Table of Contents
UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _______________
COMMISSION FILE NO. 1-12494 (CBL & ASSOCIATES PROPERTIES, INC.)
COMMISSION FILE NO. 333-182515-01 (CBL & ASSOCIATES LIMITED PARTNERSHIP)
CBL & ASSOCIATES PROPERTIES, INC.
CBL & ASSOCIATES LIMITED PARTNERSHIP
(Exact Name of registrant as specified in its charter)
Delaware (CBL & ASSOCIATES PROPERTIES, INC.)
62-1545718
Delaware (CBL & ASSOCIATES LIMITED PARTNERSHIP)
62-1542285
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
2030 Hamilton Place Blvd., Suite 500, Chattanooga, TN 37421-6000
(Address of principal executive office, including zip code)
423-855-0001
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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, $0.01 par value
CBLAQ
*
7.375% Series D Cumulative Redeemable Preferred Stock, $0.01 par value (represented by depositary shares each representing a 1/10th fractional share)
CBLDQ
6.625% Series E Cumulative Redeemable Preferred Stock, $0.01 par value (represented by depositary shares each representing a 1/10th fractional share)
CBLEQ
*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 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”), 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. Since November 3, 2020, the Company’s common stock and such depositary shares are currently trading on the OTC Markets, operated by the OTC Markets Group, Inc., under the respective trading symbols listed in the preceding table.
CBL & Associates Limited Partnership: None
Securities registered pursuant to Section 12(g) of the Act:
CBL & Associates Properties, Inc.: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
CBL & Associates Properties, Inc.
Yes
No
CBL & Associates Limited Partnership
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No ☒
As of May 11, 2021, there were 196,458,778 shares of CBL & Associates Properties, Inc.'s common stock, par value $0.01 per share, outstanding.
EXPLANATORY NOTE
(Dollars in thousands, except share data)
This report combines the quarterly reports on Form 10-Q for the quarter ended March 31, 2021 of CBL & Associates Properties, Inc. and CBL & Associates Limited Partnership. Unless stated otherwise or the context otherwise requires, references to the "Company" mean CBL & Associates Properties, Inc. and its subsidiaries. References to the "Operating Partnership" mean CBL & Associates Limited Partnership and its subsidiaries. The terms "we," "us" and "our" refer to the Company or the Company and the Operating Partnership collectively, as the context requires.
As previously disclosed in the Current Report on Form 8-K filed on November 2, 2020 by CBL & Associates Properties, Inc. together with its majority owned subsidiary, CBL & Associates Limited Partnership, together with certain of its direct and indirect subsidiaries (collectively, the “Debtors”), commenced the filing of 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”) beginning on November 1, 2020. The Debtors have filed a series of motions with the Bankruptcy Court that, as granted, enable the Debtors to maintain their operations in the ordinary course of business.
The Company is a real estate investment trust ("REIT") whose stock was traded on the New York Stock Exchange (“NYSE”) prior to the NYSE’s announcement on November 2, 2020, that it had suspended trading in the Company’s stock due to “abnormally low” trading price levels and had determined to commence proceedings to delist the Company’s stock. As discussed further under Delisting of Common Stock and Depositary Shares in Note 2 herein, the Company has appealed this decision in accordance with NYSE rules, and in the meantime the Company’s stock is trading on the OTC Markets, operated by the OTC Markets Group, Inc. The Company is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At March 31, 2021, 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 96.5% limited partner interest for a combined interest held by the Company of 97.5%.
As the sole general partner of the Operating Partnership, the Company's subsidiary, CBL Holdings I, Inc., has exclusive control of the Operating Partnership's activities. Management operates the Company and the Operating Partnership as one business. The management of the Company consists of the same individuals that manage the Operating Partnership. The Company's only material asset is its indirect ownership of partnership interests of the Operating Partnership. As a result, the Company conducts substantially all its business through the Operating Partnership as described in the preceding paragraph. The Company also issues public equity from time to time and guarantees certain debt of the Operating Partnership. The Operating Partnership holds all the assets and indebtedness of the Company and, through affiliates, retains the ownership interests in the Company's joint ventures. Except for the net proceeds of offerings of equity by the Company, which are contributed to the Operating Partnership in exchange for partnership units on a one-for-one basis, the Operating Partnership generates all remaining capital required by the Company's business through its operations and its incurrence of indebtedness.
We believe that combining the two quarterly reports on Form 10-Q for the Company and the Operating Partnership provides the following benefits:
•
enhances investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner that management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation, since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
To help investors understand the differences between the Company and the Operating Partnership, this report provides separate condensed consolidated financial statements for the Company and the Operating Partnership. Noncontrolling interests, shareholders' equity and partners' capital are the main areas of difference between the condensed consolidated financial statements of the Company and those of the Operating Partnership. A single set of notes to condensed consolidated financial statements is presented that includes separate discussions for the Company and the Operating Partnership, when applicable. A combined Management's Discussion and Analysis of Financial Condition and Results of Operations section is also included that presents combined information and discrete information related to each entity, as applicable.
In order to highlight the differences between the Company and the Operating Partnership, this report includes the following sections that provide separate financial and other information for the Company and the Operating Partnership:
condensed consolidated financial statements;
certain accompanying notes to condensed consolidated financial statements, including Note 8 - Unconsolidated Affiliates and Noncontrolling Interests; Note 9 - Mortgage and Other Indebtedness, Net; and Note 11 - Earnings per Share and Earnings per Unit;
controls and procedures in Item 4 of Part I of this report;
information concerning unregistered sales of equity securities and use of proceeds in Item 2 of Part II of this report; and
certifications of the Chief Executive Officer and Chief Financial Officer included as Exhibits 31.1 through 32.4.
