UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022
Or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _______________
COMMISSION FILE NO. 1-12494
CBL & ASSOCIATES PROPERTIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
62-1545718
(I.R.S. Employer Identification No.)
2030 Hamilton Place Blvd., Suite 500
Chattanooga, TN
37421
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code: 423.855.0001
Securities registered pursuant to Section 12(b) of the Act:
Securities registered under Section 12(b) of the Act:
Title of each Class
Trading
Symbol(s)
Name of each exchange on
which registered
Common Stock, $0.001 par value, with associated Stock Purchase Rights
CBL
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
Smaller Reporting Company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The aggregate market value of the 18,141,084 shares of CBL & Associates Properties, Inc.'s common stock, $0.001 par value, held by non-affiliates of the registrant as of June 30, 2022 was $423,134,062, based on the closing price of $23.49 per share on the New York Stock Exchange on June 30, 2022. (For this computation, the registrant has excluded the market value of all shares of its common stock reported as beneficially owned by executive officers and directors of the registrant; such exclusion shall not be deemed to constitute an admission that any such person is an “affiliate” of the registrant.)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
As of February 23, 2023, 32,060,956 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of CBL & Associates Properties, Inc.’s Proxy Statement for the 2023 Annual Meeting of Stockholders are incorporated by reference in Part III.
TABLE OF CONTENTS
Page
Number
Cautionary Statement Regarding Forward-Looking Statements
1
PART I
1.
Business
2
1A.
Risk Factors
7
1B.
Unresolved Staff Comments
28
2.
Properties
3.
Legal Proceedings
43
4.
Mine Safety Disclosures
PART II
5.
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
44
6.
[Reserved]
45
7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
46
7A.
Quantitative and Qualitative Disclosures About Market Risk
67
8.
Financial Statements and Supplementary Data
9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
9A.
Controls and Procedures
9B.
Other Information
70
9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
10.
Directors, Executive Officers and Corporate Governance
71
11.
Executive Compensation
12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
13.
Certain Relationships and Related Transactions, and Director Independence
14.
Principal Accounting Fees and Services
PART IV
15.
Exhibits, Financial Statement Schedules
72
16.
Form 10-K Summary
Index to Exhibits
133
Signatures
138
Certain statements included or incorporated by reference in this Annual Report on Form 10-K may be deemed “forward looking statements” within the meaning of the federal securities laws. All statements other than statements of historical fact should be considered to be forward-looking statements. In many cases, these forward looking statements may be identified by the use of words such as “will,” “may,” “should,” “could,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “projects,” “goals,” “objectives,” “targets,” “predicts,” “plans,” “seeks,” and variations of these words and similar expressions. Any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this report.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained. It is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties. In addition to the risk factors discussed in Part I, Item 1A of this report, and those factors noted above, such known risks and uncertainties include, without limitation:
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.
ITEM 1. BUSINESS
This Annual Report on Form 10-K (this "Annual Report") is being filed by CBL & Associates Properties, Inc. (the "Company," "CBL," "we," "us" and "our"), a Delaware corporation. As described below, we refer to the post-emergence reorganized company as the “Successor” and the pre-emergence company as the “Predecessor.” Unless stated otherwise or the context otherwise requires, references to the “Company,” “we,” “us” and “our” also includes our subsidiaries.
Emergence from Bankruptcy
Beginning on November 1, 2020, CBL and CBL & Associates Limited Partnership (the "Operating Partnership"), together with certain of its direct and indirect subsidiaries (collectively, the “Debtors”), filed voluntary petitions (the “Chapter 11 Cases”) under chapter 11 of title 11 (“Chapter 11”) of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Bankruptcy Court authorized the Debtors to continue to operate their businesses and manage their properties as debtors-in-possession pursuant to the Bankruptcy Code. The Chapter 11 Cases are being jointly administered for procedural purposes only under the caption In re CBL & Associates Properties, Inc., et al., Case No. 20-35226.
In connection with the Chapter 11 Cases, on August 11, 2021, the Bankruptcy Court entered an order, Docket No.1397 (Confirmation Order), confirming the Debtors’ Third Amended Joint Chapter 11 Plan of CBL & Associates Properties, Inc. and its Affiliated Debtors (With Technical Modifications) (as modified at Docket No. 1521, the “Plan”).
On November 1, 2021 (the “Effective Date”), the conditions to effectiveness of the Plan were satisfied and the Debtors emerged from the Chapter 11 Cases. The Company filed a notice of the Effective Date of the Plan with the Bankruptcy Court on November 1, 2021. Following the Effective Date, one of the Debtor’s Chapter 11 Cases remains open to administer claims pursuant to the Plan.
The Company’s Business
We were organized on July 13, 1993, as a Delaware corporation, and completed an initial public offering on November 3, 1993. We are a self-managed, self-administered, fully integrated real estate investment trust ("REIT"). We own, develop, acquire, lease, manage, and operate regional shopping malls, outlet centers, lifestyle centers, open-air centers and other properties. Our properties are located in 22 states, but are primarily in the southeastern and midwestern United States. We have elected to be taxed as a REIT for federal income tax purposes.
We conduct substantially all our business through the Operating Partnership, which is a variable interest entity ("VIE"). We are the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. CBL Holdings I, Inc. is the sole general partner of the Operating Partnership. At December 31, 2022, CBL Holdings I, Inc. owned a 1.0% general partner interest and CBL Holdings II, Inc. owned an 98.97% limited partner interest in the Operating Partnership, for a combined interest held by us of 99.97%. As of December 31, 2022, third parties owned a 0.03% limited partner interest in the Operating Partnership.
See Note 1 to the consolidated financial statements for information on our properties as of December 31, 2022. The Malls (“Malls, Lifestyle Centers and Outlet Centers”) and All Other Properties ("Open-Air Centers and Other") are collectively referred to as the “properties” and individually as a “property.”
We conduct our property management and development activities through CBL & Associates Management, Inc. (the “Management Company”) to comply with certain requirements of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). The Operating Partnership owns 100% of the Management Company’s outstanding stock.
Rental revenues are primarily derived from leases with retail tenants and generally include fixed minimum rents, percentage rents based on tenants’ sales volumes and reimbursements from tenants for expenditures related to real estate taxes, insurance, common area maintenance ("CAM") and other recoverable operating expenses, as well as certain capital expenditures. We also generate revenues from management, leasing and development fees, sponsorships, sales of peripheral land at our properties and from sales of operating real estate assets when it is determined that we can realize an appropriate value for the assets. Proceeds from such sales are generally used to retire related indebtedness, reduce outstanding balances on our indebtedness and for general corporate purposes.
The following terms used in this Annual Report on Form 10-K will have the meanings described below:
Significant Markets and Tenants
Top Five Markets
Our top five markets, based on percentage of total revenues, were as follows for the year ended December 31, 2022:
Market
Percentage ofTotal Revenues
St. Louis, MO
7.0
%
Laredo, TX
4.4
4.3
Lexington, KY
Greensboro, NC
3.6
Top 25 Tenants
Our top 25 tenants based on percentage of total revenues were as follows for the year ended December 31, 2022:
Tenant
Number ofStores
SquareFeet
Percentageof TotalRevenues (1)
Signet Jewelers Ltd. (2)
112
166,502
2.80
Victoria's Secret & Co.
49
397,537
2.65
3
Foot Locker, Inc.
78
377,818
2.57
4
American Eagle Outfitters, Inc.
61
372,587
2.20
5
Dick's Sporting Goods, Inc. (3)
25
1,462,150
2.16
6
Bath & Body Works, Inc.
57
231,813
1.93
Genesco Inc. (4)
82
160,462
1.61
8
Finish Line, Inc.
36
194,138
1.45
9
The Buckle, Inc.
37
191,577
1.22
10
Luxottica Group S.P.A. (5)
81
179,125
1.20
11
Cinemark Holdings, Inc.
467,190
1.16
12
The Gap, Inc.
534,986
13
Hot Topic, Inc.
94
222,716
0.99
14
Express Fashions
30
246,437
0.98
15
Shoe Show, Inc.
29
378,849
0.91
16
Spencer Spirit Holdings, Inc.
48
110,906
0.89
17
Claire's Stores, Inc.
68
85,364
0.87
18
H & M Hennes & Mauritz AB
38
803,811
0.85
19
The TJX Companies, Inc. (6)
520,475
0.83
20
Barnes & Noble
465,199
21
Abercrombie & Fitch, Co.
189,942
0.78
22
Ulta Salon, Cosmetics & Fragrance, Inc.
23
237,961
0.76
Regal Entertainment Group
370,773
0.74
24
The Children's Place, Inc.
35
151,723
0.71
Focus Brands LLC (7)
69
48,270
0.69
1,176
8,568,311
32.93
Operating Strategy
We operate a diverse portfolio of dynamic properties including enclosed regional malls, outlet centers, lifestyle centers and open-air centers. Our locations are in strong mid-tier markets with a focus in the growing southeast and midwest. Nearly 30% of our 2022 same-center net operating income ("NOI") was generated by non-mall assets. Our primary objective is to operate our portfolio to maximize the long-term value of our company by generating increasing levels of NOI, and improving free cash flow through a variety of methods as further discussed below.
NOI is a non-GAAP measure. For a description of NOI, a reconciliation from net income (loss) to 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.”
Internal Growth
We look to generate internal growth through a variety of strategies. We incorporate contractual rent increases in our leases and negotiate increases in rental rates as leases mature, when possible. We aggressively pursue new tenants to maintain and grow occupancy, enhance our merchandising mix and improve the credit quality of our tenant base. We actively manage our properties including a focus on controlling operating expenses with a goal of maintaining or improving operating margins and enhancing cash flows, while maintaining a high-quality customer experience. We pursue opportunities to generate ancillary revenues at our properties when space is available for shorter terms through temporary leases and license agreements, as well as advertising including sponsorships and promotional activities. These programs allow us to maximize revenues in our centers during downtime between permanent leases, as well as monetize other aspects of the property.
Asset Densification
Our strategy of owning a diverse portfolio of dynamic properties in strong mid-tier markets has served the company well as CBL’s dominant locations generate significant demand from retail and non-retail users alike. We actively evaluate unused parking fields and available land for primarily non-retail densification projects, which provides us with the opportunity to capitalize on the embedded equity value of our land and increase the overall value of our properties. We believe the addition of non-retail users drives new and additional traffic and sales to our centers, which may enhance their dominant position in the market.
Through redevelopment we capitalize on opportunities to increase the productivity of previously occupied space and enhance the overall value of the centers through re-tenanting and/or changing the use of the space, as well as aesthetic upgrades. Redevelopments may result from acquiring or regaining possession of Anchor space (such as former department stores) and re-leasing to a single user, subdividing it into multiple spaces or razing the building for new development. When evaluating a redevelopment project, we review the stand-alone cost and returns, terminal value, co-tenancy, as well as the impact that the project and new tenant(s) is expected to have on the rest of the property including the aesthetic impact and improvements to traffic, sales and leasing demand.
See Liquidity and Capital Resources section in Item 7 of this Annual Report for information on the projects completed during 2022 and under construction at December 31, 2022.
Active Portfolio Management and Asset Recycling
We actively manage our asset base with the goal of enhancing the overall quality and value of our portfolio. We regularly review our portfolio to identify assets that no longer fit our strategy or where we believe it appropriate to redeploy resources into investments with higher growth or higher return opportunities. We also selectively acquire properties, including available anchors or parcels, we believe will provide resilient cash flows or that can appreciate in value by increasing NOI through our redevelopment, leasing and management expertise.
Balance Sheet Strategy
Our balance sheet strategy is focused on reducing overall debt, extending our debt maturity schedule, limiting exposure to recourse loans and lowering our overall cost of borrowings to limit maturity risk, improve free cash flow and enhance enterprise value.
We also pursue opportunities to improve the terms of our secured property-level, mortgage loans including refinancing loans at lower interest rates and longer-term maturities. We are exploring refinancing opportunities in the open lending market, as appropriate, in addition to working with our current lenders toward favorable modifications of existing loans.
Environmental, Social and Governance (ESG)/Green Building Practices
CBL’s ESG efforts are spearheaded by the ESG Team, a dedicated task force that focuses on ESG factors including Sustainability, Social Governance and Corporate Governance as well as reporting to CBL’s Board, and publicly on our website and in public filings. The members that make up this committee represent various departments within CBL, such as Management, Investor Relations, People & Culture, Public Relations and Operations Services. The Nominating/Corporate Governance Committee is responsible for oversight of the Company’s ESG efforts. Part of our efforts includes regularly reviewing existing policies and procedures to include current best practices. More information on our sustainability, diversity, equity, inclusion and belonging ("DEIB"), social responsibility and community involvement initiatives is available in the Human Capital section below and on dedicated web pages at cblproperties.com/about. The information on our web site is not, and should not be considered, a part of this Form 10-K.
Environmental Matters
A discussion of the current effects and potential impacts on our business and properties of compliance with federal, state and local environmental regulations is presented in Item 1A of this Annual Report on Form 10-K under the subheading “Risks Related to Real Estate Investments and Our Business.”
Competition
Our properties compete with various shopping facilities in attracting retailers to lease space. In addition, retailers at our properties face competition from discount shopping centers, outlet centers, wholesale clubs, direct mail, television shopping networks, the internet and other retail shopping developments. The extent of the retail and non-retail competition varies from market to market. We work aggressively to attract customers through marketing promotions and social media campaigns. Many of our retailers have adopted an omni-channel approach which leverages sales through both digital and traditional retailing channels.
Seasonality
The shopping center business is, to some extent, seasonal in nature with tenants typically achieving the highest levels of sales during the fourth quarter due to the holiday season, which generally results in higher percentage rent income in the fourth quarter. Additionally, the Malls earn most of their “temporary” rents (rents from short-term tenants) during the holiday period. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of our fiscal year.
Equity
Common Stock
Our authorized common stock consists of 200,000,000 shares at $0.001 par value per share. We had 31,780,109 shares of common stock issued and outstanding as of December 31, 2022. In connection with the Company's emergence from Chapter 11 reorganization on the Effective Date, all equity interests of the Company issued and outstanding immediately prior to the Effective Date were deemed cancelled, discharged and of no force or effect.
Preferred Stock
Our authorized preferred stock consists of 15,000,000 shares at $0.001 par value per share. No shares of preferred stock were issued and outstanding as of December 31, 2022.
Financial Information about Segments
See Note 11 to the consolidated financial statements for information about our reportable segments.
Human Capital
We believe our people are critical to the success of our Company. We are committed to providing a work environment that attracts, develops, and retains high-performing team members and to promoting a culture that allows each team member to feel respected, included and empowered. We engage with our employees regularly and in 2022 completed an employee engagement assessment. The survey netted a 74% response rate and secured CBL Great Place to Work Certification™.
CBL does not have any employees other than its statutory officers. As of December 31, 2022, our Management Company had 395 full-time and 77 part-time employees that represented the following demographics:
CBL benefits from low voluntary turnover which declined from 12% to 8% with 85% who left voluntarily completing our exit interview process rendering a net promoter score of 93%. While we support freedom of association, we enjoy direct relationships as none of our employees are represented by a union.
To attract, retain and develop our high-performing team members, we offer compensation programs that include a mix of salaries, variable incentive bonuses and equity-based awards. To help ensure pay for performance alignment, CBL team members and their direct managers participate in an annual performance evaluation process. The evaluation process includes interactive goal setting and feedback designed to enhance performance, engagement, and professional development. In 2022, an externally conducted compensation analysis reflected a 0.00% pay gap based on gender and 0.00% based on race. Our compensation programs are supplemented by comprehensive employment benefits as well as training and educational programs. Certain benefits are also available to part-time CBL team members.
We provide our team with learning and development opportunities including conferences, leadership programs, and other ad hoc training programs. Programs cover a variety of topics such as career development and skills training; health, well-being, and safety; DEIB; and more. We expanded these training efforts in 2022 to include new technology and tools for self-guided learning featuring on-demand educational content across a variety of topics. We also mandate annual cyber-security training for all full-time employees. In 2022, CBL team members completed 6,201 hours of training.
We are expanding outreach efforts in recruiting through several new partnerships including:
We have long maintained several employee-led programs, including CBL Community, CBL Cares, CBL Fit and CBL Social.
CBL Community is focused on initiatives that emphasize the importance and focus we place on people, the driving force behind CBL. CBL Community is pursuing internal and external endeavors to improve organizational impacts on diversity, equity, inclusion, and belonging (“DEIB”), through education, engagement initiatives, and the creation of opportunities and partnerships with underrepresented groups. To support these efforts, we have engaged a third-party consulting firm that specializes in inclusive leadership practices. To further these goals, in 2022 CBL Community introduced Fireside Chats, which allow team members to learn about various DEIB topics from their peers. Additionally, in 2022 initial groups of senior leadership and certain CBL team members completed DEIB training in accordance with the Company’s ESG Policy and DEIB Strategic Plan as overseen by the DEIB Steering Committee that is chaired by our chief executive officer. Finally, the entire CBL team will participate in Unconscious Bias training in the first quarter of 2023.
CBL Cares partners with and supports local charitable organizations that contribute to the growth and development of the communities we serve. One of our goals for 2022 was to increase the number of hours CBL team members volunteer through our CBL Cares volunteer program. We are pleased to have met this goal, with team members volunteering 924 hours with non-profit organizations, an increase over 2021. In total, through volunteer hours, corporate donations and CBL Cares funds, we provided support valued at nearly $200,000 to organizations across our portfolio that work to meet the diverse needs of our communities. Lastly, through our annual United Way workplace campaign as well as a special monetary and in-kind gift commemorating United Way’s 100th birthday, our team contributed more than $138,000 to United Way.
CBL Fit provides advocacy of wellness for the whole person at work and CBL Social provides engagement opportunities and interconnectivity through team-based events.
Corporate Offices
Our principal executive offices are located at CBL Center, 2030 Hamilton Place Boulevard, Suite 500, Chattanooga, Tennessee, 37421 and our telephone number is (423) 855-0001.
Available Information
There is additional information about us on our web site at cblproperties.com. Electronic copies of our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to those reports, are available free of charge by visiting the “Investor Relations” section of our web site. These reports are posted as soon as reasonably practical after they are electronically filed with, or furnished to, the SEC. The information on our web site is not, and should not be considered, a part of this Form 10-K.
ITEM 1A. RISK FACTORS
Set forth below are certain factors that may adversely affect our business, financial condition, results of operations and cash flows. Any one or more of the following factors may cause our actual results for various financial reporting periods to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. See “Cautionary Statement Regarding Forward-Looking Statements” contained herein on page 1.
RISK FACTOR SUMMARY
The following is a summary of the most significant risks relating to our business activities that we have identified. If any of these risks occur, our business, financial condition or results of operation, including our ability to generate cash and make distributions, could be materially adversely affected. For a more complete understanding of our material risk factors, this summary should be read in conjunction with the detailed description of our risk factors which follows this summary.
Risks Related to Real Estate Investments and Our Business
Risks Related to Debt and Financial Markets
Risks Related to Dividends and Our Stock
Risks Related to Geographic Concentrations
Risks Related to Federal Income Tax Laws
Risks Related to Our Organizational Structure
RISKS RELATED TO REAL ESTATE INVESTMENTS AND OUR BUSINESS
Real property investments are subject to various risks, many of which are beyond our control, which could cause declines in the operating revenues and/or the underlying value of one or more of our properties.
A number of factors may decrease the income generated by a retail shopping center property, including:
In addition, other factors may adversely affect the value of our properties without affecting their current revenues, including:
Illiquidity of real estate investments could significantly affect our ability to respond to adverse changes in the performance of our properties and harm our financial condition.
Substantially all our consolidated assets consist of investments in real estate properties. Because real estate investments are relatively illiquid, our ability to quickly sell one or more properties in our portfolio in response to changing economic, financial and investment conditions is limited. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand for space, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms we set, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. In addition, current economic and capital market conditions might make it more difficult for us to sell properties or might adversely affect the price we receive for properties that we do sell, as prospective buyers might experience increased costs of debt financing or other difficulties in obtaining debt financing.
Moreover, there are some limitations under federal income tax laws applicable to REITs that limit our ability to sell assets. In addition, because many of our properties are mortgaged to secure our debts, we may not be able to obtain a release of a lien on a mortgaged property without the payment of the associated debt and/or a substantial prepayment penalty, or transfer of debt to a buyer, which restricts our ability to dispose of a property, even though the sale might otherwise be desirable. Furthermore, the number of prospective buyers interested in purchasing shopping centers is limited. Therefore, if we want to sell one or more of our properties, we may not be able to dispose of it in the desired time period and may receive less consideration than we originally invested in the property.
Before a property can be sold, we may be required to make expenditures to correct defects or to make improvements. We cannot assure you that we will have funds available to correct those defects or to make those improvements, and if we cannot do so, we might not be able to sell the property, or might be required to sell the property on unfavorable terms. In acquiring a property, we might agree to provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as limitations on the amount of debt that can be placed or repaid on that property. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could adversely affect our financial condition and results of operations.
We may elect not to proceed with certain developments, redevelopments or expansion projects once they have been undertaken, resulting in charges that could have a material adverse effect on our results of operations for the period in which the charge is taken.
We will incur various risks in connection with any developments, redevelopments or property expansions, including the risk that developments, redevelopments or expansion opportunities explored by us may be abandoned for various reasons including, but not limited to, credit disruptions that require the Company to conserve its cash until the capital markets stabilize or alternative credit or funding arrangements can be made. Developments, redevelopments or expansions also include the risk that construction costs of a project may exceed original estimates, possibly making the project unprofitable. Other risks include the risk that we may not be able to refinance construction loans which are generally with full recourse to us, the risk that occupancy rates and rents at a completed project will not meet projections and will be insufficient to make the project profitable, and the risk that we will not be able to obtain Anchor, mortgage lender and property partner approvals for certain expansion activities.
When we elect not to proceed with a development opportunity, the development costs ordinarily are charged against income for the then-current period. Any such charge could have a material adverse effect on our results of operations for the period in which the charge is taken.
Certain of our properties are subject to ownership interests held by third parties, whose interests may conflict with ours and thereby constrain us from taking actions concerning these properties which otherwise would be in the best interests of the Company and our stockholders.
We own partial interests in 7 malls, 5 outlet centers, 1 lifestyle center, 12 open-air centers, 2 office buildings, a hotel and a hotel development. Of those interests, 2 malls, 3 outlet centers, 3 open-air centers, a hotel and a hotel development are all owned by unconsolidated joint ventures and are managed by a property manager that is affiliated with the third-party partner, which receives a fee for its services. The third-party partner of each of these properties controls the cash flow distributions, although our approval is required for certain major decisions. We have interests in two outlet centers that are owned by consolidated joint ventures and managed by a property manager that is affiliated with the third-party partner, which receives a fee for its services.
Where we serve as managing general partner (or equivalent) of the entities that own our properties, we may have certain fiduciary responsibilities to the other owners of those entities. In certain cases, the approval or consent of the other owners is required before we may sell, finance, expand or make other significant changes in the operations of such properties. To the extent such approvals or consents are required, we may experience difficulty in, or may be prevented from, implementing our plans with respect to expansion, development, financing or other similar transactions with respect to such properties.
With respect to those properties for which we do not serve as managing general partner (or equivalent), we do not have day-to-day operational control or control over certain major decisions, including leasing and the timing and amount of distributions, which could result in decisions by the managing entity that do not fully reflect our interests. This includes decisions relating to the requirements that we must satisfy in order to maintain our status as a REIT for tax purposes. However, decisions relating to sales, expansion and disposition of all or substantially all of the assets and financings are subject to approval by the Operating Partnership.
Inflation has impacted and may continue to impact our financial condition and results of operations.
The 2022 annual rate of inflation in the U.S. was higher than at any point in recent years. Inflationary price increases could have an adverse effect on consumer spending, which could impact our tenants’ sales and, in turn, our tenants’ business operations. This could affect the amount of rent these tenants pay, including if their leases provide for percentage rent, and their ability to pay rent. Also, inflation has caused increases in operating expenses, which could increase occupancy costs for tenants and, to the extent that we are unable to recover operating expenses from tenants, could increase operating expenses for us. In addition, if the rate of inflation exceeds the scheduled rent increases included in our leases, then our net operating income and our profitability would decrease. Inflation has resulted in increases in market interest rates, which not only negatively impact consumer spending and tenant investment decisions, but also increases the borrowing costs associated with our existing or any future variable rate debt, to the extent such rates are not effectively hedged or fixed, or any future debt that we incur. Inflation might also inhibit our ability to obtain new financing or refinancing.
Increased operating expenses, decreased occupancy rates, tenants converting to gross leases and requesting deferrals and rent abatements may not allow us to recover the majority of our CAM, real estate taxes and other operating expenses from our tenants, which could adversely affect our financial position, results of operations and funds available for future distributions.
Energy costs, repairs, maintenance and capital improvements to common areas of our properties, janitorial services, administrative, property and liability insurance costs and security costs are typically allocable to our properties’ tenants. Our lease agreements typically provide that the tenant is responsible for a portion of the CAM and other operating expenses. The majority of our current leases require an equal periodic tenant reimbursement amount for our cost recoveries which serves to fix our tenants’ CAM contributions to us. In these cases, a tenant will pay a fixed amount, or a set expense reimbursement amount, subject to annual increases, regardless of the actual amount of operating expenses. The tenant’s payment remains the same regardless of whether operating expenses increase or decrease, causing us to be responsible for any excess amounts or to benefit from any declines. As a result, the CAM and tenant reimbursements that we receive may or may not allow us to recover a substantial portion of these operating costs.
There is also a trend of more tenants moving to gross leases with periodic increases, which provide that the tenant pays a single specified amount, with no additional payments for reimbursements of the tenant’s portion of operating expenses. As a result, we are responsible for any increases in operating expenses, and benefit from any decreases in operating expenses.
Additionally, in the event that our properties are not fully occupied, we would be required to pay the portion of any operating, redevelopment or renovation expenses allocable to the vacant space(s) that would otherwise typically be paid by the residing tenant(s).
Bankruptcy of joint venture partners could impose delays and costs on us with respect to the jointly owned retail properties.
In addition to the possible effects on our joint ventures of our having gone through the bankruptcy process, the bankruptcy of one of the other investors in any of our jointly owned shopping centers could materially and adversely affect the relevant property or properties. Under the bankruptcy laws, we would be precluded from taking some actions affecting the estate of the other investor without prior approval of the bankruptcy court, which would, in most cases, entail prior notice to other parties and a hearing in the bankruptcy court. At a minimum, the requirement to obtain court approval may delay the actions we would or might want to take. If the relevant joint venture through which we have invested in a property has incurred recourse obligations, the discharge in bankruptcy of one of the other investors might result in our ultimate liability for a greater portion of those obligations than we would otherwise bear.
We may be unable to lease space in our properties on favorable terms, or at all.
Our results of operations depend on our ability to continue to lease space in our properties, including vacant space and re-leasing space in properties where leases are expiring, optimizing our tenant mix, or leasing properties on economically favorable terms. Because we have leases expiring annually, we are continually focused on leasing our properties. Similarly, we are pursuing a strategy of replacing expiring short-term leases with long-term leases. For more information on lease expirations see Mall, Lifestyle Center and Outlet Center Lease Expirations and Other Property Type Lease Expirations.
There can be no assurance that our leases will be renewed or that vacant space will be re-leased at rates equal to or above the current average net effective rental rates or that substantial rent abatements, tenant improvements, early termination rights or below market renewal options will not be offered to attract new tenants or retain existing tenants. If the rental rates decrease, if our existing tenants do not renew their leases or if we do not re-lease a significant portion of our available space and space for which leases will expire, our financial condition and results of operations could be adversely affected.
Any significant resurgence of the COVID-19 pandemic or a similar threat, and governmental responses thereto, could once again materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance, as could any future outbreak of another highly infectious or contagious disease.
Over the past three years, the COVID-19 pandemic has had a material negative impact on economic and market conditions around the world, and specifically in the retail real estate sector. As the impact of the COVID-19 pandemic continued to evolve, governments and other authorities imposed measures intended to control its spread, including restrictions on freedom of movement, group gatherings and business operations such as travel bans, border closings, business closures, quarantines, stay-at-home orders, shelter-in-place orders, density limitations and social distancing measures. While these restrictions have long since been lifted, and the negative impact of the COVID-19 pandemic appears to be much improved, it remains possible that a significant resurgence of the threat from COVID-19, or any similar future pandemic, could result in governments and other authorities reinstituting these measures or imposing new, more restrictive measures, in response to our tenants’ and consumers’ perception of the related risks.
Demand for retail space and the profitability of our properties depends, in part, on the ability and willingness of tenants to enter into and perform obligations under leases. Any significant resurgence of COVID-19, or a similar future pandemic, could once again reduce the willingness of customers to visit our properties and adversely impact our tenants’ businesses based on many factors, including local transmission rates, the emergence of new variants, the development, availability, distribution, effectiveness and acceptance of existing and new vaccines, and the effectiveness and availability of cures or treatments. Further, demand could remain reduced due to heightened sensitivity to risks associated with the transmission of COVID-19 or any other pandemic diseases. Although consumers’ risk tolerance has evolved and tenants and consumers alike took measures to adapt to the COVID-19 pandemic, such as the addition of services like curbside pickup, the impact of these adaptations continues to evolve and there is no guarantee that retail will ever fully return to pre-pandemic levels.
The continuing impact of the COVID-19 pandemic, or a future pandemic, on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and make distributions to our shareholders could depend on additional factors, including:
To the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks described herein.
We face possible risks associated with climate change.
We may become subject to laws or regulations related to climate change, which could cause our business, results of operations and financial condition to be impacted adversely. The federal government has enacted, and some of the states and localities in which we operate may enact, certain climate change laws and regulations or have begun regulating carbon footprints and greenhouse gas emissions. Although these laws and regulations have not had any known material adverse effects on our business to date, they could result in substantial costs, including compliance costs, increased energy costs, retrofit costs and construction costs, including monitoring and reporting costs, and capital expenditures for environmental control facilities and other new equipment. We have implemented strategies to support our continued effort to reduce energy and water consumption, greenhouse gas emissions and waste production across our portfolio. We cannot predict how future laws and regulations, or future interpretations of current laws and regulations, related to climate change will affect our business, results of operations and financial condition. Additionally, the potential physical impacts of climate change on our operations are highly uncertain, and would be particular to the geographic circumstances in areas in which we operate. These may include changes to global weather patterns, which could include local changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperature averages or extremes. These impacts may adversely affect our properties, our business, financial condition and results of operations.
Additionally, there has been increasing public focus by investors, environmental activists, the media and governmental and nongovernmental organizations on a variety of environmental, social and other sustainability matters. We may make commitments relating to sustainability matters that affect us, including the design and implementation of specific risk mitigation strategic initiatives relating to sustainability. If we are not effective in addressing environmental, social and other sustainability matters affecting our business, or setting and meeting relevant sustainability goals, our reputation may suffer.
We may incur significant costs related to compliance with environmental laws, which could have a material adverse effect on our results of operations, cash flows and the funds available to us to pay dividends.
Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the costs of removal or remediation of petroleum, certain hazardous or toxic substances on, under or in such real estate. Such laws typically impose such liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such substances. The costs of remediation or removal of such substances may be substantial. The presence of such substances, or the failure to promptly remove or remediate such substances, may adversely affect the owner’s or operator’s ability to lease or sell such real estate or to borrow using such real estate as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, regardless of whether such facility is owned or operated by such person. Certain laws also impose requirements on conditions and activities that may affect the environment or the impact of the environment on human health. Failure to comply with such requirements could result in the imposition of monetary penalties (in addition to the costs to achieve compliance) and potential liabilities to third parties. Among other things, certain laws require abatement or removal of friable and certain non-friable asbestos-containing materials in the event of demolition or certain renovations or remodeling. Certain laws regarding asbestos-containing materials require building owners and lessees, among other things, to notify and train certain employees working in areas known or presumed to contain asbestos-containing materials. Certain laws also impose liability for release of asbestos-containing materials into the air and third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with asbestos-containing materials. In connection with the ownership and operation of properties, we may be potentially liable for all or a portion of such costs or claims.
All our properties (but not properties for which we hold an option to purchase but do not yet own) have been subject to Phase I environmental assessments or updates of existing Phase I environmental assessments. Such assessments generally consisted of a visual inspection of the properties, review of federal and state environmental databases and certain information regarding historic uses of the property and adjacent areas and the preparation and issuance of written reports. Some of our properties contain, or contained, underground storage tanks used for storing petroleum products or wastes typically associated with automobile service or other operations conducted at our properties. Certain of our properties contain, or contained, dry-cleaning establishments utilizing solvents. Where believed to be warranted, samplings of building materials or subsurface investigations were undertaken. At certain of our properties, where warranted by the conditions, we have developed and implemented an operations and maintenance program that establishes operating procedures with respect to asbestos-containing materials. The cost associated with the development and implementation of such programs was not material. We have also obtained environmental insurance coverage at certain of our properties.
We believe that our properties are in compliance in all material respects with all federal, state and local ordinances and regulations regarding the handling, discharge and emission of hazardous or toxic substances. As of December 31, 2022, we have recorded in our consolidated financial statements a liability of $2.6 million related to potential future asbestos abatement activities at our properties which are not expected to have a material impact on our financial condition or results of operations. We have not been notified by any governmental authority, and are not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances in connection with any of our present or former properties. Therefore, we have not recorded any liability related to hazardous or toxic substances. Nevertheless, it is possible that the environmental assessments available to us do not reveal all potential environmental liabilities. It is also possible that subsequent investigations will identify material contamination, that adverse environmental conditions have arisen subsequent to the performance of the environmental assessments, or that there are material environmental liabilities of which management is unaware. Moreover, no assurances can be given that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of our properties has not been or will not be affected by tenants and occupants of our properties, by the condition of properties in the vicinity of our properties or by third parties unrelated to us, the Operating Partnership or the relevant property’s partnership.
Possible terrorist activity or other acts of violence could adversely affect our financial condition and results of operations.
Future terrorist attacks in the United States, and other acts of violence, including domestic or international terrorism or war, might result in declining consumer confidence and spending, which could harm the demand for goods and services offered by our tenants and the values of our properties, and might adversely affect an investment in our securities. A decrease in retail demand could make it difficult for us to renew or re-lease our properties at lease rates equal to or above historical rates and, to the extent our tenants are affected, could adversely affect their ability to continue to meet obligations under their existing leases. Terrorist activities also could directly affect the value of our properties through damage, destruction or loss. Furthermore, terrorist acts might result in increased volatility in national and international financial markets, which could limit our access to capital or increase our cost of obtaining capital.
Social unrest and acts of vandalism or violence could adversely affect our business operations.
Our business may be adversely affected by social, political, and economic instability, unrest, or disruption, including protests, demonstrations, strikes, riots, civil disturbance, disobedience, insurrection and looting in geographic regions where our properties are located. Such events may result in property damage and destruction and in restrictions, curfews, or other governmental actions that could give rise to significant changes in economic conditions and cycles, which may adversely affect our financial condition and operations.
Over the past three years, there have been demonstrations and protests, some of which involved violence, looting, arson and property destruction, in cities throughout the United States. While the majority of protests have been peaceful, looting, vandalism and fires have taken place in certain places, which led to the imposition of mandatory curfews and, in some locations, deployment of the National Guard. Governmental actions taken to protect people and property, including curfews and restrictions on business operations, may disrupt operations, harm perceptions of personal well-being and increase the need for additional expenditures on security resources. The effect and frequency of the demonstrations, protests or other factors is uncertain, and we cannot assure there will not be further political or social instability in the future or that there will not be other events that could lead to further social, political and economic instability. If such events or disruptions persist for a prolonged period of time, our overall business and results of operations may be adversely affected.
Clauses in leases with certain tenants in our properties may include inducements, such as reduced rent and tenant allowance payments or other clauses such as co-tenancy or sales-based kick-out provisions, which can reduce our rents and Funds From Operations (“FFO”), and adversely impact our financial condition and results of operation and the value of our properties. This impact could be exacerbated by the loss of one or more significant tenants, due to bankruptcies or as a result of consolidations in the retail industry.
We could be adversely affected by the bankruptcy, early termination, sales performance, or closing of tenants and Anchors. Certain of our lease agreements include co-tenancy and/or sales-based kick-out provisions which allow a tenant to pay a reduced rent amount and, in certain instances, terminate the lease, if we fail to maintain certain occupancy levels or retain specified named Anchors, or if the tenant does not achieve certain specified sales targets. If occupancy or tenant sales do not meet or fall below certain thresholds, rents we are entitled to receive from our tenants could be reduced. Additionally, some tenants may have rent abatement clauses that delay rent commencement or reduce contractual rents for a prolonged period of time after initial occupancy. The effect of these clauses reduces our rents and FFO while they are applicable. We expect to continue to offer co-tenancy and rent abatement clauses in the future to attract tenants to our properties. As a result, our financial condition and results of operations may be adversely impacted.
The bankruptcy of a tenant could result in the termination of its lease and potentially trigger co-tenancy or other clauses in other tenants’ leases, which would lower the amount of cash generated by that property. Replacing tenants with better performing, emerging retailers may take longer than our historical experience of re-tenanting due to their lack of infrastructure and limited experience in opening stores as well as the significant competition for such emerging brands. In addition, when a department store operating as an Anchor at one of our properties has ceased operating, in certain instances we have experienced difficulty and delay and incurred significant expense in replacing the Anchor, re-tenanting, or otherwise re-merchandising the use of the Anchor space. This difficulty can be, and in some instances has been, exacerbated if the Anchor space is owned by a third party and we are not able to acquire the space, if the third party’s plans to lease or redevelop the space do not align with our interests or the third party does not act in a timely manner to lease or redevelop the space. In addition, the Anchor’s closing may, and in some instances has, lead to reduced customer traffic and lower mall tenant sales. As a result, we may, and in some instances have, also experience difficulty or delay in leasing spaces in areas adjacent to the vacant Anchor space. The early termination or closing of tenants or Anchors for reasons other than bankruptcy could have a similar impact on the operations of our properties, although in the case of early terminations we may benefit in the short-term from lease termination income.
Certain traditional department stores have experienced challenges including limited opportunities for new investment/openings and declining sales, which lead department stores to close stores or seek rent reductions. Department stores’ market share is declining, and their ability to drive traffic has substantially decreased. Despite traffic to our Malls, Lifestyle Centers and Outlet Centers traditionally being driven by department store Anchors, in the event of a need for replacement, it has become necessary to consider non-department store Anchors. Certain of these non-department store Anchors may demand higher allowances or other less favorable terms than a standard mall tenant due to the nature of the services/products they provide.
We are in a competitive business.
