Shops)
|
|
York, PA
|
|
100%
|
|
40,832
|
|
|
5,658
|
|
|
90
|
|
|
Spring-17
|
|
12.8%
|
|
|
|
|
|
|
295,438
|
|
|
35,176
|
|
|
13,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Properties Under Development
|
|
|
|
|
|
858,090
|
|
|
$
|
150,715
|
|
|
$
|
35,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Total Cost is presented net of reimbursements to be received.
|
|
|
|
|
|
|
(2) Cost to Date does not reflect reimbursements until they are received.
|
|
|
|
|
|
|
Construction continues on The Outlet Shoppes of Laredo, our newest joint venture with Horizon. The center will be the only outlet center within a 180 mile radius providing a value shopping option for the area. Leasing is over 75% and includes tenants such as Michael Kors, Brooks Brothers, Nike, Under Armour and Puma.
We have several expansion projects underway at our properties. The expansion of Friendly Center includes the addition of West Elm and Pieology as well as the development of a freestanding Cheesecake Factory. These include the addition of a luxury Regal Cinema adjacent to Hamilton Place Mall and an expansion of Mayfaire Town Center, which will bring H&M, Palmetto Moon and West Elm to the market. Additionally, expansion projects at three of our community centers are slated to open in 2016.
We have anchor redevelopment projects under construction at four malls. These projects involve former department stores, which afford us the opportunity to revitalize these spaces with a new mix of tenants and enhance the value of our properties. We proactively negotiated a lease termination last year to obtain the former JC Penney space at College Square. We are replacing a former Shopko with a Dunham's Sporting Goods store at Northpark Mall. At Randolph Mall, we are developing Ross and ULTA
in the former JC Penney location. Construction recently began on the redevelopment of the former JC Penney at York Galleria, which will include Gold's Gym, H&M and additional stores and restaurants.
We own land and hold options to acquire certain development properties owned by third parties. Except for the projects presented above, we do not have any other material capital commitments as of
June 30, 2016
.
Acquisitions and Dispositions
See
Note 4
and
Note 5
to the condensed consolidated financial statements for a description of our acquisition and disposition activity related to consolidated and unconsolidated affiliates.
Off-Balance Sheet Arrangements
Unconsolidated Affiliates
We have ownership interests in
19
unconsolidated affiliates as of
June 30, 2016
that are described in
Note 5
to the condensed consolidated financial statements. The unconsolidated affiliates are accounted for using the equity method of accounting and are reflected in the condensed consolidated balance sheets as “Investments in Unconsolidated Affiliates.” The following are circumstances when we may consider entering into a joint venture with a third party:
|
|
•
|
Third parties may approach us with opportunities in which they have obtained land and performed some pre-development activities, but they may not have sufficient access to the capital resources or the development and leasing expertise to bring the project to fruition. We enter into such arrangements when we determine such a project is viable and we can achieve a satisfactory return on our investment. We typically earn development fees from the joint venture and provide management and leasing services to the property for a fee once the property is placed in operation.
|
|
|
•
|
We determine that we may have the opportunity to capitalize on the value we have created in a property by selling an interest in the property to a third party. This provides us with an additional source of capital that can be used to develop or acquire additional real estate assets that we believe will provide greater potential for growth. When we retain an interest in an asset rather than selling a 100% interest, it is typically because this allows us to continue to manage the property, which provides us the ability to earn fees for management, leasing, development and financing services provided to the joint venture.
|
Guarantees
We may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on our investment in the joint venture. We may receive a fee from the joint venture for providing the guaranty. Additionally, when we issue a guaranty, the terms of the joint venture agreement typically provide that we may receive indemnification from the joint venture or have the ability to increase our ownership interest.