(Debtors-In-Possession)
PART I
FINANCIAL INFORMATION
1
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020
2
Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020
3
Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2021 and 2020
4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020
5
6
7
8
Condensed Consolidated Statements of Capital for the Three Months Ended March 31, 2021 and 2020
9
10
CBL & Associates Properties, Inc. and CBL & Associates Limited Partnership
Notes to Unaudited Condensed Consolidated Financial Statements
11
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
36
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
54
Item 4.
Controls and Procedures
55
PART II
OTHER INFORMATION
56
Legal Proceedings
Item1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
57
SIGNATURES
58
PART I – FINANCIAL INFORMATION
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
ASSETS (1)
March 31,
2021
December 31,
2020
Real estate assets:
Land
$
662,045
695,711
Buildings and improvements
4,966,381
5,135,074
5,628,426
5,830,785
Accumulated depreciation
(2,229,137
)
(2,241,421
3,399,289
3,589,364
Developments in progress
31,284
28,327
Net investment in real estate assets
3,430,573
3,617,691
Cash and cash equivalents
84,655
61,781
Available-for-sale securities - at fair value (amortized cost of $232,774 and $233,053 as of
March 31, 2021 and December 31, 2020, respectively)
232,795
233,071
Receivables:
Tenant
80,590
103,655
Other
8,026
5,958
Mortgage and other notes receivable
2,113
2,337
Investments in unconsolidated affiliates
271,764
279,355
Intangible lease assets and other assets
169,671
139,892
4,280,187
4,443,740
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Mortgage and other indebtedness, net
1,036,970
1,184,831
Accounts payable and accrued liabilities
185,723
173,387
Total liabilities not subject to compromise (1)
1,222,693
1,358,218
Liabilities subject to compromise
2,551,354
2,551,490
Commitments and contingencies (Note 9 and Note 12)
Redeemable noncontrolling interests
(478
(265
Shareholders' equity:
Preferred Stock, $.01 par value, 15,000,000 shares authorized:
7.375% Series D Cumulative Redeemable Preferred Stock, 1,815,000
shares outstanding
18
6.625% Series E Cumulative Redeemable Preferred Stock, 690,000
Common stock, $.01 par value, 350,000,000 shares authorized, 196,458,778 and
196,569,917 issued and outstanding in 2021 and 2020, respectively
1,965
1,966
Additional paid-in capital
1,986,666
1,986,269
Accumulated other comprehensive income
21
Dividends in excess of cumulative earnings
(1,483,198
(1,456,435
Total shareholders' equity
505,479
531,843
Noncontrolling interests
1,139
2,454
Total equity
506,618
534,297
(1)
As of March 31, 2021, includes $266,669 of assets related to consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and $132,762 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Company. See Note 8.
The accompanying notes are an integral part of these condensed consolidated statements.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended
REVENUES:
Rental revenues
128,175
161,173
Management, development and leasing fees
1,659
2,092
3,350
4,309
Total revenues
133,184
167,574
EXPENSES:
Property operating
(21,802
(25,709
Depreciation and amortization
(48,112
(55,902
Real estate taxes
(16,551
(18,448
Maintenance and repairs
(10,781
(11,208
General and administrative
(12,612
(17,836
Loss on impairment
(57,182
(133,644
Litigation settlement
858
—
(158
Total expenses
(166,182
(262,905
OTHER INCOME (EXPENSES):
Interest and other income
776
2,397
Interest expense (unrecognized contractual interest expense was $44,764 for the three months ended March 31, 2021)
(24,130
(46,992
Gain on deconsolidation
55,131
Gain (loss) on sales of real estate assets
(299
140
Reorganization items
(22,933
Income tax provision
(751
(526
Equity in earnings (losses) of unconsolidated affiliates
(3,076
1,018
Total other income (expenses)
4,718
(43,963
Net loss
(28,280
(139,294
Net loss attributable to noncontrolling interests in:
Operating Partnership
698
16,414
Other consolidated subsidiaries
819
207
Net loss attributable to the Company
(26,763
(122,673
Preferred dividends undeclared
(11,223
Net loss attributable to common shareholders
(133,896
Basic and diluted per share data attributable to common shareholders:
(0.14
(0.75
Weighted-average common and potential dilutive common shares outstanding
196,509
179,133
Condensed Consolidated Statements of Comprehensive Loss
Three Months Ended March 31,
Other comprehensive income:
Unrealized gain on available-for-sale securities
22
Comprehensive loss
(28,259
(139,272
Comprehensive loss attributable to noncontrolling interests in:
16,412
Comprehensive loss attributable to the Company:
(26,742
(122,653
Condensed Consolidated Statements of Equity
Equity
Shareholders' Equity
Redeemable
Noncontrolling
Interests
Preferred
Stock
Common
Additional
Paid-in
Capital
Accumulated
Comprehensive
Income
Dividends
in
Excess of
Cumulative
Earnings
Total
Shareholders'
Balance, December 31, 2019
2,160
25
1,741
1,965,897
(1,161,351
806,312
55,553
861,865
(1,158
(15,463
(138,136
Other comprehensive income
Conversion of 16,333,947 Operating Partnership common units into shares of common stock
163
20,888
21,051
(21,051
Issuance of 1,633,345 shares of common stock and restricted common stock
17