There are numerous shopping facilities that compete with our properties in attracting retailers to lease space. Our ability to attract tenants to our properties and lease space is important to our success, and difficulties in doing so can materially impact our properties’ performance. The existence of competing shopping centers could have a material adverse impact on our ability to develop, redevelop or operate properties, lease space to desirable Anchors and tenants, and on the level of rents that can be achieved. In addition, retailers at our properties face continued competition from shopping through various means and channels, including via the internet, lifestyle centers, value and outlet centers, wholesale and discount shopping clubs, and television shopping networks. Competition of this type could adversely affect our revenues and cash available for distribution to shareholders.
As new technologies emerge, the relationship among customers, retailers, and shopping centers are evolving on a rapid basis and we may not be able to adapt to such new technologies and relationships on a timely basis. Our relative size may limit the capital and resources we are willing to allocate to invest in strategic technology to enhance the mall experience, which may make our Malls relatively less desirable to anchors, mall tenants, and consumers. Additionally, a small but increasing number of tenants utilize our Malls as showrooms or as part of an omni-channel strategy (allowing customers to shop seamlessly through various sales channels). As a result, customers may make purchases through other sales channels during or immediately after visiting our Malls, with such sales not being captured currently in our tenant sales figures or monetized in our minimum or overage rents.
We compete with other major real estate investors with significant capital for attractive investment opportunities. These competitors include other REITs, investment banking firms, and private and institutional investors, some of whom have greater financial resources or have different investment criteria than we do. In particular, there is competition to acquire, develop, or redevelop highly productive retail properties. This could become even more severe as competitors gain size and economies of scale as a result of merger and consolidation activity. This competition may impair our ability to acquire, develop, or redevelop suitable properties, and to attract key retailers, on favorable terms in the future.
Our properties may be subject to impairment charges which could adversely affect our financial results.
We monitor events or changes in circumstances that could indicate the carrying value of a long-lived asset may not be recoverable. We use significant judgement in assessing events or circumstances which might indicate impairment, including but not limited to, changes in our intent to hold a long-lived asset over its previously estimated useful life. Changes in our intent to hold a long-lived asset has a significant impact on the estimated undiscounted cash flows expected to result from the use and eventual disposition of a long-lived asset and whether a potential impairment loss shall be measured. When indicators of potential impairment are present that suggest that the carrying amounts of a long-lived asset may not be recoverable, we assess the recoverability of the asset by determining whether the asset’s carrying value will be recovered through the estimated undiscounted future cash flows expected from our use and its eventual disposition. In the event that such undiscounted future cash flows do not exceed the carrying value, we adjust the carrying value of the long-lived asset to its estimated fair value and recognize an impairment loss. The estimated fair value is calculated based on the following information, in order of preference, depending upon availability: (Level 1) recently quoted market prices, (Level 2) market prices for comparable properties, or (Level 3) the present value of future cash flows, including estimated salvage value. Certain of our long-lived assets may be carried at more than an amount that could be realized in a current disposition transaction. Projections of expected future operating cash flows require that we estimate future market rental income amounts subsequent to expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. As these assumptions are subject to economic and market uncertainties, they are difficult to predict and are subject to future events that may alter the assumptions used or management’s estimates of future possible outcomes. Therefore, the future cash flows estimated in our impairment analyses may not be achieved.
Breaches or other adverse cybersecurity incidents on our systems or those of our service providers or business partners could expose us to liability and lead to the loss or compromise of our information, including confidential information, sensitive information and intellectual property, and could result in a material adverse effect on our business and financial condition.
As a regular part of our business operations, we rely on information technology systems and network infrastructure, including the internet, to process, transmit and store electronic information and to manage or support a variety of our business processes, including financial transactions and maintenance of records. We rely on our own systems and also outsource some of our business requirements through service providers and other business partners pursuant to agreements. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by internal actors, computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our IT networks and related systems and infrastructure – and those of our providers/partners – are essential to the operation of our business and our ability to perform day-to-day operations (including managing our building systems) and, in some cases, may be critical to the operations of certain of our tenants.
We have experienced adverse security incidents. All incidents experienced to date have been minor in scope and impact, were resolved quickly, had no material impact on the Company’s reputation, financial performance, customer or vendor relationships, and posed no material risk of potential litigation or regulatory investigations or actions. We expect unauthorized parties to continue to attempt to gain access to our systems or information, and/or those of our business partners and service providers. Cyber attacks targeting our infrastructure could result in a full or partial disruption of our operations, as well as those of our tenants.
A security incident, breach or other significant disruption involving our information technology networks and related systems could occur due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption or failure or error or poor product or vendor/developer selection (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources. Such occurrences could disrupt the proper functioning of our networks and systems; result in disruption of business operations and loss of service to our tenants and customers; result in significantly decreased revenues; result in increased costs associated in obtaining and maintaining cybersecurity investigations and testing, as well as implementing protective measures and systems; result in increased insurance premiums and operating costs; result in misstated financial reports and/or missed reporting deadlines; result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT; result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; result in our inability to maintain the building systems relied upon by our tenants for the efficient use of their leased space; require significant management attention and resources to remedy any damages that result; subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; subject us to regulatory investigations and actions; cause harm to our competitive position and business value; and damage our reputation among our tenants and investors generally. Moreover, cyber attacks perpetrated against our Anchors and tenants, including unauthorized access to customers’ credit card data and other confidential information, could subject us to significant litigation, liability and costs, adversely impact our reputation, or diminish consumer confidence and consumer spending and negatively impact our business.
The compromise of our or our business partners’ or service providers’ technology systems resulting in the loss, disclosure, misappropriation of, or access to, our information or that of our tenants, employees or business partners or failure to comply with ever-evolving regulatory obligations or contractual obligations with respect to such information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disruption to our operations and damage to our reputation, any or all of which could adversely affect our business. The costs to remediate breaches and similar system compromises that do occur could be material. In addition, as cybercriminals become more sophisticated, the cost of proactive defensive measures continues to increase.
Although we and our service providers/business partners have implemented processes, procedures and controls to help mitigate these risks, there can be no assurance that these measures, as well as our increased awareness of the risk of cyber incidents, will be effective or that attempted or actual security incidents, breaches or system disruptions that could be damaging to us or others will not occur. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk. Lasty, while we have cybersecurity insurance, damages and claims arising from such incidents may not be covered, or may exceed the amount of any insurance coverage.
Pending or potential future litigation could distract our officers from attending to the Company’s business and could have a material adverse effect on our business, financial condition and results of operation.
Certain of the Company's officers and former directors have been named as defendants in a consolidated putative securities class action lawsuit (“Securities Class Action Litigation”). The complaint filed in the Securities Class Action Litigation alleges violations of the securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions regarding the Company’s contingent liabilities, business, operations, and prospects. The plaintiffs seek compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the amount of damages sought. Following a January 31, 2023 mediation before a private mediator, the parties to the Securities Class Action Litigation reached an agreement in principle to resolve the Securities Class Action Litigation, subject to documentation and court approval. See Item 3. Legal Proceedings for more information on the Securities Class Action Litigation.
We cannot assure you as to the outcome of these legal proceedings, including the amount of costs or other liabilities that will be incurred in connection with defending these claims or other claims that may arise in the future. To the extent that we incur material costs in connection with defending or pursuing these claims, or become subject to liability as a result of an adverse judgment or settlement of these claims, our results of operations and liquidity position could be materially and adversely affected. In addition, ongoing litigation may divert management’s attention and resources from the day-to-day operation of our business and cause reputational harm to us, either of which could have a material adverse effect on our business, financial condition and results of operations.
Declines in economic conditions, including increased volatility in the capital and credit markets, could adversely affect our business, results of operations and financial condition.
An economic recession can result in extreme volatility and disruption of our capital and credit markets. The resulting economic environment may be affected by dramatic declines in the stock and housing markets, increases in foreclosures, unemployment and costs of living, as well as limited access to credit. This economic situation can, and most often will, impact consumer spending levels, which can result in decreased revenues for our tenants and related decreases in the values of our properties. A sustained economic downward trend could impact our tenants’ ability to meet their lease obligations due to poor operating results, lack of liquidity, bankruptcy or other reasons. Our ability to lease space and negotiate rents at advantageous rates could also be affected in this type of economic environment. Additionally, access to capital and credit markets could be disrupted over an extended period, which may make it difficult to obtain the financing we may need for future growth and/or to meet our debt service obligations as they mature. Any of these events could harm our business, results of operations and financial condition.
Uninsured losses could adversely affect our financial condition, and in the future our insurance may not include coverage for acts of terrorism.
We carry a comprehensive blanket policy for general liability, property casualty (including fire, earthquake and flood) and rental loss covering all of our properties, with specifications and insured limits customarily carried for similar properties. However, even insured losses could result in a serious disruption to our business and delay our receipt of revenue. Furthermore, there are some types of losses, including lease and other contract claims, as well as some types of environmental losses, that generally are not insured or are not economically insurable. If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenues from the property. If this happens, we, or the applicable property’s partnership, may still remain obligated under guarantees provided to the lender for any mortgage debt, secured debt or other financial obligations related to the property.
We believe that the general liability and property casualty insurance policies on our properties currently include adequate coverage for losses resulting from acts of terrorism, as defined by TRIPRA. The cost of coverage for acts of terrorism is currently mitigated by the Terrorism Risk Insurance Act (“TRIA”). In January 2015, Congress reinstated TRIA under the Terrorism Risk Insurance Program Reauthorization Act of 2015 (“TRIPRA”) and extended the program through December 31, 2020. Under TRIPRA, the amount of terrorism-related insurance losses triggering the federal insurance threshold was raised from $180 million in 2019 to $200 million in 2020. Additionally, the bill increased insurers’ co-payments for losses exceeding their deductibles, in annual steps, from 19% in 2019 to 20% in 2020. Each of these changes may have the effect of increasing the cost to insure against acts of terrorism for property owners, such as the Company, notwithstanding the other provisions of TRIPRA. In December 2019, Congress further extended TRIPRA through December 31, 2027. If TRIPRA is not continued beyond 2027 or is significantly modified, we may incur higher insurance costs and experience greater difficulty in obtaining insurance that covers terrorist-related damages. Our tenants may also have similar difficulties.
Our bankruptcy filing, from which we emerged in 2021, may adversely affect our business.
It is possible that the filing of our bankruptcy case, from which we emerged in November 2021, may have adversely affected and, in the future, may affect our business and relationships with tenants, suppliers, service providers, employees, lenders and other third parties. Due to uncertainties, many risks exist, including the risk that key suppliers or other third parties may terminate their relationships with us or require additional financial assurances or enhanced performance from us. Our ability to renew existing leases and compete for new tenants also may be adversely affected and our ability to attract, motivate and/or retain key employees may be adversely affected. Our ability to extend maturing loans or obtain new financing may be adversely affected. The occurrence of one or more of these events could have a material and adverse effect on our operations, financial condition and reputation. We cannot provide assurance that having been subject to bankruptcy protection will not adversely affect our operations in the future.
Our historical financial information may not be indicative of our future financial performance.
Our capital structure was significantly altered by the Plan. Under fresh-start reporting rules, our assets and liabilities were adjusted to fair values and our accumulated deficit was restated to zero. Accordingly, under fresh-start reporting rules, our financial condition and results of operations following our emergence from Chapter 11 will not be comparable to the financial condition and results of operations reflected in our historical financial statements.
RISKS RELATED TO DEBT AND FINANCIAL MARKETS
A deterioration of the capital and credit markets could adversely affect our ability to access funds and the capital needed to refinance debt or obtain new debt.
We are significantly dependent upon external financing to fund the growth of our business and ensure that we meet our debt servicing requirements. Our access to financing depends on the willingness of lending institutions to grant credit to us and conditions in the capital markets in general. An economic recession may cause extreme volatility and disruption in the capital and credit markets. This may make it difficult to obtain the financing we may need for future growth and/or to meet our debt service obligations as they mature. Although, we successfully obtained debt for refinancings and retirement of our maturing debt, acquisitions and the construction of new developments and redevelopments in the past, we cannot make any assurances as to whether we will be able to obtain debt in the future, or that the financing options available to us will be on favorable or acceptable terms.
Our indebtedness is substantial and could impair our ability to obtain additional financing.
At December 31, 2022, our pro-rata share of consolidated and unconsolidated debt outstanding, excluding debt discounts and deferred financing costs, was approximately $2,744.0 million. Our total share of consolidated and unconsolidated debt, excluding debt discounts and deferred financing costs, maturing in 2023, 2024 and 2025 giving effect to all maturity extensions, is approximately $215.4 million, $180.6 million and $166.1 million, respectively. Additionally, we had $151.4 million of debt, at our share, which matured prior to December 31, 2022. Three loans comprise the $151.4 million of debt that matured prior to December 31, 2022 and we remain in discussion with the lenders on each regarding restructuring or foreclosure actions. See Note 7, Note 8 and Note 20 to the consolidated financial statements for additional information.
Our leverage and the limitations imposed on us by our financing arrangements and debt service obligations could have important consequences. For example, it could:
If any of the foregoing occurs, our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected, and the trading price of our common stock or other securities could decline significantly.
Rising interest rates could both increase our borrowing costs, thereby adversely affecting our cash flows and the amounts available for distributions to our stockholders, and decrease our stock price, if investors seek higher yields through other investments.
An environment of rising interest rates could lead holders of our securities to seek higher yields through other investments, which could adversely affect the market price of our stock. One of the factors that has likely influenced the price of our stock in public markets is the annual distribution rate we pay as compared with the yields on alternative investments. In addition, increases in market interest rates could result in increased borrowing costs for us, which could be expected to adversely affect our cash flow and the amounts available for distributions to our stockholders and the Operating Partnership’s unitholders. Further, numerous other factors, such as governmental regulatory action and tax laws, could have a significant impact on the future market price of our stock.
As of December 31, 2022, our total share of consolidated and unconsolidated variable-rate debt, excluding debt discounts and deferred financing costs, was $1,124.1 million. Increases in interest rates will increase our cash interest payments on the variable-rate debt we have outstanding from time to time. If we do not have sufficient cash flow from operations, we might not be able to make all required payments of principal and interest on our debt, which could result in a default or have a material adverse effect on our financial condition and results of operations, and which might have further adverse effects on our cash flow and our ability to make distributions to shareholders. These significant debt payment obligations might also require us to use a significant portion of our cash flow from operations to make interest and principal payments on our debt rather than for other purposes such as working capital, capital expenditures or distributions to holders of our equity securities.
We may not be able to raise capital through financing activities.
Many of our assets are encumbered by property-level indebtedness; therefore, we may be limited in our ability to raise additional capital through property-level or other financings. In addition, our ability to raise additional capital could be limited to refinancing existing secured mortgages before their maturity date which may result in yield maintenance or other prepayment penalties to the extent that the mortgage is not open for prepayment at par.
We may be adversely affected by the discontinuation of LIBOR.
In July 2017, the Financial Conduct Authority (FCA), the authority that regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (ARRC) has identified the Secured Overnight Financing Rate (SOFR) as its preferred alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. The FCA no longer publishes one-week and two-month U.S. dollar LIBOR rates and plans to cease publishing all other LIBOR tenors (overnight, one-month, three-month, six-month and 12-month) on June 30, 2023. Although SOFR appears to be the preferred replacement rate for USD-LIBOR, it is unclear if other benchmarks may emerge or if other rates will be adopted outside of the United States. At this time, it is not possible to predict how markets will respond to SOFR or other alternative reference rates as the transition away from the LIBOR benchmark is anticipated in coming years. Accordingly, the outcome of these reforms is uncertain and any changes in the methods by which LIBOR is determined or regulatory activity related to LIBOR’s phaseout could cause LIBOR to perform differently than in the past or cease to exist. The consequences of these developments cannot be entirely predicted, and there can be no assurance that they will not result in financial market disruptions, significant increases in benchmark interest rates, substantially higher financing costs or a shortage of available debt financing, any of which could have an adverse effect on us. It is important to note that some of our existing variable-rate debt uses LIBOR as a benchmark for establishing the rate.
The agreements governing our debt contain various covenants that impose restrictions on us that may affect our ability to operate our business.
Other agreements that we enter into governing our debt have or will contain covenants that impose restrictions on us. These restrictions on our ability to operate our business could harm our business by, among other things, limiting our ability to take advantage of corporate opportunities. Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions.
We may not be able to generate sufficient cash flow to meet our debt service obligations.
Our ability to meet our debt service obligations on, and to refinance, our indebtedness, and to fund our operations, working capital, acquisitions, capital expenditures and other important business uses, depends on our ability to generate sufficient cash flow in the future. To a certain extent, our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory and other factors, many of which are beyond our control.
We cannot be certain that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us in an amount sufficient to enable us to meet our debt service obligations on our indebtedness, or to fund our other important business uses. Additionally, if we incur additional indebtedness in connection with future acquisitions or development projects or for any other purpose, our debt service obligations could increase significantly and our ability to meet those obligations could depend, in large part, on the returns from such acquisitions or projects, as to which no assurance can be given.
We may need to refinance all or a portion of our indebtedness, at or prior to maturity. Our ability to refinance our indebtedness or obtain additional financing will depend on, among other things:
As a result, we may not be able to refinance any of our indebtedness, on favorable terms, or at all.
If we do not generate sufficient cash flow from operations, and additional borrowings or refinancings are not available to us, we may be unable to meet all our debt service obligations. As a result, we would be forced to take other actions to meet those obligations, such as selling properties, raising equity or delaying capital expenditures, any of which could have a material adverse effect on us. Furthermore, we cannot be certain that we will be able to effect any of these actions on favorable terms, or at all.
Despite our substantial outstanding indebtedness, we may still incur significantly more indebtedness in the future, which would exacerbate any or all the risks described above.
We may be able to incur substantial additional indebtedness in the future. To the extent that we incur substantial additional indebtedness in the future, the risks associated with our substantial leverage described above, including our inability to meet our debt service obligations, would be exacerbated.
Federal and state statutes allow courts, under specific circumstances, to void guarantees and require holders of indebtedness and lenders to return payments received from guarantors.
Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee, such as the limited guarantee of the secured term loan provided by CBL or any future guarantee issued by any subsidiary of the Operating Partnership, could be voided and required to be returned to the guarantor, or to a fund for the benefit of the creditors of the guarantor, if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee (i) received less than reasonably equivalent value or fair consideration for the incurrence of the guarantee and (ii) one of the following was true with respect to the guarantor:
In addition, any claims in respect of a guarantee could be subordinated to all other debts of that guarantor under principles of “equitable subordination,” which generally require that the claimant must have engaged in some type of inequitable conduct, the misconduct must have resulted in injury to the creditors of the debtor or conferred an unfair advantage on the claimant, and equitable subordination must not be inconsistent with other provisions of the U.S. Bankruptcy Code.
The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if:
The court might also void such guarantee, without regard to the above factors, if it found that a guarantor entered into its guarantee with actual or deemed intent to hinder, delay, or defraud its creditors.
A court would likely find that a guarantor did not receive reasonably equivalent value or fair consideration for its guarantee unless it benefited directly or indirectly from the issuance or incurrence of such indebtedness. If a court voided such guarantee, holders of the indebtedness and lenders would no longer have a claim against such guarantor or the benefit of the assets of such guarantor constituting collateral that purportedly secured such guarantee. In addition, the court might direct holders of the indebtedness and lenders to repay any amounts already received from a guarantor.
RISKS RELATED TO DIVIDENDS AND OUR STOCK
We currently are not eligible to register the offer and sale of securities on SEC Form S-3, which will impair our capital raising activities.
As a result of the Chapter 11 Cases and the existence of cumulative unpaid dividends on our preferred securities that were outstanding prior to the Chapter 11 Cases, we currently are not eligible to use SEC Form S-3 to register offers and sales of our securities under the Securities Act. Historically, we have relied on shelf registration statements on Form S-3 for our public capital raising transactions, and also to register the offer and sale of shares of common stock under our former dividend reinvestment plan. Our inability to use Form S-3 may harm our ability to raise capital in the future, as we will be required to use a registration statement on Form S-11 to register securities with the SEC until such time as we are able to regain eligibility to use Form S-3, which may be expected to hinder our ability to act quickly in raising capital to take advantage of market conditions and to increase our cost of raising capital. We intend to regain eligibility to use Form S-3 as soon as is practicable; however, we cannot provide any assurance that we will be able to regain eligibility.
We may change the dividend policy for our common stock in the future.
Depending upon our liquidity needs, we reserve the right to pay any or all of a dividend in a combination of cash and shares of common stock, to the extent permitted by any applicable revenue procedures of the Internal Revenue Service (“IRS”). In the event that we should pay a portion of any future dividends in shares of our common stock pursuant to such procedures, taxable U.S. stockholders would be required to pay tax on the entire amount of the dividend, including the portion paid in shares of common stock, in which case such stockholders may have to use cash from other sources to pay such tax. If a U.S. stockholder sells any common stock it receives as a dividend in order to pay its taxes, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold federal tax with respect to any future dividends, including any dividends that are paid in common stock. In addition, if a significant number of our stockholders sell shares of our common stock in order to pay taxes owed on any future dividends, such sales would put downward pressure on the market price of our common stock.
The decision to declare and pay dividends on any outstanding shares of our common stock, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our board of directors and will depend on our earnings, taxable income, FFO, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our then-current indebtedness, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, Delaware law and such other factors as our board of directors deems relevant. Any dividends payable will be determined by our board of directors based upon the circumstances at the time of declaration. Any change in our future dividend policy could have a material adverse effect on the market price of our future outstanding common stock.
Since we conduct substantially all our operations through our Operating Partnership, our ability to pay dividends on our common stock depends on the distributions we receive from our Operating Partnership.
Because we conduct substantially all our operations through our Operating Partnership, our ability to service our debt obligations, as well as our ability to pay any future dividends on our common stock will depend almost entirely upon the earnings and cash flows of the Operating Partnership and the ability of the Operating Partnership to make distributions to us on our ownership interests in our Operating Partnership. Under the Delaware Revised Uniform Limited Partnership Act, the Operating Partnership is prohibited from making any distribution to us to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of the Operating Partnership (other than some non-recourse liabilities and some liabilities to the partners) exceed the fair value of the assets of the Operating Partnership.
Additionally, the terms of our secured term loan provide a waterfall calculation for distributions of excess cash flow generated by the properties secured as collateral on the term loan. The waterfall calculation generally provides that the excess cash flow be used for additional payments of principal on the secured term loan before distributions may be made for other purposes. In the event of a default, no amounts may be distributed other than to repay the outstanding balance on the secured term loan. This in turn may limit our ability to make some types of payments, including payment of dividends to our stockholders. Any inability to make cash distributions from the Operating Partnership could jeopardize our ability to pay any future dividends to our stockholders for one or more dividend periods which, in turn, could jeopardize our ability to maintain qualification as a REIT.
RISKS RELATED TO GEOGRAPHIC CONCENTRATIONS
Since our properties are located principally in the southeastern and midwestern United States, our financial position, results of operations and funds available for distribution to shareholders are subject generally to economic conditions in these regions and, in particular, to adverse economic developments affecting the operating results of properties in our five largest markets.
Our properties are located principally in the southeastern and midwestern United States. Our properties located in the southeastern United States accounted for approximately 50.9% of our total pro-rata share of revenues from all properties for the year ended December 31, 2022 and currently include 19 malls, 4 lifestyle centers, 2 outlet centers, 18 open-air centers, 3 office buildings and a hotel. Our properties located in the midwestern United States accounted for approximately 22.9% of our total pro-rata share of revenues from all properties for the year ended December 31, 2022 and currently include 15 malls and 2 open-air centers. Further, our properties located in our five largest metropolitan area markets – St. Louis, MO; Laredo, TX; Chattanooga, TN; Lexington, KY; and Greensboro, NC – accounted for approximately 7.0%, 4.4%, 4.3%, 4.3% and 3.6%, respectively, of our total pro-rata share of revenues for the year ended December 31, 2022. No other market accounted for more than 3.4% of our total pro-rata share of revenues for the year ended December 31, 2022.
Our results of operations and funds available for distribution to shareholders therefore will be impacted generally by economic conditions in the southeastern and midwestern United States, and particularly by the results experienced at properties located in our five largest market areas. While we have properties located in six states across the southwestern, northeastern and western regions, we will continue to look for opportunities to geographically diversify our portfolio in order to minimize dependency on any particular region; however, the expansion of the portfolio through both acquisitions and developments is contingent on many factors including consumer demand, competition and economic conditions.
RISKS RELATED TO FEDERAL INCOME TAX LAWS
We conduct a portion of our business through taxable REIT subsidiaries, which are subject to certain tax risks.
We have established several taxable REIT subsidiaries including CBL Holdings I, LLC, the general partner of the Operating Partnership, and our Management Company. Despite our qualification as a REIT, our taxable REIT subsidiaries must pay income tax on their taxable income. In addition, we must comply with various tests to continue to qualify as a REIT for federal income tax purposes, and our income from and investments in our taxable REIT subsidiaries generally do not constitute permissible income and investments for these tests. While we will attempt to ensure that our dealings with our taxable REIT subsidiaries will not adversely affect our REIT qualification, we cannot provide assurance that we will successfully achieve that result. Furthermore, we may be subject to a 100% penalty tax, or our taxable REIT subsidiaries may be denied deductions, to the extent our dealings with our taxable REIT subsidiaries are not deemed to be arm’s length in nature.
If we fail to qualify as a REIT in any taxable year, our funds available for distribution to stockholders will be reduced.
We intend to continue to operate so as to qualify as a REIT under the Internal Revenue Code. Although we believe that we are organized and operate in such a manner, no assurance can be given that we currently qualify and, in the future, will continue to qualify as a REIT. Such qualification involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify. In addition, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to qualification or its corresponding federal income tax consequences. Any such change could have a retroactive effect.
If in any taxable year we were to fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to federal income tax on our taxable income at regular corporate rates. Unless entitled to relief under certain statutory provisions, we also would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. As a result, the funds available for distribution to our stockholders would be reduced for each of the years involved. This would likely have a significant adverse effect on the value of our securities and our ability to raise additional capital. In addition, we would no longer be required to make distributions to our stockholders. We currently intend to operate in a manner designed to qualify as a REIT. However, it is possible that future economic, market, legal, tax or other considerations may cause our board of directors to revoke the REIT election.
Any issuance or transfer of our capital stock to any person in excess of the applicable limits on ownership necessary to maintain our status as a REIT would be deemed void ab initio, and those shares would automatically be transferred to the Company as trustee of a charitable trust.
To maintain our status as a REIT under the Internal Revenue Code, not more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) at any time during the last half of a taxable year. Our Certificate of Incorporation generally prohibits ownership of more than 9.9% of the outstanding shares of our capital stock by any single stockholder, either directly or constructively as determined through the application of applicable provisions of the Internal Revenue Code. The approval of our board of directors and the affirmative vote of the holders of a majority of our outstanding voting stock is required to amend this provision.
Our board of directors may, subject to certain conditions, waive the applicable ownership limit upon receipt of a ruling from the IRS or an opinion of counsel to the effect that such ownership will not jeopardize our status as a REIT. Historically, our board of directors has granted such waivers to certain institutional investors based upon the receipt of such opinions from the Company’s tax counsel. Absent any such waiver, however, any issuance or transfer of our capital stock to any person in excess of the applicable ownership limit or any issuance or transfer of shares of such stock which would cause us to be beneficially owned by fewer than 100 persons, will be null and void and the intended transferee will acquire no rights to the stock. Instead, such issuance or transfer with respect to that number of shares that would be owned by the transferee in excess of the ownership limit provision would be deemed void ab initio and those shares would automatically be transferred to a trust with the Company or its designated successor serving as trustee, for the exclusive benefit of a charitable beneficiary to be designated by us. Any acquisition of our capital stock and continued holding or ownership of our capital stock constitutes, under our Certificate of Incorporation, a continuous representation of compliance with the applicable ownership limit.
In order to maintain our status as a REIT and avoid the imposition of certain additional taxes under the Internal Revenue Code, we must satisfy minimum requirements for distributions to shareholders, which may limit the amount of cash we might otherwise have been able to retain for use in growing our business.
To maintain our status as a REIT under the Internal Revenue Code, we generally will be required each year to distribute to our stockholders at least 90% of our taxable income after certain adjustments. However, to the extent that we do not distribute all our net capital gains or distribute at least 90% but less than 100% of our REIT taxable income, as adjusted, we will be subject to tax on the undistributed amount at regular corporate tax rates, as the case may be. Also, our cash flows from operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of income and the payment of expenses and the recognition of income and expenses for federal income tax purposes, or the effect of nondeductible expenditures, such as capital expenditures, payments of compensation for which Section 162(m) of the Code denies a deduction, interest expense deductions limited by Section 163(j) of the Code, the creation of reserves or required debt service or amortization payments. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by us during each calendar year are less than the sum of 85% of our ordinary income for such calendar year, 95% of our capital gain net income for the calendar year and any amount of such income that was not distributed in prior years. In the case of property acquisitions, including our initial formation, where individual properties are contributed to our Operating Partnership for Operating Partnership units, we have assumed the tax basis and depreciation schedules of the entities contributing properties. The relatively low tax basis of such contributed properties may have the effect of increasing the cash amounts we are required to distribute as dividends, thereby potentially limiting the amount of cash we might otherwise have been able to retain for use in growing our business. This low tax basis may also have the effect of reducing or eliminating the portion of distributions made by us that are treated as a non-taxable return of capital.
Complying with REIT requirements might cause us to forego otherwise attractive opportunities.
In order to qualify as a REIT for U.S. federal income tax purposes, we must satisfy tests concerning, among other things, our sources of income, the nature of our assets, the amounts we distribute to our shareholders and the ownership of our stock. We may also be required to make distributions to our shareholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with REIT requirements may cause us to forego opportunities we would otherwise pursue. In addition, the REIT provisions of the Internal Revenue Code impose a 100% tax on income from “prohibited transactions.” “Prohibited transactions” generally include sales of assets that constitute inventory or other property held for sale in the ordinary course of business, other than foreclosure property. This 100% tax could impact our desire to sell assets and other investments at otherwise opportune times if we believe such sales could be considered “prohibited transactions.”
Partnership tax audit rules could have a material adverse effect on us.
Under the rules applicable to U.S. federal income tax audits of partnerships, subject to certain exceptions, any audit adjustment to items of income, gain, loss, deduction, or credit of a partnership (and any partner’s distributive share thereof) is determined, and taxes, interest, or penalties attributable thereto could be assessed and collected, at the partnership level. Absent available elections, it is possible that a partnership in which we directly or indirectly invest could be required to pay additional taxes, interest and penalties as a result of an audit adjustment, and we, as a direct or indirect partner of these partnerships, could be required to bear the economic burden of those taxes, interest, and penalties even though we may not otherwise have been required to pay additional taxes had we owned the assets of the partnership directly. The partnership tax audit rules apply to the Operating Partnership and its subsidiaries that are classified as partnerships for U.S. federal income tax purposes. There can be no assurance that these rules will not have a material adverse effect on us.
Transfers of our equity, or issuances of equity, may impair our ability to utilize the existing tax basis in our assets, our federal income tax net operating loss carryforwards and other tax attributes during the current year and in future years.
Under certain provisions of the Internal Revenue Code (the “Code”), and similar state provisions, a corporation is generally permitted to offset net taxable income in a given year with net operating losses carried forward from prior years, and its existing adjusted tax basis in its assets may be used to offset future gains or to generate annual cost recovery deductions.
In order to qualify for taxation as a REIT, we must meet various requirements including a requirement to distribute 90% of our taxable income; and, to avoid paying corporate income tax, we must distribute 100% of our taxable income. Our ability to utilize future tax deductions, net operating loss carryforwards and other tax attributes to offset future taxable income is subject to certain requirements and restrictions. We experienced an “ownership change,” as defined in section 382 of the Internal Revenue Code, in connection with our emergence from the Chapter 11 Cases, that may substantially limit our ability to use future tax deductions, net operating loss carryforwards and other tax attributes to offset future taxable income, which could have a negative impact on our financial position and results of operations. Generally, there is an “ownership change” under section 382 of the Code if one or more stockholders owning 5% or more of a corporation’s common stock have aggregate increases in their ownership of such stock of more than 50 percentage points over a prescribed testing period. Under section 382 and section 383 of the Code, absent an applicable exception, if a corporation undergoes an “ownership change”, certain future tax deductions (through “recognized built-in losses” arising when a company has a “net unrealized built-in loss” (NUBIL) if they are recognized within five years of the “ownership change”), net operating loss carryforwards and other tax attributes that may be utilized to offset future taxable income generally are subject to an annual limitation.
We have a significant NUBIL in our assets, as well as net operating loss carryforwards and other tax attributes at the date of emergence from the Chapter 11 Cases that would be subject to limitation under section 382.
Whether or not future tax deductions, net operating loss carryforwards and other tax attributes are subject to limitation under section 382, net operating loss carryforwards and other tax attributes are expected to be further reduced by the amount of discharge of indebtedness arising in our Chapter 11 Cases under section 108 of the Internal Revenue Code.
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RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE
The ownership limit described above, as well as certain provisions in our Certificate of Incorporation and Bylaws, may hinder any attempt to acquire us.
There are certain provisions of Delaware law (which we have opted out of having apply to the Company), our Certificate of Incorporation and our Bylaws, which may have the effect of delaying, deferring or preventing a third party from making an acquisition proposal for us. These provisions may also inhibit a change in control that some, or a majority, of our stockholders might believe to be in their best interest or that could give our stockholders the opportunity to realize a premium over the then-prevailing market prices for their shares. These provisions and agreements are summarized as follows:
Our Certificate of Incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities identified by our non‐employee directors and their affiliates.
Certain of our non‐employee directors and their affiliates engage in the same or similar business activities or lines of business in which we operate and may make investments in properties or businesses that directly or indirectly compete with certain portions of our business. As set forth in our Certificate of Incorporation, such non‐employee directors and their affiliates shall not have any duty, to the fullest extent permitted by law, to refrain from (x) engaging in the same or similar business activities or lines of business in which we operate or propose to operate, (y) making investments in any kind of property in which we make or may make investments or (z) otherwise competing with us or any of our affiliates. Our Certificate of Incorporation also provides that if our non-employee directors or their affiliates acquire knowledge of a potential transaction that could be a corporate opportunity, they have no duty to communicate or offer such corporate opportunity to us or our affiliates, unless such corporate opportunity is expressly offered to the non-employee director solely in his or her capacity as one of our directors (or officers, if applicable).
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Therefore, a non‐employee director of our company may pursue certain acquisition opportunities that may be complementary to our business and, as a result, such acquisition opportunities may not be available to us. In addition, in the event that any of our non-employee directors or his or her affiliates acquires knowledge of a corporate opportunity or is offered a corporate opportunity, provided that this knowledge was not acquired solely in such person’s capacity as a director or officer of the Company, then to the fullest extent permitted by law such person is deemed to have fully satisfied such person’s fiduciary duties owed to us and is not liable to us if such director or its affiliates pursues or acquires the corporate opportunity or if such person did not present the corporate opportunity to us. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations, or prospects if attractive corporate opportunities are allocated by such non‐employee directors to themselves or their other affiliates instead of to us.
The shareholders’ rights plan adopted by our board of directors may discourage a third party from acquiring us in a manner that might result in a premium price to our shareholders.
On September 8, 2022, our board of directors adopted a short-term rights plan (the “Rights Plan”) that will expire on September 8, 2023, or sooner under certain circumstances. Pursuant to the Rights Plan, the board of directors authorized a dividend of one share purchase right (a “Right”) for each outstanding share of our common stock. If a person or group of affiliated or associated persons acquires beneficial ownership of 10.0% or more of our outstanding common shares, subject to certain exceptions (including exceptions for existing holders who do not increase their holdings as provided in the Rights Plan), each Right would effectively entitle its holder (other than the acquiring person or group of affiliated or associated persons) to purchase additional common shares at a substantial discount to the public market price. In addition, under certain circumstances, we may exchange the Rights (other than Rights beneficially owned by the acquiring person or group of affiliated or associated persons), in whole or in part, for common shares on a one-for-one basis, or we may redeem the Rights for cash at a price of $0.001 per Right. The Rights Plan could make it more difficult for a third party to acquire us or a large block of our common shares without the approval of our board of directors, which may discourage a third party from acquiring us in a manner that might result in a premium price to our shareholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 for additional information pertaining to our properties’ performance.
Malls, Lifestyle Centers and Outlet Centers
We owned a controlling interest in 41 Malls, 4 Lifestyle Centers and 2 Outlet Centers as of December 31, 2022. We owned a non-controlling interest in 6 Malls, 1 Lifestyle Center and 3 Outlet Centers as of December 31, 2022. Our Malls, Lifestyle Centers and Outlet Centers generally have strong competitive positions because they are the only, or the dominant, regional property in their respective trade areas. The Malls, Lifestyle Centers and Outlet Centers are generally anchored by two or more anchors or junior anchors and a wide variety of smaller stores. Anchor and junior anchor tenants own or lease their stores and non-anchor stores lease their locations.
We own the land underlying each property in fee simple interest, except for Brookfield Square, Cross Creek Mall, Dakota Square Mall, Meridian Mall, St. Clair Square, Stroud Mall and WestGate Mall. We lease all or a portion of the land at each of these properties subject to long-term ground leases.