The following table represents our guarantees of unconsolidated affiliates' debt as reflected in the accompanying condensed consolidated balance sheets as of
June 30, 2016
and
December 31, 2015
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
Obligation recorded to reflect guaranty
|
Unconsolidated Affiliate
|
|
Company's
Ownership
Interest
|
|
Outstanding
Balance
|
|
Percentage
Guaranteed
by the
Operating
Partnership
|
|
Maximum
Guaranteed
Amount
|
|
Debt
Maturity
Date
(1)
|
|
6/30/2016
|
|
12/31/2015
|
West Melbourne I, LLC -
Phase I
|
|
50%
|
|
$
|
43,147
|
|
|
20%
|
(2)
|
$
|
8,629
|
|
|
Feb-2018
|
(3)
|
$
|
86
|
|
|
$
|
99
|
|
West Melbourne I, LLC -
Phase II
|
|
50%
|
|
16,677
|
|
|
20%
|
(2)
|
3,335
|
|
|
Feb-2018
|
(3)
|
33
|
|
|
87
|
|
Port Orange I, LLC
|
|
50%
|
|
58,348
|
|
|
20%
|
(2)
|
11,670
|
|
|
Feb-2018
|
(3)
|
117
|
|
|
148
|
|
Fremaux Town Center JV,
LLC - Phase I
|
|
65%
|
|
—
|
|
|
—%
|
(4)
|
—
|
|
|
Aug-2016
|
|
—
|
|
|
62
|
|
Fremaux Town Center JV,
LLC - Phase II
|
|
65%
|
|
—
|
|
|
—%
|
(4)
|
—
|
|
|
Aug-2016
|
|
—
|
|
|
161
|
|
Ambassador Town Center JV, LLC
|
|
65%
|
|
—
|
|
|
—%
|
(4)
|
—
|
|
|
Dec-2017
|
|
—
|
|
|
462
|
|
Ambassador Infrastructure,
LLC
|
|
65%
|
|
11,700
|
|
|
100%
|
(5)
|
11,700
|
|
|
Dec-2017
|
(6)
|
177
|
|
|
177
|
|
|
|
|
|
|
|
Total guaranty liability
|
|
$
|
413
|
|
|
$
|
1,196
|
|
|
|
(1)
|
Excludes any extension options.
|
|
|
(2)
|
The guaranty was reduced from 25% to 20% when the loan was modified and extended in February 2016. See
Note 5
to the condensed consolidated financial statements.
|
|
|
(3)
|
The loan has a
one
-year extension option, which is at the unconsolidated affiliate's election, for an outside maturity date of February 2019.
|
|
|
(4)
|
The guaranty was removed in June 2016 when the construction loan was retired using proceeds from a non-recourse mortgage loan. See
Note 5
to the condensed consolidated financial statements or additional information.
|
|
|
(5)
|
The guaranty will be reduced to
50%
on March 1st of such year as PILOT payments received and attributed to the prior calendar year by Ambassador Infrastructure and delivered to the lender are
$1,200
or more, provided no event of default exists. The guaranty will be reduced to
20%
when the PILOT payments are
$1,400
or more, provided no event of default exists.
|
|
|
(6)
|
The loan has two one-year extension options, which are the unconsolidated affiliate's election, for an outside maturity date of December 2019.
|
We have guaranteed the lease performance of 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
$14.8 million
as of
June 30, 2016
. 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 include an obligation for this guaranty because we determined that the fair value of the guaranty was not material as of
June 30, 2016
and
December 31, 2015
.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements and disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex judgment about the effect of matters that are inherently uncertain and that may change in subsequent periods. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our Annual Report on Form 10-K for the year ended
December 31, 2015
contains a discussion of our critical accounting policies and estimates in the Management's Discussion and Analysis of Financial Condition and Results of Operations section. There have been no material changes to these policies and estimates during the
six
months ended
June 30, 2016
. 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, 2015
.
Recent Accounting Pronouncements
See
Note 2
to the condensed consolidated financial statements for information on recently issued accounting pronouncements.
Impact of Inflation and Deflation
Deflation can result in a decline in general price levels, often caused by a decrease in the supply of money or credit. The predominant effects of deflation are high unemployment, credit contraction and weakened consumer demand. Restricted lending practices could impact our ability to obtain financings or refinancings for our properties and our tenants’ ability to obtain credit. Decreases in consumer demand can have a direct impact on our tenants and the rents we receive.