520
537
Cancellation of 116,781 shares of restricted common stock
(1
(96
(97
Amortization of deferred compensation
633
Performance stock units
390
Adjustment for noncontrolling interests
60
(10,341
10,281
(60
Distributions to noncontrolling interests
(731
Contributions from noncontrolling interests
668
Balance, March 31, 2020
1,062
1,920
1,977,891
(1,284,024
695,834
29,257
725,091
Balance, December 31, 2020
(213
(1,304
(28,067
Cancellation of 111,139 shares of restricted common stock
304
93
(11
Balance, March 31, 2021
Condensed Consolidated Statements of Cash Flows
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash provided by operating activities:
48,112
55,902
Net amortization of deferred financing costs, premiums on available-for-sale securities and debt premiums and discounts
923
1,990
Net amortization of intangible lease assets and liabilities
(687
(Gain) loss on sales of real estate assets
299
(140
Gain on insurance proceeds
(511
(55,131
Write-off of development projects
158
Share-based compensation expense
395
1,545
57,182
133,644
Equity in (earnings) losses of unconsolidated affiliates
3,076
(1,018
Distributions of earnings from unconsolidated affiliates
2,566
4,235
Change in estimate of uncollectable revenues
6,486
2,312
Change in deferred tax accounts
(239
Changes in:
Tenant and other receivables
11,017
1,424
Other assets
(8,115
(3,746
24,181
(16,847
Net cash provided by operating activities
62,769
38,728
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate assets
(6,865
(22,760
Proceeds from sales of real estate assets
2,510
Purchase of available-for-sale securities
(136,392
(153,193
Redemption of available-for-sale securities
135,987
Proceeds from insurance
600
Payments received on mortgage and other notes receivable
224
503
Additional investments in and advances to unconsolidated affiliates
(2,679
Distributions in excess of equity in earnings of unconsolidated affiliates
2,279
4,668
Changes in other assets
(364
(290
Net cash used in investing activities
(2,564
(172,631
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and other indebtedness
365,000
Principal payments on mortgage and other indebtedness
(13,732
(103,582
Additions to deferred financing costs
(16
(1,300
Proceeds from issuances of common stock
Payment of tax withholdings for restricted stock awards
(87
Net cash provided by (used in) financing activities
(13,760
259,971
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
46,445
126,068
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
121,722
59,058
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
168,167
185,126
Reconciliation from condensed consolidated statements of cash flows to
condensed consolidated balance sheets:
159,117
Restricted cash (1):
Restricted cash
61,146
175
Mortgage escrows
22,366
25,834
SUPPLEMENTAL INFORMATION
Cash paid for interest, net of amounts capitalized
14,055
25,321
Cash paid for reorganization items
12,044
Included in intangible lease assets and other assets in the condensed consolidated balance sheets.
(In thousands, except unit data)
84,646
61,772
7,977
5,910
272,291
279,884
169,552
139,772
4,280,537
4,444,092
LIABILITIES, REDEEMABLE INTERESTS AND CAPITAL
185,795
173,458
1,222,765
1,358,289
Redeemable common units
Partners' capital:
Preferred units
565,212
Common units:
General partner
(609
(339
Limited partners
(59,956
(33,371
Total partners' capital
504,668
531,520
2,228
3,058
Total capital
506,896
534,578
As of March 31, 2021, includes $266,669 of assets related to consolidated variable interest entities that can only be used to settle obligations of the consolidated variable interest entities and $132,762 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Operating Partnership. See Note 8.
(In thousands, except per unit data)
Net loss attributable to noncontrolling interests
Net loss attributable to the Operating Partnership
(27,461
(139,087
Distributions to preferred unitholders undeclared
Net loss attributable to common unitholders
(150,310
Basic and diluted per unit data attributable to common unitholders:
Weighted-average common and potential dilutive common units outstanding
201,627
201,258
Comprehensive loss attributable to noncontrolling interests
Comprehensive loss attributable to the Operating Partnership:
(27,440
(139,065
Condensed Consolidated Statements of Capital
Number of
Common Units
Units
General
Partner
Limited
Partners
Accumulated Other Comprehensive Income
Partner's
25,050
200,189
2,765
270,216
838,193
23,961
862,154
(1,406
(136,523
(137,929
(207
Issuances of common units
1,633
536
Cancellation of restricted common units
(116
386
615
Allocation of partners' capital
(64
(65
Adjustment to record redeemable interests at redemption value
(8
201,706
1,372
135,077
701,683
23,691
725,374
Total Partner's
201,688
(277
(26,971
(27,248
(819
(111
300
303
87
91
201,577
(16,851
38,724
Proceeds from issuances of common units
126,064
121,713
59,055
168,158
185,119
159,110
SUPPLEMENTAL INFORMATION:
(Dollars in thousands, except per share and per unit data)
Note 1 – Organization and Basis of Presentation
Unless stated otherwise or the context otherwise requires, references to the "Company" mean CBL & Associates Properties, Inc. and its subsidiaries. References to the "Operating Partnership" mean CBL & Associates Limited Partnership and its subsidiaries.