The following table summarizes certain information for our portfolio of Malls, Lifestyle Centers and Outlet Centers as of December 31, 2022 (dollars in thousands, except for sales per square foot amounts):
Number ofProperties
Total CenterSquare Footage
TotalIn-Line GLA
In-LineSales per Square Foot
PercentageIn-LineGLA Leased
Malls
47
40,859,094
13,142,059
$
428
89%
Lifestyle Centers
4,236,897
1,675,162
491
93%
Outlet Centers
1,870,688
1,734,395
436
91%
Total Malls, Lifestyle Centers and Outlet Centers
46,966,679
16,551,616
435
90%
The following table sets forth certain information for each of the Malls, Lifestyle Centers and Outlet Centers as of December 31, 2022 (dollars in thousands, except for sales per square foot amounts):
Property / Location
Year ofOpening/Acquisition
Year ofMostRecentExpansion
OurOwnership
Total CenterSF (1)
TotalIn-Line GLA (2)
In-LineSales perSquareFoot (3)
PercentageIn-Line GLALeased (4)
Anchors & JuniorAnchors (5)
Malls:
Arbor Place Atlanta (Douglasville), GA
1999
N/A
100%
1,162,523
307,600
429
95
Belk, Dillard's, Forever 21, H&M, JC Penney, Macy's, Overstock Furniture and Mattress, Regal Cinemas, former Sears
Brookfield Square (6) Brookfield, WI
1967/2001
2008
865,272
307,239
242
79
Barnes & Noble, former Boston Store, H&M, JC Penney, Movie Tavern by Marcus, Whirlyball
CherryVale Mall Rockford, IL
1973/2001
2007
870,668
348,252
339
Barnes & Noble, former Choice Home Center, Galleria Furniture and Mattress, JC Penney, Macy's, Tilt Studio
Coastal Grand (7) Myrtle Beach, SC
2004
50%
1,117,284
341,718
490
96
Bed Bath & Beyond, Belk, Cinemark, Dick's Sporting Goods, future Stars & Strikes (8), Dillard's, H&M, JC Penney, former Sears
CoolSprings Galleria (7) Nashville, TN
1991
2015
1,167,285
431,939
641
Belk Men's & Kid's, Belk Women's & Home, Dillard's, H&M, JC Penney, King's Dining & Entertainment, Macy's
Cross Creek Mall Fayetteville, NC
1975/2003
2013
814,850
292,597
579
90
Belk, H&M, JC Penney, future Main Event, Macy's, Rooms to Go
Dakota Square Mall Minot, ND
1980/2012
2016
740,785
222,493
333
91
AMC Theatres, Barnes & Noble, JC Penney, Scheels, Sleep Inn & Suites, Target, Tilt Studio
East Towne Mall Madison, WI
1971/2001
801,260
211,971
357
89
Barnes & Noble, former Boston Store, Dick's Sporting Goods, Flix Brewhouse, former Gordman's, H&M, JC Penney, former Sears
Eastland Mall Bloomington, IL
1967/2005
732,651
247,509
293
former Bergner's, Kohl's, former Macy's, Planet Fitness, former Sears
Fayette Mall Lexington, KY
2014
1,159,287
461,010
514
86
Dick's Sporting Goods, Dillard's, H&M, JC Penney, Macy's
Frontier Mall Cheyenne, WY
1981
1997
523,746
203,626
350
Former AMC Theatres, Dillard's, former Dillard's, Jax Outdoor Gear, JC Penney
Governor's Square (7)(12) Clarksville, TN
1986
47.5%
682,064
238,042
412
93
AMC Theatres, Belk, Dick's Sporting Goods, Dillard's, JC Penney, Ross Dress for Less, partial former Sears
Hamilton Place Chattanooga, TN
1987
1,169,510
339,889
471
Barnes & Noble, Belk for Men, Kids & Home, Belk for Women, Dave & Buster's, Dick's Sporting Goods, Dillard's for Men, Kids & Home, Dillard's for Women, former Forever 21, H&M, JC Penney
Hanes Mall Winston-Salem, NC
1975/2001
1990
1,435,164
468,462
424
92
Belk, Dave & Buster's, Dillard's, Encore, H&M, JC Penney, future Truliant Federal Credit Union (9), future Novant Health (10)
Harford Mall Bel Air, MD
1973/2003
367,019
179,602
386
77
Encore, Macy's, Macy's Furniture Gallery, future grocer (11)
Imperial Valley Mall El Centro, CA
2005
762,736
214,096
452
98
Cinemark, Dillard's, JC Penney, Macy's, former Sears
Jefferson Mall Louisville, KY
1978/2001
783,572
225,011
374
Dillard's, H&M, JC Penney, Overstock Furniture and Mattress, Round1 Bowling & Amusement, Ross Dress for Less, partial former Sears
Kentucky Oaks Mall (7)(12) Paducah, KY
1982/2001
1995
775,281
287,022
355
Best Buy, Burlington, Dick's Sporting Goods, former Dillard's, former Dillard's Home Store, HomeGoods, JC
Penney, Ross Dress for Less, Vertical Jump Park
Kirkwood Mall Bismarck, ND
1970/2012
2017
832,697
228,833
325
H&M, I. Keating Furniture, JC Penney, Scheels, Target, future Tilt
Laurel Park Place Livonia, MI
1989/2005
1994
491,215
198,071
292
Dunham Sports, Von Maur
Layton Hills Mall Layton, UT
1980/2006
1998
482,120
212,674
404
Dick's Sporting Goods, Dillard's, JC Penney
Mall del Norte Laredo, TX
1977/2004
1993
1,219,053
407,961
515
87
Former Beall's, Cinemark, Dillard's, Foot Locker, H&M, JC Penney, Macy's, Macy's Home Store, Main Event, former Sears, TruFit Athletic Club
Meridian Mall (13) Lansing, MI
1969/1998
2001
946,073
284,980
294
Bed Bath & Beyond, Dick's Sporting Goods, H&M, High Caliber Karting, JC Penney, Launch Trampoline Park, Macy's, Planet Fitness, Schuler Books & Music, former Younkers
Mid Rivers Mall St. Peters, MO
1987/2007
1,035,816
286,699
340
Dick's Sporting Goods, Dillard's, H&M, JC Penney, Macy's, Marcus Theatres, former Sears, V-Stock
Monroeville Mall Pittsburgh, PA
1969/2004
985,279
446,583
310
85
Barnes & Noble, Cinemark, Dick's Sporting Goods, Forever 21, H&M, JC Penney, Macy's
Northgate Mall Chattanooga, TN
1972/2011
646,381
181,101
344
Belk, Burlington, former JC Penney, former Sears
Northpark Mall Joplin, MO
1972/2004
1996
896,044
278,320
371
Dunham's Sports, H&M, JC Penney, Jo-Ann Fabrics & Crafts, former Macy's Children's & Home, former Macy's Women & Men's, former Sears, T.J. Maxx, Tilt, Vintage Stock
Northwoods Mall North Charleston, SC
1972/2001
748,014
255,766
426
97
Belk, Books-A-Million, Burlington, Dillard's, JC Penney, Planet Fitness
Oak Park Mall (7) Overland Park, KS
1974/2005
1,516,291
429,121
508
Barnes & Noble, Dillard's for Women, Dillard's for Men, Children & Home, Forever 21, H&M, JC Penney, Macy's, Nordstrom
Old Hickory Mall Jackson, TN
538,641
161,546
378
76
Belk, JC Penney, former Macy's, former Sears
Parkdale Mall Beaumont, TX
2018
1,118,296
294,013
345
Former Ashley HomeStore, former Beall's, Dick's Sporting Goods, Dillard's, Forever 21, H&M, HomeGoods, JC Penney, former Macy's, former Sears, Tilt, 2nd & Charles
Parkway Place Huntsville, AL
1957/1998
2002
647,808
278,630
488
Belk, Dillard's
Post Oak Mall College Station, TX
1982
1985
788,279
300,754
Former Beall's, City of College Station, Conn's Home Plus, Dillard's Men & Home, Dillard's Women & Children, Encore, JC Penney, former Sears
Richland Mall Waco, TX
1980/2002
693,461
191,883
450
Dick's Sporting Goods, Dillard's for Men, Kids & Home, Dillard's for Women, former Dillard's for Women, JC Penney, Tilt Studio
South County Center St. Louis, MO
1963/2007
979,362
317,139
Dick's Sporting Goods, Dillard's, JC Penney, Macy's, former Sears
Southpark Mall Colonial Heights, VA
1989/2003
676,589
213,182
419
99
Dick's Sporting Goods, H&M, JC Penney, Macy's, Regal Cinemas, former Sears
St. Clair Square (14) Fairview Heights, IL
1974/1996
1,068,054
290,799
409
Dillard's, JC Penney, Macy's, former Sears
Stroud Mall (15) Stroudsburg, PA
1977/1998
414,431
136,104
211
Cinemark, EFO Furniture Outlet, JC Penney, Reaching Out For Jesus Christian Center, ShopRite
Sunrise Mall Brownsville, TX
1979/2003
799,000
236,923
503
Former Beall's, Cinemark, Dick's Sporting Goods, Dillard's, JC Penney, Main Event, TruFit, Wave Fashion
Turtle Creek Mall Hattiesburg, MS
844,980
191,593
390
At Home, Belk, Dillard's, JC Penney, former Sears, Southwest Theaters, Urban Planet
Valley View Mall Roanoke, VA
1985/2003
863,447
336,687
410
Barnes & Noble, Belk, JC Penney, Macy's, Macy's for Home & Children, former Sears
Volusia Mall Daytona Beach, FL
1974/2004
1,060,259
253,483
354
88
Dillard's for Men & Home, Dillard's for Women, Dillard's for Juniors & Children, H&M, JC Penney, former Macy's, former Sears
West County Center (7) Des Peres, MO
1969/2007
1,198,680
384,730
751
Barnes & Noble, Dick's Sporting Goods, Forever 21, H&M, JC Penney, Macy's, Nordstrom
West Towne Mall Madison, WI
1970/2001
772,990
281,868
384
Dave & Buster's, Dick's Sporting Goods, Forever 21, Hobby Lobby, JC Penney, Total Wine & More, Von Maur
Westmoreland Mall Greensburg, PA
1977/2002
976,684
286,953
336
H&M, JC Penney, Live! Casino Pittsburgh, Macy's, Macy's Home Store, Old Navy, former Sears
York Galleria York, PA
1989/1999
756,707
225,858
337
Boscov's, H&M, Hollywood Casino, Life Storage, Marshalls, PA Fitness
Total Malls
39,927,608
12,920,332
Lifestyle Centers:
Alamance Crossing West Burlington, NC
2011
224,554
30,366
74
BJ's Wholesale Club, Dick's Sporting Goods, Kohl's
Friendly Center and The Shops at Friendly (7) Greensboro, NC
1957/ 2006/ 2007
1,368,491
604,350
592
Barnes & Noble, Belk, Belk Home Store, Harris Teeter, Macy's, O2 Fitness, Regal Cinemas, REI, Sears, Truist, Whole Foods
Mayfaire Town Center Wilmington, NC
2004/2015
656,952
337,571
421
Barnes & Noble, Belk, Flip N Fly, The Fresh Market, H&M, Michaels, Regal Cinemas
Pearland Town Center (16) Pearland, TX
712,025
306,438
406
Barnes & Noble, Dick's Sporting Goods, Dillard's, Hospital Corporation of America, Macy's
Southaven Towne Center Southaven, MS
607,519
184,423
394
Bed Bath & Beyond, Dillard's, JC Penney, Overstock Furniture and Mattress, Sportsman's Warehouse, Urban Air Adventure Park
Total Lifestyle Centers
3,569,541
1,463,148
31
Outlet Centers:
The Outlet Shoppes at Atlanta (7)(12) Woodstock, GA
401,542
376,735
520
Saks Fifth Ave OFF 5TH
The Outlet Shoppes at El Paso (7)(12) El Paso, TX
2007/2012
433,046
411,007
576
H&M
The Outlet Shoppes at Gettysburg (12) Gettysburg, PA
2000/2012
249,937
256
None
The Outlet Shoppes at Laredo (12) Laredo, TX
65%
358,091
315,344
262
84
H&M, Nike Factory Store
The Outlet Shoppes of the Bluegrass (7)(12) Simpsonville, KY
428,072
381,372
416
H&M, Restoration Hardware Outlet
Total Outlet Centers
45,367,837
16,117,875
Excluded Properties (17)
WestGate Mall (18) Spartanburg, SC
1975/1995
931,486
221,727
Bed Bath & Beyond, Belk, Dillard's, H&M, JC Penney, Overstock Furniture and Mattress, former Regal Cinemas, former Sears
Alamance Crossing East Burlington, NC
667,356
212,014
Barnes & Noble, Belk, Carousel Cinemas, Dillard's, Hobby Lobby, JC Penny
Total Excluded Properties
1,598,842
433,741
32
Inline and Adjacent Freestanding Stores
The Malls, Lifestyle Centers and Outlet Centers have approximately 4,789 inline and adjacent freestanding stores. National and regional retail chains (excluding local franchises) lease approximately 72.1% of the occupied inline and adjacent freestanding store GLA. Although inline and adjacent freestanding stores occupy only 35.2% of the total Mall, Lifestyle Center and Outlet Center GLA (the remaining 64.8% is occupied by Anchors and Junior Anchors and a small percentage is vacant), the Malls, Lifestyle Centers and Outlet Centers received 81.9% of their total revenues from inline and adjacent freestanding stores for the year ended December 31, 2022.
Mall, Lifestyle Center and Outlet Center Lease Expirations
The following table summarizes the scheduled lease expirations for inline and adjacent freestanding stores as of December 31, 2022:
Year EndingDecember 31,
Number ofLeasesExpiring
AnnualizedGross Rent (1)
GLA ofExpiringLeases
AverageAnnualizedGross RentPer SquareFoot
ExpiringLeases as % ofTotalAnnualizedGross Rent (2)
ExpiringLeases as a %of Total LeasedGLA (3)
2023
589
58,378,963
1,634,395
35.72
14.2
13.9
2024
1019
109,687,083
3,428,430
31.99
26.7
29.1
2025
552
69,968,635
2,055,628
34.04
17.0
17.4
2026
433
58,820,134
1,539,084
38.22
14.3
13.1
2027
351
46,628,860
1,283,159
36.34
11.4
10.9
2028
192
29,573,986
813,436
36.36
7.2
6.9
2029
15,375,225
425,012
36.18
3.7
2030
11,389,810
284,553
40.03
2.8
2.4
2031
62
4,607,067
170,486
27.02
1.1
1.4
2032
6,149,834
151,414
40.62
1.5
1.3
See page 54 for a comparison between rents on leases that expired in the current reporting period compared to rents on new and renewal leases executed in 2022.
Tenant Occupancy Costs
Occupancy cost is a tenant’s total cost of occupying its space, divided by its sales. Inline and adjacent freestanding store sales represent total sales amounts received from reporting tenants with space of less than 10,000 square feet.
33
The following table summarizes tenant occupancy costs as a percentage of total inline and adjacent freestanding store sales for reporting tenants less than 10,000 square feet, excluding license agreements, for each of the past three years:
Year Ended December 31, (1)
2022
2021
2020
In-line store sales (in millions)
3,920
3,802
N/A (2)
In-line tenant occupancy costs
10.41
10.65
Debt on Malls, Lifestyle Centers and Outlet Centers
Please see the table entitled “Mortgage Loans Outstanding at December 31, 2022” included herein for information regarding any liens or encumbrances related to our Malls, Lifestyle Centers and Outlet Centers.
Other Property Types
Other property types include the following categories:
34
See Note 1 to the consolidated financial statements for additional information on the number of consolidated and unconsolidated properties in each of the above categories related to our other property types. The following tables set forth certain information for each of our other property types at December 31, 2022:
Year ofOpening/ MostRecentExpansion
Company'sOwnership
TotalCenterSF (1)
TotalLeasableGLA (2)
PercentageGLAOccupied (3)
Anchors &JuniorAnchors
Open-Air Centers:
Ambassador Town Center (4)(7) Lafayette, LA
419,904
265,931
Costco (5), Dick's Sporting Goods, Marshalls, Nordstrom Rack
Annex at Monroeville Pittsburgh, PA
185,517
Dick's Sporting Goods, Full Throttle Adrenaline Park
Coastal Grand Crossing (4) Myrtle Beach, SC
37,234
PetSmart
CoolSprings Crossing Nashville, TN
1992
366,451
78,810
99%
American Signature Furniture (5), Electronic Express (6), Gabe's (6), Target (5), Urban Air Adventure Park (6)
Courtyard at Hickory Hollow Nashville, TN
1979
68,468
AMC Theatres
Fremaux Town Center (4)(7) Slidell, LA
2014/2015
616,339
488,339
92%
Best Buy, Dick's Sporting Goods, Dillard's (5), Kohl's, LA Fitness, Michaels, T.J. Maxx
Frontier Square Cheyenne, WY
186,552
16,527
Ross Dress for Less (6), Target (5), T.J. Maxx (6)
Governor's Square Plaza (4)(7) Clarksville, TN
1985/1988
169,842
73,273
Bed Bath & Beyond, Jo-Ann Fabrics & Crafts, Target (5)
Gunbarrel Pointe Chattanooga, TN
2000
273,913
147,913
Kohl's, Target (5), Whole Foods
Hamilton Corner Chattanooga, TN
1990/2005
67,310
Hamilton Crossing Chattanooga, TN
1987/2005
192,074
98,961
Electronic Express (5), HomeGoods (6), Michaels (6), T.J. Maxx
Hammock Landing (4) West Melbourne, FL
2009/2015
569,535
345,568
Academy Sports + Outdoors, AMC Theatres, HomeGoods, Kohl's (5), Marshalls, Michaels, Ross Dress for Less, Target (5)
Harford Annex Bel Air, MD
107,656
Best Buy, Office Depot, PetSmart
The Landing at Arbor Place Atlanta (Douglasville), GA
162,958
113,717
86%
Ben's Furniture and Antiques, Ollie's Bargain Outlet, One Life Fitness (5)
Layton Hills Convenience Center Layton, UT
1980
92,875
Bed Bath & Beyond
Layton Hills Plaza Layton, UT
1989
18,836
Parkdale Crossing Beaumont, TX
88,064
98%
The Pavilion at Port Orange (4) Port Orange, FL
2010
398,101
Belk, HomeGoods, Marshalls, Michaels, Regal Cinemas
The Plaza at Fayette Lexington, KY
2006
209,535
Cinemark, Sports Center
The Promenade D'Iberville, MS
2009/2014
621,448
404,488
Ashley Furniture HomeStore, Bed Bath & Beyond, Best Buy, Dick's Sporting Goods, Kohl's (5), Marshalls, Michaels, Ross Dress for Less, Target (5)
The Shoppes at Eagle Point (4) Cookeville, TN
237,809
Academy Sports + Outdoors, Publix, Ross Dress for Less
The Shoppes at Hamilton Place Chattanooga, TN
2003
132,079
Bed Bath & Beyond, Marshalls, Ross Dress for Less
The Shoppes at St. Clair Square Fairview Heights, IL
84,383
83%
Sunrise Commons Brownsville, TX
205,656
104,211
former Kmart (6), Marshalls, Ross Dress for Less
The Terrace Chattanooga, TN
158,175
85%
Academy Sports + Outdoors, Party City
West Towne Crossing Madison, WI
461,905
170,008
95%
Barnes & Noble, Best Buy, Kohl's (5), Metcalf's Markets (5), Nordstrom Rack, Office Max (6), former Shopko (5), former Stein Mart (6)
WestGate Crossing Spartanburg, SC
1985/1999
158,262
Big Air Trampoline Park, Hamricks, Jo-Ann Fabrics & Crafts
Westmoreland Crossing Greensburg, PA
278,995
AMC Theatres, Dick's Sporting Goods, Levin Furniture, Michaels, T.J. Maxx
York Town Center (4) York, PA
297,451
247,451
88%
former Bed Bath & Beyond, Best Buy, Christmas Tree Shops, Dick's Sporting Goods (5), Ross Dress for Less, Staples
Total Open-Air Centers
6,867,327
4,878,496
Other:
840 Greenbrier Circle Office Chesapeake, VA
1983
50,665
Aloft Hotel (4)(7) Chattanooga, TN
89,674
CBL Center (8) Chattanooga, TN
132,212
CBL Center II (8) Chattanooga, TN
74,749
Pearland Office Pearland, TX
2009
66,915
Total Other
414,215
324,541
Total Other Property Types
7,281,542
5,203,037
Other Property Types Lease Expirations
The following table summarizes the scheduled lease expirations for tenants in occupancy at Other Property Types as of December 31, 2022:
AnnualizedGrossRent (1)
ExpiringLeasesas % of TotalAnnualizedGrossRent (2)
ExpiringLeases as a% of TotalLeasedGLA (3)
55
4,966,549
220,850
22.49
6.2
5.4
12,140,276
617,494
19.66
15.2
15.1
75
15,576,770
845,117
18.43
19.4
20.7
13,228,804
632,447
20.92
16.5
15.5
11,257,606
593,451
18.97
14.0
14.5
39
8,032,268
436,691
18.39
10.0
10.7
4,406,047
196,906
22.38
5.5
4.8
3,659,272
168,955
21.66
4.6
4.1
2,593,722
150,799
17.20
3.2
4,268,028
220,623
19.35
5.3
Debt on Other Property Types
Please see the table entitled “Mortgage Loans Outstanding at December 31, 2022” included herein for information regarding any liens or encumbrances related to our Other Property Types.
Anchors and Junior Anchors
Anchors and Junior Anchors are an important factor in a property’s successful performance. However, over the past several years the number of traditional department store anchors have declined, providing us the opportunity to redevelop these spaces to attract new uses such as restaurants, entertainment, fitness centers, casinos, grocery stores and lifestyle retailers that engage consumers and encourage them to spend more time at our properties. Anchors are generally a department store or, increasingly, other large format tenants, including retailers whose merchandise appeals to a broad range of shoppers, and non-retail uses. Anchors play a significant role in generating customer traffic and creating a desirable location for the property's tenants.
Anchors and Junior Anchors may own their stores and the land underneath, as well as the adjacent parking areas, or may enter into long-term leases with respect to their stores. Rental rates for Anchor tenants are significantly lower than the rents charged to non-anchor tenants. Total revenues from Anchors and Junior Anchors accounted for 18.1% of the total revenues from our properties in 2022. Each Anchor and Junior Anchor that owns its store has entered into an operating and reciprocal easement agreement with us covering items such as operating covenants, reciprocal easements, property operations, initial construction and future expansion.
During 2022, the following Anchors and Junior Anchors were added to our properties, as listed below:
Name
Property
Location
Life Storage
York Galleria
York, PA
Main Event
Sunrise Mall
Brownsville, TX
Restoration Hardware Outlet
The Outlet Shoppes of the Bluegrass
Simpsonville, KY
Scheels
Dakota Square Mall
Minot, ND
Tilt
Urban Planet
Turtle Creek Mall
Hattiesburg, MS
Von Maur
West Towne Mall
Madison, WI
As of December 31, 2022, our properties had a total of 443 Anchors and Junior Anchors, including 50 vacant Anchor and Junior Anchor locations, and excluding Anchors and Junior Anchors at our Excluded Malls. The Anchors and Junior Anchors and the amount of GLA leased or owned by each as of December 31, 2022 is as follows:
Number of Stores
Gross Leasable Area
Anchor Owned
Anchor/Junior Anchor
Leased(OwnedbyCBL)
OwnedbyOthers
GroundLeased(OwnedbyCBL)
Total
Total Gross Leased Area
JC Penney (1)
41
1,828,329
2,528,291
586,030
4,942,650
Dillard's
—
4,125,026
659,763
4,784,789
Macy's
905,442
1,943,839
658,388
3,507,669
Belk
430,017
1,495,213
300,995
2,226,225
Sears
147,766
Academy Sports + Outdoors
199,091
160,295
56,255
216,550
American Signature Furniture
61,620
Ashley HomeStore
20,000
At Home
124,700
450,537
Bed Bath & Beyond Inc.:
155,778
Christmas Tree Shops
33,992
Bed Bath & Beyond Inc. Subtotal
189,770
Ben's Furniture and Antiques
35,895
Best Buy
182,485
45,070
227,555
Big Air Trampoline Park
33,938
BJ's Wholesale Club
85,188
Books-A-Million, Inc.:
Books-A-Million
20,642
2nd & Charles
23,538
Books-A-Million, Inc. Subtotal
44,180
Boscov's (1)
150,000
Burlington (2)
63,013
94,049
157,062
Cinemark
382,506
City of College Station
103,888
Conn's Home Plus (1)
38,312
Costco
153,973
Dave & Buster's (2)
61,316
26,509
87,825
Dick's Sporting Goods Inc.:
Dick's Sporting Goods
1,254,518
50,000
80,515
1,385,033
Dick's Warehouse
77,117
Dick's Sporting Goods Inc. Subtotal
1,331,635
Dunham's Sports
125,551
EFO Furniture & Mattress Outlet
43,171
Electronic Express (1)
87,573
Encore
76,096
Flip N Fly
27,972
Flix Brewhouse
39,150
Foot Locker
22,847
Forever 21
157,141
Full Throttle Adrenaline Park
64,135
The Fresh Market
21,442
Gabe's (1)
29,596
Galleria Furniture and Mattress
64,165
594,164
Hamrick's
40,000
Harris Teeter
72,757
High Caliber Karting
100,683
Hobby Lobby (2)
61,659
Hollywood Casino
79,500
Hospital Corporation of America
48,000
I. Keating Furniture
103,994
Jax Outdoor Gear (1)
83,055
Jo-Ann Fabrics & Crafts
73,738
Kings Dining & Entertainment
22,678
Kohl's
142,205
312,731
83,000
537,936
LA Fitness
41,000
Launch Trampoline Park
31,989
Levin Furniture
55,314
Life Storage (1)
131,915
Live! Casino Pittsburgh
129,552
LIVE Ventures, Inc.:
V-Stock
23,058
Vintage Stock
46,108
LIVE Ventures, Inc. Subtotal
69,166
Macy's Furniture Gallery
24,599
Main Event (1)
61,844
64,103
125,947
Marcus Theatres
57,500
Metcalfe's Market (1)
67,365
Michaels (1)
132,595
23,645
156,240
Movie Tavern by Marcus
40,585
Nickels and Dimes, Inc.:
64,658
Tilt Studio
212,372
Nickels and Dimes, Inc. Subtotal
277,030
Nike Factory Store
22,479
Nordstrom
385,000
Nordstrom Rack
56,053
O2 Fitness
27,048
Office Depot
23,425
OfficeMax (1)
24,606
Old Navy
20,257
Ollie's Bargain Outlet
28,446
One Life Fitness (1)
49,241
Overstock Furniture and Mattress
179,135
PA Fitness
30,664
Party City
20,841
46,248
Planet Fitness
63,509
Publix
45,600
Reaching Out For Jesus Christian Center
43,632
Regal Cinemas
188,365
57,854
60,400
306,619
REI
24,427
24,558
Rooms To Go
45,000
Ross Dress for Less (1)(2)
215,747
70,981
286,728
Round1 Bowling & Amusement
Saks Fifth Avenue OFF 5TH
24,807
Scheel's
141,840
81,296
223,136
Schuler Books & Music
24,116
ShopRite
87,381
Sleep Inn & Suites
123,506
Southwest Theaters
29,830
Sports Center
60,000
Sportsman's Warehouse (1)
48,171
Staples
20,388
Target
948,730
The TJX Companies, Inc.:
HomeGoods (1)
97,277
26,355
123,632
Marshalls
207,050
T.J. Maxx (1)
109,031
28,081
137,112
The TJX Companies, Inc. Subtotal
413,358
54,436
467,794
Total Wine and More (2)
28,350
TruFit (1)
45,179
43,145
88,324
Truist
Urban Air Adventure Park (1)
33,860
30,404
64,264
30,463
Vertical Trampoline Park
24,972
Von Maur (1)
232,377
Wave Fashion
27,978
WhirlyBall
43,440
Whole Foods (1)
26,841
34,320
61,161
Vacant Anchor/Junior Anchor:
Vacant - former AMC Theaters (Carmike Cinema)
31,119
Vacant - former Ashley HomeStore
20,487
Vacant - former Bealls
151,209
Vacant - former Bed Bath & Beyond
52,474
Vacant - former Bergner's
131,616
Vacant - former Boston Store (1)
354,205
Vacant - former Choice Home Center
Vacant - former Dillard's (1)
116,376
159,142
275,518
Vacant - former Forever 21 (3)
Vacant - former Gordman's
47,943
Vacant - former JC Penney (1)
158,771
Vacant - former Macy's
240,015
363,761
603,776
Vacant - former Sears (1)(2)
664,623
1,546,518
476,059
2,687,200
Vacant - former Shopko
97,773
Vacant - former Stein Mart (1)
21,200
40
Vacant - former Younkers
93,597
Current Developments:
Future grocer (1)(4)
161,358
Hobby Lobby/ Mardel Christian (1)(5)
101,445
Main Event (6)
37,500
Novant Health (1)(7)
174,643
Stars & Strikes (8)
52,054
92,500
Truliant Federal Credit Union (1)(9)
150,447
Total Anchors/Junior Anchors
270
143
443
13,273,366
16,575,762
3,911,120
33,760,248
Mortgage Loans Outstanding at December 31, 2022 (in thousands):
OurOwnershipInterest
StatedInterestRate
PrincipalBalance asof12/31/22 (1)
2023AnnualDebtService (2)
MaturityDate
OptionalExtendedMaturityDate
BalloonPaymentDueonMaturity (2)
Open toPrepaymentDate (3)
Footnote
Consolidated Debt
Arbor Place
100
5.10
97,244
7,948
May-26
86,650
Open
Cross Creek Mall
4.54
97,431
11,781
Jan-23
(4)
Fayette Mall
4.25
127,568
4,951
May-23
124,852
(5)
Hamilton Place
4.36
93,997
6,400
Jun-26
85,535
Jefferson Mall
4.75
55,817
4,456
49,265
Northwoods Mall
5.08
57,059
4,743
Apr-26
50,681
Parkdale Mall & Crossing
5.85
63,136
7,241
Mar-26
50,828
Southpark Mall
4.85
54,022
4,240
48,133
Volusia Mall
4.56
40,967
4,608
May-24
37,207
687,241
56,368
630,582
The Outlet Shoppes at Gettysburg
50
4.80
20,974
1,323
Oct-25
20,049
The Outlet Shoppes at Laredo
65
7.37
38,250
2,387
Jun-23
Jun-24
37,650
59,224
3,710
57,699
Open-Air Centers, Outparcels and Other:
Brookfield Square Anchor Redevelopment
7.02
18,240
2,295
Dec-23
Dec-24
17,340
Hamilton Place open-air centers loan
90% - 92%
65,000
3,803
Jun-32
58,208
Open-air centers and outparcels loan
7.59
360,000
31,836
Jun-27
Jun-29
(6)
443,240
37,934
435,548
Corporate Debt:
Secured term loan
6.87
829,452
85,729
Nov-25
Nov-26/Nov-27
748,990
Excluded Malls:
Alamance Crossing
5.83
41,417
1,701
Jul-21
(7)
(8)
WestGate Mall
4.99
29,002
732
Jul-22
70,419
2,433
Total Consolidated Debt
2,089,576
186,174
1,943,238
Unconsolidated Debt
Coastal Grand
4.09
99,942
6,958
Aug-24
95,249
CoolSprings Galleria
4.84
143,213
9,803
May-28
125,774
Oak Park Mall
3.97
262,528
15,755
247,061
West County Center
3.40
161,887
9,856
Dec-22
667,570
42,372
629,971
The Outlet Shoppes at Atlanta
4.90
66,591
4,511
Nov-23
65,036
The Outlet Shoppes at Atlanta - Phase II
6.62
4,383
4,269
The Outlet Shoppes at El Paso
70,086
4,888
Oct-28
61,342
4.05
64,969
4,464
The Outlet Shoppes of the Bluegrass - Phase II
9.12
7,397
447
Apr-23
7,197
213,426
14,722
199,160
Friendly Center
3.48
85,802
1,591
85,203
The Shops at Friendly Center
3.34
646
145,802
2,237
145,203
Ambassador Town Center
4.35
42,023
2,809
34,953
42
Ambassador Town Center Infrastructure Improvements
3.00
7,001
1,337
Mar-25
2,961
Coastal Grand - Dick's Sporting Goods
5.05
6,851
451
Nov-24
6,652
Coastal Grand Outparcel
4,823
4,596
Fremaux Town Center
3.70
60,214
4,480
52,130
Hamilton Place Aloft Hotel
16,530
1,568
15,871
Hammock Landing - Phase I
36,947
4,375
Feb-25
Feb-26
33,215
Hammock Landing - Phase II
11,846
1,252
11,066
Northgate Mall outparcels loan
7.25
4,787
369
The Pavilion at Port Orange
49,498
6,170
44,048
The Shoppes at Eagle Point
5.40
39,683
2,695
May-32
32,998
York Town Center
30,000
1,755
28,299
310,203
27,597
271,576
Total Unconsolidated Debt
1,337,001
86,928
1,245,910
Total Consolidated and Unconsolidated Debt
3,426,577
273,102
3,189,148
Company's Pro-Rata Share of Total Debt
2,743,995
229,369
(9)
The following is a reconciliation of consolidated debt to our pro rata share of total debt, including debt discounts and unamortized deferred financing costs (in thousands):
Total consolidated debt
Noncontrolling interests' share of consolidated debt
(38,807
)
Company's share of unconsolidated debt
693,226
Unamortized deferred financing costs
(18,926
Unamortized debt discounts
(64,841
Company's pro rata share of total debt
2,660,228
See Note 7 and Note 8 to the consolidated financial statements for additional information regarding property-specific indebtedness.
ITEM 3. LEGAL PROCEEDINGS
The information in response to this Item 3 is incorporated by reference herein from Note 14. Contingencies.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock trades on the New York Stock Exchange under the symbol "CBL".
Holders
There were approximately 545 shareholders of record for our common stock as of February 23, 2023. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers and other financial institutions.
Dividends
The decision to declare and pay dividends on any outstanding shares of our common stock, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our board of directors and will depend on our earnings, taxable income, FFO, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our then-current indebtedness, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, Delaware law and such other factors as our board of directors deems relevant. Our actual results of operations will be affected by a number of factors, including the revenues received from our properties, our operating expenses, interest expense, unanticipated capital expenditures and the ability of the anchors and tenants at our properties to meet their obligations for payment of rents and tenant reimbursements. For additional information, see discussion presented under the subheading “Dividends” in Note 9 of this report.
Issuances Under Equity Compensation Plans
See Part III, Item 12 contained herein for information regarding securities authorized for issuance under equity compensation plans.
Issuer Purchases of Equity Securities
The following table presents information with respect to repurchases of common stock made by us during the three months ended December 31, 2022:
Period
TotalNumberof SharesPurchased (1)
AveragePrice Paidper Share (2)
Total Number ofShares Purchased asPart of a PubliclyAnnounced Plan
Approximate DollarValue of Shares thatMay Yet Be PurchasedUnder the Plan
Oct. 1–31, 2022
Nov. 1–30, 2022
Dec. 1–31, 2022
70,786
24.57
Performance Graph
The graph that follows compares the cumulative total stockholder return on the Company’s common stock with the cumulative total return on the Russell 3000 Index and the FTSE NAREIT All Equity REITs Index. The results are based on an assumed $100 invested on November 2, 2021 (the first day of trading on the NYSE following the Company’s emergence from Chapter 11 reorganization and the NYSE listing), at the market close, through December 31, 2022, with all dividends reinvested. Share price performance presented below is not necessarily indicative of future results.
Period Ending
Index
11/02/21
12/31/21
03/31/22
06/30/22
09/30/22
12/31/22
CBL & Associates Properties, Inc.
100.00
104.00
109.63
78.30
86.91
85.32
Russell 3000 Index
101.61
96.25
80.17
76.59
82.09
FTSE NAREIT All Equity REITs Index
107.05
101.39
86.53
77.15
80.34
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes that are included in this annual report. Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as defined in the notes to the consolidated financial statements.
Fresh Start Accounting
Upon emergence from bankruptcy, we qualified for and adopted fresh start accounting in accordance with Accounting Standards Codification 852, which resulted in our becoming a new entity for financial reporting purposes. As a result, our financial results for the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021 are referred to as those of the "Successor." Our financial results for the period from January 1, 2021 through October 31, 2021 and the year ended December 31, 2020 are referred to as those of the “Predecessor." Our results of operations as reported in our consolidated financial statements for these periods are prepared in accordance with GAAP. See Note 19 for additional 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, outlet centers, lifestyle centers, open-air centers and other properties. We own interests in 91 properties, consisting of 47 malls, 29 open-air centers, five outlet centers, five lifestyle centers and five other properties, including single-tenant and multi-tenant outparcels. Our shopping centers are located in 22 states, and are primarily in the southeastern and midwestern United States. We have elected to be taxed as a REIT for federal income tax purposes.
We conduct substantially all our business through the Operating Partnership. The Operating Partnership consolidates the financial statements of all entities in which it has a controlling financial interest or where it is the primary beneficiary of a VIE. See Item 2 for a description of our properties owned and under development as of December 31, 2022.
The Successor had a net loss for the year ended December 31, 2022 of $99.5 million. The Successor had a net loss for the period from November 1, 2021 through December 31, 2021 of $152.7 million. The Predecessor had a net loss for the period from January 1, 2021 through October 31, 2021 of $486.4 million. The Successor had a net loss attributable to common shareholders for the year ended December 31, 2022 of $96.0 million. The Successor had a net loss attributable to common shareholders for the period from November 1, 2021 through December 31, 2021 of $151.5 million. The Predecessor had a net loss attributable to common shareholders for the period from January 1, 2021 through October 31, 2021 of $470.6 million.
Our focus is on continuing to execute our strategy to transform our diverse portfolio of dynamic properties into dominant centers that offer a mix of retail, service, dining, entertainment and other non-retail uses, primarily through the re-tenanting of former anchor locations as well as diversification of in-line tenancy. This operational strategy is also supported by our balance sheet strategy focused on reducing overall debt, extending our debt maturity schedule and lowering our overall cost of borrowings to limit maturity risk, improve net cash flow and enhance enterprise value. While the industry and our Company continue to face challenges, some of which may not be in our control, we believe that the strategies in place to redevelop our properties and diversify our tenant mix will contribute to stabilization of our portfolio and revenues in future years.
Voluntary Reorganization Under Chapter 11
Beginning on November 1, 2020, CBL and the Operating Partnership, together with the Debtors, filed the Chapter 11 Cases under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Bankruptcy Court authorized the Debtors to continue to operate their businesses and manage their properties as debtors-in-possession pursuant to the Bankruptcy Code.
In connection with the Chapter 11 Cases, on August 11, 2021, the Bankruptcy Court entered an order, Docket No.1397 (Confirmation Order), confirming the Debtors’ Plan.
On the Effective Date, the conditions to effectiveness of the Plan were satisfied and the Debtors emerged from the Chapter 11 Cases. The Company filed a notice of the Effective Date of the Plan with the Bankruptcy Court on November 1, 2021. Following the Effective Date, one of the Debtors’ Chapter 11 Cases remain open to administer claims pursuant to the Plan. See Note 18 and Note 19 to our consolidated financial statements for more information.
The filing of the Chapter 11 Cases constituted an event of default with respect to certain property-level debt of the Operating Partnership’s subsidiaries, which may have resulted in the automatic acceleration of certain monetary obligations or may have given the applicable lender the right to accelerate such amounts. As of December 31, 2022, we had no loans in default due to our filing of the Chapter 11 Cases. See Note 7 and Note 8 for additional information.
Results of Operations
Properties that were in operation for the entire year during both 2022 and 2021 are referred to as the “2022 Comparable Properties.” The tables below summarize deconsolidations and dispositions of properties that impact the results of operations of the Successor and Predecessor periods.