During inflationary periods, substantially all of our tenant leases contain provisions designed to mitigate the impact of inflation. These provisions include clauses enabling us to receive percentage rent based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases are for terms of less than 10 years, which may provide us the opportunity to replace existing leases with new leases at higher base and/or percentage rent if rents of the existing leases are below the then existing market rate. Most of the leases require the tenants to pay a fixed amount, subject to annual increases, for their share of operating expenses, including 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.
Non-GAAP Measure
Funds From Operations
FFO is a widely used non-GAAP measure of the operating performance of real estate companies that supplements net income (loss) determined in accordance with GAAP. NAREIT defines FFO as net income (loss) (computed in accordance with GAAP) excluding gains or losses on sales of depreciable operating properties and impairment losses of depreciable properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests. Adjustments for unconsolidated partnerships, joint ventures and noncontrolling interests are calculated on the same basis. We define FFO as defined above by NAREIT less dividends on preferred stock of the Company or distributions on preferred units of the Operating Partnership, as applicable. Our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
We believe that FFO provides an additional indicator of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assumes the value of real estate assets declines predictably over time. Since values of 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 allocable to Operating Partnership common unitholders and FFO allocable to common shareholders, as we believe that both are useful performance measures. We believe FFO allocable to Operating Partnership common unitholders is a useful performance measure since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in our Operating Partnership. We believe FFO allocable to common shareholders is a useful performance measure because it is the performance measure that is most directly comparable to net income (loss) attributable to common shareholders.
In our reconciliation of net income attributable to common shareholders to FFO allocable to Operating Partnership common unitholders that is presented below, we make an adjustment to add back noncontrolling interest in income (loss) of our Operating Partnership in order to arrive at FFO of the Operating Partnership common unitholders. We then apply a percentage to FFO of the Operating Partnership common unitholders to arrive at FFO allocable to common shareholders. The percentage is computed by taking the weighted-average number of common shares outstanding for the period and dividing it by the sum of the weighted-average number of common shares and the weighted-average number of Operating Partnership units held by noncontrolling interests during the period.
FFO does not represent cash flows from operations as defined by GAAP, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to net income (loss) for purposes of evaluating our operating performance or to cash flow as a measure of liquidity.
FFO, as adjusted, for the three and six months ended
June 30, 2016
grew 9.3% and 9.5%, respectively, to $0.59 and $1.15 per share compared to the prior-year periods. The increase in FFO, as adjusted, for the three and six month periods ended
June 30, 2016
, was primarily due to rent growth and occupancy increases as we continue to progress on our portfolio transformation strategy.
FFO, as adjusted, during the
three
months ended
June 30, 2016
, excludes $1.1 million of nonrecurring professional fees expense and a $29.2 million increase in equity in earnings related to the foreclosure of the loan secured by Gulf Coast Town Center. Additionally, during the
six
months ended
June 30, 2016
, we recognized $1.7 million of litigation expense as well as a $26.4 million increase in equity in earnings related to the sale of our 50% interest in Triangle Town Center. During the
three
months ended
June 30, 2015
, we recognized $3.0 million of expense related to a litigation settlement and a $0.3 million gain on extinguishment of debt. Additionally, during the
six
months ended
June 30, 2015
we recognized a $16.6 million gain on investment related to the sale of marketable securities and received income of $1.7 million, net of related expenses, as a partial settlement of ongoing litigation. Considering the significance and nature of these items, we believe it is important to identify the impact of these changes on our FFO measures for a reader to have a complete understanding of our results of operations. Therefore, we have also presented FFO, as adjusted, excluding these items.