CBL & Associates Properties, Inc. (“CBL”), a Delaware corporation, is a self-managed, self-administered, fully-integrated real estate investment trust (“REIT”) that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers and office properties. Its properties are located in 24 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 March 31, 2021, the Operating Partnership owned interests in the following properties:
All Other Properties
Malls (1)
Associated
Centers
Community
Office
Buildings
and Other
Consolidated Properties
49
20
(2)
74
Unconsolidated Properties (3)
12
24
61
23
98
Category consists of regional malls, open-air centers and outlet centers (including one mixed-use center).
Includes CBL's two corporate office buildings.
(3)
The Operating Partnership accounts for these investments using the equity method because one or more of the other partners have substantive participating rights.
The Malls, All Other Properties ("Associated Centers, Community Centers, Office Buildings and Other") and the Construction Properties are collectively referred to as the “Properties” and individually as a “Property.”
CBL is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At March 31, 2021, 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 96.5% limited partner interest for a combined interest held by CBL of 97.5%.
Historically, the noncontrolling interest in the Operating Partnership has been held by CBL & Associates, Inc., its shareholders and affiliates and certain senior officers of the Company (collectively "CBL's Predecessor"), all of which contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for a limited partner interest when the Operating Partnership was formed in November 1993, and by various third parties. At March 31, 2021, CBL’s Predecessor no longer owned any limited partner interest and third parties owned a 2.5% limited partner interest in the Operating Partnership. CBL's Predecessor owned 20.0 million shares of CBL’s common stock at March 31, 2021, for a total effective interest of 10.0% 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.
Bankruptcy Accounting
The condensed consolidated financial statements included herein have been prepared as if the Company were a going concern and in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 852 – Reorganizations (“ASC 852”). See Note 2 for additional details regarding the bankruptcy. As a result, the Company has segregated prepetition unsecured or under secured liabilities and obligations whose treatment and satisfaction are dependent on the outcome of the Chapter 11 proceedings and have classified these items as
“Liabilities subject to compromise” on the Company’s condensed consolidated balance sheets. In addition, the Company has classified all expenses that were incurred as a result of the Chapter 11 proceedings since filing as “Reorganization items” in the Company’s condensed consolidated statements of operations. In addition to expenses, reorganization items can include realized gains or losses.
COVID-19
The COVID-19 pandemic has had, and likely will continue to have, repercussions across local, national and global economies and financial markets. COVID-19 has impacted all states where the Company’s tenants operate their businesses or where the Company’s properties are located and measures taken to prevent or remediate COVID-19, including “shelter-in place” or “stay-at-home” orders or other quarantine mandates issued by local, state or federal authorities, have had an adverse effect on its business and the businesses of its tenants. The full extent of the adverse impact on, among other things, the Company’s results of operations, liquidity (including its ability to access capital markets), the possibility of future impairments of long-lived assets or its investments in unconsolidated joint ventures, its compliance with debt covenants, its ability to renew and re-lease its leased space, the outlook for the retail environment, potential bankruptcies or other store closings and its ability to develop, acquire, dispose or lease properties, is unknown and will depend on future developments, which are highly uncertain and cannot be predicted. While the majority of the most restrictive mandates have been lifted, state and local governments and other authorities are in varying stages of lifting or modifying some of the measures used to mitigate or control the spread of the virus. Even though vaccines have started to be administered, the COVID-19 pandemic could worsen at any time, which could cause new or more restrictive measures to be implemented to prevent the spread of the virus. Tenants and customers have gradually adapted to current conditions with services such as curbside pickup and increased consumer risk-tolerance, but there is no guarantee that retail will return to levels seen prior to the pandemic. The Company has experienced, and expects to continue to experience, a material adverse impact on its revenues, results of operations, and cash flows throughout 2021. The situation is unpredictable and additional impacts to the business may arise that the Company is not aware of currently.
Note 2 - Chapter 11 Cases and Ability to Continue as a Going Concern
Voluntary Reorganization under Chapter 11
On August 18, 2020, the Company entered into a Restructuring Support Agreement, (the “Original RSA”) with certain beneficial owners and/or investment advisors or managers of discretionary funds, accounts or other entities for the holders of beneficial owners (the “Consenting Noteholders”) representing in excess of 62%, including joining noteholders pursuant to joinder agreements, of the aggregate principal amount 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").
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 “Commencement Date”), CBL and 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 Debtors are authorized to continue to operate their businesses and manage their properties as debtors-in-possession pursuant to the Bankruptcy Code. The Debtors’ 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 that results in the automatic acceleration of certain monetary obligations to be immediately due and payable with respect to the secured credit facility and the senior unsecured notes. On November 2, 2020, the Company filed an adversary proceeding in the Bankruptcy Court seeking among other things, a temporary restraining order (the “Order”) and for a preliminary injunction to enjoin, pending a determination of the parties’ rights, the administrative agent or any of its officers, agents, servants, attorneys and successors from taking any action to exercise any and all remedies under the terms of the secured credit facility or other agreements as a result of the events of default asserted by the administrative agent, or any other right or remedy that would otherwise accompany the occurrence of an event of default, including without limitation, any rights of acceleration under the terms of the secured credit facility, rights flowing from the notice of acceleration, rights exercised pursuant to the Notice of Exercise or any other rights or remedies properly exercisable solely upon an actual or determined event of default. On November 2, 2020, the Bankruptcy Court granted the Order, and the Bankruptcy Court took up the other
pending claims during the adversarial proceeding, which has now been stayed pending the confirmation of the Company’s plan, discussed below.