Successor Deconsolidations
Date of Deconsolidation
EastGate Mall (1)(2)
Cincinnati, OH
December 2021
Greenbrier Mall (1)(3)
Chesapeake, VA
March 2022
Predecessor Deconsolidations
Date Opened
Asheville Mall (1)(2)
Asheville, NC
January 2021
Park Plaza (1)(3)
Little Rock, AR
March 2021
Successor Dispositions
Sales Date
Eastgate Mall Self Storage (1)
November 2021
Hamilton Place Self Storage (1)
Mid Rivers Mall Self Storage (1)
St. Peters, MO
Parkdale Mall Self Storage (1)
Beaumont, TX
Springs at Port Orange (1)
Port Orange, FL
Predecessor Dispositions
The Residences at Pearland Town Center
Pearland, TX
October 2021
Discussion of the Results of Operations for the Successor Year Ended December 31, 2022, the Successor Period from November 1, 2021 through December 31, 2021 and the Predecessor Period from January 1, 2021 through October 31, 2021
Revenues
(in thousands)
Successor
Predecessor
Year Ended December 31,
For the Period November 1, through December 31,
For the Period January 1, through October 31,
Rental revenues
542,247
103,252
450,922
Management, development and leasing fees
7,158
1,500
5,642
Other
13,606
4,094
11,465
Total revenues
563,011
108,846
468,029
Rental revenues of the Successor were $542.2 million and $103.3 million for the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021, respectively. Rental revenues of the Predecessor were $450.9 million for the period from January 1, 2021 through October 31, 2021. For the year ended December 31, 2022, rental revenues of the Successor were lower primarily due to the deconsolidations of Greenbrier Mall and EastGate Mall in March 2022 and December 2021, respectively. The Successor year ended December 31, 2022 includes higher amortization of net above market leases due to the adoption of fresh start accounting upon our emergence from bankruptcy. Also, the Successor year ended December 31, 2022 includes higher percentage rents due to increased sales, as well as higher collections on amounts that had previously been reserved.
Operating Expenses
Property operating
(92,126
(15,258
(72,735
Real estate taxes
(57,119
(9,598
(50,787
Maintenance and repairs
(42,485
(7,581
(32,487
Property operating expenses
(191,730
(32,437
(156,009
Depreciation and amortization
(256,310
(49,504
(158,574
General and administrative
(67,215
(9,175
(43,160
Loss on impairment
(252
(146,781
Litigation settlement
304
118
932
(834
(3
(745
Total operating expenses
(516,037
(91,001
(504,337
Total property operating expenses of the Successor were $191.7 million and $32.4 million for the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021, respectively. Total property operating expenses of the Predecessor were $156.0 million for the period from January 1, 2021 through October 31, 2021. For the year ended December 31, 2022, total property operating expenses of the Successor reflect increases in utility rates across our properties and the impact of wage inflation on third party contracts and services.
Depreciation and amortization expense of the Successor was $256.3 million and $49.5 million for the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021, respectively. Depreciation and amortization expense of the Predecessor was $158.6 million for the period from January 1, 2021 through October 31, 2021. For the year ended December 31, 2022, depreciation and amortization expense of the Successor was higher primarily due to a new basis in depreciable assets and intangible in-place lease assets that have shorter useful lives resulting from the adoption of fresh start accounting upon our emergence from bankruptcy.
General and administrative expenses of the Successor were $67.2 million and $9.2 million for the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021, respectively. General and administrative expenses of the Predecessor were $43.2 million for the period from January 1, 2021 through October 31, 2021. For the year ended December 31, 2022, general and administrative expenses of the Successor included higher compensation and share-based compensation expenses as we returned to normal operations and compensation practices following our emergence from bankruptcy. Also, for the year ended December 31, 2022, general and administrative expenses of the Successor include incremental professional fees associated with loan modifications and extensions, and fees incurred to obtain credit ratings on our secured term loan in accordance with the term loan agreement.
Other Income and Expenses
Interest and other income of the Successor was $4.9 million and $0.5 million for the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021, respectively. Interest and other income of the Predecessor was $2.1 million for the period from January 1, 2021 through October 31, 2021. For the year ended December 31, 2022, interest and other income of the Successor was higher due to purchasing additional U.S. Treasury securities with higher interest rates.
Interest expense of the Successor was $217.3 million and $195.5 million for the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021, respectively. Interest expense of the Predecessor was $72.4 million for the period from January 1, 2021 through October 31, 2021. For the year ended December 31, 2022, interest expense of the Successor included accretion of debt discounts of $117.3 million on property-level debt. For the period from November 1, 2021 through December 31, 2021, interest expense of the Successor included accretion of debt discounts of $174.4 million on property-level debt. The property-level debt discounts were recognized in conjunction with recording our property-level debt at fair value upon the adoption of fresh start accounting. For the year ended December 31, 2022, the Successor period also included interest expense related to the secured term loan and the new loans entered into during 2022 that are secured by certain of our open-air centers and outparcels. Additionally, for the year ended December 31, 2022, the Successor incurred higher interest expense due to higher interest rates during 2022. During 2022, the Successor had a reversal of previously recognized default interest expense of $20.2 million when forbearance/waiver agreements were obtained. During the Predecessor period from January 1, 2021 through October 31, 2021, we did not recognize interest expense on corporate debt while we were in bankruptcy. However, we did recognize $26.7 million of default interest expense during the Predecessor period from January 1, 2021 through October 31, 2021.
For the year ended December 31, 2022, the Successor recorded a $7.3 million gain on extinguishment of debt related to the loan secured by The Outlet Shoppes at Gettysburg. Subsequent to approval of the lender's claim against the general unsecured claims pool, the existing loan was modified. As part of the modification, the loan balance was reduced to $21.0 million and the corporate recourse was eliminated. The modification resulted in the loan being treated as a new loan for accounting purposes, which resulted in the recognition of gain on extinguishment of debt.
Reorganization items, net, of the Successor were an addition to income of $0.3 million and a reduction to income of $1.4 million for the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021, respectively, which related to the true up of estimated accrued expenses to actual amounts, partially offset by professional fees and U.S. Trustee fees directly related to the bankruptcy filing. Reorganization items, net, of the Predecessor were a reduction to income of $435.2 million for the period from January 1, 2021 through October 31, 2021 which consisted of adjustments to record the assets and liabilities of the Successor at fair value as of the Effective Date, transactions associated with the Plan, professional fees, legal fees, retention bonuses and U.S. Trustee fees directly related to the bankruptcy.
For the year ended December 31, 2022, the Successor recorded a $36.3 million gain on deconsolidation related to Greenbrier Mall that was deconsolidated due to a loss of control when the mall was placed into receivership in connection with the foreclosure process. For the period from November 1, 2021 through December 31, 2021, the Successor recorded a $19.1 million gain on deconsolidation related to EastGate Mall that was deconsolidated due to a loss of control when the mall was placed into receivership in connection with the foreclosure process. For the period from January 1, 2021 through October 31, 2021, the Predecessor recorded a $55.1 million gain on deconsolidation related to Asheville Mall and Park Plaza that were deconsolidated due to a loss of control when the malls were placed into receivership in connection with the foreclosure process.
Equity in earnings of unconsolidated affiliates of the Successor was $19.8 million and $0.8 million for the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021, respectively. Equity in losses of unconsolidated affiliates of the Predecessor was $10.8 million for the period from January 1, 2021 through October 31, 2021. For the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021, equity in earnings of the Successor does not include equity in losses of certain unconsolidated affiliates where the Successor's investment in those unconsolidated affiliates was reduced to zero in connection with the application of fresh start accounting. The Predecessor period includes recognition of equity in losses of certain unconsolidated affiliates.
For the year ended December 31, 2022, the income tax provision of the Successor was $3.1 million. For the period from November 1, 2021 through December 31, 2021, the income tax benefit of the Successor was $5.9 million. For the period from January 1, 2021 through October 31, 2021, the income tax provision of the Predecessor was $1.1 million.
During the year ended December 31, 2022, the Successor recognized $5.3 million of gain on sales of real estate assets primarily related to the sale of five outparcels. During the period from January 1, 2021 through October 31, 2021, the Predecessor recognized $12.2 million of gain on sales of real estate assets primarily related to the sale of one center, four anchors and four outparcels.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the year ended December 31, 2021 for the financial information for the Predecessor year ended December 31, 2020.
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 also exclude the impact of lease termination fees and certain non-cash items such as straight-line rents and reimbursements, write-offs of landlord inducements and net amortization of acquired above and below market leases.
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 our business through our Operating Partnership and, therefore, it reflects the performance of our properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in the Operating Partnership. Our definition of NOI may be different than that used by other companies, and accordingly, our calculation of NOI may not be comparable to that of other companies.
Since NOI includes only those revenues and expenses related to the operations of our shopping center properties, we believe that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates, sales at the malls and operating costs and the impact of those trends on our results of operations. Our calculation of same-center NOI excludes lease termination income, straight-line rent adjustments, and amortization of above and below market lease intangibles in order to enhance the comparability of results from one period to another.
We include a property in our same-center pool when we have owned all or a portion of the property since January 1 of the preceding calendar year and it has been in operation for both the entire preceding calendar year ended December 31, 2021 and the current year ended December 31, 2022. New properties are excluded from same-center NOI, until they meet these criteria. Properties excluded from the same-center pool, which would otherwise meet these criteria, are properties where we intend to renegotiate the terms of the debt secured by the related property or return the property to the lender. Alamance Crossing East and WestGate Mall were classified as Excluded Properties as of December 31, 2022.
Due to the exclusions noted above, same-center NOI should only be used as a supplemental measure of our performance and not as an alternative to GAAP operating income (loss) or net income (loss). A reconciliation of our same-center NOI to net loss for the Successor year ended December 31, 2022, the Successor period from November 1, 2021 through December 31, 2021 and the Predecessor period from January 1, 2021 through October 31, 2021 is as follows (in thousands):
Net loss
(99,515
(152,731
(486,413
Adjustments:
256,310
49,504
158,574
Depreciation and amortization from unconsolidated affiliates
20,813
9,847
45,126
Noncontrolling interests' share of depreciation and amortization in other consolidated subsidiaries
(3,498
(622
(1,901
Interest expense
217,342
195,488
72,415
Interest expense from unconsolidated affiliates
88,331
11,425
34,514
Noncontrolling interests' share of interest expense in other consolidated subsidiaries
(7,960
(1,464
(2,790
Abandoned projects expense
834
745
(Gain) loss on sales of real estate assets
(5,345
(12,187
Gain on sales of real estate assets of unconsolidated affiliates
(1,036
(70
Adjustment for unconsolidated affiliates with negative investment
(37,645
(4,574
Gain on deconsolidation
(36,250
(19,126
(55,131
Loss on available-for-sale securities
Loss on impairment, net of noncontrolling interests' share
252
136,046
(304
(118
(932
Reorganization items, net of noncontrolling interests' share
(298
1,403
452,378
Income tax provision (benefit)
3,079
(5,885
1,078
Lease termination fees
(5,115
(3,597
(4,843
Straight-line rent and above- and below-market lease amortization
8,233
1,930
1,826
Net loss attributable to noncontrolling interests in other consolidated subsidiaries
5,999
1,186
13,313
General and administrative expenses
67,215
9,175
43,160
Management fees and non-property level revenues
(11,777
(2,801
(26,604
Operating Partnership's share of property NOI
459,704
89,046
368,304
Non-comparable NOI
(16,345
(3,228
(15,264
Total same-center NOI (1)
443,359
85,818
353,040
Same-center NOI of the Successor was $443.4 million for the year ended December 31, 2022. Same-center NOI of the Successor was $85.8 million for the period from November 1, 2021 through December 31, 2021. Same-center NOI of the Predecessor was $353.0 million for the period from January 1, 2021 through October 31, 2021. Same-center NOI of the Successor for the year ended December 31, 2022 was 1.0% higher primarily due to $13.2 million of higher revenues partially offset by $8.7 million of higher operating expenses. Rental revenues of the Successor for the year ended December 31, 2022 were $13.4 million higher primarily due to increases in occupancy and an increase in percentage rent due to higher trailing twelve-month sales, which was partially offset by lower tenant reimbursements. Property operating expenses of the Successor for the year ended December 31, 2022 were higher primarily due to increases in utility rates across our properties and the impact of wage inflation on third party contracts and services.
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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, Malls, Lifestyle Centers and Outlet Centers earn a large portion of their rents from short-term tenants during the holiday period. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of the fiscal year.
We derive the majority of our revenues from the Malls, Lifestyle Centers and Outlet Centers. The sources of our revenues by property type were as follows:
86.1
87.3
87.9
All Other
12.7
12.1
Inline and Adjacent Freestanding Store Sales
Inline and adjacent freestanding store sales include reporting mall, lifestyle center and outlet center tenants of 10,000 square feet or less for Malls, Lifestyle Centers and Outlet Centers and exclude license agreements, which are retail leases that are temporary or short-term in nature and generally last more than three months but less than twelve months. The following is a comparison of our same-center sales per square foot for mall, lifestyle center and outlet center tenants of 10,000 square feet or less (Excluded Properties are not included in sales metrics):
Sales Per Square Foot for the Trailing Twelve Months Ended December 31,
Mall, Lifestyle Center and Outlet Center same-center sales per square foot
In-Line Store Occupancy
Our portfolio in-line store occupancy is summarized in the below table (Excluded Properties are not included in occupancy metrics). Occupancy for Malls, Lifestyle Centers and Outlet Centers represents percentage of in-line gross leasable area under 20,000 square feet occupied. Occupancy for open-air centers represents percentage of gross leasable area occupied.
As of December 31,
Total portfolio
91.0%
89.3%
Malls, Lifestyle Centers and Outlet Centers:
Total malls
89.1%
87.2%
Total lifestyle centers
92.7%
86.7%
Total outlet centers
90.8%
93.6%
Total same-center malls, lifestyle centers and outlet centers
89.6%
87.9%
All Other:
Total open-air centers
95.3%
94.8%
Total other
93.0%
90.5%
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Leasing
The following is a summary of the total square feet of leases signed in the year ended December 31, 2022 as compared to the prior year:
Operating portfolio:
New leases
1,257,659
721,436
Renewal leases
2,855,587
2,435,014
Development portfolio:
15,703
65,334
Total leased
4,128,949
3,221,784
Average annual base rents per square foot are computed based on contractual rents in effect as of December 31, 2022 and 2021, 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):
25.14
25.09
Malls, Lifestyle Centers and Outlet Centers (1):
29.58
29.81
30.01
30.16
29.30
27.60
26.68
27.34
15.21
15.05
19.22
19.32
Results from new and renewal leasing of comparable in-line space of less than 10,000 square feet during the year ended December 31, 2022 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
Prior GrossRent PSF
New InitialGross RentPSF
% ChangeInitial
New AverageGross RentPSF (1)
% ChangeAverage
All Property Types (2)
2,093,094
35.35
33.03
(6.5
)%
33.50
(5.2
Malls, Lifestyle Centers & Outlet Centers
1,929,512
36.75
34.11
(7.2
34.59
(5.9
149,689
41.63
45.23
8.7
48.22
15.8
1,779,823
36.33
33.18
(8.7
33.44
(8.0
53
New and renewal leasing activity of comparable in-line space of less than 10,000 square feet for the year ended December 31, 2022, based on commencement date inclusive of the impact of any rent concessions, are as follows:
NumberofLeases
Term(inyears)
InitialRentPSF
AverageRentPSF
ExpiringRentPSF
Initial RentSpread
Average RentSpread
Commencement 2022:
New
238,700
6.38
40.51
36.43
(0.09
(0.2
4.08
11.2
Renewal
1,745,982
2.50
32.62
32.90
36.29
(3.67
(10.1
(3.39
(9.3
Commencement 2022 Total
677
1,984,682
2.98
33.06
33.82
36.30
(3.24
(8.9
(2.48
(6.8
Commencement 2023:
25,416
7.45
52.86
56.29
44.65
8.21
18.4
11.64
26.1
195
600,285
2.64
35.26
35.55
34.29
0.97
1.26
Commencement 2023 Total
204
625,701
2.85
35.98
36.39
34.71
1.27
1.68
Total 2022/2023
881
2,610,383
2.95
33.76
34.44
35.92
(2.16
(6.0
(1.48
(4.1
Liquidity and Capital Resources
As of December 31, 2022, we had $337.1 million available in unrestricted cash and U.S. Treasury securities. Our total pro rata share of debt, excluding unamortized deferred financing costs and debt discounts, at December 31, 2022 was $2,744.0 million. We had $54.4 million in restricted cash at December 31, 2022 related to cash held in escrow accounts for insurance, real estate taxes, capital expenditures and tenant allowances as required by the terms of certain mortgage notes payable, as well as amounts related to cash management agreements with lenders of certain property-level mortgage indebtedness, which are designated for debt service and operating expense obligations. We also had restricted cash of $42.8 million related to the properties that secure the corporate term loan and the open-air centers and outparcels loan of which we may receive a portion via distributions semiannually and quarterly in accordance with the provisions of the term loan and the open-air centers and outparcels loan, respectively.
During the year ended December 31, 2022, we continued to reinvest the cash from maturing U.S. Treasury securities into new U.S. Treasury securities. We designated our U.S. Treasury securities as available-for-sale. As of December 31, 2022, our U.S. Treasury securities have maturities through November 2023. Subsequent to December 31, 2022, we redeemed additional U.S. Treasury securities. See Note 20 for additional information.
During 2022, we entered into five new loans that had a combined outstanding balance of $481.6 million at our share as of December 31, 2022. A portion of the loan proceeds was used to redeem all the senior secured notes. See Note 7 and Note 8 for additional information about the interest rate on each loan, the use of the loan proceeds, the maturity date on each loan and the property or properties that secure each loan.
During 2022, we modified two loans which resulted in a lower interest rate for one loan and a reduced loan balance on the other loan. Also, we extended the maturity dates on seven loans, which had a combined outstanding balance of $503.8 million at our share as of December 31, 2022. Lastly, we entered into five forbearance agreements with lenders and had the default waived on two loans related to the default that was triggered when we filed for bankruptcy. See Note 7 and Note 8 for additional information about the modifications, extensions and forbearance/waiver agreements.
In February 2022, we issued 10,982,795 shares of common stock to holders of the $150.0 million aggregate principal amount of exchangeable notes issued on the Effective Date, in satisfaction of principal, accrued interest and the make whole payment, and all the exchangeable notes were cancelled in accordance with the terms of the indenture.
In March 2022, we deconsolidated Greenbrier Mall as a result of losing control when the property was placed in receivership. In October 2022, the lender foreclosed on the $61.6 million loan secured by Greenbrier Mall.
In June 2022, we paid off the $14.9 million loan secured by CBL Center at maturity.
In June 2022, our board of directors established a regular quarterly dividend. We paid common stock dividends of $0.25 per share in each of the second, third and fourth quarters of 2022. In November 2022, our board of directors declared a special dividend of $2.20 per share of common stock, payable all in cash. The special dividend was paid on January 18, 2023, to stockholders of record as of the close of business on December 12, 2022. The special dividend was made to ensure that we met the minimum distribution requirement to maintain our status as a real estate investment trust. Subsequent to December 31, 2022, our board of directors declared a $0.375 per share regular quarterly dividend for the first quarter of 2023. See Note 20 for additional information.
During 2022, we completed the sale of eleven real estate assets which generated $13.4 million in gross proceeds, at our share.
54
Our total share of consolidated and unconsolidated outstanding debt, excluding debt discounts and deferred financing costs, maturing during 2023, assuming all extension options are elected, is $215.4 million, and our total share of consolidated and unconsolidated outstanding debt, excluding debt discounts and deferred financing costs, that matured prior to 2023, which remains outstanding at December 31, 2022, is $151.4 million. We are in discussions with the existing lenders to modify and extend or otherwise refinance the loans.
As of December 31, 2022, we had $553.9 million of property-level debt and related obligations, including unconsolidated debt and related obligations, maturing or callable within the next 12 months from the issuance of the financial statements. We are in discussions with the lenders regarding foreclosure actions for two properties totaling $70.4 million of mortgage notes payable and intend to refinance and/or extend the maturity dates for the remaining $483.5 million of such mortgage notes payable. In instances where a refinancing and/or extension of maturity dates is unsuccessful we will repay certain of the mortgage notes based on the availability of liquidity and convey certain properties to the lender to satisfy the debt obligation.
Unconsolidated Affiliates
We have ownership interests in 23 unconsolidated affiliates as of December 31, 2022. See Note 7 to the consolidated financial statements for more information. The unconsolidated affiliates are accounted for using the equity method of accounting and are reflected in the accompanying consolidated balance sheets as investments in unconsolidated affiliates.
The following are circumstances when we may consider entering into a joint venture with a third party:
Guarantees
We may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on our investment in the joint venture. We may receive a fee from the joint venture for providing the guaranty. Additionally, when we issue a guaranty, the terms of the joint venture agreement typically provide that we may receive indemnification from the joint venture partner or have the ability to increase our ownership interest.
See Note 14 to the consolidated financial statements for information related to our guarantees of unconsolidated affiliates' debt as of December 31, 2022 and 2021.
Material Cash Requirements
The following table summarizes our material cash requirements as of December 31, 2022 (in thousands):
Payments Due By Period
Less Than 1Year
1-3Years
3-5Years
More Than 5Years
Long-term debt:
Consolidated debt service (1)
2,492,860
520,262
1,100,946
792,837
78,815
Noncontrolling interests' share in other consolidated subsidiaries
(45,166
(15,638
(13,184
(9,635
(6,709
Our share of unconsolidated affiliates debt service (2)
777,234
238,493
337,283
56,244
145,214
Our share of total debt service obligations
3,224,928
743,117
1,425,045
839,446
217,320
Operating leases: (3)
Ground leases on consolidated properties
16,452
377
757
778
14,540
Purchase obligations: (4)
Construction contracts on consolidated properties
760
Our share of construction contracts on unconsolidated properties
2,559
Our share of total purchase obligations
3,319
Other contractual obligations: (5)
Master services agreements
26,457
Total material cash requirements
3,271,156
773,270
1,425,802
840,224
231,860
Liquidity Sources
We derive the majority of our revenues from leases with retail tenants, which have historically been the primary source for funding short-term liquidity and capital needs such as operating expenses, debt service, tenant construction allowances, recurring capital expenditures, dividends and distributions. We believe that the combination of cash flows generated from our operations, combined with cash on hand and our investment in U.S. Treasury securities will, for the foreseeable future, provide adequate liquidity to meet our cash needs. In addition to these factors, we have options available to us to generate additional liquidity, including but not limited to, joint venture investments, financing of currently unencumbered properties 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.
56
Cash Flows - Operating, Investing and Financing Activities
There was $141.9 million of cash, cash equivalents and restricted cash as of December 31, 2022, a decrease of $94.2 million from December 31, 2021. Of this amount, $44.7 million was unrestricted cash as of December 31, 2022. Also, at December 31, 2022, we had $292.4 million in U.S. Treasuries with maturities through November 2023. Our net cash flows are summarized as follows (in thousands):
Net cash provided by operating activities
208,234
57,049
107,059
133,365
Net cash (used in) provided by investing activities
(156,685
(139,016
247,494
(280,397
Net cash (used in) provided by financing activities
(145,798
(12,117
(145,993
209,696
Net cash flows
(94,249
(94,084
208,560
62,664
Cash Provided by Operating Activities
Cash provided by operating activities of the Successor was $208.2 million and $57.0 million for the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021, respectively. Cash provided by operating activities of the Predecessor was $107.1 million and $133.4 million for the period from January 1, 2021 through October 31, 2021 and the year ended December 31, 2020, respectively. Cash provided by operating activities of the Successor for the year ended December 31, 2022 reflects a significant increase in interest expense because we incurred interest expense on our new corporate and property-level debt during 2022. The Predecessor did not pay interest on the secured credit facility and senior unsecured notes during bankruptcy. The Successor also had higher general and administrative expenses during the year ended December 31, 2022 as we returned to normal operations and compensation practices following our emergence from bankruptcy, and because we incurred professional fees associated with loan modifications/extensions and obtained credit ratings on our secured term loan. Conversely, the Successor had higher same-center net operating income and a lower amount of reorganization items, net.
Cash (Used in) Provided by Investing Activities
Cash used in investing activities of the Successor was $156.7 million and $139.0 million for the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021, respectively. Cash provided by investing activities of the Predecessor was $247.5 million for the period from January 1, 2021 through October 31, 2021. Cash used in investing activities of the Predecessor was $280.4 million for the year ended December 31, 2020. During the year ended December 31, 2022, net cash used in investing activities of the Successor was higher primarily due to the timing of the reinvestment of cash in U.S. Treasury securities. During the Successor period from November 1, 2021 through December 31, 2021, there were certain redemptions of U.S. Treasury securities where the subsequent reinvestment in additional U.S. Treasury securities did not occur until after December 31, 2021. Also, the Successor had lower proceeds from sales of real estate assets during the year ended December 31, 2022. However, the Successor had higher distributions from unconsolidated affiliates during the year ended December 31, 2022.
Cash (Used in) Provided by Financing Activities
Cash used in financing activities of the Successor was $145.8 million and $12.1 million for the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021, respectively. Cash used in financing activities of the Predecessor was $146.0 million for the period from January 1, 2021 through October 31, 2021 and cash provided by financing activities of the Predecessor was $209.7 million for the year ended December 31, 2020. During the year ended December 31, 2022, net cash used in financing activities of the Successor was higher primarily due to principal payments on the secured term loan and dividends paid on our common stock, as well as due to costs incurred to obtain new mortgage loans. Proceeds received from the new mortgage loans were used to redeem all the senior secured notes and retire two mortgage notes payable.
Debt
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 our debt.
CBL is a limited guarantor of the secured term loan as described in Note 8 to the consolidated financial statements, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates.
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. Prior to consideration of unamortized deferred financing costs or debt discounts, of our $2,744.0 million in outstanding debt at December 31, 2022, $2,572.5 million constituted non-recourse debt obligations and $171.5 million constituted recourse debt obligations. We believe the tables below provide investors and lenders a clearer understanding of our total debt obligations and liquidity (in thousands):
December 31, 2022:
Consolidated
NoncontrollingInterests
UnconsolidatedAffiliates
Weighted-AverageInterestRate (1)
Fixed-rate debt:
Non-recourse loans on operating properties
843,634
(25,420
611,215
1,429,429
4.57%
180,000
6.95%
(2)
Recourse loans on operating properties
10,427
3.67%
Total fixed-rate debt
1,023,634
621,642
1,619,856
4.83%
Variable-rate debt:
56,490
(13,387
51,539
94,642
6.91%
20,045
7.54%
8.22%
6.87%
Total variable-rate debt
1,065,942
71,584
1,124,139
7.10%
Total fixed-rate and variable-rate debt
5.76%
(17,101
317
(2,142
Debt discounts (3)
(72,289
7,448
Total mortgage and other indebtedness, net
2,000,186
(31,042
691,084
58
December 31, 2021:
Other Debt (1)
Weighted-AverageInterestRate (2)
Non-recourse loans on operating properties (3)
916,927
(29,381
92,072
600,598
1,580,216
4.37%
Senior secured notes - at carrying value (fair value of $395,395 as of December 31, 2021)
395,000
10.00%
Exchangeable senior secured notes
7.00%
11,724
3.61%
1,461,927
612,322
2,136,940
5.84%
66,911
90,691
157,602
2.97%
880,091
3.75%
947,002
1,037,693
3.63%
2,408,929
703,013
3,174,633
5.12%
(1,567
(1,971
(3,538
Debt discounts (4)
(199,153
13,519
(185,634
2,208,209
(15,862
701,042
2,985,461
The following table presents our pro rata share of consolidated and unconsolidated debt as of December 31, 2022, excluding unamortized deferred financing costs and debt discounts, that is scheduled to mature in 2023 based on the original maturity date (in thousands):
Balance
Consolidated Properties:
(1)
24,863
(3)
268,102
Unconsolidated Properties:
Friendly Shopping Center
42,901
33,295
117,976
Total 2023 maturities at our pro rata share
386,078
Additionally, we have three loans, with an aggregate principal balance of $151.4 million at our share as of December 31, 2022, secured by Alamance Crossing East, WestGate Mall and West County Center that are past their maturity dates. The Company is in discussion with the lenders for the loans secured by Alamance Crossing East and WestGate Mall for foreclosure actions and is in discussion with the lender regarding restructuring or refinancing the loan secured by West County Center.
59
The weighted-average remaining term of our total share of consolidated and unconsolidated debt, excluding debt discounts and deferred financing costs, was 2.4 years and 3.3 years at December 31, 2022 and December 31, 2021, respectively. The weighted-average remaining term of our pro rata share of fixed-rate debt, excluding debt discounts and deferred financing costs, was 2.3 years and 3.2 years at December 31, 2022 and December 31, 2021, respectively.
As of December 31, 2022, our pro rata share of consolidated and unconsolidated variable-rate debt, excluding debt discounts and deferred financing costs, represented 41.0% of our total pro rata share of debt, excluding debt discounts and deferred financing costs. As of December 31, 2021, our pro rata share of consolidated and unconsolidated variable-rate debt, excluding debt discounts and deferred financing costs, represented 32.8% of our total pro rata share of debt, excluding debt discounts and deferred financing costs.
See Note 7 and Note 8 to the consolidated financial statements for additional information concerning the amount and terms of our outstanding indebtedness as of December 31, 2022.
We paid common stock dividends of $0.25 per share in each of the second, third and fourth quarters of 2022. Additionally, our board of directors declared a special dividend of $2.20 per share of common stock, which was paid in cash on January 18, 2023, to stockholders of record as of the close of business on December 12, 2022. The decision to declare and pay dividends on any outstanding shares of our common stock, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our board of directors and will depend on our earnings, taxable income, FFO, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our then-current indebtedness, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, Delaware law and such other factors as our board of directors deems relevant. Any dividends payable will be determined by our board of directors based upon the circumstances at the time of declaration. For additional information, see discussion presented under the subheading “Dividends” in Note 9 of this report. Our actual results of operations will be affected by a number of factors, including the revenues received from our properties, our operating expenses, interest expense, capital expenditures and the ability of the anchors and tenants at our properties to meet their obligations for payment of rents and tenant reimbursements. Subsequent to December 31, 2022, our board of directors declared a $0.375 per share regular quarterly dividend for the first quarter of 2023. See Note 20 for additional information.
On September 8, 2022, our board of directors adopted a short-term rights plan (the “Rights Plan”) that will expire on September 8, 2023, or sooner under certain circumstances. Pursuant to the Rights Plan, the board of directors authorized a dividend of one share purchase right (a “Right”) for each outstanding share of our common stock. If a person or group of affiliated or associated persons acquires beneficial ownership of 10.0% or more of our outstanding common shares, subject to certain exceptions (including exceptions for existing holders who do not increase their holdings as provided in the Rights Plan), each Right would effectively entitle its holder (other than the acquiring person or group of affiliated or associated persons) to purchase additional common shares at a substantial discount to the public market price. In addition, under certain circumstances, we may exchange the Rights (other than Rights beneficially owned by the acquiring person or group of affiliated or associated persons), in whole or in part, for common shares on a one-for-one basis, or we may redeem the Rights for cash at a price of $0.001 per Right.
As a publicly traded company, we previously accessed capital through both the public equity and debt markets. We had a shelf registration statement on Form S-3 on file with the SEC that expired in July 2021. Until we regain Form S-3 eligibility, we will be required to use a registration statement on Form S-11 to register securities with the SEC. We intend to regain eligibility to use Form S-3 as soon as is practicable; however, we cannot provide any assurance that we will be able to regain eligibility.
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Capital Expenditures
The following table, which excludes expenditures for developments and expansions, summarizes capital expenditures, including our share of unconsolidated affiliates' capital expenditures, for the Successor year ended December 31, 2022, the Successor period from November 1, 2021 through December 31, 2021 and the Predecessor period from January 1, 2021 through October 31, 2021 (in thousands):
Tenant allowances
19,885
1,013
10,639
Deferred maintenance:
Parking area and parking area lighting
5,528
198
1,038
Roof replacements
1,048
1,066
1,103
Other capital expenditures
10,839
1,955
4,636
Total deferred maintenance
17,415
3,219
6,777
Capitalized overhead
1,599
148
726
Capitalized interest
618
221
Total capital expenditures
39,517
4,601
18,275
Annual capital expenditures budgets are prepared for each of our properties that are intended to provide for all necessary recurring and non-recurring capital expenditures. We believe that property operating cash flows, which include reimbursements from tenants for certain expenses, will provide the necessary funding for these expenditures.
Developments and Redevelopments
Developments Completed During the Year Ended December 31, 2022
(Dollars in thousands)
CBL's Share of
CBLOwnershipInterest
TotalProjectSquare Feet
TotalCost (1)
Cost toDate (2)
2022Cost
OpeningDate
InitialUnleveragedYield
Outparcel Developments:
Kirkwood Mall - Five Guys, Blaze Pizza, Thrifty White, Pancheros, Chick-fil-A
Bismarck, ND
15,275
7,976
6,878
2,520
Q2 '22
8.9%
Redevelopments:
Dakota Square Herberger's - Five Below
9,502
1,834
1,995
Q4 '22
8.7%
Total Properties Completed
24,777
9,810
8,873
4,515
Properties under Development at December 31, 2022
Expected OpeningDate
Outparcel Development:
Mayfaire Town Center - hotel development
Wilmington, NC
49%
83,021
15,435
-
Spring '24
11.0%
The Terrace - Nordstrom Rack (former Staples)
24,155
2,527
1,622
Spring '23
13.0%
York Town Center - Burlington (former Bed Bath & Beyond)
28,000
1,247
987
18.5%
52,155
3,774
2,609
Total Properties Under Development
135,176
19,209
We are continually pursuing new redevelopment opportunities and have projects in various stages of pre-development. Except for the projects presented above, we did not have any other material capital commitments as of December 31, 2022.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP. In preparing our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made and if different estimates that are reasonably likely to occur could materially impact the financial statements. Management believes that the following critical accounting policies discussed in this section reflect its more significant estimates and assumptions used in preparation of the consolidated financial statements. We have reviewed these critical accounting estimates and related disclosures with the audit committee of our board of directors. See Note 2 of the consolidated financial statements, included in Item 8 of this Annual Report on Form 10-K for a discussion of our significant accounting policies.
Application of Fresh Start Accounting
As described in Note 19 to the consolidated financial statements, we applied Financial Accounting Standards Board (“FASB”) ASC 852 in preparing the consolidated financial statements. For periods subsequent to the filing of the Chapter 11 Cases and before emergence, ASC 852 requires distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business. Upon the effectiveness of the Plan and the emergence of the Debtors from the Chapter 11 Cases, the Company determined it qualified for fresh start accounting under ASC 852, which resulted in the Company becoming a new entity for financial reporting purposes on the Effective Date. We elected to apply fresh start accounting using a convenience date of October 31, 2021. We evaluated and concluded that the events on November 1, 2021 were not material to our financial reporting on both a quantitative and qualitative basis.
Enterprise Value
With the assistance of third-party valuation advisors, we determined the enterprise and corresponding equity value of the Successor using a calculation of the present value of future cash flows based on our financial projections. The enterprise value and corresponding equity value are dependent upon achieving the future financial results set forth in our valuations, as well as the realization of certain other assumptions. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the financial projections, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, we cannot assure you that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially.
Real Estate Assets
In developing the fair value estimates for the portfolio of our retail properties, all three traditional approaches to valuation were considered including the income approach, the sales comparison (market) approach and the cost approach. These valuation approaches have long been recognized as acceptable in the appropriate circumstances and in valuations of this type. Accordingly, all applicable properties were identified, investigated and examined by the valuation provider along with all intangible assets and liabilities associated with our properties. Furthermore, the valuation provider estimated the fair values and remaining useful lives ("RUL") of the related intangible assets and liabilities at the property-level, as applicable. In most cases, our properties included the following intangible assets/liabilities:
For the valuation of the tangible assets of each property, all pertinent information such as blueprints and drawings, property tax statements, prior appraisals and cost segregation reports were utilized. In terms of methodology, our properties were valued via the income approach in order to estimate building values. Separate values for the underlying land and site improvements were developed via the cost approach. As part of the allocation process, the fair value of the following tangible components was estimated:
63
Investment in Unconsolidated Affiliates
The fair value of our investment in unconsolidated affiliates for fresh start accounting was determined by valuing the underlying real estate assets associated with each unconsolidated joint venture in the same manner as all real estate assets, described above. We then calculated the net asset or liability value of each joint venture by applying the net working capital balance to the fair value of the real estate assets and the amount outstanding under any associated mortgage notes. The percentage of ownership interest in each joint venture was applied to the net asset or liability value which resulted in the fair value of each unconsolidated affiliate. See Note 2 for further information related to the equity method of accounting.
Right-of-Use Assets and Lease Liabilities
The fair value of lease liabilities was measured as the present value of the remaining lease payments, as if the lease were a new lease as of the Effective Date. We used our incremental borrowing rate (“IBR”) as the discount rate in determining the present value of the remaining lease payments, which was determined by a third-party valuation advisor using a fundamental credit rating analysis and an implied market yield analysis based on the newly issued Secured Notes. Based upon the corresponding lease term, the IBR was approximately 12%.
Mortgage Notes Payable
The fair value of the mortgage notes payable was estimated by a third-party valuation advisor based on an analysis of the Company’s collateral coverage, financial metrics and interest rate for each mortgage note payable relative to market rates. If there is a reasonable expectation that the debtor will be able to meet the financial obligations of the mortgage note payable, or the mortgage note payable is a recourse loan, then the value of the mortgage note is equal to the present value of the future mortgage note payments discounted at a rate of return commensurate with the risk associated with the mortgage note payments. If the debtor is unable, or if there is uncertainty if the debtor will be able, to meet the financial obligations of the mortgage note, then the value of the mortgage note payable is equal to the expected proceeds to be received through a liquidation of the underlying property at fair value.
Revenue Recognition and Accounts Receivable
Receivables include amounts billed and currently due from tenants pursuant to lease agreements and receivables attributable to straight-line rents associated with those lease agreements. Individual leases where the collection of rents is in dispute are assessed for collectability based on management’s best estimate of collection considering the anticipated outcome of the dispute. Individual leases that are not in dispute are assessed for collectability and upon the determination that the collection of rents over the remaining lease term is not probable, accounts receivable are reduced as an adjustment to rental revenues. Revenue from leases where collection is deemed to be less than probable is recorded on a cash basis until collectability is determined to be probable. Further, management assesses whether operating lease receivables, at a portfolio level, are appropriately valued based upon an analysis of balances outstanding, historical collection levels and current economic trends. An allowance for the uncollectable portion of the portfolio is recorded as an adjustment to rental revenues.
We review current economic considerations each reporting period, including the effects of tenant bankruptcies. Additionally, our assessment also takes into consideration the type of tenant and current discussions with the tenants regarding matters such as billing disputes, lease negotiations and executed deferrals or abatements, as well as recent rent payment and credit history. Evaluating and estimating uncollectable lease payments and related receivables requires a significant amount of judgment by management and is based on the best information available to management at the time of evaluation.