The reconciliation of net income attributable to common shareholders to FFO allocable to Operating Partnership common unitholders is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net income attributable to common shareholders
|
$
|
51,696
|
|
|
$
|
30,672
|
|
|
$
|
80,547
|
|
|
$
|
65,613
|
|
Noncontrolling interest in income of Operating Partnership
|
8,483
|
|
|
4,946
|
|
|
13,428
|
|
|
11,118
|
|
Depreciation and amortization expense of:
|
|
|
|
|
|
|
|
Consolidated properties
|
72,205
|
|
|
71,239
|
|
|
148,711
|
|
|
147,505
|
|
Unconsolidated affiliates
|
9,156
|
|
|
10,303
|
|
|
18,334
|
|
|
20,620
|
|
Non-real estate assets
|
(722
|
)
|
|
(731
|
)
|
|
(1,559
|
)
|
|
(1,573
|
)
|
Noncontrolling interests' share of depreciation and amortization
|
(2,055
|
)
|
|
(2,151
|
)
|
|
(4,448
|
)
|
|
(4,782
|
)
|
Loss on impairment
|
43,493
|
|
|
2,781
|
|
|
63,178
|
|
|
2,781
|
|
Gain on depreciable property, net of tax
|
(35,521
|
)
|
|
(12,129
|
)
|
|
(35,521
|
)
|
|
(12,196
|
)
|
FFO allocable to Operating Partnership common unitholders
|
146,735
|
|
|
104,930
|
|
|
282,670
|
|
|
229,086
|
|
Litigation settlements, net of related expenses
(1)
|
—
|
|
|
3,004
|
|
|
1,707
|
|
|
(1,654
|
)
|
Nonrecurring professional fees expense
(1)
|
1,119
|
|
|
—
|
|
|
1,119
|
|
|
—
|
|
Gain on investment
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,560
|
)
|
Equity in earnings from disposals of unconsolidated affiliates
|
(29,235
|
)
|
|
—
|
|
|
(55,630
|
)
|
|
—
|
|
Gain on extinguishment of debt
|
—
|
|
|
(256
|
)
|
|
—
|
|
|
(256
|
)
|
FFO allocable to Operating Partnership common unitholders, as adjusted
|
$
|
118,619
|
|
|
$
|
107,678
|
|
|
$
|
229,866
|
|
|
$
|
210,616
|
|
|
|
|
|
|
|
|
|
FFO per diluted share
|
$
|
0.73
|
|
|
$
|
0.53
|
|
|
$
|
1.41
|
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
FFO, as adjusted, per diluted share
|
$
|
0.59
|
|
|
$
|
0.54
|
|
|
$
|
1.15
|
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
Weighted-average common and potential dilutive common shares outstanding with Operating Partnership units fully converted
|
200,045
|
|
|
199,751
|
|
|
199,986
|
|
|
199,716
|
|
|
|
(1)
|
Litigation settlement income is included in interest and other income in the Condensed Consolidated Statements of Operations. Litigation expense, including settlements paid, is included in general and administrative expense in the Condensed Consolidated Statements of Operations. Nonrecurring professional fees expense is included in general and administrative expense in the Condensed Consolidated Statements of Operations.
|
The reconciliation of diluted EPS to FFO per diluted share is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Diluted EPS attributable to common shareholders
|
$
|
0.30
|
|
|
$
|
0.18
|
|
|
$
|
0.47
|
|
|
$
|
0.38
|
|
Eliminate amounts per share excluded from FFO:
|
|
|
|
|
|
|
|
Depreciation and amortization expense, including amounts from consolidated properties, unconsolidated affiliates, non-real estate assets and excluding amounts allocated to noncontrolling interests
|
0.39
|
|
|
0.40
|
|
|
0.81
|
|
|
0.82
|
|
Loss on impairment
|
0.22
|
|
|
0.01
|
|
|
0.31
|
|
|
0.01
|
|
Gain on depreciable property, net of tax
|
(0.18
|
)
|
|
(0.06
|
)
|
|
(0.18
|
)
|
|
(0.06
|
)
|
FFO per diluted share
|
$
|
0.73
|
|
|
$
|
0.53
|
|
|
$
|
1.41
|
|
|
$
|
1.15
|
|
The reconciliations of FFO allocable to Operating Partnership common unitholders to FFO allocable to common shareholders, including and excluding the net litigation settlements, gain on investment and gain on extinguishment of debt, are as follows (in thousands):