Following the Commencement Date, the Bankruptcy Court entered certain interim and final orders facilitating the Debtors’ operational transition into Chapter 11. These orders authorized the Debtors to, among other things, pay certain prepetition employee expenses and benefits, use their existing cash management system, maintain and administer customer programs, pay certain critical service providers, honor insurance-related obligations, and pay certain prepetition taxes and related fees on a final basis.
After engaging in negotiations in a Bankruptcy Court-ordered mediation, on March 21, 2021 (the “Agreement Effective Date”), the Company entered into the First Amended and Restated Restructuring Support Agreement (the “Amended RSA”), with the Consenting Noteholders in excess of 69% (including joinders) of the aggregate principal amount of the Notes and certain lenders party to the Company’s secured credit facility who hold in the aggregate in excess of 96% (including joinders) of the aggregate outstanding principal amount of debt under the secured credit facility (the “Consenting Bank Lenders” and together with the Consenting Noteholders, the “Consenting Stakeholders”). The Amended RSA amends and restates the Original RSA and sets forth, subject to certain conditions, the commitments to and obligations of, on the one hand, the Company, and on the other hand, the Consenting Noteholders and Consenting Bank Lenders, in connection with the restructuring transactions (the “Restructuring Transactions”) set forth in the Amended RSA and the plan term sheet attached as Exhibit B to the Amended RSA (the “Plan Term Sheet”). The Amended RSA contemplates that the restructuring and recapitalization of the Debtors will occur through a joint plan of reorganization in the Chapter 11 Cases (the “Amended Plan”).
The Amended RSA requires that the Company file the Amended Plan and related disclosure statement no later than 25 days following the Agreement Effective Date and under the Amended RSA the Company must seek to have the Amended Plan confirmed and declared effective no later than November 1, 2021. On April 15, 2021, the Company filed an amended Chapter 11 plan of reorganization (the “Proposed Plan”) and accompanying disclosure statement (the “Proposed Disclosure Statement”) with the Bankruptcy Court to implement the restructuring transactions. Before the Bankruptcy Court will confirm the Proposed Plan, the Bankruptcy Code requires that at least one “impaired” class of claims vote to accept the Proposed Plan. A class of claims votes to “accept” the Proposed Plan if voting creditors that hold a majority in number and two-thirds in amount of claims in that class approve the Proposed Plan. The Amended RSA requires the Consenting Stakeholders vote in favor of and support the Proposed Plan. As of the date hereof, the Consenting Bank Lenders and Consenting Noteholders each represent the requisite amount of claims necessary to accept the Proposed Plan in each of their respective classes. For the foregoing reasons, among others, the Debtors believe that they will be able to confirm the Proposed Plan in the Chapter 11 Cases. The Amended RSA provides that the ongoing litigation between the Company and the lenders of the Company’s secured credit facility (the “Bank Lenders”) arising from the prepetition enforcement actions taken by the Bank Lenders is stayed and is to be dismissed upon the Bankruptcy Court’s confirmation of the Proposed Plan.
Under the Amended RSA, the Proposed Plan provides for the elimination of more than $1,681,900 of debt and preferred obligations as well as a significant reduction in interest expense. 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 and other noteholders will receive, in the aggregate, $95,000 in cash, $555,000 of new senior secured notes, of which up to $100,000, upon election by the Consenting Noteholders, may be received in the form of new convertible secured notes and 89% in common equity of the newly reorganized Company. Certain Consenting Noteholders will also provide up to $50,000 of new money in exchange for additional convertible secured notes. The transactions outlined in the Amended RSA will be implemented in the Chapter 11 Cases and pursuant to the Proposed Plan. The Amended RSA provides that the remaining Bank Lenders, holding $983,700 in principal amount under the secured credit facility, will receive $100,000 in cash and a new $883,700 secured term loan. Existing common and preferred stakeholders are expected to receive up to 11% of common equity in the newly reorganized company. On April 29, 2021, the Company received court approval to perform under the Amended RSA.
The Company cannot predict the ultimate outcome of its Chapter 11 Cases at this time. For the duration of the Company’s Chapter 11 proceedings, the Company’s operations and ability to develop and execute its business plan are subject to the risks and uncertainties associated with the Chapter 11 process. As a result of these risks and uncertainties, the amount and composition of the Company’s assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 proceedings, and the description of the Company’s operations, properties and liquidity and capital resources included in this quarterly report may not accurately reflect its operations, properties and liquidity and capital resources following the Chapter 11 process.
In particular, subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, assume and assign or reject executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a prepetition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors of performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a prepetition general unsecured claim for damages caused by such deemed breach subject, in the case of the rejection of unexpired leases of real property, to certain caps on damages. Counterparties to such rejected contracts or leases may
13
assert unsecured claims in the Bankruptcy Court against the applicable Debtor’s estate for such damages. Generally, the assumption or assumption and assignment of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance thereunder. Accordingly, any description of an executory contract or unexpired lease with the Debtors in this quarterly report, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease with the Debtors is qualified by any overriding rights the Company has under the Bankruptcy Code. Further, nothing herein is or shall be deemed an admission with respect to any claim amounts or calculations arising from the assumption, assumption and assignment or rejection of any executory contract or unexpired lease and the Debtors expressly preserve all of their rights with respect thereto.
Liquidity and Going Concern Considerations
In accordance with the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim reporting period, management evaluates whether there are conditions or events that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In making its assessment, management considered the Company’s current financial condition and liquidity sources, as well as the status of the Chapter 11 Cases.