64
Carrying Value of Long-Lived Assets
We monitor events or changes in circumstances that could indicate the carrying value of a long-lived asset may not be recoverable. We use significant judgement in assessing events or circumstances which might indicate impairment, including but not limited to, changes in our intent to hold a long-lived asset over its previously estimated useful life. Changes in our intent to hold a long-lived asset have a significant impact on the estimated undiscounted cash flows expected to result from the use and eventual disposition of a long-lived asset and whether a potential impairment loss shall be measured. When indicators of potential impairment are present that suggest that the carrying amounts of a long-lived asset may not be recoverable, we assess the recoverability of the asset by determining whether the asset’s carrying value will be recovered through the estimated undiscounted future cash flows expected from our use and its eventual disposition. In the event that such undiscounted future cash flows do not exceed the carrying value, we adjust the carrying value of the long-lived asset to its estimated fair value and recognize an impairment loss. The estimated fair value is calculated based on the following information, in order of preference, depending upon availability: (Level 1) recently quoted market prices, (Level 2) market prices for comparable properties, or (Level 3) the present value of future cash flows, including estimated salvage value. Certain of our long-lived assets may be carried at more than an amount that could be realized in a current disposition transaction. We estimate future operating cash flows, the terminal capitalization rate and the discount rate, among other factors. As these assumptions are subject to economic and market uncertainties, they are difficult to predict and are subject to future events that may alter the assumptions used or management’s estimates of future possible outcomes. Therefore, the future cash flows estimated in our impairment analyses may not be achieved.
Investments in Unconsolidated Affiliates
On a periodic basis, we assess whether there are any indicators that the fair value of our investments in unconsolidated affiliates may be impaired. An investment is impaired only if our estimate of the fair value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the investment over the fair value of the investment. Our estimates of fair value for each investment are based on a number of assumptions such as future leasing expectations, operating forecasts, discount rates and capitalization rates, among others. These assumptions are subject to economic and market uncertainties including, but not limited to, demand for space, competition for tenants, changes in market rental rates, and operating costs. As these factors are difficult to predict and are subject to future events that may alter our assumptions, the fair values estimated in the impairment analyses may not be realized.
Recent Accounting Pronouncements
See Note 2 to the consolidated financial statements for information on recently issued accounting pronouncements.
Non-GAAP Measures
Funds from Operations
FFO is a widely used non-GAAP measure of the operating performance of real estate companies that supplements net income (loss) determined in accordance with GAAP. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) (computed in accordance with GAAP) excluding gains or losses on sales of depreciable operating properties and impairment losses of depreciable properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests. Adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests are calculated on the same basis. We define FFO as defined above by NAREIT. Our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
We believe that FFO provides an additional indicator of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assumes the value of real estate assets declines predictably over time. Since values of real estate assets have historically risen or fallen with market conditions, we believe that FFO enhances investors’ understanding of our operating performance. The use of FFO as an indicator of financial performance is influenced not only by the operations of our properties and interest rates, but also by our capital structure.
We believe FFO allocable to Operating Partnership common unitholders is a useful performance measure since we conduct substantially all our business through our Operating Partnership and, therefore, it reflects the performance of our properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in our Operating Partnership.
In our reconciliation of net loss attributable to common shareholders to FFO allocable to Operating Partnership common unitholders that is presented below, we make an adjustment to add back noncontrolling interest in income (loss) of our Operating Partnership in order to arrive at FFO of the Operating Partnership common unitholders.
FFO does not represent cash flows from operations as defined by GAAP, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to net income (loss) for purposes of evaluating our operating performance or to cash flow as a measure of liquidity.
We believe that it is important to identify the impact of certain significant items on our FFO measures for a reader to have a complete understanding of our results of operations. Therefore, we have also presented adjusted FFO measures excluding these significant items from the applicable periods. Please refer to the reconciliation of net loss attributable to common shareholders to FFO allocable to Operating Partnership common unitholders below for a description of these adjustments.
The reconciliation of net loss attributable to common shareholders to FFO allocable to Operating Partnership common unitholders is as follows (in thousands):
Net loss attributable to common shareholders
(96,019
(151,545
(470,627
(332,494
Noncontrolling interest in loss of Operating Partnership
(34
(2,473
(19,762
Dividends allocable to unvested restricted stock
2,537
Depreciation and amortization expense of:
Consolidated properties
215,030
Unconsolidated affiliates
56,734
Non-real estate assets
(1,050
(132
(1,593
(3,056
(3,638
Loss on impairment, net of taxes and noncontrolling interests' share
186
195,336
(Gain) loss on depreciable property, net of taxes
(629
(20
(7,890
FFO allocable to Operating Partnership common unitholders
178,616
(92,968
(144,738
108,175
Debt discount accretion, net of noncontrolling interests' share (1)
176,055
184,637
Adjustment for unconsolidated affiliates with negative investment (2)
Senior secured notes fair value adjustment (3)
(395
395
Prepetition charges (4)
23,883
Litigation settlement (5)
(7,855
Non-cash default interest expense (6)
(28,953
(6,471
35,072
13,096
Gain on deconsolidation (7)
Reorganization items, net of noncontrolling interests' share (8)
35,977
Gain on extinguishment of debt (9)
(7,344
(32,521
FFO allocable to Operating Partnership common unitholders, as adjusted
243,521
63,178
286,649
140,755
66
FFO of the Operating Partnership for the Successor year ended December 31, 2022 was $178.6 million. FFO of the Operating Partnership for the Successor period from November 1, 2021 through December 31, 2021 was a loss of $93.0 million. FFO of the Operating Partnership for the Predecessor period from January 1, 2021 through October 31, 2021 was a loss of $144.7 million. Excluding the adjustments noted above, FFO of the Operating Partnership, as adjusted, for the Successor year ended December 31, 2022 was $243.5 million. Excluding the adjustments noted above, FFO of the Operating Partnership, as adjusted, for the Successor period from November 1, 2021 through December 31, 2021 was $63.2 million. Excluding the adjustments noted above, FFO of the Operating Partnership, as adjusted, for the Predecessor period from January 1, 2021 through October 31, 2021 was $286.6 million. For the Successor year ended December 31, 2022, FFO of the Operating Partnership and FFO of the Operating Partnership, as adjusted, include the recognition of interest expense of $75.0 million by the Successor on the secured term loan, the exchangeable notes, the secured notes and the new loans entered into in 2022 that are secured by certain of our open-air centers and outparcels. Additionally, for the Successor year ended December 31, 2022, FFO of the Operating Partnership and FFO of the Operating Partnership, as adjusted, reflect higher general and administrative expenses and property operating expenses due to higher compensation and share-based compensation expenses as we returned to normal operations and compensation practices following our emergence from bankruptcy and increases in utility rates across our properties and the impact of wage inflation on third party contracts and services, respectively. The Predecessor did not recognize interest expense on the senior unsecured notes and the secured credit facility due to the bankruptcy filing.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risk exposures, including interest rate risk. The following discussion regarding our risk management activities includes forward-looking statements that involve risk and uncertainties. Estimates of future performance and economic conditions are reflected assuming certain changes in interest rates. Caution should be used in evaluating our overall market risk from the information presented below, as actual results may differ.
Interest Rate Risk
Based on our proportionate share of consolidated and unconsolidated variable-rate debt at December 31, 2022, a 0.5% increase or decrease in interest rates on variable rate debt would increase or decrease annual cash flows by approximately $5.6 million.
Based on our proportionate share of total consolidated and unconsolidated debt at December 31, 2022, a 0.5% increase in interest rates would decrease the fair value of debt by approximately $14.8 million, while a 0.5% decrease in interest rates would increase the fair value of debt by approximately $9.6 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index to Financial Statements and Schedules contained in Item 15 on page 72.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
Controls and Procedures with Respect to the Company
Conclusion Regarding Effectiveness of Disclosure Controls and Procedures
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of its effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report, to ensure that the information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and is accumulated and communicated to our management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The Company assessed the effectiveness of its internal control over financial reporting, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and concluded that, as of December 31, 2022, the Company maintained effective internal control over financial reporting, as stated in its report which is included herein.
Report of Management on Internal Control over Financial Reporting
Management of CBL & Associates Properties, Inc. and its consolidated subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Management recognizes that there are inherent limitations in the effectiveness of internal control over financial reporting, including the potential for human error or the circumvention or overriding of internal controls. Accordingly, even effective internal control over financial reporting cannot provide absolute assurance with respect to financial statement preparation. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. In addition, any projection of the evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the polices or procedures may deteriorate.
Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and concluded that, as of December 31, 2022, the Company maintained effective internal control over financial reporting.
Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has audited the Company's internal control over financial reporting as of December 31, 2022, as stated in their report which is included below.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the board of directors of CBL & Associates Properties, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of CBL & Associates Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control —Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated March 1, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 1, 2023
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated herein by reference to the sections entitled “ELECTION OF DIRECTORS–General,” “ELECTION OF DIRECTORS-Delaware Lawsuit Concerning 2022 Annual Meeting Record Date,” “ELECTION OF DIRECTORS–Director Nominees," "ELECTION OF DIRECTORS–Additional Executive Officers,” “CORPORATE GOVERNANCE MATTERS–Code of Business Conduct and Ethics,” “CORPORATE GOVERNANCE MATTERS–Board of Directors’ Meetings and Committees – The Audit Committee,” and “Delinquent Section 16(a) Reports” in our definitive proxy statement which will be filed with the SEC within 120 days of December 31, 2022, with respect to our Annual Meeting of Stockholders to be held on May 24, 2023.
Our board of directors has determined that each of Marjorie L. Bowen, David J. Contis and Robert G. Gifford, each, an independent director and member of the audit committee, qualifies as an “audit committee financial expert” as such term is defined by the rules of the SEC.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the sections entitled “DIRECTOR COMPENSATION,” “EXECUTIVE COMPENSATION,” “REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS” and “Compensation Committee Interlocks and Insider Participation” in our definitive proxy statement which will be filed with the SEC within 120 days of December 31, 2022, with respect to our Annual Meeting of Stockholders to be held on May 24, 2023.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Incorporated herein by reference to the sections entitled “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” and “Equity Compensation Plan Information as of December 31, 2022”, in our definitive proxy statement which will be filed with the SEC within 120 days of December 31, 2022, with respect to our Annual Meeting of Stockholders to be held on May 24, 2023.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated herein by reference to the sections entitled “CORPORATE GOVERNANCE MATTERS–Director Independence” and “CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS”, in our definitive proxy statement which will be filed with the SEC within 120 days of December 31, 2022, with respect to our Annual Meeting of Stockholders to be held on May 24, 2023.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated herein by reference to the section entitled “Independent Registered Public Accountants’ Fees and Services” under “RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS” in our definitive proxy statement which will be filed with the SEC within 120 days of December 31, 2022, with respect to our Annual Meeting of Stockholders to be held on May 24, 2023.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
73
PCAOB ID: 34
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the Year Ended December 31, 2022 and for the Period November 1, 2021 through December 31, 2021 (Successor); and for the Period January 1, 2021 through October 31, 2021 and for the Year Ended December 31, 2020 (Predecessor)
Consolidated Statements of Comprehensive Loss for the Year Ended December 31, 2022 and for the Period November 1, 2021 through December 31, 2021 (Successor); and for the Period January 1, 2021 through October 31, 2021 and for the Year Ended December 31, 2020 (Predecessor)
Consolidated Statements of Equity for the Year Ended December 31, 2022, and for the Period November 1, 2021 through December 31, 2021 (Successor); and for the Period January 1, 2021 through October 31, 2021 and for the Year Ended December 31, 2020, (Predecessor)
Consolidated Statements of Cash Flows for the Year Ended December 31, 2022 and for the Period November 1, 2021 through December 31, 2021 (Successor); and for the Period January 1, 2021 through October 31, 2021 and the Year Ended December 31, 2020, (Predecessor)
80
Notes to Consolidated Financial Statements
Consolidated Financial Statement Schedules
Schedule III Real Estate and Accumulated Depreciation
127
Schedule IV Mortgage Loans on Real Estate
132
Financial statement schedules not listed herein are either not required or are not present in amounts sufficient to require submission of the schedule or the information required to be included therein is included in our consolidated financial statements in Item 15 or are reported elsewhere.
Exhibits
The Exhibit Index preceding the Signature pages to this report is incorporated by reference into this Item 15(a)(3).
ITEM 16. FORM 10-K SUMMARY
To the shareholders and the board of directors of CBL & Associates Properties, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CBL & Associates Properties, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, equity, and cash flows, for the year ended December 31, 2022 and the two months ended December 31, 2021 (Successor Company operations), the ten months ended October 31, 2021, and for the year ended December 31, 2020 (Predecessor Company operations) and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the Successor Company financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the year ended December 31, 2022 and the two months ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Further in our opinion, the Predecessor Company financial statements present fairly, in all material respects, the results of its operations and its cash flows for the ten months ended October 31, 2021, and for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Fresh-Start Accounting
As discussed in Note 18 to the financial statements, the Bankruptcy Court entered an order confirming the plan of reorganization which became effective on November 1, 2021. Accordingly, the accompanying financial statements have been prepared in conformity with FASB Accounting Standards Codification 852, Reorganizations, for the Successor Company as a new entity with assets, liabilities and a capital structure having carrying values not comparable with prior periods as described in Note 19 to the financial statements.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Real Estate Assets – Change in Management’s Intent — Refer to Note 2 to the financial statements
Critical Audit Matter Description
As of December 31, 2022, the Company owned controlling interests in 68 regional malls/open-air and lifestyle and outlet centers and 4 other properties and had a total net investment in real estate assets of $1.7 billion. The Company performs an impairment analysis on these long-lived assets if events or changes in circumstances indicate that the carrying value of any of its long-lived assets may not be recoverable. The Company uses significant judgement in assessing events or circumstances which might indicate impairment, including but not limited to, changes in management’s intent to hold a long-lived asset over its previously estimated useful life. Changes in management’s intent to hold a long-lived asset has a significant impact on the estimated undiscounted cash flows expected to result from the use and eventual disposition of a long-lived asset and whether a potential impairment loss shall be measured.
The Company’s use of judgement in the determination of its current intentions with respect to its long-lived assets as part of their impairment indicator assessment is subjective and requires judgment. Because of this, auditing these judgements required a high degree of auditor judgment and extensive auditor effort, especially given the inherent unpredictability involved in the timing of a sale or other disposition significantly before the end of its previously estimated useful life.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to changes in management’s intent with respect to its long-lived assets included the following, among others:
We have served as the Company's auditor since 2002.
Consolidated Balance Sheets
(In thousands, except share data)
December 31,
ASSETS (1)
Real estate assets:
Land
596,715
599,283
Buildings and improvements
1,198,597
1,173,106
1,795,312
1,772,389
Accumulated depreciation
(136,901
(19,939
1,658,411
1,752,450
Developments in progress
5,576
16,665
Net investment in real estate assets
1,663,987
1,769,115
Cash and cash equivalents
44,718
169,554
Available-for-sale securities - at fair value (amortized cost of $293,476 and $149,999 as of December 31, 2022 and 2021, respectively)
292,422
149,996
Receivables:
40,620
25,190
3,876
4,793
Investments in unconsolidated affiliates
77,295
103,655
In-place leases, net
247,497
384,705
Above market leases, net
171,265
234,286
Intangible lease assets and other assets
136,563
104,685
2,678,243
2,945,979
LIABILITIES AND EQUITY
Mortgage and other indebtedness, net
1,813,209
10% senior secured notes - at fair value (carrying amount of $395,000 as of December 31, 2021)
395,395
Below market leases, net
110,616
151,871
Accounts payable and accrued liabilities
200,312
184,404
Total liabilities (1)
2,311,114
2,544,879
Commitments and contingencies (Note 8 and Note 14)
Shareholders' equity:
Common stock, $.001 par value, 200,000,000 shares authorized, 31,780,109 and 20,774,716 issued and outstanding in 2022 and 2021, respectively
Additional paid-in capital
710,497
547,726
Accumulated other comprehensive loss
(1,054
Accumulated deficit
(338,934
Total shareholders' equity
370,541
396,199
Noncontrolling interests
(3,412
4,901
Total equity
367,129
401,100
The accompanying notes are an integral part of these consolidated statements.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Period from November 1, through December 31,
Period from January 1, through October 31,
Year EndedDecember 31,
REVENUES:
554,064
6,800
14,997
575,861
EXPENSES:
(84,061
(215,030
(69,686
(34,132
(53,425
(213,358
7,855
Prepetition charges
(23,883
(953
Total expenses
(686,673
OTHER INCOME (EXPENSES):
Interest and other income
4,938
510
2,055
6,396
(217,342
(195,488
(72,415
(200,663
Gain on extinguishment of debt
7,344
32,521
36,250
19,126
55,131
(39
Gain (loss) on sales of real estate assets
5,345
12,187
4,696
Reorganization items, net
298
(1,403
(435,162
(35,977
Income tax (provision) benefit
(3,079
5,885
(1,078
(16,836
Equity in earnings (losses) of unconsolidated affiliates
19,796
797
(10,823
(14,854
Total other expenses
(146,489
(170,576
(450,105
(224,717
(335,529
Net loss attributable to noncontrolling interests in:
Operating Partnership
2,473
19,762
Other consolidated subsidiaries
20,683
Net loss attributable to the Company
(93,482
(295,084
Preferred dividends undeclared
(37,410
(2,537
Basic and diluted per share data attributable to common shareholders:
(3.20
(7.50
(2.39
(1.75
Weighted-average common and potential dilutive common shares outstanding
30,046
20,208
196,591
190,277
Consolidated Statements of Comprehensive Loss
Other comprehensive gain (loss):
Unrealized (loss) gain on available-for-sale securities
(1,051
(18
Comprehensive loss
(100,566
(152,734
(486,431
(335,511
Comprehensive loss attributable to noncontrolling interests in:
Comprehensive loss attributable to the Company
(94,533
(151,548
(470,645
(295,066
Comprehensive loss attributable to common shareholders
(97,070
Consolidated Statements of Equity
(in thousands, except share data)
Shareholders' Equity
RedeemableNoncontrollingInterests
PreferredStock
CommonStock
AdditionalPaid-inCapital
AccumulatedOtherComprehensiveIncome (Loss)
DividendsinExcess ofCumulativeEarnings
TotalShareholders'Equity
TotalEquity
Balance, December 31, 2019 (Predecessor)
2,160
1,741
1,965,897
(1,161,351
806,312
55,553
861,865
(2,727
(37,718
(332,802
Other comprehensive income
Conversion of 20,956,110 Partnership common units
210
20,953
21,163
(21,163
Issuance of 1,639,236 shares of common stock and restricted common stock
522
538
Cancellation of 140,540 shares of restricted common stock
(1
(115
(116
Amortization of deferred compensation
1,769
Performance stock units
3,548
Adjustment for noncontrolling interests
302
(6,305
6,002
(303
Distributions to noncontrolling interests
(912
Contributions from noncontrolling interests
692
Balance, December 31, 2020 (Predecessor)
(265
1,966
1,986,269
(1,456,435
531,843
2,454
534,297
(773
(15,013
(485,640
Other comprehensive loss
Cancellation of 138,518 shares of restricted stock
(30
(31
Conversion of 1,193,978 Operating Partnership common units into shares of common stock
194
206
(206
896
311
(871
865
(6
(1,454
Cancellation of 201,549,255 shares of Predecessor equity
1,032
(25
(1,977
(1,986,769
1,927,062
(61,709
1,645
(60,064
Fresh start accounting adjustments to noncontrolling interest
17,216
Issuance of 17,800,000 shares of Successor equity to noteholders and holders of unsecured claims
487,462
487,480
Issuance of 2,200,000 shares of Successor Equity to Predecessor shareholders and common unit holders
59,966
59,968
282
60,250
Balance, October 31, 2021 (Predecessor)
547,428
547,448
6,087
553,535
Balance, November 1, 2021 (Successor)
(1,186
299
Issuance of 784,999 shares of restricted common stock
Balance, December 31, 2021 (Successor)
(Continued)
AccumulatedOtherComprehensiveLoss
AccumulatedDeficit
(6,033
Dividends declared - common stock
(93,907
Issuance of 115,884 shares of restricted common stock
(100
(2,769
Cancellation of 93,286 shares of restricted common stock
(1,741
7,400
Compensation expense related to performance stock units
4,485
Conversion of exchangeable notes into 10,982,795 shares of common stock
152,527
152,538
Balance, December 31, 2022 (Successor)
Consolidated Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash provided by operating activities:
Net amortization of deferred financing costs, discounts and premiums on available-for-sale securities and debt discounts
117,489
174,439
1,877
8,764
Reorganization items (non-cash)
256,433
25,294
Net amortization of intangible lease assets and liabilities
20,798
3,346
659
(574
(4,696
Gain on insurance proceeds
(687
(433
(1,644
Write-off of development projects
952
Share-based compensation expense
11,885
5,819
146,781
213,358
Equity in (earnings) losses of unconsolidated affiliates
(19,796
(797
10,823
14,854
Distributions of earnings from unconsolidated affiliates
23,905
2,247
16,358
10,093
Change in estimate of uncollectable revenues
(4,463
1,008
5,692
49,329
Change in deferred tax accounts
1,128
(10,853
14,558
Changes in:
Tenant and other receivables
(10,494
25,707
(75,109
Other assets
(355
1,120
368
(10,070
(40,157
13,611
35,587
35,457
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate assets
(39,064
(5,455
(26,168
(53,453
Acquisitions of real estate assets
(5,766
Proceeds from sales of real estate assets
9,633
33,265
7,817
Purchases of available-for-sale securities
(741,042
(449,986
(787,746
(235,182
Proceeds from disposal of investments
7,103
Redemptions of available-for-sale securities
600,697
299,988
1,019,735
Proceeds from insurance
743
1,064
988
Payments received on mortgage and other notes receivable
840
1,095
Additional investments in and advances to unconsolidated affiliates
(3,269
(1,126
327
(11,024
Distributions in excess of equity in earnings of unconsolidated affiliates
25,547
10,758
10,689
10,625
Changes in other assets
(4,238
(311
(4,512
(1,263
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and other indebtedness
425,000
50,041
365,246
Principal payments on mortgage and other indebtedness
(524,171
(11,690
(194,283
(154,658
Additions to deferred financing costs
(18,834
(427
(1,684
(590
Proceeds from issuances of common stock
Payment of tax withholdings for restricted stock awards
(1,740
(11
(87
(354
Dividends paid to common shareholders
(23,873
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
236,198
330,282
121,722
59,058
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
141,949
Reconciliation from consolidated statements of cash flows to consolidated balance sheets:
260,207
61,781
Restricted cash (1):
Restricted cash
58,182
33,012
33,876
37,320
Mortgage escrows
39,049
33,632
36,199
22,621
SUPPLEMENTAL INFORMATION
Cash paid for interest, net of amounts capitalized
124,149
11,589
43,176
125,366
Cash paid for reorganization items
6,532
525
178,944
301
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and unit data)
NOTE 1. ORGANIZATION
CBL & Associates Properties, Inc. ("CBL"), a Delaware corporation, is a self-managed, self-administered, fully-integrated real estate investment trust ("REIT") that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, lifestyle centers, open-air centers, outlet centers, office buildings and other properties, including single-tenant and multi-tenant outparcels. Its properties are located in 22 states but are primarily in the southeastern and midwestern United States.
CBL conducts substantially all its business through CBL & Associates Limited Partnership (the "Operating Partnership"), which is a variable interest entity ("VIE"). The Operating Partnership consolidates the financial statements of all entities in which it has a controlling financial interest or where it is the primary beneficiary of a VIE. As of December 31, 2022, the Operating Partnership owned interests in the following properties:
Malls (1)
Outlet Centers (1)
Lifestyle Centers (1)
Open-Air Centers (2)
Other (2)(3)
Consolidated Properties
Unconsolidated Properties (4)
The Malls, Outlet Centers, Lifestyle Centers, Open-Air Centers and Other are collectively referred to as the “properties” and individually as a “property.”
CBL is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At December 31, 2022, CBL Holdings I, Inc., the sole general partner of the Operating Partnership, owned a 1.0% general partner interest in the Operating Partnership and CBL Holdings II, Inc. owned a 98.97% limited partner interest for a combined interest held by CBL of 99.97%. As of December 31, 2022, third parties owned a 0.03% limited partner interest in the Operating Partnership.
As used herein, the term "Company" includes CBL & Associates Properties, Inc. and its subsidiaries, including CBL & Associates Limited Partnership and its subsidiaries, unless the context indicates otherwise. The term "Operating Partnership" refers to CBL & Associates Limited Partnership and its subsidiaries.
The Operating Partnership conducts the Company's property management and development activities through its wholly owned subsidiary, CBL & Associates Management, Inc. (the “Management Company"), to comply with certain requirements of the Internal Revenue Code.
Fresh Start Accounting and Reorganizations
As discussed in Note 19, upon the Company’s emergence from the voluntary petitions filed (the “Chapter 11 Cases”) under chapter 11 of title 11 (“Chapter 11”) of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”), the Company adopted fresh start accounting, which resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the Plan (defined below), the consolidated financial statements after November 1, 2021 (the "Effective Date"), are not comparable with the consolidated financial statements on or before that date. The lack of comparability is emphasized by the use of a “black line” to separate the Predecessor (defined below) and Successor (defined below) periods in the consolidated financial statements and footnote tables. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the Company after the Effective Date. References to "Predecessor" or "Predecessor Company" refer to the financial position and results of operations of the Company on or before the Effective Date. See Note 19 for additional information.
During the Predecessor period, the Company applied Accounting Standards Codification (“ASC”) 852 - Reorganizations (“ASC 852”) in preparing the consolidated financial statements. ASC 852 requires the financial statements, for periods subsequent to the commencement of the Chapter 11 Cases, to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. In addition, the Company classified all expenses, gains and losses that were incurred as a result of the Chapter 11 proceedings since filing as “Reorganization items, net” in the consolidated statements of operations.
Reclassifications
The Successor Company reclassified mortgage and other notes receivable of $384 into other receivables at December 31, 2021 to conform with the current period presentation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the consolidated accounts of the Successor Company and the Predecessor Company, as well as entities in which the Successor Company or the Predecessor Company has a controlling financial interest or entities where the Successor Company or the Predecessor Company is deemed to be the primary beneficiary of a VIE. For entities in which the Successor Company or the Predecessor Company has less than a controlling financial interest or entities where the Company is not deemed to be the primary beneficiary of a VIE, the entities are accounted for using the equity method of accounting. Accordingly, the Successor Company's or the Predecessor Company’s share of the net earnings or losses of these entities is included in consolidated net income (loss). The accompanying consolidated financial statements have been prepared in accordance with GAAP. All intercompany transactions have been eliminated.
Accounting Guidance Not Yet Adopted
Description
Financial Statement Effect and Other Information
Accounting Standards Update ("ASU") 2020-04 and ASU 2022-06, Reference Rate Reform
On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. This ASU was effective as of March 12, 2020 through December 31, 2022. On December 21, 2022, the FASB issued ASU 2022-06 to defer the sunset date of ASC 848 until December 31, 2024. The Successor Company has not adopted any of the optional expedients or exceptions as of December 31, 2022. The Successor Company does not anticipate needing to adopt this guidance, but will continue to monitor its contracts and evaluate the possible adoption of any such expedients or exceptions during the effective period to determine the impact on its consolidated financial statements.
The Company capitalizes predevelopment project costs paid to third parties. All previously capitalized predevelopment costs are expensed when it is no longer probable that the project will be completed. Once development of a project commences, all direct costs incurred to construct the project, including interest and real estate taxes, are capitalized. Additionally, certain general and administrative expenses are allocated to the projects and capitalized based on the amount of time applicable personnel work on the development project. Ordinary repairs and maintenance are expensed as incurred. Major replacements and improvements are capitalized and depreciated over their estimated useful lives.
All real estate assets acquired prior to and after the Effective Date have been accounted for using the acquisition method of accounting and accordingly, the results of operations are included in the consolidated statements of operations from the respective dates of acquisition. The Company allocates the purchase price to (i) tangible assets, consisting of land, buildings and improvements, as if vacant, and tenant improvements, and (ii) identifiable intangible assets and liabilities, generally consisting of above-market leases, in-place leases and tenant relationships, which are included in intangible lease assets and other assets, and below-market leases, which are included in accounts payable and accrued liabilities. The Company uses estimates of fair value based on estimated cash flows, using appropriate discount rates, and other valuation techniques to allocate the purchase price to the acquired tangible and intangible assets. Liabilities assumed generally consist of mortgage debt on the real estate assets acquired. Assumed debt is recorded at its fair value based on estimated market interest rates at the date of acquisition. The Successor Company expects its future acquisitions will be accounted for as acquisitions of assets in which related transaction costs will be capitalized.
Depreciation is computed on a straight-line basis over estimated lives of 30 years for buildings, 10 to 20 years for certain improvements and 5 to 10 years for equipment and fixtures. Tenant improvements are capitalized and depreciated on a straight-line basis over the term of the related lease. Lease-related intangibles from acquisitions of real estate assets are generally amortized over the remaining terms of the related leases. The amortization of above- and below-market leases is recorded as an adjustment to rental revenue, while the amortization of all other lease-related intangibles is recorded as amortization expense. Any difference between the face value of the debt assumed and its fair value is amortized to interest expense over the remaining term of the debt using the effective interest method.
The Successor Company’s intangibles and their balance sheet classifications as of December 31, 2022 and 2021, respectively, are summarized as follows:
December 31, 2022
December 31, 2021
Cost
AccumulatedAmortization
Above-market leases
241,048
(69,783
244,575
(10,289
In-place leases
396,515
(149,018
412,683
(27,979
Intangible lease assets and other assets:
Tenant relationships
2,523
(12
Below-market leases
153,273
(42,657
158,300
(6,429
These intangibles are related to specific tenant leases. Should a termination occur earlier than the date indicated in the lease, the related unamortized intangible assets or liabilities, if any, related to the lease are recorded as expense or income, as applicable. The total net amortization expense of the above intangibles for the Successor Company for the year ended December 31, 2022 was $152,174. The total net amortization expense of the above intangibles for the Successor Company for the period from November 1, 2021 through December 21, 2021 was $32,164. The total net amortization expense of the above intangibles for the Predecessor Company for the period from January 1, 2021 through October 31, 2021 was $1,195. The total net amortization expense of the above intangibles for the Predecessor Company for the year ended December 31, 2020 was $1,460. The estimated total net amortization expense for the next five succeeding years is $104,015 in 2023, $69,814 in 2024, $46,481 in 2025, $29,913 in 2026 and $19,098 in 2027.
The Successor Company capitalized interest expense of $618 for the year ended December 31, 2022. The Successor Company capitalized interest expense of $216 during the period from November 1, 2021 through December 31, 2021. The Predecessor Company did not capitalize interest expense during the period from January 1, 2021 through October 31, 2021. Total interest expense capitalized during the Predecessor year ended December 31, 2020 was $1,640.
83
Accounts Receivable
Receivables include amounts billed and currently due from tenants pursuant to lease agreements and receivables attributable to straight-line rents associated with those lease agreements. Individual leases where the collection of rents is in dispute are assessed for collectability based on management’s best estimate of collection considering the anticipated outcome of the dispute. Individual leases that are not in dispute are assessed for collectability and upon the determination that the collection of rents over the remaining lease term is not probable, accounts receivable is reduced as an adjustment to rental revenues. Revenue from leases where collection is deemed to be less than probable is recorded on a cash basis until collectability is determined to be probable. Further, management assesses whether operating lease receivables, at a portfolio level, are appropriately valued based upon an analysis of balances outstanding, historical collection levels and current economic trends. An allowance for the uncollectable portion of the portfolio is recorded as an adjustment to rental revenues.
Management’s collection assessment took into consideration the type of retailer, billing disputes, lease negotiation status and executed deferral or abatement agreements, as well as recent rent collection experience and tenant bankruptcies based on the best information available to management at the time of evaluation.
For the year ended December 31, 2022, there was a reversal of $4,463 related to uncollectable revenues, which includes the write-off of $102 for straight line rent receivables. For the period November 1, 2021 through December 31, 2021, the Successor Company recorded $1,008 associated with uncollectable revenues, which includes $1,717 for straight line rent receivables. For the period from January 1, 2021 through October 31, 2021 the Predecessor Company recorded $5,692 associated with uncollectable revenues, which includes $2,806 for straight line rent receivables. For the year ended December 31, 2020, the Predecessor Company recorded $48,240 associated with uncollectable revenues, which includes $5,603 for straight line rent receivables.
The Company monitors events or changes in circumstances that could indicate the carrying value of a long-lived asset may not be recoverable. The Company uses significant judgement in assessing events or circumstances which might indicate impairment, including but not limited to, changes in management’s intent to hold a long-lived asset over its previously estimated useful life. Changes in management’s intent to hold a long-lived asset have a significant impact on the estimated undiscounted cash flows expected to result from the use and eventual disposition of a long-lived asset and whether a potential impairment loss shall be measured. When indicators of potential impairment are present that suggest that the carrying amounts of a long-lived asset may not be recoverable, the Company assesses the recoverability of the asset by determining whether the asset’s carrying value will be recovered through the estimated undiscounted future cash flows expected from the Company’s use and its eventual disposition. In the event that such undiscounted future cash flows do not exceed the carrying value, the Company adjusts the carrying value of the long-lived asset to its estimated fair value and recognizes an impairment loss. The estimated fair value is calculated based on the following information, in order of preference, depending upon availability: (Level 1) recently quoted market prices, (Level 2) market prices for comparable properties, or (Level 3) the present value of future cash flows, including estimated salvage value. Certain of the Company’s long-lived assets may be carried at more than an amount that could be realized in a current disposition transaction. The Company estimates future operating cash flows, the terminal capitalization rate and the discount rate, among other factors. As these assumptions are subject to economic and market uncertainties, they are difficult to predict and are subject to future events that may alter the assumptions used or management’s estimates of future possible outcomes. Therefore, the future cash flows estimated in the Company’s impairment analyses may not be achieved. See Note 15 for information related to the impairment of long-lived assets in 2022, 2021 and 2020.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less as cash equivalents.
Restricted Cash
Restricted cash of $97,231 and $66,644 was included in intangible lease assets and other assets at December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, restricted cash was related to cash held in escrow accounts for insurance, real estate taxes, capital expenditures and tenant allowances as required by the terms of certain mortgage notes payable, as well as amounts related to cash management agreements with the Company’s lenders that are designated for debt service and operating expense obligations. As of December 31, 2022, restricted cash was also related to properties that secure the corporate term loan and the open-air centers and outparcels loan of which we may receive a portion via distributions semiannually and quarterly in accordance with the provisions of the term loan and the open-air centers and outparcels loan, respectively.
The Company evaluates its joint venture arrangements to determine whether they should be recorded on a consolidated basis. The percentage of ownership interest in the joint venture, an evaluation of control and whether a VIE exists are all considered in the Company’s consolidation assessment.
Initial investments in joint ventures that are in economic substance a capital contribution to the joint venture are recorded in an amount equal to the cash contributed by the Company and the fair value of any real estate contributed. Initial investments in joint ventures that are in economic substance the sale of a portion of the Company’s interest in the real estate are accounted for as a contribution of real estate recorded in an amount equal to the fair value of the ownership interest retained and as a sale of real estate with profit recognized to the extent of the other joint venture partners’ interests in the joint venture. Profit recognition assumes the Company has no commitment to reinvest with respect to the percentage of the real estate sold and the accounting requirements of the full accrual method are met.
The Company accounts for its investment in joint ventures where it owns a noncontrolling interest or where it is not the primary beneficiary of a VIE using the equity method of accounting. Under the equity method, the Company’s cost of investment is adjusted for additional contributions to and distributions from the unconsolidated affiliate, as well as its share of equity in the earnings of the unconsolidated affiliate. Generally, distributions of cash flows from operations and capital events are first made to partners to pay cumulative unpaid preferences on unreturned capital balances and then to the partners in accordance with the terms of the joint venture agreements.
On a periodic basis, the Company assesses whether there are any indicators that the fair value of the Company's investments in unconsolidated affiliates may be impaired. An investment is impaired only if the Company’s estimate of the fair value of the investment is less than the carrying value of the investment and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the investment over the estimated fair value of the investment. The Company's estimates of fair value for each investment are based on a number of assumptions that are subject to economic and market uncertainties including, but not limited to, demand for space, competition for tenants, changes in market rental rates, and operating costs. As these factors are difficult to predict and are subject to future events that may alter the Company’s assumptions, the fair values estimated in the impairment analyses may not be realized. No impairment charges were recorded for the Successor year ended December 31, 2022 and the Successor period from November 1, 2021 through December 31, 2021. No impairment charges were recorded for the Predecessor period from January 1, 2021 through October 31, 2021 and the Predecessor year ended December 31, 2020.
Deferred Financing Costs
During 2020, as a result of the Chapter 11 Cases, unamortized financing costs of $16,779 related to the Predecessor Company's secured credit facility and senior unsecured notes were charged to expense and were recorded as “Reorganization items, net” within the Predecessor Company’s consolidated statements of operations. Unamortized financing costs of $17,101 and $1,568 for the Successor Company were included in mortgage and other indebtedness, net, at December 31, 2022 and 2021, respectively. Deferred financing costs include fees and costs incurred to obtain financing and are amortized on a straight-line basis to interest expense over the terms of the related indebtedness. Amortization expense related to deferred financing costs for the Successor Company for the year ended December 31, 2022 and for the period November 1, 2021 through December 31, 2021 was $2,744 and $51, respectively. Amortization expense related to deferred financing costs for the Predecessor Company for the period from January 1, 2021 through October 31, 2021 and the year ended December 31, 2020 was $814 and $5,476, respectively. Accumulated amortization of deferred financing costs was $2,733 and $19 for the Successor Company as of December 31, 2022 and 2021, respectively. See Note 19 for information regarding unamortized financing costs that were charged to expense in connection with Fresh Start Accounting.
Revenue Recognition
See Note 3 and Note 4 for a description of the Company's revenue streams.
Gain on Sales of Real Estate Assets
Gains on the sale of real estate assets, like all non-lease related revenue, are subject to a five-step model requiring that the Company identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue upon satisfaction of the performance obligations. In circumstances where the Company contracts to sell a property with material post-sale involvement, such involvement must be accounted for as a separate performance obligation in the contract and a portion of the sales price allocated to each performance obligation. When the post-sale involvement performance obligation is satisfied, the portion of the sales price allocated to it will be recognized as gain on sale of real estate assets. Property dispositions with no continuing involvement will continue to be recognized upon closing of the sale.
Income Taxes
The Company is qualified as a REIT under the provisions of the Internal Revenue Code. To maintain qualification as a REIT, the Company is required to distribute at least 90% of its taxable income to shareholders and meet certain other requirements.
As a REIT, the Company is generally not liable for federal corporate income taxes. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal and state income taxes on its taxable income at regular corporate tax rates. Even if the Company maintains its qualification as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed income. For the year ended December 31, 2022, the Successor Company had state tax expense of $1,631. The Successor Company had state tax expense of $142 for the period from November 1, 2021 through December 31, 2021. State tax expense for the Predecessor Company was $2,992 during the period from January 1, 2021 through October 31, 2021. State tax expense for the Predecessor Company was $2,882 for the year ended December 31, 2020.
The Company has also elected taxable REIT subsidiary status for some of its subsidiaries. This enables the Company to receive income and provide services that would otherwise be impermissible for REITs. For these entities, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for deferred tax assets is provided if the Company believes all or some portion of the deferred tax asset may not be realized. An increase or decrease in the valuation allowance that results from the change in circumstances that causes a change in the Company’s judgment about the realizability of the related deferred tax asset is included in income or expense, as applicable.