The filing of the Chapter 11 Cases by the Debtors constituted an event of default that results in the automatic acceleration of certain monetary obligations to be immediately due and payable with respect to the secured credit facility and the senior unsecured notes. The filing of the Chapter 11 Cases also constituted an event of default with respect to certain property-level debt of the Operating Partnership’s subsidiaries, which may result in acceleration of the outstanding principal and other sums due. See Note 8 and Note 9 for further discussion.
Given the acceleration of the secured credit facility, the senior unsecured notes and certain property-level debt, as well as the inherent risks, unknown results and inherent uncertainties associated with the bankruptcy process and the direct correlation between these matters and the Company’s ability to satisfy its financial obligations that may arise, the Company believes that there is substantial doubt that it will continue to operate as a going concern within one year after the date these condensed consolidated financial statements are issued. The Company’s ability to continue as a going concern is contingent upon its ability to successfully implement the Proposed Plan, set forth in the Amended RSA, which is pending confirmation by the Bankruptcy Court. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the condensed consolidated financial statements do not reflect any adjustments related to the recoverability of assets and satisfaction of liabilities that might be necessary should the Company be unable to continue as a going concern.
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 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”), 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 has appealed this decision in accordance with NYSE rules, and the appeal is still in process. 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. A delisting of the Company’s common stock from the NYSE could negatively impact it by, among other things, reducing the trading liquidity of, and the market price for, its common stock.
Reorganization Items
Any expenses, gains and losses that are realized or incurred as of or subsequent to November 1, 2020, the Commencement Date, and as a direct result of the Chapter 11 Cases, are recorded in the line item “Reorganization items” in the Company’s condensed consolidated statements of operations. For the three months ended March 31, 2021, the $22,933 of reorganization items consists of $22,230 in professional fees and $703 of U.S. Trustee fees.
Liabilities Subject to Compromise
As of March 31, 2021 and December 31, 2020, the Company has reclassified $2,551,354 and $2,551,490, respectively, to the line item “Liabilities subject to compromise” in the Company’s condensed consolidated balance sheets. These liabilities are reported at the amounts expected to be allowed as claims by the Bankruptcy Court, although they may be settled for less. As of March 31, 2021, the liabilities subject to compromise consisted of $1,375,000 related to the senior unsecured notes, $675,926 related to the secured line of credit, $438,750 related to the secured term loan, $57,644 in unpaid accrued interest as of the Commencement Date and $4,034 of prepetition unsecured or under secured liabilities. As
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of December 31, 2020, the liabilities subject to compromise consisted of $1,375,000 related to the senior unsecured notes, $675,926 related to the secured line of credit, $438,750 related to the secured term loan, $57,644 in unpaid accrued interest as of the Commencement Date and $4,170 of prepetition unsecured or under secured liabilities.
The contractual interest expense on the senior unsecured notes and secured credit facility is in excess of recorded interest expense by $44,764 for the three months ended March 31, 2021. This excess contractual interest expense is not included as interest expense in the condensed consolidated statements of operations for the three months ended March 31, 2021 because the Company discontinued accruing interest on the senior unsecured notes and the secured credit facility subsequent to the Commencement Date in accordance with ASC 852, which limits the recognition of interest expense during a bankruptcy proceeding to only amounts that will be paid during the bankruptcy proceeding or that are probable of becoming allowed claims. The Company has not made any interest payments on its senior unsecured notes or its secured credit facility since the Chapter 11 Cases commenced on November 1, 2020.
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Condensed combined financial statement information of the Debtors is as follows:
Condensed Combined Financial Statements – Debtors (Debtors-In-Possession)
Condensed Combined Balance Sheet
March 31, 2021
December 31, 2020
ASSETS:
Investment in real estate assets
3,946,604
4,056,257
(1,527,017
(1,544,800
2,419,587
2,511,457
30,526
27,853
2,450,113
2,539,310
Available-for-sale securities - at fair value (amortized cost of $232,774 and $233,053 as of March 31, 2021 and December 31, 2020, respectively)
67,279
46,346
Restricted Cash
56,116
29,834
Intercompany due from non-debtor entities
76,648
76,095
132,814
140,241
Total assets
3,015,765
3,064,897
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY:
Other liabilities
114,374
102,910
Intercompany due to non-debtor entities
5,253
5,062
Total liabilities not subject to compromise
119,627
107,972
(2,786
Shareholders' equity
350,954
411,605
(3,384
Total liabilities and owners’ equity
Condensed Combined Statement of Operations
Three Months Ended March 31, 2021
88,473
(34,154
Expenses
(45,391
1,788
(632
Loss on sales of real estate assets
(71,081
Condensed Combined Statement of Cash Flows
Other assets and liabilities, net
53,954
40,055
(2,889
(3,294
Net distributions from non-Debtor subsidiaries
10,428
Other financing activities
26
Net cash provided by financing activities
10,454
47,215
76,180
123,395
Reconciliation from condensed combined statement of cash flows to
condensed combined balance sheet:
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Note 3 – Summary of Significant Accounting Policies
Accounting Guidance Not Yet Adopted
Description
Expected
Adoption Date &
Application
Method
Financial Statement Effect and Other Information
ASU 2020-04, 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 is effective as of March 12, 2020 through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions as of March 31, 2021, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period to determine the impact on its condensed consolidated financial statements.