The Successor and Predecessor Company recorded an income tax (provision) benefit as follows:
Current tax provision
(1,951
(4,968
(2,278
Deferred tax (provision) benefit
(1,128
10,853
(14,558
The Successor Company had a net deferred tax asset of $9,726 and $10,853 at December 31, 2022 and 2021, respectively. The net deferred tax asset at December 31, 2022 and 2021 is included in intangible lease assets and other assets. As of December 31, 2022, tax years that generally remain subject to examination by the Company’s major tax jurisdictions include 2022, 2021, 2020 and 2019.
The Company reports any income tax penalties attributable to its properties as property operating expenses and any corporate-related income tax penalties as general and administrative expenses in its consolidated statements of operations. In addition, any interest incurred on tax assessments is reported as interest expense. The Successor Company incurred nominal interest and penalty amounts during the year ended December 31, 2022 and for the period from November 1, 2021 through December 31, 2021. The Predecessor Company incurred nominal interest and penalty amounts during the period from January 1, 2021 through October 31, 2021 and for the year ended December 31, 2020.
Concentration of Credit Risk
The Company’s tenants include national, regional and local retailers. Financial instruments that subject the Company to concentrations of credit risk consist primarily of tenant receivables. The Company generally does not obtain collateral or other security to support financial instruments subject to credit risk, but it monitors the credit standing of tenants. The Company derives a substantial portion of its rental income from various national and regional retail companies; however, no single tenant collectively accounted for more than 5.0% of the Successor Company’s revenues for the year ended December 31, 2022.
Earnings per Share
Earnings per share ("EPS") is calculated under the two-class method. Under the two-class method, all earnings (distributed and undistributed) are allocated to common stock and participating securities. The Company grants restricted stock awards to certain employees under its share-based compensation program, which entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested restricted stock awards meet the definition of participating securities based on their respective rights to receive nonforfeitable dividends.
Diluted EPS incorporates the potential impact of contingently issuable shares. Diluted EPS is calculated under both the two-class and treasury stock methods, and the more dilutive amount is reported. Performance stock units ("PSUs") and unvested restricted stock awards are contingently issuable common shares and are included in diluted EPS if the effect is dilutive. See Note 16 for a description of the long-term incentive program that these units relate to.
The following table presents the calculation of basic and diluted EPS (in thousands, except per share amounts):
Basic earnings per share
Less: Preferred dividends undeclared
Less: Dividends allocable to unvested restricted stock
Weighted-average basic shares outstanding
Net loss per share attributable to common shareholders
Diluted earnings per share (1)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
NOTE 3. REVENUES
The following table presents the Company's revenues disaggregated by revenue source:
Revenues from contracts with customers (ASC 606):
Operating expense reimbursements
7,873
1,173
6,542
9,025
Management, development and leasing fees (1)
Marketing revenues (2)
2,819
2,112
1,571
2,716
17,850
4,785
13,755
18,541
Other revenues
2,914
809
3,352
3,256
Total revenues (3)
See Note 11 for information on the Company's segments.
Revenue from Contracts with Customers
Under operating and other agreements with third parties, which own anchor or outparcel buildings at the Company's properties and pay no rent, the Company receives reimbursements for certain operating expenses such as ring road and parking area maintenance, landscaping and other fees. These arrangements are primarily either set at a fixed rate with rate increases typically every five years or are on a variable (pro rata) basis, typically as a percentage of costs allocated based on square footage or sales. The majority of these contracts have an initial term and one or more extension options, which cumulatively approximate 50 or more years as historically the initial term and any extension options are typically reasonably certain of being executed by the third party. The standalone selling price of each performance obligation is determined based on the terms of the contract, which typically assigns a price to each performance obligation that directly relates to the value the customer receives for the services being provided. Revenue is recognized as services are transferred to the customer. Variable consideration is based on historical experience and is generally recognized over time using the cost-to-cost method of measurement because it most accurately depicts the Company's performance in satisfying the performance obligation. The cumulative catch-up method is used to recognize any adjustments in variable consideration estimates. Under this method, any adjustment is recognized in the period it is identified.
The Company earns revenue from contracts with third parties and unconsolidated affiliates for property management, leasing, development and other services. These contracts are accounted for on a month-to-month basis if the agreement does not contain substantive penalties for termination. The majority of the Company's contracts with customers are accounted for on a month-to-month basis. The standalone selling price of each performance obligation is determined based on the terms of the contract, which typically assigns a price to each performance obligation that directly relates to the value the customer receives for the services being provided. These contracts generally are for the following:
Development and leasing fees received from an unconsolidated affiliate are recognized as revenue only to the extent of the third-party partner’s ownership interest. The Company's share of such fees are recorded as a reduction to the Company’s investment in the unconsolidated affiliate.
Marketing revenues
The Company earns marketing revenues from advertising and sponsorship agreements. These fees may be for tangible items in which the Company provides advertising services and creates signs and other promotional materials for the tenant or may be arrangements in which the customer sponsors a play area or event and receives specified brand recognition and other benefits over a set period of time. Revenue related to advertising services is recognized as goods and services are provided to the customer. Sponsorship revenue is recognized on a straight-line basis over the time period specified in the contract.
Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. If the contract does not specify the revenue by performance obligation, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price. Such prices are generally determined using prices charged to customers or using the Company’s expected cost plus margin. Revenue is recognized as the Company’s performance obligations are satisfied over time, as services are provided, or at a point in time, such as leasing a space to earn a commission. Open performance obligations are those in which the Company has not fully or has partially provided the applicable good or services to the customer as specified in the contract. If consideration is received in advance of the Company’s performance, including amounts which are refundable, recognition of revenue is deferred until the performance obligation is satisfied or amounts are no longer refundable.
Outstanding Performance Obligations
The Company has outstanding performance obligations related to certain noncancellable contracts with customers for which it will receive fixed operating expense reimbursements for providing certain maintenance and other services as described above. As of December 31, 2022, the Company expects to recognize these amounts as revenue over the following periods:
Performance obligation
Less than 5years
5-20years
Over 20years
Fixed operating expense reimbursements
20,872
47,180
42,875
110,927
The Company evaluates its performance obligations each period and makes adjustments to reflect any known additions or cancellations. Performance obligations related to variable consideration, which is based on sales, are constrained.
NOTE 4. LEASES
Lessor
Rental Revenues
The majority of the Company’s revenues are earned through the lease of space at its properties. All the Company's leases with tenants for the use of space at its properties are classified as operating leases. Rental revenues include minimum rent, percentage rent, other rents and reimbursements from tenants for real estate taxes, insurance, common area maintenance ("CAM") and other operating expenses as provided in the lease agreements. The option to extend or terminate the Company’s leases is specific to each underlying tenant lease agreement. Typically, the Company's leases contain penalties for early termination. The Company doesn't have any leases that convey the right for the lessee to purchase the leased asset.
Minimum rental revenue from operating leases is recognized on a straight-line basis over the initial terms of the related leases. Certain tenants are required to pay percentage rent if their sales volumes exceed thresholds specified in their lease agreements. Percentage rent is recognized as revenue when the thresholds are achieved and the amounts become determinable.
The Company receives reimbursements from tenants for real estate taxes, insurance, CAM and other recoverable operating expenses as provided in the lease agreements. Any tenant reimbursements that require fixed payments are recognized on a straight-line basis over the initial terms of the related leases, whereas any variable payments are recognized when earned in accordance with the tenant lease agreements. Tenant reimbursements related to certain capital expenditures are billed to tenants over periods of 5 to 15 years.
The components of rental revenues are as follows:
Fixed lease payments
396,755
75,740
271,221
459,958
Variable lease payments
145,492
27,512
179,701
94,106
Total rental revenues
The undiscounted future fixed lease payments to be received under the Company's operating leases as of December 31, 2022, are as follows:
Years Ending December 31,
Operating Leases
366,633
294,854
229,284
171,650
121,611
Thereafter
266,165
Total undiscounted lease payments
1,450,197
NOTE 5. ACQUISITIONS
The Company's acquisitions of shopping center and other properties are accounted for as acquisitions of assets. The Company includes the results of operations of real estate assets acquired in the consolidated statements of operations from the date of the related acquisition.
2022 Acquisitions
In July 2022, the Successor Company acquired the JC Penney parcel located at CoolSprings Galleria for $5,650. This property is included in All Other for purposes of segment reporting.
2021 and 2020 Acquisitions
There were no acquisitions during the Successor period from November 1, 2021 through December 31, 2021 or the Predecessor period from January 1, 2021 through October 31, 2021. There were no acquisitions during the Predecessor year ended December 31, 2020.
NOTE 6. DISPOSITIONS AND HELD FOR SALE
Based on its analysis, the Company determined that the dispositions described below do not meet the criteria for classification as discontinued operations and are not considered to be significant disposals based on its quantitative and qualitative evaluation. Thus, the results of operations of the properties described below, as well as any related gain or loss, are included in net income (loss) for all periods presented, as applicable.
2022 Dispositions
During the year ended December 31, 2022, the Successor Company deconsolidated Greenbrier Mall, which resulted in $36,250 of gain on deconsolidation. Greenbrier Mall was included in Malls for purposes of segment reporting. See Note 15 for additional information.
For the year ended December 31, 2022, the Successor Company realized a gain of $5,345, primarily related to the sale of five outparcels. Gross proceeds from sales of real estate assets were $11,490 for the Successor year ended December 31, 2022. During the year ended December 31, 2022, the Successor Company sold an outparcel that resulted in a loss on sale of $252. See Note 15 for additional information.
2021 Dispositions
The Predecessor Company realized a gain of $12,187 primarily related to the sale of The Residences at Pearland Town Center, four anchors and four outparcels during the period from January 1, 2021 through October 31, 2021. Those transactions generated gross proceeds of $34,293.
2020 Dispositions
The Predecessor Company realized a gain of $4,696 primarily related to the sale of eight outparcels during the year ended December 31, 2020.
The Predecessor Company recognized a gain on extinguishment of debt for the properties listed below, which represented the amount by which the outstanding debt balance exceeded the net book value of the property as of the date title to the property was transferred to the mortgage holder in satisfaction of the non-recourse debt secured by the property.
Balance of Non-recourse Debt
Gain on Extinguishment of Debt
August
Hickory Point Mall
Forsyth, IL
27,446
15,446
December
Burnsville Center
Burnsville, MN
64,233
17,075
91,679
Held-for-Sale
As of December 31, 2022 and 2021, there were no properties that met the criteria to be considered held-for-sale.
NOTE 7. UNCONSOLIDATED AFFILIATES
Although the Company had majority ownership of certain joint ventures during 2022, 2021 and 2020, it evaluated the investments and concluded that the other partners or owners in these joint ventures had substantive participating rights or the ability to direct the activities that most significantly affect the economic performance of VIEs, such as approvals of:
As a result of these considerations, the Company accounts for these investments using the equity method of accounting.
At December 31, 2022, the Successor Company had investments in 23 entities, which are accounted for using the equity method of accounting. The Successor Company's ownership interest in these unconsolidated affiliates ranges from 33.0% to 65.0%. Of these entities, 16 are owned in 50/50 joint ventures.
2022 Activity - Unconsolidated Affiliates
Ambassador Town Center J.V., LLC
In June 2022, the joint venture entered into a new $42,492, non-recourse loan secured by Ambassador Town Center. The loan matures in June 2029 and bears a fixed interest rate of 4.35%. The previous loan was paid off in conjunction with the closing of the new loan.
Asheville Mall CBMS, LLC
In August 2022, the Successor Company transferred title to the mall to the mortgage holder in satisfaction of the non-recourse debt secured by the property, which had a balance of $62,121.
Atlanta Outlet JV, LLC
In February 2022, the joint venture entered into a forbearance agreement with the lender regarding the default triggered by the filing of the Chapter 11 Cases related to the loan secured by The Outlet Shoppes at Atlanta.
BI Development, LLC and BI Development II, LLC
In August 2022, the Successor Company and another joint venture member bought out a third member's interest increasing the Successor Company's interest from 20% to a 50% membership interest in each joint venture.
Bullseye, LLC
In March 2022, the joint venture sold its income-producing property, which generated gross proceeds of $10,500. The Successor Company’s share of the net profit from the sale was $662.
EastGate Mall CMBS, LLC
In September 2022, the Successor Company transferred title to the mall to the mortgage holder in satisfaction of the non-recourse debt secured by the property, which had a balance of $29,951.
Fremaux Town Center JV, LLC
In March 2022, the joint venture entered into a forbearance agreement with the lender regarding the default triggered by the Chapter 11 Cases related to the loan secured by Fremaux Town Center.
Greenbrier Mall II, LLC
In March 2022, the Successor Company deconsolidated Greenbrier Mall as a result of the Successor Company losing control when the property was placed in receivership. For the year ended December 31, 2022, the Successor Company recognized a gain on deconsolidation of $36,250. In October 2022, the Successor Company transferred title to the mall to the mortgage holder in satisfaction of the non-recourse debt secured by the property, which had a balance of $61,647.
Louisville Outlet Shoppes, LLC
In May 2022, the joint venture entered into a forbearance agreement with the lender regarding the default triggered by the Chapter 11 Cases related to the loan secured by The Outlet Shoppes of the Bluegrass. In August 2022, the joint venture notified the lender of its election to extend the loan secured by The Outlet Shoppes of the Bluegrass - Phase II through April 15, 2023. The loan secured by The Outlet Shoppes of the Bluegrass - Phase II had a balance of $7,397 as of December 31, 2022.
Mall of South Carolina, LP and Mall of South Carolina Outparcel, LP
In March 2022, the joint ventures entered into forbearance agreements with the lenders regarding the default triggered by the Chapter 11 Cases related to the loans secured by Coastal Grand and Coastal Grand Crossing.
Shoppes at Eagle Point, LLC
In April 2022, the joint venture entered into a new $40,000, ten-year, non-recourse loan secured by The Shoppes at Eagle Point. The new loan bears a fixed interest rate of 5.4%. Proceeds from the new loan were utilized to retire the previous partial recourse loan, which had been set to mature in October 2022.
Vision-CBL Mayfaire TC Hotel, LLC
In August 2022, the joint venture entered into an agreement to acquire, develop and operate a hotel adjacent to Mayfaire Town Center. In December 2022, the Successor Company recorded a $1,436 gain on sale of real estate assets related to land that it contributed to the joint venture in exchange for a 49% membership interest. The unconsolidated affiliate is a VIE. The joint venture has entered into a construction loan in the amount of $18,900.
York Town Center Holding, LP
In March 2022, the joint venture entered into a $30,000 non-recourse mortgage note payable, secured by York Town Center, that provides for a three-year term and a fixed interest rate of 4.75%. The monthly debt service is interest only for the first eighteen months. Proceeds from the new loan were used to retire the previous loans.
2021 Activity - Unconsolidated Affiliates
Ambassador Infrastructure, LLC
The joint venture reached an agreement with the lender to modify the loan secured by Ambassador Infrastructure. The agreement provides an additional four-year term with a fixed interest rate of 3.0%. The extended loan, maturing in March 2025, had an outstanding balance of $7,001 at December 31, 2022. Additionally, the agreement provides a waiver related to the default triggered as a result of the Chapter 11 Cases, which became effective when the Company and the Operating Partnership, together with certain of its direct and indirect subsidiaries (collectively, the “Debtors”) emerged from bankruptcy on November 1, 2021.
Asheville Mall CMBS, LLC and Park Plaza Mall CMBS, LLC
During the period from January 1, 2021 through October 31, 2021, the Predecessor Company deconsolidated Asheville Mall and Park Plaza as a result of the Predecessor Company losing control of these properties when each was placed in receivership as part of the foreclosure process. The Predecessor Company evaluated the loss of control of each property and determined that it was no longer the primary beneficiary of the respective wholly owned subsidiaries that own these properties. As a result, the Predecessor Company adjusted the combined negative equity in the two entities to zero, which represents the estimated fair value of the Predecessor Company’s investments in these properties, and recognized a gain on deconsolidation of $55,131. In October 2021, the foreclosure of Park Plaza was completed.
Continental 425 Fund LLC
In December 2021, the Successor Company sold its interest in the Continental 425 Fund LLC joint venture. This joint venture owned the Springs at Port Orange, which was secured by a $44,400 loan. The Successor Company received $7,103 in proceeds after factoring in its share of the outstanding debt.
In December 2021, the Successor Company deconsolidated EastGate Mall as a result of the Successor Company losing control of the property when it was placed in receivership as part of the foreclosure process. The Successor Company evaluated the loss of control and determined that it was no longer the primary beneficiary of the wholly owned subsidiary that owns this property. As a result, the Successor Company adjusted the combined negative equity in the entity to zero, which represents the estimated fair value of the Successor Company’s investment in this property, and recognized a gain on deconsolidation of $19,126.
EastGate Storage, LLC, Hamilton Place Self Storage, LLC, Parkdale Self Storage, LLC and Self-Storage at Mid Rivers, LLC
In December 2021, EastGate Mall Self Storage, Hamilton Place Self Storage, Mid Rivers Mall Self Storage and Parkdale Mall Self Storage were sold, which generated $42,000 in gross proceeds. Proceeds were used to pay off the total outstanding debt secured by the properties of $25,855. The Successor Company’s share of the proceeds after paying off the outstanding debt amounted to $7,637.
Port Orange I, LLC
In March 2021, the joint venture reached an agreement with the lender to modify the loan secured by The Pavilion at Port Orange. The agreement provides an additional four-year term, with a one-year extension option, for a fully extended maturity date of February 2026. Also, the agreement provides for interest of LIBOR plus 2.5% in years one and two, LIBOR plus 2.75% in year three, LIBOR plus 3.0% in year four and LIBOR plus 3.25% in year five. Additionally, the agreement provides forbearance related to the default triggered as a result of the Chapter 11 Cases, which became effective when the Debtors emerged from bankruptcy on November 1, 2021. This loan had a total outstanding balance of $49,498 at December 31, 2022, of which our share was $24,749.
West Melbourne I, LLC
In March 2021, the joint venture reached agreements with the lender to modify the loans secured by Hammock Landing Phases I & II. Each agreement provides an additional four-year term, with a one-year extension option, for a fully extended maturity date of February 2026. Also, each agreement provides for interest of LIBOR plus 2.5% in years one and two, LIBOR plus 2.75% in year three, LIBOR plus 3.0% in year four and LIBOR plus 3.25% in year five. Additionally, the agreements provide forbearance related to the default triggered as a result of the Chapter 11 Cases, which became effective when the Debtors emerged from bankruptcy on November 1, 2021. These loans had a combined total outstanding loan balance of $48,793 at December 31, 2022, of which our share was $24,397.
2020 Activity - Unconsolidated Affiliates
In February 2020, Atlanta Outlet JV, LLC, a 50/50 joint venture, closed on a new loan in the amount of $4,680, with an interest rate of LIBOR plus 2.5% and a maturity date of November 2023. Proceeds were used to retire the previous loan. The Operating Partnership and its joint venture partner each guaranteed 100% of the loan. The unconsolidated affiliate is a VIE.
BI Development II, LLC
In June 2020, the Predecessor Company entered into a joint venture, BI Development II, LLC, to acquire, redevelop and operate the vacant Sears parcel at Northgate Mall in Chattanooga, TN. The Company had a 20% membership interest in the joint venture. The Successor Company made no initial capital contribution and has no future funding obligations. The unconsolidated affiliate is a VIE.
CBL/T-C, LLC
In October 2020, Oak Park Mall, LLC entered a forbearance agreement with the lender to restructure the non-recourse loan that is secured by Oak Park Mall. Pursuant to the terms of the forbearance agreement, all interest payments from June 2020 through November 2020 were deferred. The loan was interest only through November 1, 2022; however, beginning on September 1, 2021 and continuing through November 1, 2022, the deferred interest was repaid in equal monthly installments in addition to the scheduled interest payments. Beginning December 1, 2022, Oak Park Mall, LLC began making full monthly payments of principal and interest. Oak Park Mall, LLC executed a deed-in-lieu of foreclosure, along with other transfer documents, for the benefit of the lender, which were placed in escrow. In the event Oak Park Mall, LLC fails to make any of the required payments under the forbearance agreement, the lender can exercise its rights to receive the deed-in-lieu and other transfer documents from escrow. The unconsolidated affiliate is a VIE.
Condensed Combined Financial Statements - Unconsolidated Affiliates
Condensed combined financial statement information of the unconsolidated affiliates is as follows:
ASSETS:
Investment in real estate assets
1,971,348
2,364,154
(829,574
(934,374
1,141,774
1,429,780
10,914
7,288
1,152,688
1,437,068
170,756
188,683
Total assets
1,323,444
1,625,751
LIABILITIES:
1,333,152
1,452,794
Other liabilities
33,419
64,598
Total liabilities
1,366,571
1,517,392
OWNERS' EQUITY:
The Company
3,123
102,792
Other investors
(46,250
5,567
Total owners' equity (deficit)
(43,127
108,359
Total liabilities and owners’ equity
.
260,275
251,933
213,319
Net income (loss) (1)
137,454
58,596
(12,659
Variable Interest Entities
The Operating Partnership and certain of its subsidiaries are deemed to have the characteristics of a VIE primarily because the limited partners of these entities do not collectively possess substantive kick-out or participating rights.
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 proportionate rights to participate in the decisions that most significantly affect the financial results of the partnership. 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. In determining whether the Company is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of the Company's investment; the obligation or likelihood for the Company or other investors to provide financial support; and the similarity with and significance to the Company's business activities and the business activities of the other investors.
Consolidated VIEs
As of December 31, 2022, the Company had investments in 11 consolidated VIEs with ownership interests ranging from 50% to 92%.
See Note 14 for a description of guarantees the Operating Partnership has issued related to the unconsolidated affiliates.
NOTE 8. MORTGAGE AND OTHER INDEBTEDNESS, NET
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 the Company's debt.
CBL is a limited guarantor of the secured term loan for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates.
The Company's mortgage and other indebtedness, net, and 10% senior secured notes due 2029 (the “Secured Notes”) consisted of the following:
Amount
Fixed-rate debt at fair value:
Secured Notes - at fair value (carrying amount of $395,000 as of December 31, 2021)
10.00
7.00
6.95
5.04
5.26
1,066,927
5.32
3.75
8.22
7.26
3.21
7.12
3.71
6.21
2,013,929
Debt discounts (2)
Non-recourse loans on operating properties, the open-air centers and outparcels loan and the secured term loan include loans that are secured by properties owned by the Company that have a carrying value of $1,632,708 at December 31, 2022.
Financial Covenants and Restrictions
Certain of the Company’s properties that are pledged as collateral on non-recourse mortgage loans are subject to cash management agreements with the lenders, which restrict the cash balances associated with those properties to only be used for debt service, capital expenditures and operating expense obligations.
Corporate Debt
Exit Credit Agreement
On the Effective Date, CBL & Associates HoldCo I, LLC (“HoldCo I”), a wholly owned subsidiary of the Operating Partnership, entered into an amended and restated credit agreement (the “exit credit agreement”), providing for an $883,700 senior secured term loan that matures November 1, 2025. Upon satisfaction of certain conditions, the maturity date will automatically extend to November 1, 2026 and upon further satisfaction of certain conditions the maturity date will automatically extend to November 1, 2027. The Exit Credit Agreement bears interest at a rate per annum equal to LIBOR for the applicable period plus 275 basis points, subject to a LIBOR floor of 1.0%.
The exit credit agreement requires HoldCo I to comply with certain financial ratios in the aggregate for the collateral properties, including a covenant that it not permit the (i) interest coverage ratio (as defined in the exit credit agreement) commencing with the fiscal quarter ending December 31, 2021, to be less than 1.50 to 1.00, (ii) minimum debt yield ratio (as defined in the exit credit agreement) commencing with the fiscal quarter ending March 31, 2023 as of the last day of any fiscal quarter ending prior to the maturity date, to be less than eleven and a half percent (11.50%) and (iii) the occupancy rate (as defined in the exit credit agreement) commencing with the fiscal quarter ending March 31, 2023, as of the last day of any fiscal quarter ending prior to the maturity date, to be less than seventy five percent (75%). The Operating Partnership provided a limited guaranty up to a maximum of $175,000 (the “principal liability cap”). The principal liability cap is reduced by an amount equal to 100% of the first $2,500 in principal amortization made by HoldCo I each calendar year and is reduced further by 50% of the principal amortization payments made by HoldCo I each calendar year in excess of the first $2,500 in principal amortization for such calendar year. As of December 31, 2022, the principal liability cap had been reduced to $140,986. The principal liability cap is eliminated when the loan balance is reduced below $650,000. Additionally, the Company believes that it was in compliance with all financial covenants and restrictions at December 31, 2022.
The exit credit agreement is secured by first-priority liens on substantially all the personal and real property assets of HoldCo I and its direct and indirect subsidiaries, including without limitation, HoldCo I’s and the subsidiary guarantors’ ownership interests in the capital stock, membership interests or partnership interests in the subsidiary guarantors. HoldCo I consists of sixteen malls, three lifestyle centers, three open-air centers and various parcels adjacent to the respective properties.
Secured Notes Indenture
On the Effective Date, CBL & Associates HoldCo II, LLC ("HoldCo II") entered into a secured notes indenture relating to the Secured Notes in an aggregate principal amount of $455,000. The Secured Notes were scheduled to mature November 15, 2029 and bore interest at a rate of 10% per annum, payable semi-annually on November 15 and May 15, beginning May 15, 2022.
The Secured Notes were secured by first priority perfected liens on certain personal and real property assets owned as of the Effective Date by HoldCo II and certain secured notes subsidiary guarantors and certain assets of HoldCo II and each secured notes subsidiary guarantor acquired after the Effective Date.
HoldCo II could redeem the Secured Notes at its option, subject to satisfaction of customary conditions thereof, including payment of accrued and unpaid interest through the date of such optional redemption and any applicable premium. HoldCo II redeemed $60,000 aggregate principal amount of the Secured Notes pursuant to an optional redemption on November 8, 2021, which left an outstanding balance of $395,000. As noted below, proceeds from 2022 financings were used to complete the redemption of all $395,000 outstanding on the Secured Notes.
Exchangeable Notes Indenture
On the Effective Date, HoldCo II entered into a secured exchangeable notes indenture relating to the issuance of the exchangeable notes in an aggregate principal amount of $150,000. The exchangeable notes were scheduled to mature November 15, 2028 and bore interest at a rate of 7.0% per annum, payable semi-annually on November 15 and May 15, beginning May 15, 2022.
The exchangeable notes were secured by first priority perfected liens on certain personal and real property assets owned as of the Effective Date by Holdco II and certain of its subsidiaries and certain assets of HoldCo II and each of its subsidiaries acquired after the Effective Date.
In December 2021, the Company announced that HoldCo II exercised its optional exchange right with respect to all the $150,000 aggregate principal amount of the exchangeable notes. The exchange date was January 28, 2022, and settlement occurred on February 1, 2022. Per the terms of the indenture governing the exchangeable notes, shares of the Company’s common stock, par value $0.001, plus cash in lieu of fractional shares, were issued to settle the exchange. On February 1, 2022, the Company issued 10,982,795 shares of common stock to holders of the exchangeable notes in satisfaction of principal, accrued interest and the make whole payment, and all the exchangeable notes were cancelled in accordance with the terms of the indenture.
Fixed-Rate Property Debt
As of December 31, 2022, fixed-rate loans on operating properties bear interest at stated rates ranging from 4.25% to 6.95%. Fixed-rate loans on operating properties generally provide for monthly payments of principal and/or interest and mature at various dates through June 2032, with a weighted-average maturity of 2.1 years.
2022 Activity
In February 2022, the loan secured by Fayette Mall was modified to reduce the fixed interest rate to 4.25% and extend the maturity date through May 2023, with three one-year extension options, subject to certain requirements. As part of the modification, two ground leased outparcels were released from the collateral in exchange for the addition of the redeveloped former middle anchor location. As of December 31, 2022, the loan secured by Fayette Mall had a balance of $127,568.
In March 2022, the Company deconsolidated Greenbrier Mall as a result of the Company losing control when the property was placed in receivership. See Note 7 for additional information.
In May 2022, the loan secured by Arbor Place was extended for four years, with a new maturity date of May 2026. The interest rate remained at the current fixed rate of 5.10%. As of December 31, 2022, the loan secured by Arbor Place had a balance of $97,244.
In May 2022, the loan secured by Northwoods Mall was extended for four years, with a new maturity date of April 2026. The interest rate remained at the current fixed rate of 5.08%. As of December 31, 2022, the loan secured by Northwoods Mall had a balance of $57,059.
In May 2022, the Company entered into a new $65,000 non-recourse loan. The loan has a ten-year term with a fixed interest rate of 5.85%. It is interest-only for the first three years. The loan is secured by open-air centers, which include Hamilton Crossing, Hamilton Corner, The Terrace and The Shoppes at Hamilton Place. Proceeds from the loan were used to redeem $60,000 aggregate principal amount of the Secured Notes. Also, the previous $7,058 Hamilton Crossing loan was paid off in conjunction with the closing of the new loan.
In June 2022, the Company entered into a new $360,000 loan that is interest only until maturity. The interest rate is a fixed 6.95% for $180,000 of the loan, with the other half of the loan bearing a variable interest rate based on the 30-day SOFR plus 4.10%. The loan has an initial term of five years with one two-year extension, subject to certain conditions. The loan is secured by a pool of 90 outparcels and 13 open-air centers. The open-air centers include Alamance Crossing West, CoolSprings Crossing, Courtyard at Hickory Hollow, Frontier Square, Gunbarrel Pointe, Harford Annex, The Plaza at Fayette, Sunrise Commons, The Shoppes at St. Clair Square, The Landing at Arbor Place, West Towne Crossing, West Towne District and WestGate Crossing. Proceeds from the loan were used to complete the redemption of all $335,000 outstanding on the Secured Notes, which eliminated the recourse guaranty. Also, proceeds were used to paydown $8,322 on the Brookfield Square Anchor Redevelopment loan, which had an outstanding balance of $18,240 as of December 31, 2022.
In June 2022, the Company paid off the $14,949 loan secured by CBL Center at maturity.
In August 2022, the loan secured by Parkdale Mall and Crossing was extended to March 2026. As of December 31, 2022, the loan secured by Parkdale Mall and Crossing had a balance of $63,136.
In October 2022, the loan secured by The Outlet Shoppes at Gettysburg was modified after the lender's claim against the general unsecured claim pool related to the Chapter 11 Cases was allowed. The loan balance was reduced to $21,000 and the corporate recourse was eliminated. The fixed interest rate of 4.80% and the maturity date of October 2025 remain unchanged. The modification resulted in the loan being treated as a new loan for accounting purposes, which resulted in the recognition of gain on extinguishment of debt of $7,344. As of December 31, 2022, the loan secured by Outlet Shoppes at Gettysburg had a balance of $20,974.
In October 2022, the Company entered into a short-term extension with the lender regarding the loan secured by Cross Creek Mall. This action extended the maturity date to January 5, 2023. The Company remains in discussions with the lender regarding a long term extension. As of December 31, 2022, the loan secured by Cross Creek Mall had a balance of $97,431.
In October 2022, the Company reached an agreement with the lender to extend the loan secured by Southpark Mall through June 2026, as well as waive the default triggered by the Company's bankruptcy filing. As of December 31, 2022, the loan secured by Southpark Mall had a balance of $54,022.
In October 2022, the Company entered into a loan reinstatement and reaffirmation agreement with the lender regarding the loan secured by Jefferson Mall, which waived the default triggered by the Company's bankruptcy filing. As of December 31, 2022, the loan secured by Jefferson Mall had a balance of $55,817.
Variable-Rate Property Debt
Two non-recourse loans secured by operating properties, totaling $56,490, mature in 2023. The two non-recourse loans and the open-air centers and outparcels loan bear interest at a variable interest rate indexed to LIBOR and SOFR, respectively. At December 31, 2022, the interest rates ranged from 7.02% to 8.22%.
2021 Modifications
In May 2021, the subsidiary that owns The Outlet Shoppes at Laredo filed for bankruptcy. In September 2021, the Company reached an agreement with the lender to amend the loan secured by The Outlet Shoppes at Laredo and dismiss the bankruptcy case. The loan term was extended through June 2023 and contains a one-year extension option.
In October 2021, Brookfield Square Anchor S, LLC filed for bankruptcy. In December 2021, the Company reached an agreement with the lender to amend the loan secured by the Brookfield Square anchor redevelopment and dismiss the bankruptcy case. The loan term was extended through December 2023 and contains a one-year extension option.
Several of the Company’s properties are owned by special purpose entities, created as a requirement under certain loan agreements that are included in the Company’s consolidated financial statements. The sole business purpose of the special purpose entities is to own and operate these properties. The real estate and other assets owned by these special purpose entities are restricted under the loan agreements in that they are not available to settle other debts of the Company. However, so long as the loans are not under an event of default, as defined in the loan agreements, the cash flows from these properties, after payments of debt service, operating expenses and reserves, are available for distribution to the Company.
Scheduled Principal Payments
As of December 31, 2022, the scheduled principal amortization and balloon payments of the Company’s consolidated debt, excluding extensions available at the Company’s option, on all mortgage and other indebtedness, are as follows:
321,695
83,003
813,630
377,078
360,896
62,855
2,019,157
Principal balance of loans with maturity date prior to December 31, 2022 (1)
Total mortgage and other indebtedness
Of the $321,695 of scheduled principal payments in 2023, $281,489 relates to the maturing principal balance of four operating property loans.
As of December 31, 2022, the Company had $553,910 of property-level debt and related obligations, including unconsolidated debt and related obligations, maturing or callable within the next 12 months from the issuance of the financial statements. Management is in discussions with the lenders regarding foreclosure actions for two properties totaling $70,419 of mortgage notes payable and intends to refinance and/or extend the maturity dates for the remaining $483,492 of such mortgage notes payable. In instances where a refinancing and/or extension of maturity dates is unsuccessful the Company will repay certain of the mortgage notes based on the availability of liquidity and convey certain properties to the lender to satisfy the debt obligation.
NOTE 9. SHAREHOLDERS’ EQUITY
Common Stock and Common Units
The Successor Company's authorized common stock consists of 200,000,000 shares at $0.001 par value per share. The Successor Company had 31,780,109 and 20,774,716 shares of common stock issued and outstanding as of December 31, 2022 and 2021, respectively.
On September 8, 2022, the Company's board of directors adopted a short-term rights plan (the “Rights Plan”) that will expire on September 8, 2023, or sooner under certain circumstances. Pursuant to the Rights Plan, the board of directors authorized a dividend of one share purchase right (a “Right”) for each outstanding share of the Company's common stock. If a person or group of affiliated or associated persons acquires beneficial ownership of 10.0% or more of the Company's outstanding common shares, subject to certain exceptions (including exceptions for existing holders who do not increase their holdings as provided in the Rights Plan), each Right would effectively entitle its holder (other than the acquiring person or group of affiliated or associated persons) to purchase additional common shares at a substantial discount to the public market price. In addition, under certain circumstances, the Company may exchange the Rights (other than Rights beneficially owned by the acquiring person or group of affiliated or associated persons), in whole or in part, for common shares on a one-for-one basis, or the Company may redeem the Rights for cash at a price of $0.001 per Right.
On the Effective Date, by operation of the Debtors’ Third Amended Joint Chapter 11 Plan of CBL & Associates Properties, Inc. and its Affiliated Debtors (With Technical Modifications) (as modified at Docket No. 1521, the “Plan”), all agreements, instruments, and other documents evidencing, relating to or connected with any equity interests of the Company, including (1) CBL’s old common stock, par value $0.01 per share, and CBL’s old preferred stock and related depositary shares and (2) the Operating Partnership’s old limited partnership common interests and the old limited partnership preferred interests related to CBL’s old preferred stock, in each case issued and outstanding immediately prior to the Effective Date, and any rights of any holder in respect thereof, were deemed cancelled, discharged and of no force or effect.
On the Effective Date, (1) CBL issued (i) 1,089,717 shares of new common stock to (a) existing holders of the old common stock and (b) certain of the existing holders of the old limited partnership common interests that have elected to receive shares of new common stock in exchange for old limited partnership common interests, (ii) 1,100,000 shares of new common stock to existing holders of the old preferred stock, (iii) 15,685,714 shares of new common stock to existing holders of the $450,000 of senior unsecured notes issued by the Operating Partnership in November 2013 that bear interest at 5.25% and mature on December 1, 2023 (the “2023 Notes”), the $300,000 of senior unsecured notes issued by the Operating Partnership in October 2014 that bear interest at 4.60% and mature on October 15, 2024 (the “2024 Notes”) and the $625,000 of senior unsecured notes issued by the Operating Partnership in December 2016 and September 2017 that bear interest at 5.95% and mature on December 15, 2026 (the “2026 Notes” and, collectively with the 2023 Notes and 2024 Notes, the "Notes") and other general unsecured claims, and (iv) 2,114,286 shares of new common stock to existing holders of consenting crossholder claims and (2) the Operating Partnership cancelled all of its old limited partnership common interests and issued 200,000 new common units of general partnership interests, 19,789,717 new common units of limited partnership interest to subsidiaries of CBL and 10,283 new common units of limited partner interests to certain of the existing holders of old limited partnership common interests that have elected to remain limited partners in the Operating Partnership. On the Effective Date, CBL had an aggregate of 20,000,000 shares of new common stock issued and outstanding (on a fully diluted basis after giving effect to any future election to exchange all new limited partnership interests for new common stock). On November 2, 2021, the newly issued common stock of the reorganized company commenced trading on the NYSE under the symbol CBL.
Partners in the Operating Partnership hold their ownership through common units of limited partnership interest, hereinafter referred to as "common units." A common unit and a share of CBL's common stock have essentially the same economic characteristics, as they effectively participate equally in the net income and distributions of the Operating Partnership. For each share of common stock issued by CBL, the Operating Partnership has issued a corresponding number of common units to CBL in exchange for the proceeds from the stock issuance.
Each limited partner in the Operating Partnership has the right to exchange all or a portion of its common units for shares of CBL's common stock, or at the Company's election, their cash equivalent. When an exchange for common stock occurs, the Company assumes the limited partner's common units in the Operating Partnership. The number of shares of common stock received by a limited partner of the Operating Partnership upon exercise of its exchange rights will be equal, on a one-for-one basis, to the number of common units exchanged by the limited partner. If the Company elects to pay cash, the amount of cash paid by the Operating Partnership to redeem the limited partner's common units will be based on the five-day trailing average of the trading price, at the time of exchange, of the shares of common stock that would otherwise have been received by the limited partner in the exchange. Neither the common units nor the shares of CBL's common stock are subject to any right of mandatory redemption.
In June 2022, the board of directors established a regular quarterly dividend. The Company paid common stock dividends of $0.25 per share for each of the second, third and fourth quarters of 2022. The Successor Company did not pay any dividends to holders of its common shares payable for the period November 1, 2021 through December 31, 2021. The Predecessor Company did not pay any dividends to holders of its common shares payable for the period January 1, 2021 through October 31, 2021 and the year ended December 31, 2020.
In November 2022, the board of directors declared a special dividend of $2.20 per share of common stock, payable all in cash. The special dividend was paid on January 18, 2023, to stockholders of record as of the close of business on December 12, 2022.
The decision to declare and pay dividends on any outstanding shares of our common stock, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of the Company's board of directors and will depend on the Company's earnings, taxable income, cash flows, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under the Company's then-current indebtedness, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, Delaware law and such other factors as the Company's board of directors deems relevant. Any dividends payable will be determined by the Company's board of directors based upon the circumstances at the time of declaration. The Company's actual results of operations will be affected by a number of factors, including the revenues received from its properties, its operating expenses, interest expense, unanticipated capital expenditures and the ability of its anchors and tenants at its properties to meet their obligations for payment of rents and tenant reimbursements.
For purposes of determining net income (loss) attributable to common shareholders, the Predecessor Company disclosed the cumulation of undeclared dividends on its depositary shares each representing a 1/10th fractional share of the Company’s 7.375% Series D Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”) and the depositary shares each representing a 1/10th fractional share of the Company’s 6.625% Series E Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”). The undeclared dividends on the Predecessor Company’s Series D Preferred Stock and Series E Preferred Stock ceased to cumulate as of November 1, 2020 as a result of the Chapter 11 Cases.
The allocations of dividends declared and paid for income tax purposes for 2022 are as follows (income tax allocations are not applicable in 2021 or 2020 due to the Company not paying any dividends in those years):
Dividends declared:
Common stock
Allocations:
Ordinary income
98.58
Capital gains
1.42
Return of capital
NOTE 10. NONCONTROLLING INTERESTS
Noncontrolling Interests of the Company
Third parties held rights to convert noncontrolling interests in the Operating Partnership to 10,283 shares of common stock at December 31, 2022 and 2021.
The assets and liabilities allocated to the Operating Partnership’s noncontrolling interests are based on their ownership percentages of the Operating Partnership at December 31, 2022 and 2021. The ownership percentages are determined by dividing the number of common units held by each of the noncontrolling interests at December 31, 2022 and 2021 by the total common units outstanding at December 31, 2022 and 2021, respectively. The noncontrolling interest ownership percentage in assets and liabilities of the Successor Operating Partnership was 0.03% and 0.01% at December 31, 2022 and 2021, respectively.
Income is allocated to the Operating Partnership’s noncontrolling interests based on their weighted-average ownership during the year. The ownership percentages are determined by dividing the weighted-average number of common units held by each of the noncontrolling interests by the total weighted-average number of common units outstanding during the year.
101
A change in the number of shares of common stock or common units changes the percentage ownership of all partners of the Operating Partnership. A common unit is considered to be equivalent to a share of common stock since it generally is exchangeable for shares of the Company’s common stock or, at the Company’s election, their cash equivalent. As a result, an allocation is made between shareholders’ equity and noncontrolling interests in the Operating Partnership in the Successor Company's accompanying balance sheets to reflect the change in ownership of the Operating Partnership’s underlying equity when there is a change in the number of shares and/or common units outstanding. During the period January 1, 2021 through October 31, 2021 and the year ended December 31, 2020, the Predecessor Company allocated $865 and $6,002, respectively, from shareholders' equity to noncontrolling interest. During the period from January 1, 2021 through October 31, 2021 and the year ended December 31, 2020, the Predecessor Company allocated $6 and $302, respectively, from shareholders' equity to redeemable noncontrolling interest. There is no redeemable noncontrolling interest related to the Successor Company.
The total noncontrolling interest in the Successor Operating Partnership was $121 and $282 at December 31, 2022, and 2021 respectively.
Noncontrolling Interests in Other Consolidated Subsidiaries
The Successor Company had 11 and 12 other consolidated subsidiaries at December 31, 2022 and 2021, respectively, that had noncontrolling interests held by third parties and for which the related partnership agreements either do not include redemption provisions or are subject to redemption provisions that do not require classification outside of permanent equity. The total noncontrolling interests in other consolidated subsidiaries of the Successor Company was $(3,533) and $4,618 at December 31, 2022 and 2021, respectively.
The assets and liabilities allocated to noncontrolling interests in other consolidated subsidiaries of the Successor Company are based on the third parties’ ownership percentages in each subsidiary at December 31, 2022 and 2021, respectively. Income is allocated to noncontrolling interests in other consolidated subsidiaries based on the third parties’ weighted-average ownership in each subsidiary during the year.
Variable Interest Entities (VIE)
102
The table below lists the Successor Company's consolidated VIEs as of December 31, 2022 and 2021, which do not reflect the elimination of any internal debt a consolidated VIE has with the Operating Partnership:
Assets
Liabilities
Liabilities (1)
Consolidated VIEs:
Atlanta Outlet Outparcels, LLC
819
831
CBL Terrace LP
16,922
18,148
15,339
12,626
Gettysburg Outlet Center Holding, LLC
13,360
16,039
15,308
18,776
Gettysburg Outlet Center, LLC
3,058
3,062
Jarnigan Road LP
17,437
1,300
19,699
1,336
Jarnigan Road II, LLC
16,475
19,964
20,652
16,578
Laredo Outlet JV, LLC
23,443
34,886
25,542
26,121
Lebcon Associates
90,429
100,436
98,151
96,138
Lebcon I, Ltd
11,756
12,128
12,938
8,645
Louisville Outlet Outparcels, LLC
539
The Promenade at D'Iberville
49,401
51,603
Statesboro Crossing, LLC
803
195,034
202,901
262,265
231,823
The table below lists the Company's unconsolidated VIEs as of December 31, 2022 (Successor):
Unconsolidated VIEs:
Investment inReal EstateJointVenturesandPartnerships
MaximumRisk of Loss
Ambassador Infrastructure, LLC (1)
Atlanta Outlet JV, LLC (1)
BI Development, LLC
CBL-T/C, LLC
El Paso Outlet Center Holding, LLC
Louisville Outlet Shoppes, LLC (1)
Mall of South Carolina L.P.
Vision - CBL Hamilton Place, LLC
2,297
Vision - CBL Mayfaire TC Hotel, LLC
1,800
4,097
22,878
103
NOTE 11. SEGMENT INFORMATION
The Company measures performance and allocates resources according to property type, which is determined based on certain criteria such as type of tenants, capital requirements, economic risks, leasing terms, and short- and long-term returns on capital. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments. The Company has aggregated malls, lifestyle centers and outlet centers into one reportable segment ("Malls") because they have similar economic characteristics and the Company provides similar products and services to similar types of, and in many cases, the same, tenants. The accounting policies of the reportable segments are the same as those described in Note 2.
Information on the Company’s reportable segments is presented as follows:
Year Ended December 31, 2022 (Successor)
AllOther (2)
Revenues (3)
485,014
77,997
Property operating expenses (4)
(174,593
(17,137
(142,015
(75,327
Gain on sales of real estate assets
Other expense
Segment profit (loss)
168,406
(9,956
158,450
Income tax provision
Equity in earnings of unconsolidated affiliates
1,695,813
982,430
Capital expenditures (5)
28,744
14,200
42,944
For the Period November 1, through December 31, 2021 (Successor)
95,057
13,789
(29,801
(2,636
(181,300
(14,188
(23
Segment loss
(116,024
(3,061
(119,085
General and administrative expense
Reorganization items
Income tax benefit
1,961,061
984,918
3,415
1,368
4,783
104
For the Period January 1, through October 31, 2021 (Predecessor)
411,280
56,749
(143,018
(12,991
(70,275
(2,140
6,063
6,124
(65
(680
Segment profit
203,985
47,062
251,047
Equity in losses of unconsolidated affiliates
21,662
8,862
30,524
Year Ended December 31, 2020 (Predecessor)
520,643
55,218
(177,531
(10,348
(187,879
(79,380
(121,283
4,721
263,707
(72,645
191,062
3,702,523
741,217
4,443,740
36,425
5,683
42,108
105
NOTE 12. SUPPLEMENTAL AND NONCASH INFORMATION
The Company’s noncash investing and financing activities for the Successor year ended December 31, 2022, the Successor period from November 1, 2021 to December 31, 2021, the Predecessor period from January 1, 2021 to October 31, 2021 and the Predecessor year ended December 31, 2020 were as follows:
Additions to real estate assets accrued but not yet paid
9,242
11,108
5,945
Accrued dividends and distributions payable
70,058
Deconsolidation upon loss of control (1):
Decrease in real estate assets
(18,810
(12,873
(84,860
Decrease in mortgage and other indebtedness
56,226
27,733
134,354
Decrease in operating assets and liabilities
5,686
4,266
5,808
Decrease in intangible lease and other assets
(6,852
(171
Settlement of mortgage debt obligations (2):
3,857
3,487
Transfer of real estate assets in settlement of mortgage debt obligations (2):
(57,001
85,371
4,288
(137
Conversion of exchangeable notes:
Increase in shareholders' equity
(152,537
Conversion of Operating Partnership units to common stock
NOTE 13. RELATED PARTY TRANSACTIONS
The Management Company provides management, development and leasing services to the Company’s unconsolidated affiliates and other affiliated partnerships. The Successor Company recognized revenues for these services in the amount of $6,449 for the year ended December 31, 2022 and $1,136 for the period November 1, 2021 through December 31, 2021. The Predecessor Company recognized revenues for these services in the amount of $4,965 for the period from January 1, 2021 through October 31, 2021, and $4,940 for the year ended December 31, 2020.
NOTE 14. CONTINGENCIES
Securities Litigation
The Company and certain of its officers and directors were named as defendants in three putative securities class action lawsuits (collectively, the “Securities Class Action Litigation”), each filed in the United States District Court for the Eastern District of Tennessee, on behalf of all persons who purchased or otherwise acquired the Company’s securities during a specified period of time. Those cases were consolidated on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Securities Litigation, 1:19-cv-00149-JRG-CHS, and a consolidated amended complaint was filed on November 5, 2019, seeking to represent a class of purchasers from July 29, 2014 through March 26, 2019.
106
The operative complaint filed in the Securities Class Action Litigation alleges violations of the securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions regarding the Company’s contingent liabilities, business, operations, and prospects during the period of time specified above. The plaintiffs seek compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the amount of damages sought. On May 3, 2022, the court dismissed the Company from the Securities Class Action Litigation but declined to dismiss the individual defendants. The court also lifted the stay of the proceedings and, on June 9, 2022, entered a scheduling order. Plaintiffs’ motion for class certification, which was opposed, was fully briefed and pending as of December 31, 2022. Following a January 31, 2023 mediation before a private mediator, the parties reached an agreement in principle to resolve the Securities Class Action Litigation, subject to documentation and court approval. The putative settlement is expected to be fully funded by directors and officers liability insurance, subject to the terms and conditions thereof, with no contribution expected from the Company or the individual defendants. By agreeing to resolve the matter in principle, neither the Company nor any of the individual defendants are admitting any liability or wrongdoing, and they have expressly denied both. Rather, defendants entered into the agreement in principle to eliminate the risks, costs, and distractions associated with further litigation of this matter.
The outcome of these legal proceedings cannot be predicted with certainty.
On January 12, 2023, a purported shareholder filed a putative class action lawsuit captioned John Haynes v. Charles B. Lebovitz, et al., C.A. No. 2023-0033-NAC, in the Delaware Court of Chancery (the “Delaware Action”), naming the Company and certain directors as defendants. The Delaware Action alleged a claim against the Company for violation of Delaware General Corporation Law § 213(a) due to an improper record date for the 2022 annual meeting, and a claim for breach of fiduciary duty against the director defendants. The Delaware Action sought, among other things, a declaration that the directors breached their fiduciary duties, an equitable accounting, unspecified monetary relief, and attorneys’ fees. Defendants denied that any such relief was warranted, and on February 15, 2023, the Delaware Action was voluntarily dismissed.
The Company is currently involved in certain other litigation that arises in the ordinary course of business, most of which is expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.
Environmental Contingencies
The Company evaluates potential loss contingencies related to environmental matters using the same criteria described above related to litigation matters. Based on current information, an unfavorable outcome concerning such environmental matters, both individually and in the aggregate, is considered to be reasonably possible. However, the Company believes its maximum potential exposure to loss would not be material to its results of operations or financial condition. The Company has a master insurance policy that provides coverage through 2027 for certain environmental claims up to $40,000 per occurrence and up to $40,000 in the aggregate, subject to deductibles and certain exclusions. At certain locations, individual policies are in place.
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.
107
The following table represents the Operating Partnership's guarantees of unconsolidated affiliates' debt as reflected in the accompanying consolidated balance sheets as of December 31, 2022 and 2021:
As of December 31, 2022
Obligationrecorded to reflectguaranty
Unconsolidated Affiliate
Company'sOwnershipInterest
OutstandingBalance
PercentageGuaranteedby theOperatingPartnership
MaximumGuaranteedAmount
DebtMaturityDate (1)
West Melbourne I, LLC - Phase I
18,474
Feb-2025
185
West Melbourne I, LLC - Phase II
5,923
24,749
247
258
Mar-2025
May-2032
Nov-2023
Apr-2023
Total guaranty liability
561
For the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021, the Successor Company evaluated each guaranty, listed in the table above, individually by looking at the debt service ratio, cash flow forecasts and the performance of each loan. The result of the analysis was that each loan is current. The Successor Company did not record a credit loss related to the guarantees listed in the table above for the year ended December 31, 2022 and the period from November 1, 2021 through December 31, 2021.
For the period from January 1, 2021 through October 31, 2021 and for the year ended December 31, 2020, the Predecessor Company evaluated each guaranty, listed in the table above, individually by looking at the debt service ratio, cash flow forecasts, the performance of each loan and, where applicable, the collateral value in relation to the outstanding amount of the loan. The result of the analysis was that each loan is current, performing and, where applicable, the collateral value was greater than the outstanding amount of the loan. The Predecessor Company did not record a credit loss related to the guarantees listed in the table above for the period from January 1, 2021 through October 31, 2021 and the year ended December 31, 2020.
NOTE 15. FAIR VALUE MEASUREMENTS
The Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy in accordance with ASC 820, Fair Value Measurements and Disclosure, ("ASC 820") based on whether the inputs to valuation techniques are observable or unobservable. The fair value hierarchy contains three levels of inputs that may be used to measure fair value as follows:
Level 1 - Inputs represent quoted prices in active markets for identical assets and liabilities as of the measurement date.
Level 2 - Inputs, other than those included in Level 1, represent observable measurements for similar instruments in active markets, or identical or similar instruments in markets that are not active, and observable measurements or market data for instruments with substantially the full term of the asset or liability.
Level 3 - Inputs represent unobservable measurements, supported by little, if any, market activity, and require considerable assumptions that are significant to the fair value of the asset or liability. Market valuations must often be determined using discounted cash flow methodologies, pricing models or similar techniques based on the Company’s assumptions and best judgment.
108
The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under ASC 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date and under current market conditions. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs and consider assumptions such as inherent risk, transfer restrictions and risk of nonperformance.
The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term nature of these financial instruments. The estimated fair value of mortgage and other indebtedness was $1,833,992 and $2,059,094 at December 31, 2022 and 2021, respectively. The fair value was calculated using Level 2 inputs by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently.
Fair Value Measurements on a Recurring Basis
The Successor Company elected the fair value option in conjunction with the issuance of the Secured Notes because it believed that the fair value option provided the most accurate depiction of the then-current value of the Secured Notes. On June 7, 2022, the Successor Company completed the redemption of all outstanding Secured Notes. See Note 8 for additional information.
The following table sets forth information regarding the Secured Notes for the year ended December 31, 2021:
Debt Instrument
Carrying amount as of December 31, 2021
Change in fair value
Fair value as of December 31, 2021 (1)
Secured Notes
During the year ended December 31, 2022, the Successor Company has continued to reinvest the cash from maturing U.S. Treasury securities into new U.S. Treasury securities. The Company designated the U.S. Treasury securities as available-for-sale (“AFS”). The below table sets forth information regarding the Successor Company’s AFS securities that were measured at fair value. Subsequent to December 31, 2022, the Company redeemed and purchased additional U.S. Treasury securities. See Note 20 for additional information.
AFS Security
AmortizedCost (1)
Allowancefor creditlosses (2)
Total unrealized loss
Fair value as of December 31, 2022 (3)
U.S. Treasury securities
293,476
The following table sets forth information regarding the Successor Company’s AFS securities that were measured at fair value for the year ended December 31, 2021:
AmortizedCost
Allowancefor creditlosses (1)
Fair value as of December 31, 2021 (2)
149,999
109
Fair Value Measurements on a Nonrecurring Basis
The Company measures the fair value of certain long-lived assets on a nonrecurring basis, through quarterly impairment testing or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company’s evaluation of the recoverability of long-lived assets involves the comparison of undiscounted future cash flows expected to be generated by each property over the Company’s expected remaining holding period to the respective carrying amount. The determination of whether the carrying value is recoverable also requires management to make estimates related to probability weighted scenarios impacting undiscounted cash flow models. The Company considers both quantitative and qualitative factors in its impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each property such as net operating income, occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the property and tenant mix. The quantitative and qualitative factors impact the selection of the terminal capitalization rate which is used in both an undiscounted and discounted cash flow model and the discount rate used in a discounted cash flow model. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experience impairment, the Company classifies such long-lived assets under Level 3 in the fair value hierarchy. Level 3 inputs primarily consist of sales and market data, independent valuations and discounted cash flow models. See below for a description of the estimates and assumptions the Company used in its impairment analysis. See Note 2 for additional information describing the Company's impairment review process.
See Note 19 for information regarding the fair value adjustments associated with Fresh Start Accounting.
Long-lived Assets Measured at Fair Value in 2022
During the year ended December 31, 2022, the Successor Company adjusted the negative equity in Greenbrier Mall to zero upon deconsolidation, which represented the estimated fair value of the Successor Company’s investment in that property. See Note 7 for additional information.
During the year ended December 31, 2022, the Successor Company sold an outparcel at the Pavilion at Port Orange. Gross sales proceeds amounted to $1,660 and the transaction resulted in a loss on sale of $252.
Long-lived Assets Measured at Fair Value in 2021
The below table sets forth information regarding the Predecessor Company’s assets that were measured at fair value on a nonrecurring basis and related impairment charges for the period from January 1, 2021 through October 31, 2021. No impairment charges were incurred during the Successor period from November 1, 2021 through December 31, 2021.
Fair Value Measurements at Reporting Date Using
Quoted Prices inActive Markets for IdenticalAssets (Level 1)
SignificantOtherObservableInputs (Level 2)
SignificantUnobservableInputs (Level 3)
Total Losson Impairment
Period from January 1, 2021 through October 31, 2021
Long-lived assets
120,290
110
During the period from January 1, 2021 through October 31, 2021, the Predecessor Company recognized impairments of real estate of $146,781 related to five malls, a redeveloped anchor parcel, an outlet center, an open-air center, an outparcel and vacant land. The properties were classified for segment reporting purposes as listed below. See Note 11 for segment information.
ImpairmentDate
SegmentClassification
Loss onImpairment
FairValue
March
Eastland Mall (1)
Bloomington, IL
13,243
10,700
Old Hickory Mall (2)
Jackson, TN
20,149
12,400
Stroud Mall (3)
Stroudsburg, PA
23,790
15,400
July
The Landing at Arbor Place - Outparcel (4)
Douglasville, GA
1,682
590
September
Laurel Park Place (5)
Livonia, MI
14,267
9,800
Parkdale Mall and Crossing (6)
Malls/All Other
47,211
50,500
October
The Outlet Shoppes at Gettysburg (7)
Gettysburg, PA
21,470
16,660
Vacant land (8)
El Centro, CA
4,969
During the period from November 1, 2021 through December 31, 2021, the Successor Company adjusted the negative equity in EastGate Mall to zero upon deconsolidation, which represented the estimated fair value of the Successor Company’s investment in that property. During the period from January 1, 2021 through October 31, 2021, the Predecessor Company adjusted the combined negative equity in Asheville Mall and Park Plaza to zero upon deconsolidation, which represented the estimated fair values of the Company’s investments in these properties. See Note 7 for additional information.
111
Long-lived Assets Measured at Fair Value in 2020
During the year ended December 31, 2020, the Predecessor Company recognized impairments of real estate of $213,358 related to six malls and one vacant land parcel. The properties were classified for segment reporting purposes as listed below (see section below for information on outparcels). See Note 11 for segment information.
Burnsville Center (1)
26,562
47,300
Monroeville Mall (2)
Pittsburgh, PA
107,082
67,000
June
Asheville Mall (3)
13,274
52,600
Vacant land
EastGate Mall (4)
5,980
Greenbrier Mall (5)
8,923
42,500
The Outlet Shoppes at Laredo (6)
51,491
42,900
268,830
NOTE 16. SHARE-BASED COMPENSATION
Successor Company
2021 Equity Incentive Plan
Following the Effective Date, the board of directors of the Successor Company adopted the CBL & Associates Properties, Inc. 2021 Equity Incentive Plan (the “EIP”). The EIP authorizes the grant of equity awards to eligible participants based on the new common stock, in the form of stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards. Awards under the EIP may be granted to officers, employees, directors, consultants and independent contractors of the reorganized company. Initially, 3,222,222 shares of new common stock are available under the EIP. The initial new common stock under the EIP is subject to an annual increase of a number of shares equal to 3% of the number of shares of new common stock issued and outstanding at the end of the relevant calendar year (beginning January 2023), or such lesser amount as the board of directors may determine. The Plan will be administered by the compensation committee of the board of directors, which will determine the participants who will be granted awards under the EIP and the terms and conditions of EIP awards.
In accordance with the provisions of ASU 2016-09, which are designed to simplify the accounting for share-based payments transactions, the Successor Company elected to account for forfeitures of share-based payments as they occur rather than estimating them in advance.
Restricted Stock Awards
Restricted stock awards granted to the Successor Company’s executive officers vest over a four-year period, with restrictions expiring on 25% of the shares subject to each award annually beginning on the first anniversary of the date of grant. Restricted stock awards granted to the Successor Company’s non-executive officers vest over a three-year period, with restrictions expiring on 33% of the shares subject to each award annually beginning on the first anniversary of the date of grant. Restricted stock awards granted to the Successor Company’s non-employee directors vest over a one-year period, with restrictions expiring each January. The grantee generally has all the rights of a stockholder during the vesting/restricted period, including the right to receive dividends on the same basis and at the same rate as all other outstanding shares of common stock and the right to vote such shares on any matter on which holders of the Successor Company’s common stock are entitled to vote. The shares generally are not transferable during the restricted period, except for any transfers which may be required by law.
A summary of the status of the Successor Company’s nonvested restricted stock awards as of December 31, 2022, and changes during the year ended December 31, 2022, are presented below:
Shares
Weighted-AverageGrant-DateFair Value Per Share
Nonvested at January 1, 2022
784,999
27.57
Granted
115,884
26.71
Vested
(215,508
27.56
Forfeited
(22,500
Nonvested at December 31, 2022
662,875
27.42
Compensation expense is recognized on a straight-line basis over the requisite service period. The share-based compensation cost related to restricted stock awards was $7,400 for the Successor year ended December 31, 2022 and $299 for the Successor period from November 1, 2021 through December 31, 2021. Share-based compensation cost resulting from share-based awards is recorded at the Management Company, which is a taxable entity.
The total grant-date fair value of restricted stock awards granted during the Successor year ended December 31, 2022 was $3,095. The total grant-date fair value of restricted stock awards granted during the Successor period from November 1, 2021 through December 31, 2021 was $21,642. The total fair value of restricted stock awards that vested during the Successor year ended December 31, 2022 was $5,306. No restricted stock awards vested during the Successor period from November 1, 2021 through December 31, 2021.
As of December 31, 2022, there was $16,418 of total unrecognized compensation cost related to nonvested restricted stock awards granted under the EIP, which is expected to be recognized over a weighted-average period of 2.8 years.
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Performance Stock Unit Awards
In February 2022, the compensation committee of the board of directors of the Company approved the terms of new awards of PSUs. The PSUs are earned over a four-year performance period aligned with fiscal years 2022 (includes the Successor period from November 1, 2021 through December 31, 2021) through 2025, with one-quarter of the PSUs assigned to each fiscal year within the four-year performance period (each, an “Annual Performance Period” and all four, collectively, the “Full Performance Period”). The number of PSUs earned for each fiscal year within the four-year performance period will be determined based on the achievement of both (i) a quantitative total market return goal (the “TMR Goal”), and (ii) a Company-specific stated goal (the “Stated Goal”), for such fiscal year. The total market return (or TMR) is calculated as the sum of: (i) the average of the multiple of the Company’s average number of shares of common stock outstanding and the average closing share price of common stock for twenty consecutive trading days, and (ii) the value of cash dividends declared during the applicable fiscal year performance period. The TMR Goal will be met if the required level of total market return is achieved at any time during the last 90 trading days of the applicable fiscal year; provided that an additional six month extended measurement period will be applied for the fourth and final fiscal year (the “TMR Year 4 Grace Period”). The Stated Goal for each year will be met if it is achieved at any time during a cumulative performance period beginning November 1, 2021 and ending on December 31 of the applicable calendar year (the “Stated Goal Performance Period”), subject to a grace period of 6-months following the last day of each Stated Goal Performance Period (the “Stated Goal Grace Period”). If the Stated Goal is not achieved for any fiscal year measurement period (including the applicable grace period), then the PSUs allocable to that fiscal year will be forfeited. If the Stated Goal for a fiscal year is achieved but the TMR Goal is not achieved, then the unearned PSUs for the fiscal year will carry over to the succeeding fiscal year and may be earned based on attainment of the goals for the subsequent performance period. If the Stated Goal is achieved for all four fiscal years, then 50% of any outstanding PSUs will be earned. If a participating officer’s employment is terminated prior to the end of any annual performance period due to death or disability (as defined in the PSU award agreements), or due to a termination by the Company without cause (as defined in the PSU award agreements), then the officer will be entitled to receive a pro rata portion of any PSUs earned for that annual performance period (determined by dividing the number of days from January 1 of the applicable annual performance period through the date of such termination by 365), and any remaining PSUs for such annual performance period, and any subsequent annual performance period, will be forfeited.
A summary of the status of the Successor Company’s PSU awards as of December 31, 2022, and changes during the year ended December 31, 2022, are presented below:
PSUs
Weighted-AverageGrant DateFair Value
Outstanding at January 1, 2022
2022 PSUs granted (1)
727,223
24.67
2022 incremental PSUs granted (1)
82,281
26.66
(202,376
24.87
Outstanding at December 31, 2022
607,128
24.69
Management assesses the Stated Goals quarterly to determine whether it is probable they will be achieved. The Company begins recognizing compensation expense on a straight-line basis over the remaining service period once the Stated Goal is deemed probable of achievement. Share-based compensation expense related to the Successor Company’s PSUs was $4,485 for the year ended December 31, 2022. The unrecognized compensation expense related to the Successor Company’s PSUs was $13,457 as of December 31, 2022, which is expected to be recognized over a weighted-average period of 3.0 years.
114
The following table summarizes the assumptions used in the Monte Carlo simulation pricing model related to the Successor Company’s PSUs:
2022 PSUs
Grant date
February 16, 2022
Fair value per share on valuation date (1)
Risk-free interest rate (2)
1.85
Expected share price volatility (3)
65.00
Predecessor Company
Prior to the Effective Date, the Company had outstanding awards under the CBL & Associates Properties, Inc. 2012 Stock Incentive Plan ("the 2012 Plan"), which permitted 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 compensation committee of the board of directors administered the 2012 Plan.
Under the 2012 Plan, common stock could be awarded either alone, in addition to, or in tandem with other granted stock awards. The Committee had the authority to determine eligible persons to whom common stock would be awarded, the number of shares to be awarded and the duration of the vesting period, as defined. Generally, an award of common stock vested either immediately at grant or in equal installments over a period of five years. Stock awarded to independent directors was fully vested upon grant; however, the independent directors could not transfer such shares during their board term. The Committee could also provide for the issuance of common stock under the 2012 Plan on a deferred basis pursuant to deferred compensation arrangements. The fair value of common stock awarded under the 2012 Plan was determined based on the market price of CBL’s common stock on the grant date and the related compensation expense was recognized over the vesting period on a straight-line basis.
As of the Effective Date and pursuant to the Plan, nonvested restricted stock of the Predecessor Company was deemed vested and the Company’s 2012 Stock Incentive Plan, as amended (the “2012 Plan”), pursuant to which such restricted stock had been granted, was terminated. A summary of the Predecessor Company’s restricted stock awards as of October 31, 2021, and changes during the period from January 1, 2021 through October 31, 2021, are presented below:
Nonvested at January 1, 2021
1,519,774
2.15
(1,490,751
2.14
(29,023
2.73
Nonvested at October 31, 2021
In conjunction with the vesting of the restricted stock on the Effective Date, the Predecessor Company accelerated the share-based compensation cost and recorded $863 of share-based compensation cost for the period from January 1, 2021 through October 31, 2021. The share-based compensation cost related to the restricted stock awards of the Predecessor Company was $2,239 for 2020. Share-based compensation cost resulting from share-based awards is recorded at the Management Company, which is a taxable entity. Share-based compensation cost capitalized as part of real estate assets was $10 for the period from January 1, 2021 through October 31, 2021. Share-based compensation cost capitalized as part of real estate assets was $20 in 2020.
The weighted-average grant-date fair value per share of shares granted during 2020 was $0.86. The total fair value of shares vested during 2021 and 2020 was $220 and $951, respectively.
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Long-Term Incentive Program
In 2015, the Company adopted a long-term incentive program ("LTIP") for its named executive officers, which consisted of PSUs awards and annual restricted stock awards, that could be issued under the 2012 Plan. The number of shares related to the PSU awards that each named executive officer could receive upon the conclusion of a three-year performance period was determined based on the Company's achievement of specified levels of long-term total stockholder return ("TSR") performance relative to the National Association of Real Estate Investment Trusts ("NAREIT") Retail Index, provided that at least a "Threshold" level must be attained for any shares to be earned.
Beginning with the 2018 PSUs, two-thirds of the quantitative portion of the award over the performance period was based on the achievement of TSR relative to the NAREIT Retail Index while the remaining one-third was based on the achievement of absolute TSR metrics for the Company. Beginning with the 2018 PSU grant, to maintain compliance with a 200,000 share annual equity grant limit (the “Section 162(m) Grant Limit”) that was included in the 2012 Plan to satisfy the “qualified performance-based compensation” exception to the deduction limits for certain executive compensation under Section 162(m) of the Code, to the extent that a grant of PSUs could result in the issuance of a number of shares of common stock at the conclusion of the performance period that, when coupled with the number of shares of time-vesting restricted stock granted in the same year the PSUs were granted, would exceed such limit, any such excess would be converted to a cash bonus award with a value equivalent to the number of shares of common stock constituting such excess times the average of the high and low trading prices reported for CBL's common stock on the date such shares would otherwise have been issuable.
In conjunction with the February 2020 approval of the 2020 LTIP grants for the named executive officers, the 2012 Stock Incentive Plan was amended to remove the Section 162(m) Grant Limit, which no longer served its original purpose because the “qualified performance-based compensation” exception to the Section 162(m) deduction limits was repealed by the 2017 tax reform legislation. However, NYSE rules also include an annual equity grant limit which effectively limits the number of shares that can be subject to stock awards to any individual named executive officer, without additional shareholder approval, to one percent (1%) of the total number of outstanding shares of the Company’s Common Stock (the “NYSE Annual Grant Limit”). To maintain NYSE compliance following elimination of the Section 162(m) Grant Limit, the Company’s Compensation Committee revised PSU awards under the LTIP, beginning in 2020, to provide that if a grant of PSUs could result in the issuance of a number of shares to a named executive officer at the conclusion of the 3-year performance period that would exceed the NYSE Annual Grant Limit, when coupled with the number of shares subject to other stock awards (e.g., the time-vesting restricted stock component of the LTIP) issued in the same year that such PSUs were issued, any such excess will instead be converted to a cash bonus award, while remaining subject to vesting conditions as described below.
Annual Restricted Stock Awards
Under the LTIP, annual restricted stock awards consisted of shares of time-vested restricted stock awarded based on a qualitative evaluation of the performance of the Company and the named executive officer during the fiscal year. Annual restricted stock awards under the LTIP, which are included in the totals reflected in the preceding table, vested 25% on the date of grant with the remainder vesting in three equal annual installments. Outstanding restricted stock, and related grant/vesting/forfeiture activity during the Predecessor period from January 1, 2021, through October 31, 2021 for awards made to named executive officers under the LTIP, is included in the information presented in the table above.
116
Performance Stock Units
The Predecessor Company granted the following PSUs in the first quarter of the respective years. A summary of PSU activity as of October 31, 2021, and changes during the period from January 1, 2021 through October 31, 2021, is presented below:
2019 PSUs granted (1)
1,103,537
2.40
2020 PSUs granted (2)
3,408,083
0.84
2020 PSUs cancelled (3)
(3,408,083
Outstanding at January 1, 2021
2019 PSUs cancelled (4)
(1,103,537
Outstanding at October 31, 2021
Compensation cost was recognized on a tranche-by-tranche basis using the accelerated attribution method. The resulting expense was recorded regardless of whether any PSU awards were earned as long as the required service period was met.
Share-based compensation expense related to the PSUs was $315 for the period from January 1, 2021 through October 31, 2021. Share-based compensation expense related to the PSUs was $3,185 in 2020. Share-based compensation expense in 2020 included $2,052 of expense related to the cancellation of the 2020 PSUs.
The following table summarizes the assumptions used in the Monte Carlo simulation pricing model related to the Predecessor Company’s PSUs:
2020 PSUs
February 10, 2020
1.39
57.98
NOTE 17. EMPLOYEE BENEFIT PLANS
401(k) Plan
The Management Company maintains a 401(k) profit sharing plan, which is qualified under Section 401(a) and Section 401(k) of the Code to cover employees of the Management Company. All employees who have attained the age of 21 and have completed at least two months of service are eligible to participate in the plan. The plan provides for employer matching contributions on behalf of each participant equal to 50% of the portion of such participant’s contribution that does not exceed 2.5% of such participant’s annual gross salary for the plan year. Additionally, the Management Company has the discretion to make additional profit-sharing-type contributions not related to participant elective contributions. Total contributions by the Management Company for the Successor year ended December 31, 2022 were $823. Total contributions by the Management Company for the Successor period from November 1, 2021 through December 31, 2021 were $97. Total contributions by the Management Company for the Predecessor period January 1, 2021 through October 31, 2021 were $658. Total contributions by the Management Company for the Predecessor year ended December 31, 2020 were $650.
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NOTE 18. EMERGENCE FROM VOLUNTARY REORGANIZATION UNDER CHAPTER 11
On August 18, 2020, the Company entered into a Restructuring Support Agreement, (the “Original RSA”) with the Consenting Noteholders representing in excess of 62%, including joining noteholders pursuant to joinder agreements, of the Notes.
On October 28, 2020, the Operating Partnership was notified by the administrative agent and lenders that they elected to exercise their rights pursuant to the terms of the secured credit facility to (i) require that rents payable by tenants at the properties that are collateral to the secured credit facility be paid directly to the administrative agent and (ii) exercise all voting rights and other ownership rights in respect of all the equity interests in the subsidiaries of the Operating Partnership that are guarantors of the secured credit facility.
Beginning on November 1, 2020, the Debtors filed the Chapter 11 Cases under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Bankruptcy Court authorized the Debtors to continue to operate their businesses and manage their properties as debtors-in-possession pursuant to the Bankruptcy Code. The Chapter 11 Cases are being jointly administered for procedural purposes only under the caption In re CBL & Associates Properties, Inc., et al., Case No. 20-35226.
The filing of the Chapter 11 Cases constituted an event of default with respect to certain property-level debt of the Operating Partnership’s subsidiaries. See Note 7 and Note 8 for further discussion.
In connection with the Chapter 11 Cases, on August 11, 2021, the Bankruptcy Court entered an order, Docket No.1397 (Confirmation Order), confirming the Plan.
On the Effective Date, the conditions to effectiveness of the Plan were satisfied and the Debtors emerged from the Chapter 11 Cases. The Company filed a notice of the Effective Date of the Plan with the Bankruptcy Court on November 1, 2021. Following the Effective Date, one of the Debtors’ Chapter 11 Cases remains open to administer claims pursuant to the Plan.
On the Effective Date, in exchange for their approximately $1,375,000 in principal amount of senior unsecured notes and $133,000 in principal amount of the secured credit facility, Consenting Noteholders, other noteholders, and certain holders of unsecured claims against the Company received, in the aggregate, $95,000 in cash, $455,000 of new senior secured notes, $100,000 of new exchangeable secured notes, based upon the election by certain Consenting Noteholders, and 89% in common equity of the newly reorganized company (subject to dilution, as set forth in the Plan). Certain Consenting Noteholders also provided $50,000 of new money in exchange for additional new exchangeable secured notes. Pursuant to the Plan the remaining lenders of the senior secured credit facility, holding $983,700 in principal amount, received $100,000 in cash and a new $883,700 secured term loan. Existing common and preferred shareholders each received 5.5% of common equity in the newly reorganized company. On the Effective Date, the Company had an aggregate 20,000,000 shares of new common stock and units issued and outstanding.
On the Effective Date, the Company reserved an additional (i) approximately 9,000,000 shares of new common stock for issuance upon the potential exercise of the new exchangeable notes and (ii) 3,222,222 shares of new common stock for issuance under an equity incentive plan.
On the Effective Date, all prior equity interests of the Company issued and outstanding immediately prior to the Effective Date, including (1) CBL’s common stock, par value $0.01 per share and CBL’s preferred stock and related depositary shares and (2) the Operating Partnership’s limited partnership common interests and the limited partnership preferred interests related to CBL’s preferred stock, and any rights of any holder in respect thereof, were deemed cancelled, discharged and of no force or effect.
Registration Rights Agreement
Pursuant to the Plan, on the Effective Date, the Company and certain holders of the newly issued shares of common stock, par value $0.001, of the Company executed a registration rights agreement.