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. Management’s estimate of the collectability of accounts receivable from tenants is based on the best information available to management at the time of evaluation.
The duration of the COVID-19 pandemic and its impact on the Company’s tenants’ ability to pay rents has caused uncertainty in the Company’s ongoing ability to collect rents when due. Considering the potential impact of these uncertainties, management’s collection assessment also took into consideration the type of retailer, 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 periods ended March 31, 2021 and 2020, revenues were reduced by $6,486 and $3,780, respectively, associated with uncollectable revenues, which includes the write-off of $1,679 and $1,469 for straight line rent receivables for the periods ended March 31, 2021 and 2020, respectively.
Carrying Value of Long-Lived Assets and Investment in Unconsolidated Affiliates
The Company evaluates its real estate assets and investment in unconsolidated affiliates for impairment indicators whenever events or changes in circumstances indicate that the carrying value of any of its long-lived assets or investment in unconsolidated affiliates may not be recoverable. Furthermore, this evaluation is conducted no less frequently than quarterly, irrespective of changes in circumstances. The prolonged outbreak of the COVID-19 pandemic resulted in sustained closure of the Company’s properties for a period of time during 2020, as well as the cessation of the operations of certain of its tenants, which has resulted and will likely continue to result in a reduction in the revenues and cash flows of many of its properties due to the adverse financial impacts on its tenants, as well as reductions in other sources of income generated by its properties. In addition to reduced revenues, the Company’s ability to obtain sufficient financing for such properties may be impaired as well as its ability to lease or re-lease properties as a result of worsening market and economic conditions resulting from the COVID-19 pandemic.
As of March 31, 2021, the Company’s evaluation of impairment of real estate assets considered its estimate of cash flow declines caused by the COVID-19 pandemic, but its other assumptions, including estimated hold period, were generally unchanged given the highly uncertain environment. The worsening of estimated future cash flows due to a change in the Company’s plans, policies, or views of market and economic conditions as it relates to one or more of its properties adversely impacted by the COVID-19 pandemic could result in the recognition of substantial impairment charges on its assets, which could adversely impact its financial results. For the three months ended March 31, 2021, the Company recorded impairment charges of $57,182 related to three of its malls. As of March 31, 2021, six other properties had
impairment indicators; however, no additional impairment charges were recorded. For the period ended March 31, 2020, the Company recorded $133,644 of impairment charges for two of its malls and six other properties had impairment indicators as of March 31, 2020. No additional impairment charges were recorded.
As of March 31, 2021, the Company’s estimates of fair value for each investment are based on a number of assumptions that are subject to economic and market uncertainties including, but not limited to, demand for space, competition for tenants, changes in market rental rates, and operating costs. Future declines in the fair value of the Company’s investments in unconsolidated affiliates, including those resulting from the adverse impact of the COVID-19 pandemic on the real estate assets owned by the unconsolidated affiliates, could result in the recognition of substantial impairment charges on its investments in unconsolidated affiliates to the extent such declines are determined to be other-than-temporary. No impairments of investments in unconsolidated affiliates were recorded in the three-month periods ended March 31, 2021 and 2020.
Note 4 – Revenues
Revenues
The following table presents the Company's revenues disaggregated by revenue source:
Three Months Ended March 31, 2020
Rental revenues (1)
Revenues from contracts with customers (ASC 606):
Operating expense reimbursements (2)
2,156
2,389
Management, development and leasing fees (3)
Marketing revenues (4)
301
743
4,116
5,224
Other revenues
893
1,177
Total revenues (5)
Revenues from leases that commenced subsequent to December 31, 2018 are accounted for in accordance with ASC 842, Leases, whereas all leases existing prior to that date are accounted for in accordance with ASC 840.
Includes $2,069 in the Malls segment and $87 in the All Other segment for the three months ended March 31, 2021, and includes $2,321 in the Malls segment and $68 in the All Other segment for the three months ended March 31, 2020.
Included in All Other segment.
(4)
Marketing revenues solely relate to the Malls segment for all periods presented.
(5)
Sales taxes are excluded from revenues.
See Note 10 for information on the Company's segments.
Revenues from Contracts with Customers
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 March 31, 2021, the Company expects to recognize these amounts as revenue over the following periods:
Performance obligation
Less than 5
years
5-20 years
Over 20
Fixed operating expense reimbursements
24,292
49,420
45,113
118,825
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 5 – Leases
The components of rental revenues are as follows:
Fixed lease payments
71,227
137,394
Variable lease payments
56,948
23,779
Total rental revenues
The undiscounted future fixed lease payments to be received under the Company's operating leases as of March 31, 2021, are as follows:
Years Ending December 31,
Operating Leases
2021 (1)
280,554
2022
333,159
2023
280,432
2024
225,734
2025
174,939
2026
128,599
Thereafter
283,197
Total undiscounted lease payments
1,706,614
Reflects rental payments for the fiscal period April 1, 2021 to December 31, 2021.
Note 6 – Fair Value Measurements
The Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy in accordance with ASC 820, Fair Value Measurements and Disclosure, ("ASC 820") based on whether the inputs to valuation techniques are observable or unobservable. The fair value hierarchy contains three levels of inputs that may be used to measure fair value as follows:
Level 1 –
Inputs represent quoted prices in active markets for identical assets and liabilities as of the measurement date.
Level 2 –
Inputs, other than those included in Level 1, represent observable measurements for similar instruments in active markets, or identical or similar instruments in markets that are not active, and observable measurements or market data for instruments with substantially the full term of the asset or liability.