Pursuant to the registration rights agreement, the Company agreed to file with the SEC an initial shelf registration statement on Form S-11 as soon as practicable after the filing with the SEC of the Company’s Annual Report on Form 10-K for the year ending December 31, 2021 (including any portions thereof that are incorporated by reference into such Form 10-K from the Company’s definitive proxy statement for the Company’s 2022 annual meeting of shareholders), and to use reasonable best efforts to substitute this with a shelf registration on Form S-3 as soon as reasonably practicable following the Company’s becoming eligible to use such form. Any holder or group of holders will have the right to request that the Company include some or all the shares of new common stock held by them, including shares of new common stock issuable upon conversion of the exchangeable notes, in such initial shelf registration statement or shelf registration statement. The Company also agreed to file a “demand” shelf registration statement, or to facilitate a “takedown” of registrable securities in the form of an underwritten offering under any existing shelf registration statement, to the extent that (1) the registrable securities sought to be sold equal at least 5% of all outstanding shares of new common stock on the date of any such request or (2) the anticipated aggregate gross offering price of such registrable securities is at least $25,000 (prior to the deduction of any underwriting discounts and commissions). The Company shall also not be required to file a “demand” registration statement if (a) the registrable securities proposed to be sold are already covered by an existing and effective registration statement that may utilized for the offer and sale of such registrable securities, or (b) there have previously been more than 6 such demands in the aggregate.
On May 6, 2022, the Company filed a resale registration statement on Form S-11 covering the offer and sale, from time to time, of up to 12,380,260 shares of common stock by the selling shareholders named therein, pursuant to the requirements of the registration rights agreement. The Company will not receive any proceeds from resales of shares of common stock by the selling shareholders pursuant to this registration statement.
Following the Effective Date, the board of directors of the Company adopted the EIP. See Note 16 for additional information.
Fifth Amended and Restated Operating Partnership Agreement
On the Effective Date, under the terms of the Plan, affiliates of the Company entered into a Fifth Amended and Restated Agreement of Limited Partnership for the Operating Partnership (the “New OP Agreement”) with CBL (solely for purposes of acknowledging the provisions thereof) and the remaining holders of the old limited partnership preferred interests (the “Old LP Interests”) who elected to remain limited partners of the Operating Partnership following emergence.
Pursuant to the Plan, the New OP Agreement supersedes and replaces in its entirety the Operating Partnership’s Fourth Amended and Restated Agreement of Limited Partnership, as amended (the “Old OP Agreement”), and all of the common units, special common units and preferred units of limited partnership of the Operating Partnership outstanding under the Old OP Agreement were cancelled and new common units (which, as of the Effective Date, are the only class of equity of the Operating Partnership outstanding) were issued to certain holders, as described in Note 9. The New OP Agreement also eliminated the terms of all the classes of preferred units, as well as all the classes of special common units, that were defined in the Old OP Agreement.
Second Amended and Restated Certificate of Incorporation
In connection with the Company’s reorganization and emergence from its Chapter 11 Proceedings, as provided in the Plan, effective as of the Effective Date, CBL adopted a Second Amended and Restated Certificate of Incorporation (the “Updated COI”), which replaced and superseded the CBL’s Amended and Restated Certificate of Incorporation as it existed immediately prior to the Effective Date (the “Prior COI”), and also adopted the Fourth Amended and Restated Bylaws for CBL (the “Updated Bylaws”), which replaced and superseded CBL’s Third Amended and Restated Bylaws as they existed immediately prior to the Effective Date (the “Prior Bylaws”).
Delisting of Common Stock and Depositary Shares
On November 2, 2020, the NYSE announced that (i) it had suspended trading in the Company’s stock and (ii) it had determined to commence proceedings to delist the Company’s common stock, as well as the Series D Preferred Stock and the Series E Preferred Stock, due to such securities no longer being suitable for listing based on “abnormally low” trading price levels, pursuant to Section 802.01D of the NYSE Listed Company Manual. The Company appealed this decision in accordance with NYSE rules. In the meantime, effective November 3, 2020, the Company’s common stock and the depositary shares representing fractional interests in its Series D Preferred Stock and Series E Preferred Stock began trading on the OTC Markets, operated by the OTC Markets Group, Inc., under the symbols CBLAQ, CBLDQ and CBLEQ, respectively. On November 2, 2021, the newly issued common stock of the reorganized company commenced trading on the NYSE under the symbol CBL.
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Reorganization Items
Any expenses, gains and losses that were realized or incurred as of or subsequent to November 1, 2020, and as a direct result of the Chapter 11 Cases, were recorded in the line item “Reorganization items, net” in the Company’s consolidated statements of operations. For the Successor year ended December 31, 2022 and the Successor period from November 1, 2021 through December 31, 2021, reorganization items, net, was $298 and $(1,403), respectively. For the Predecessor period from January 1, 2021 through October 31, 2021, the $(435,162) of reorganization items, net, consists of $(779,092) associated with remeasuring the value of the individual assets and liabilities of the Successor Company as of the Effective Date, $(75,545) in professional fees and success fees, $(1,211) in compensation associated with reorganization efforts and $(1,741) of U.S. Trustee fees, offset by the gain on settlement of liabilities subject to compromise of $422,427. For the Predecessor year ended December 31, 2020, the $(35,977) of reorganization items consists of $(10,347) in professional fees, $(25,294) of unamortized deferred financing costs and debt discounts related to the secured credit facility and the senior unsecured notes, as well as $(336) of U.S. Trustee fees.
NOTE 19. FRESH START ACCOUNTING
Fresh Start
Upon emergence from bankruptcy, the Company qualified for and adopted fresh start accounting in accordance with ASC 852, which resulted in the Company becoming a new entity for financial reporting purposes because (1) the holders of the then existing common shares of the Predecessor received less than 50 percent of the new shares of common stock of the Successor outstanding upon emergence and (2) the reorganization value of the Company’s assets immediately prior to confirmation of the Plan was less than the total of all post-petition liabilities and allowed claims. The Company elected to apply fresh start accounting using a convenience date of October 31, 2021. Management evaluated and concluded that the events on November 1, 2021 were not material to the Company’s financial reporting on both a quantitative and qualitative basis.
The reorganization value derived from the range of equity values associated with the Plan was allocated to the Company’s identifiable tangible and intangible assets and liabilities based on their fair values. The Effective Date fair values of the Company’s assets and liabilities differ materially from their recorded values as reflected on the historical balance sheets.
Reorganization Value
Under ASC 852, the Successor determined a value to be assigned to the equity of the emerging entity as of the date of adoption of fresh start accounting. Based on the Company’s revised projections filed with the SEC on a Form 8-K on May 6, 2021, management and its investment bankers reassessed the value of the Company, resulting in an estimated range of shareholders’ equity between $50,000 and $550,000. The Company engaged third-party valuation advisors to assist the Company in their determination of a point estimate of equity value within the range.
Management concluded that the best point estimate of shareholders’ equity was $547,448, which resulted in $553,535 of total equity, including noncontrolling interest in the Operating Partnership. The Company engaged valuation experts to assist management in the allocation of such enterprise value to the assets and liabilities for financial reporting purposes. The Company estimated enterprise value using a discounted cash flow approach. In order to estimate enterprise value, the Company estimated cash flows over a five-year period plus a residual value calculated using a capitalization rate of 10% applied to the residual period cash flows, all of which were discounted to an estimated present value using the Company’s estimated weighted average cost of capital of 11%. The estimated future cash flows were based on financial projections utilized by the Company’s investment bankers in deriving the range of equity value. The fair value of mortgage and other indebtedness and the 10% senior secured notes were subtracted from and the balance of cash, cash equivalents and restricted cash was added to enterprise value to determine equity value. The fair value of mortgage and other indebtedness was estimated based on an analysis of collateral coverage, financial metrics and interest rate for each mortgage note payable relative to market rates (see below for a more detailed description). The most subjective and judgmental assumptions used in the determination of enterprise and equity value include the Company’s projected cash flows (projected revenues, operating expenses, capital expenditures and cash flows), capitalization and discount rates, and market interest rates for mortgage note payable obligations.
120
The following table reconciles the enterprise value to the estimated fair value of the Successor’s common shares as of the Effective Date:
Enterprise value, less cash
2,296,872
Less: Fair value of noncontrolling interest in consolidated subsidiaries
(6,087
Enterprise value of the Company's interests, less cash
2,290,785
Plus: Cash, cash equivalents and restricted cash
Less: Fair value of mortgage and other indebtedness
(1,678,619
Less: Fair value of 10% senior secured notes
(395,000
Fair value of Successor total shareholders' equity
Shares and units issued upon emergence
20,000,000
Per share value
27.37
The following table reconciles the enterprise value to the reorganization value of the Successor’s assets to be allocated to the Company’s individual assets as of the Effective Date:
Plus: Accounts payable and accrued liabilities
335,513
Reorganization value of Successor's assets
2,962,667
The enterprise value and corresponding equity value are dependent upon achieving the future financial results set forth in the Company’s projections, as well as the realization of certain other assumptions. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the financial projections, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond the Company’s control. Accordingly, the Company cannot assure that the estimates, assumptions, valuations or financial projections will be realized and actual results could vary materially.
In developing the fair value estimates for the portfolio of retail properties, all three traditional approaches to valuation were considered including the income approach, the sales comparison (market) approach and the cost approach. These valuation approaches have long been recognized as acceptable in the appropriate circumstances and in valuations of this type. Accordingly, all applicable properties were identified, investigated and examined by the valuation provider along with all intangible assets and liabilities associated with the properties. Furthermore, the valuation provider estimated the fair values and remaining useful lives ("RUL") of the related intangible assets and liabilities at the property-level, as applicable. In most cases, the properties included the following intangible assets/liabilities:
121
For the valuation of the tangible assets of each property, all pertinent information such as blueprints and drawings, property tax statements, prior appraisals and cost segregation reports were utilized. In terms of methodology, the properties were valued via the income approach in order to estimate building values. Separate values for the underlying land and site improvements were developed via the cost approach. As part of the allocation process, the fair value of the following tangible components was estimated:
The fair value of the Company’s investment in unconsolidated affiliates for fresh start accounting was determined by valuing the underlying real estate assets associated with each unconsolidated joint venture in the same manner as all real estate assets, described above. The Company then calculated the net asset or liability value of each joint venture by applying the net working capital balance to the fair value of the real estate assets and the amount outstanding under any associated mortgage notes. The percentage of ownership interest in each joint venture was applied to the net asset or liability value which resulted in the fair value of each unconsolidated affiliate. See Note 2 for further information related to the equity method of accounting.
The fair value of lease liabilities was measured as the present value of the remaining lease payments, as if the lease were a new lease as of the Effective Date. The Company used its incremental borrowing rate (“IBR”) as the discount rate in determining the present value of the remaining lease payments, which was determined by a third-party valuation advisor using a fundamental credit rating analysis and an implied market yield analysis based on the newly issued Secured Notes. Based upon the corresponding lease term, the IBR was approximately 12.0%.
Consolidated Balance Sheet
The adjustments included in the following fresh start consolidated balance sheet reflect the effects of the transactions contemplated by the Plan and executed by the Company on the Effective Date (reflected in the column “Reorganization Adjustments”), and fair value and other required accounting adjustments resulting from the adoption of fresh start accounting (reflected in the column “Fresh Start Accounting Adjustments”). The explanatory notes provide additional information regarding the adjustments recorded.
122
October 31, 2021
ReorganizationAdjustments
Fresh StartAccountingAdjustments
625,098
(23,083
(15)
602,015
4,839,923
(3,660,465
1,179,458
5,465,021
(3,683,548
1,781,473
(2,252,275
2,252,275
3,212,746
(1,431,273
15,858
3,228,604
1,797,331
498,260
(238,053
70,664
(49,751
(16)
20,913
4,056
1,254
5,310
Mortgage and other notes receivable
397
246,823
(124,982
(17)
121,841
6,895
406,635
(18)
413,530
3,611
241,385
244,996
150,784
(52,642
(19)
98,142
4,210,094
(236,799
(1,010,628
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
1,016,557
1,032,508
(370,446
(20)
1,678,619
10% senior secured notes - at fair value (carrying amount of $395,000 as of October 31, 2021)
153,667
159,243
215,675
(7,431
(31,974
(21)
176,270
Total liabilities not subject to compromise (1)
1,237,808
1,420,077
(248,753
2,409,132
Liabilities subject to compromise
2,551,439
(2,551,439
Commitments and contingencies
Redeemable noncontrolling interests
(1,032
Successor common stock, $.001 par value, 200,000,000 shares authorized, 20,774,716 issued and outstanding in 2021
Predecessor preferred stock, $.01 par value, 15,000,000 shares authorized:
7.375% Series D Cumulative Redeemable Preferred Stock, 1,815,000 shares outstanding in 2020
6.625% Series E Cumulative Redeemable Preferred Stock, 690,000 shares outstanding in 2020
(7
(10)
123
Predecessor common stock, $.01 par value, 350,000,000 shares authorized, 196,569,917 issued and outstanding in 2020
1,976
(1,976
(11)
1,986,769
487,721
(12)
(1,927,062
(22)
Retained earnings (dividends in excess of cumulative earnings)
(1,553,835
405,864
(13)
1,147,971
434,935
891,604
(779,091
(13,056
1,927
(14)
(23)
421,879
893,531
(761,875
124
Proceeds from exchangeable notes
Payment for the settlement to allowed unsecured claim holders
(98,801
Payment for the settlement of the Predecessor secured credit facility
(100,000
Payment of deferred financing fees for the exit credit agreement
(1,192
Payment of expensed financing fees for the exchangeable notes and the Secured Notes
Payment of professional fees
(27,170
Redemption of Secured Notes
(60,117
Issuance of exit credit agreement
883,700
Issuance of exchangeable notes
Capitalization of deferred financing costs related to the exit credit agreement
(983,700
Issuance of Secured Notes
(555,773
Equity issued on the Effective Date in settlement of liabilities subject to compromise
(487,479
Payment to various creditors
(102,060
Gain on settlement of liabilities subject to compromise
422,427
Conversion of Predecessor equity
Cancellation of Predecessor common stock
(1,996
Net change in Predecessor common stock
Issuance of Successor common stock to creditors
Issuance of Successor common stock to Predecessor equity holders
(2
Cancellation of Predecessor common stock and preferred stock
2,021
Other adjustments
(1,760
Payment of certain professional fees
(16,563
125
Intangible lease assets
(52,761
Corporate assets
Right-of-use lease assets
(174
Investment in unconsolidated affiliates
(31,682
Write-off of deferred revenue
(91
Lease liabilities
(201
NOTE 20. SUBSEQUENT EVENTS
On January 12, 2023, a purported shareholder filed the Delaware Action, naming the Company and certain directors as defendants. On February 15, 2023, the Delaware Action was voluntarily dismissed. See Note 14 for additional information.
Following a January 31, 2023 mediation before a private mediator, the parties to the Securities Class Action Litigation reached an agreement in principle to resolve the Securities Class Action Litigation, subject to final documentation and court approval. See Note 14 for additional information.
In January 2023, the Company redeemed $50,791 in U.S. Treasury securities.
On February 16, 2023, the Company's board of directors declared a $0.375 per share regular quarterly dividend, which represents a 50% increase from the regular quarterly dividend paid in 2022.
126
Schedule III
REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
At December 31, 2022
Initial Cost (1)
Gross Carry Amounts at Close of Period
Description /Location
Encumbrances(2)
BuildingsandImprovements
CostsCapitalizedSubsequent toAcquisition
Sales ofOutparcelLand
Fresh StartAdjustments
Total (3)
AccumulatedDepreciation(4)
Date ofConstruction / Acquisition
MALLS:
Alamance CrossingBurlington, NC
59,947
20,853
62,852
39,707
(3,962
(96,897
9,603
12,950
22,553
(1,695
Arbor PlaceAtlanta (Douglasville), GA
8,508
95,088
27,323
(89,396
3,050
38,473
41,523
(4,514
1998-1999
Brookfield SquareBrookfield, WI
8,996
78,533
100,040
(5,208
(146,235
10,282
25,844
36,126
(3,824
CherryVale MallRockford, IL
11,892
64,117
56,681
(1,667
(113,543
5,360
12,120
17,480
(3,062
Cross Creek MallFayetteville, NC
19,155
104,378
31,758
(49,534
4,372
101,385
105,757
(10,004
Dakota Square MallMinot, ND
4,552
87,625
27,320
(96,630
5,179
17,688
22,867
(1,538
2012
East Towne MallMadison, WI
4,496
63,867
64,153
(909
(123,012
4,413
4,182
8,595
(1,299
Eastland MallBloomington, IL
5,746
75,893
(71,318
(753
(5,600
1,921
2,047
3,968
(415
Fayette MallLexington, KY
25,205
84,256
107,248
(87,361
11,204
118,144
129,348
(8,045
Frontier MallCheyenne, WY
2,681
21,438
(83
(31,588
3,715
4,591
8,306
(775
1984-1985
Hamilton PlaceChattanooga, TN
3,532
42,619
52,230
(2,384
(35,984
9,640
50,373
60,013
(4,589
1986-1987
Hanes MallWinston-Salem, NC
17,176
133,376
49,866
(1,767
(147,963
13,968
36,720
50,688
(3,724
Harford MallBel Air, MD
8,699
45,704
17,720
(65,736
4,582
1,805
6,387
(479
Imperial Valley MallEl Centro, CA
35,378
71,753
2,422
(92,019
4,810
12,724
17,534
(1,995
Jefferson MallLouisville, KY
13,125
40,234
28,061
(521
(70,099
4,625
6,175
10,800
(1,605
Kirkwood MallBismarck, ND
3,368
118,945
38,098
(126,278
8,114
26,019
34,133
(2,072
Laurel Park PlaceLivonia, MI
13,289
92,579
(97,461
(3,630
4,026
4,777
(847
Layton Hills MallLayton, UT
20,464
99,836
(13,447
(1,165
(74,968
10,261
20,459
30,720
(1,491
Mall del NorteLaredo, TX
21,734
142,049
58,241
(149
(148,232
13,875
59,768
73,643
(5,105
Mayfaire Town CenterWilmington, NC
26,333
101,087
20,445
(107,804
7,164
32,897
40,061
(3,669
Meridian MallLansing, MI
2,797
103,678
62,492
(150,764
8,573
9,630
18,203
(1,873
Mid Rivers MallSt. Peters, MO
16,384
170,582
(135,442
(4,174
(27,787
9,191
10,372
19,563
Monroeville MallPittsburgh, PA
22,911
177,214
(137,378
(36,624
12,379
13,744
26,123
(2,122
Northgate MallChattanooga, TN
2,330
8,960
24,215
(492
(23,815
3,413
7,785
11,198
(827
Northpark MallJoplin, MO
9,977
65,481
39,566
(99,164
7,084
8,776
15,860
Northwoods MallNorth Charleston, SC
14,867
49,647
29,143
(2,339
(52,958
9,402
28,958
38,360
(4,000
Old Hickory MallJackson, TN
15,527
29,413
(32,561
(362
(9,431
800
1,786
2,586
(667
The Outlet Shoppes at GettysburgGettysburg, PA
20,779
22,180
(30,177
(47
7,822
4,913
12,735
The Outlet Shoppes at LaredoLaredo, TX
11,000
97,353
(65,852
(26,318
3,741
12,442
16,183
(970
Parkdale Mall and CrossingBeaumont, TX
22,060
29,842
(5,195
(874
(21,766
11,364
12,703
24,067
(2,217
Parkway PlaceHuntsville, AL
6,364
67,067
6,729
(43,144
10,067
26,949
37,016
(2,926
Pearland Town CenterPearland, TX
16,300
108,615
25,528
(857
(106,531
16,896
26,159
43,055
(2,827
Post Oak MallCollege Station, TX
3,936
48,948
17,495
(327
(52,738
6,206
17,314
(1,416
Richland MallWaco, TX
9,874
34,793
24,235
(1,225
(44,167
8,793
14,717
23,510
(1,882
South County CenterSt. Louis, MO
15,754
159,249
3,576
(160,681
11,165
6,733
17,898
(2,025
Southaven Towne CenterSouthaven, MS
14,315
29,380
2,082
(27,929
10,163
7,685
17,848
Southpark MallColonial Heights, VA
9,501
73,262
30,778
(102,613
4,193
6,735
10,928
(882
St. Clair SquareFairview Heights, IL
11,027
75,620
36,343
(82,113
8,150
32,727
40,877
(3,583
Stroud MallStroudsburg, PA
14,711
23,936
(24,617
(5,698
2,942
5,390
8,332
(868
Sunrise MallBrownsville, TX
11,156
59,047
14,482
(45,064
14,999
24,622
39,621
(4,397
Turtle Creek MallHattiesburg, MS
2,345
26,418
18,634
(26,937
3,977
16,483
20,460
(2,513
1993-1995
Valley View MallRoanoke, VA
15,985
77,771
24,045
(89,309
9,499
18,993
28,492
(2,728
128
Volusia MallDaytona Beach, FL
2,526
120,242
21,791
(128,334
11,078
5,147
16,225
(1,250
West Towne MallMadison, WI
8,912
83,084
44,523
(84,533
14,623
37,363
51,986
(4,027
WestGate MallSpartanburg, SC
2,149
23,257
49,732
(432
(68,403
3,553
2,750
6,303
(474
Westmoreland MallGreensburg, PA
4,621
84,215
35,348
(1,240
(107,620
6,389
8,935
15,324
(2,705
York GalleriaYork, PA
5,757
63,316
23,508
(84,499
1,767
6,315
8,082
(1,548
OTHER PROPERTIES:
840 Greenbrier CircleChesapeake, VA
2,096
3,091
1,152
(1,626
1,387
3,326
4,713
(200
Annex at MonroevillePittsburgh, PA
29,496
(25,862
1,454
2,741
4,195
(624
CBL CenterChattanooga, TN
1,332
24,675
1,766
(17,030
3,081
7,662
10,743
(541
CBL Center IIChattanooga, TN
13,648
546
(9,880
965
3,371
4,336
(176
CoolSprings CrossingNashville, TN
17,732
2,803
14,985
(2,871
(10,291
2,969
1,657
4,626
(249
1991-1993
Courtyard at Hickory HollowNashville, TN
4,589
3,314
2,771
482
(231
(1,181
1,844
3,311
5,155
(228
Frontier SquareCheyenne, WY
2,929
346
684
672
(86
612
904
1,324
2,228
Gunbarrel PointeChattanooga, TN
16,736
4,170
10,874
4,341
(5,974
8,099
5,312
13,411
(341
Hamilton CornerChattanooga, TN
16,638
630
5,532
8,646
(2,368
4,981
7,459
12,440
(480
Hamilton CrossingChattanooga, TN
11,688
4,014
5,906
7,009
(1,370
(5,550
5,300
4,709
10,009
(344
Harford AnnexBel Air, MD
13,282
3,117
9,718
1,015
(2,430
8,303
11,420
(437
The Landing at Arbor PlaceAtlanta (Douglasville), GA
5,813
7,238
14,330
1,250
(2,242
(18,627
1,192
1,949
(277
Layton Convenience CenterLayton, UT (5)
4,184
1,947
3,574
2,565
6,139
(524
Layton Hills PlazaLayton, UT
1,243
826
1,427
2,253
(105
Parkdale CornerBeaumont, TX
4,180
1,255
2,657
(896
1,305
1,712
3,017
Pearland OfficePearland, TX
7,849
2,634
(3,210
7,273
(801
The Plaza at FayetteLexington, KY
23,642
9,531
27,646
1,265
(28,520
7,395
9,922
(1,301
129
The Promenade D'lbervilleD'lberville, MS
16,278
48,806
28,901
(706
(53,513
8,728
31,038
39,766
(3,588
The Shoppes at Hamilton PlaceChattanooga, TN
19,023
5,837
16,326
1,285
(10,827
5,060
7,561
12,621
(946
The Shoppes at St. Clair SquareFairview Heights, IL
16,912
8,250
23,623
910
(5,044
(19,688
2,783
5,268
8,051
(546
Sunrise CommonsBrownsville, TX
8,704
7,525
2,024
(2,845
3,504
4,213
7,717
(293
The TerraceChattanooga, TN
17,651
4,166
9,929
8,104
(9,404
8,982
3,813
12,795
(346
West Towne CrossingMadison, WI
26,317
1,784
2,955
7,307
4,227
5,831
10,442
16,273
(493
WestGate CrossingSpartanburg, SC
7,776
1,082
3,422
7,896
(5,426
4,927
6,974
(390
Westmoreland CrossingGreensburg, PA
2,898
21,167
9,302
(23,389
3,119
6,859
9,978
(2,112
OUTPARCELS:
Outparcel properties
192,857
36,094
88,102
64,189
669
99,040
90,014
189,054
(5,860
Various
DISPOSITIONS:
Greenbriar MallChesapeake, VA
3,181
107,355
(87,506
(626
(22,404
43,235
21,318
(10,581
(1,800
12,654
59,413
5,413
64,826
(251
Developments in progress consisting of construction and development properties
TOTALS
1,260,123
732,733
4,057,619
734,616
(42,995
(3,681,085
1,204,173
1,800,888
130
The changes in real estate assets and accumulated depreciation for the Successor year ended December 31, 2022, the Successor period ended December 31, 2021, the Predecessor period ended October 31, 2021 and the Predecessor year ended December 31, 2020 are set forth below (in thousands):
As of October 31,
REAL ESTATE ASSETS:
Balance at beginning of period
1,789,055
1,797,332
5,859,113
6,411,400
Additions during the period:
Additions and improvements
37,080
5,599
31,278
36,337
5,766
Deductions during the period:
Disposals, deconsolidations and accumulated depreciation on impairments
(30,752
(13,876
(250,136
(377,165
Fresh start accounting adjustments
(3,683,547
Transfers to (from) real estate assets
(261
(11,209
332
Impairment of real estate assets
(148,167
(211,791
Balance at end of period
ACCUMULATED DEPRECIATION:
19,937
2,241,421
2,349,404
Depreciation expense
123,695
20,543
152,973
205,671
Transfers from real estate assets
Accumulated depreciation on real estate assets sold, retired, deconsolidated or impaired
(6,746
(606
(142,119
(313,654
136,901
131
Schedule IV
MORTGAGE NOTES RECEIVABLE ON REAL ESTATE
The changes in mortgage notes receivable were as follows (in thousands):
Period from November 1, 2021 through December 31,
Period from January 1, 2021 through October 31,
Beginning balance
1,100
2,637
Payments
(307
Write-Offs
(1,100
(1,230
Ending balance
EXHIBIT INDEX
Exhibit
2.1
Chapter 11 Plan of Reorganization, dated as of December 29, 2020 (incorporated by reference from the Company’s Current Report on Form 8-K, filed on December 30, 2020).
2.2
Findings of Fact, Conclusions of Law, and Order (I) Confirming Third Amended Joint Chapter 11 Plan of CBL & Associates Properties, Inc. and Its Affiliated Debtors and (II) Granting Related Relief, dated August 11, 2021. (filed as Exhibit 2.1 to CBL & Associates Properties, Inc. Current Report on Form 8-K filed on August 12, 2021).
2.3
Third Amended Chapter 11 Plan (with technical modifications), as approved by the Bankruptcy Court on August 12, 2021 (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K, filed on August 10, 2021).
3.1
Second Amended and Restated Certification of Incorporation of CBL & Associates Properties, Inc (incorporated by reference from the Company’s Current Report on Form 8-K, filed on November 2, 2021).
Amendment, dated February 15, 2023, to Fourth Amended and Restated Bylaws of CBL & Associates Properties, Inc. (incorporated by reference from the Company's Current Report on Form 8-K, filed on February 21, 2023).
3.3
Fifth Amended and Restated Bylaws of CBL & Associates Properties, Inc.
See Second Amended and Restated Certificate of Incorporation of the CBL & Associates Properties, Inc and Fourth Amended and Restated Bylaws of CBL & Associates Properties, Inc relating to the Common Stock, Exhibits 3.1 and 3.2 above.
4.2
Description of Securities
Credit Agreement, dated as of June 7, 2022, between the Company, as a borrower and a guarantor, Beal Bank USA, as the initial lender, CLMG CORP., as administrative agent, and the other lenders party thereto, related to the $360 million open-air centers and outparcels loan (incorporated by reference from the Company's Quarterly Report on Form 10-Q, filed on August 15, 2022).
Stockholder Protection Rights Agreement, dated as of September 8, 2022 (the “Rights Agreement”), between CBL & Associates Properties, Inc. and Computershare Trust Company, N.A., as Rights Agent, which includes as Exhibit A the forms of Rights Certificate and Election to Exercise and as Exhibit B the form of Certificate of Designation and Terms of the Participating Preferred Stock (incorporated by reference from the Company's Current Report on Form 8-K, filed on September 9, 2022).
10.1
Fifth Amended and Restated Agreement of Limited Partnership of CBL & Associates Limited Partnership, dated November 1, 2021 (incorporated by reference from the Company’s Current Report on Form 8-K, filed on November 2, 2021).
10.2.1
Form of Executive Employment Agreements† (incorporated by reference from the Company’s Current Report on Form 8-K, filed on August 19, 2020).
10.2.2
Form of Executive Retention Bonus Agreement† (incorporated by reference from the Company’s Current Report on Form 8-K, filed on August 19, 2020).
10.2.3
Form of Amended and Restated Retention Bonus Agreement for the Chairman of the Board†. (incorporated by reference from the Company’s Current Report on Form 8-K, filed on November 2, 2020).
10.2.4
Form of Amended and Restated Retention Bonus Agreement for the Company’s NEOs Other Than the Chairman of the Board†. (incorporated by reference from the Company’s Current Report on Form 8-K, filed on November 2, 2020).
10.2.5
CBL & Associates Properties, Inc. Named Executive Officer Annual Incentive Compensation Plan (AIP) (Fiscal Year 2021)† (incorporated by reference from the Company’s Current Report on Form 8-K, filed on May 18, 2021).
10.2.6
Form of Amended and Restated Employment Agreement, entered into May 21, 2021 with certain Company executives† (incorporated by reference from the Company’s Current Report on Form 8-K, filed on May 26, 2021).
10.2.7
Form of Second Amended and Restated Retention Bonus Agreement for the Chairman of the Board, entered into May 21, 2021† (incorporated by reference from the Company’s Current Report on Form 8-K, filed on May 26, 2021).
10.2.8
Form of Second Amended and Restated Retention Bonus Agreement for the Company's NEOs Other Than the Chairman of the Board, entered into May 21, 2021† (incorporated by reference from the Company’s Current Report on Form 8-K, filed on May 26, 2021).
10.2.9
2021 CBL & Associates Properties, Inc. 2021 Equity Incentive Plan† (incorporated by reference from the Company's Current Report on Form 8-K, filed on November 16, 2021).
10.2.10
Form of Executive Officer Time-Vested Award Stock Restriction Agreement under CBL & Associates Properties, Inc. 2021 Equity Incentive Plan† (incorporated by reference from the Company's Current Report on Form 8-K, filed on December 21, 2021).
10.2.11
Form of 2022 Performance Stock Unit Award Agreement under CBL & Associates Properties, Inc. 2021 Equity Incentive Plan† (incorporated by reference from the Company's Current Report on Form 8-K, filed on February 23, 2022).
10.2.12
CBL & Associates Properties, Inc. Named Executive Officer Annual Incentive Compensation Plan (AIP) (Fiscal Year 2023)† (incorporated by reference from the Company’s Current Report on Form 8-K, filed on February 22, 2023).
10.2.13
2023 Long Term Incentive Plan under CBL & Associates Properties, Inc. 2021 Equity Incentive Plan (incorporated by reference from the Company's Current Report on Form 8-K, filed on February 22, 2023).
10.2.14
Form of 2023 LTIP Performance Stock Unit Award Agreement under CBL & Associates Properties, Inc. 2021 Equity Incentive Plan (incorporated by reference from the Company's Current Report on Form 8-K, filed on February 22, 2023).
10.2.15
Form of 2023 LTIP Stock Restriction Agreement under CBL & Associates Properties, Inc. 2021 Equity Incentive Plan (incorporated by reference from the Company's Current Report on Form 8-K, filed on February 22, 2023).
10.2.16
Form of Non-Employee Director Annual Award Stock Restriction Agreement under CBL & Associates Properties, Inc. 2021 Equity Incentive Plan †
10.3
Form of Director and Officer Indemnification Agreement [updated, includes minor modification to, and replaces, version originally filed as an exhibit to the Company's Current Report on Form 8-K filed on November 2, 2021].
10.4.1
CBL & Associates Properties, Inc. Tier III Post-65 Retiree Program† (incorporated by reference from the Company's Current Report on Form 8-K, filed on November 9, 2012).
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10.4.2
CBL & Associates Properties, Inc. Tier 1 Retiree Program. †
10.5
Option Agreement relating to Outparcels (incorporated by reference to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-11 (No. 33-67372), as filed with the Commission on January 27, 1994. Exhibit originally filed in paper format and as such, a hyperlink is not available).
10.6.1
Contribution Agreement and Joint Escrow Instructions between the Company and the owners of Oak Park Mall named therein, dated as of October 17, 2005 (incorporated by reference from the Company's Current Report on Form 8-K, filed on November 22, 2005).
10.6.2
First Amendment to Contribution Agreement and Joint Escrow Instructions between the Company and the owners of Oak Park Mall named therein, dated as of November 8, 2005 (incorporated by reference from the Company's Current Report on Form 8-K, filed on November 22, 2005).
10.6.3
Contribution Agreement and Joint Escrow Instructions between the Company and the owners of Eastland Mall named therein, dated as of October 17, 2005 (incorporated by reference from the Company's Current Report on Form 8-K, filed on November 22, 2005).
10.6.4
First Amendment to Contribution Agreement and Joint Escrow Instructions between the Company and the owners of Eastland Mall named therein, dated as of November 8, 2005 (incorporated by reference from the Company's Current Report on Form 8-K, filed on November 22, 2005).
10.6.5
Purchase and Sale Agreement and Joint Escrow Instructions between the Company and the owners of Hickory Point Mall named therein, dated as of October 17, 2005 (incorporated by reference from the Company's Current Report on Form 8-K, filed on November 22, 2005).
10.6.6
Purchase and Sale Agreement and Joint Escrow Instructions between the Company and the owner of Eastland Medical Building, dated as of October 17, 2005 (incorporated by reference from the Company's Current Report on Form 8-K, filed on November 22, 2005).
10.6.7
Letter Agreement, dated as of October 17, 2005, between the Company and the other parties to the acquisition agreements listed above for Oak Park Mall, Eastland Mall, Hickory Point Mall and Eastland Medical Building (incorporated by reference from the Company's Current Report on Form 8-K, filed on November 22, 2005).
10.6.8
Forms of 2022 Individual and Entity Assignments of Partnership Interests to CBL & Associates Management, Inc. (incorporated by reference from the Company’s Current Report on Form 8-K, filed on March 29, 2022).
Settlement Agreement and Release, by and between the Company, the Operating Partnership, the Management Company, JG Gulf Coast Town Center LLC and Wave Lengths Hair Salons of Florida, Inc. d/b/a Salon Adrian, as approved by the U.S. District Court for the Middle District of Florida on August 22, 2019 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q/A, filed on December 20, 2019).
10.8.1
Restructuring Support Agreement, dated as of August 18, 2020, between the Operating Partnership, REIT, Subsidiary Guarantors and Consenting Holders (incorporated by reference from the Company’s Current Report on Form 8-K, filed on August 19, 2020).
10.8.2
First Amended and Restated Restructuring Support Agreement, dated as of March 21, 2021, between the Operating Partnership, REIT, Subsidiary Guarantors and Consenting Stakeholders (incorporated by reference from the Company’s Current Report on Form 8-K, filed on March 22, 2021).
10.8.3
Plan Term Sheet, dated as of March 21, 2021 (See Exhibit B to Exhibit 10.1) (incorporated by reference from the Company’s Current Report on Form 8-K, filed on March 22, 2021).
135
Amended and Restated Credit Agreement, dated as of November 1, 2021, among CBL & Associates HoldCo I, LLC, as borrower, CBL & Associates Properties, Inc., CBL & Associates Limited Partnership, the lenders party thereto and Wells Fargo, National Association, as administrative agent (incorporated by reference from the Company’s Current Report on Form 8-K, filed on November 2, 2021).
10.10
Collateral Agency and Intercreditor Agreement, dated as of November 1, 2021, among CBL & Associates HoldCo II, LLC, the subsidiary guarantors, certain other subsidiaries of CBL & Associates HoldCo II, LLC, Wilmington Savings Fund Society, FSB, as trustee under the 10% Senior Secured Notes due 2029 and Wilmington Savings Fund Society, FSB, as trustee and exchange agent under the 7.0% Exchangeable Senior Secured Notes due 2028 (incorporated by reference from the Company’s Current Report on Form 8-K, filed on November 2, 2021).
10.11
Registration Rights Agreement, dated November 1, 2021, among CBL & Associates Properties, Inc. and the holders of registrable securities party thereto (incorporated by reference from the Company’s Current Report on Form 8-K, filed on November 2, 2021).
10.12.1
Employment Agreement for Benjamin W. Jaenicke, dated September 1, 2022 (incorporated by reference to the Company’s Current Report on Form 8-K, filed September 1, 2022).
10.12.2
Relocation Allowance Commitment with Benjamin W. Jaenicke, dated September 1, 2022 (incorporated by reference to the Company’s Current Report on Form 8-K filed September 1, 2022).
10.12.3
First Amendment, dated February 15, 2023, to Employment Agreement for Benjamin W. Jaenicke dated September 1, 2022 (incorporated by reference to the Company's Current Report on Form 8-K, filed February 22, 2023).
10.12.4
Consulting Agreement with Farzana Khaleel, effective as of December 31, 2022 (incorporated by reference to the Company's Current Report on Form 8-K, filed January 3, 2023).
10.12.5
Separation and General Release Agreement with Farzana Khaleel, effective as of December 31, 2022 (incorporated by reference to the Company's Current Report on Form 8-K, filed January 3, 2023).
Subsidiaries of CBL & Associates Properties, Inc.
Consent of Deloitte & Touche LLP.
Power of Attorney
31.1
Certification pursuant to Securities Exchange Act Rule 13a-14(a) by the Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification pursuant to Securities Exchange Act Rule 13a-14(a) by the Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification pursuant to Securities Exchange Act Rule 13a-14(b) by the Chief Executive Officer, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification pursuant to Securities Exchange Act Rule 13a-14(b) by the Chief Financial Officer as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. (Filed herewith.)
101.SCH
Inline XBRL Taxonomy Extension Schema Document. (Filed herewith.)
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
136
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*). (Filed herewith.)
† A management contract or compensatory plan or arrangement required to be filed pursuant to Item 15(b) of this report.
137
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant)
By:
/s/ Ben Jaenicke
Ben Jaenicke
Executive Vice President -
Chief Financial Officer
Dated: March 1, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ David J. Contis*
Chairman of the Board
David J. Contis
/s/ Stephen D. Lebovitz
Director and Chief Executive Officer
(Principal Executive Officer)
Stephen D. Lebovitz
Executive Vice President - Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
/s/ Charles B. Lebovitz*
Director
Charles B. Lebovitz
/s/ Marjorie L. Bowen*
Marjorie L. Bowen
/s/ David M. Fields*
David M. Fields
/s/ Robert G. Gifford*
Robert G. Gifford
/s/ Jeffrey Kivitz*
Jeffrey Kivitz
*By: /s/ Ben Jaenicke
Attorney-in-Fact