Level 3 –
Inputs represent unobservable measurements, supported by little, if any, market activity, and require considerable assumptions that are significant to the fair value of the asset or liability. Market valuations must often be determined using discounted cash flow methodologies, pricing models or similar techniques based on the Company’s assumptions and best judgment.
The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under ASC 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date and under current market conditions. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs and consider assumptions such as inherent risk, transfer restrictions and risk of nonperformance.
Fair Value Measurements on a Recurring Basis
The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term nature of these financial instruments. Based on the interest rates for similar financial instruments, the carrying value of mortgage and other notes receivable is a reasonable estimate of fair value. The estimated fair value of mortgage and other indebtedness was $988,773 and $1,091,745 at March 31, 2021 and December 31, 2020, respectively. The estimated fair value of liabilities subject to compromise was $1,862,147 and $1,606,959 at March 31, 2021 and December 31, 2020, respectively. The fair value was calculated using Level 2 inputs by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently.
During January 2021, the Company purchased $21,999 in U.S. Treasury securities that matured in February 2021. During February 2021, the Company purchased $31,999 in U.S. Treasury securities that matured in March 2021. During March 2021, the Company purchased $82,393 in U.S. Treasury securities that are scheduled to mature in June 2021. The Company designated the U.S. Treasury securities purchased in these transactions as available-for-sale (“AFS”). The following table sets forth information regarding the Company’s AFS securities that were measured at fair value for the three months ended March 31, 2021:
AFS Security
Amortized
Cost
Allowance
for credit
losses (1)
Total unrealized gain
Fair Value as of March 31, 2021
U.S. Treasury securities
232,774
U.S Treasury securities have a long history with no credit losses. Additionally, the Company notes that U.S Treasury securities are explicitly fully guaranteed by a sovereign entity that can print its own currency and that the sovereign entity’s currency is routinely held by central banks and other major financial institutions, is used in international commerce, and commonly viewed as a reserve currency, all of which qualitatively indicate that
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historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. Therefore, the Company did not record expected credit losses for its U.S Treasury securities for the three months ended March 31, 2021.
During March 2020, the Company purchased U.S. Treasury securities that are scheduled to mature between April 2021 and June 2021. The Company has designated these securities as AFS. The fair value of these securities was calculated based on quoted market prices in active markets and are included in the Level 1 fair value hierarchy. The Company believes the market for U.S. Treasury securities is an actively traded market given the high level of daily trading volume. In December 2020, the Company purchased additional U.S Treasury securities. The U.S. Treasury securities purchased in December 2020 matured between January 2021 and March 2021, and the Company subsequently reinvested in additional U.S. Treasury securities. The Company has also designated these as AFS. The following table sets forth information regarding the Company’s AFS securities that were measured at fair value for the year ended December 31, 2020:
Fair Value as of December 31, 2020
233,053
U.S Treasury securities have a long history with no credit losses. Additionally, the Company notes that U.S Treasury securities are explicitly fully guaranteed by a sovereign entity that can print its own currency and that the sovereign entity’s currency is routinely held by central banks and other major financial institutions, is used in international commerce, and commonly viewed as a reserve currency, all of which qualitatively indicate that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. Therefore, the Company did not record expected credit losses for its U.S Treasury securities for the year ended December 31, 2020.
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 NOI, 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 3 for additional information describing the Company's impairment review process.
Long-lived Assets Measured at Fair Value in 2021
The following table sets forth information regarding the Company's assets that are measured at fair value on a nonrecurring basis and related impairment charges for the three months ended March 31, 2021:
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Observable
Inputs (Level 2)
Unobservable
Inputs (Level 3)
Total Loss
on Impairment
2021:
Long-lived assets
38,500
During the three months ended March 31, 2021, the Company recognized impairments of real estate of $57,182 related to three malls.
Impairment
Date
Property
Location
Segment
Classification
Loss on
Fair
Value
March
Eastland Mall (1)
Bloomington, IL
Malls
13,243
10,700
Old Hickory Mall (2)
Jackson, TN
20,149
12,400
Stroud Mall (3)
Stroudsburg, PA
23,790
15,400
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $10,700. The mall had experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of Eastland Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of nine years, with a sale at the end of the holding period, a capitalization rate of 14.0% and a discount rate of 15.0%.
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $12,400. The mall had experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of Old Hickory Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of nine years, with a sale at the end of the holding period, a capitalization rate of 13.0% and a discount rate of 14.0%.
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $15,400. The mall had experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of Stroud Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of nine years, with a sale at the end of the holding period, a capitalization rate of 11.75% and a discount rate of 12.5%.
During the three months ended March 31, 2021, the Company adjusted the combined negative equity in Asheville Mall and Park Plaza to zero upon deconsolidation, which represents the estimated fair values of the Company’s investments in these properties. See Note 8 for additional information.
Long-lived Assets Measured at Fair Value in 2020
The following table sets forth information regarding the Company's assets that were measured at fair value on a nonrecurring basis and related impairment charges for the three months ended March 31, 2020:
2020:
114,300
During the three months ended March 31, 2020, the Company recognized impairments of real estate of $133,644 related to two malls:
Burnsville Center (1)
Burnsville, MN
26,562
47,300
Monroeville Mall (2)
Pittsburgh, PA
107,082
67,000
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $47,300. The mall had experienced a decline in cash flows due to store closures and rent reductions. These factors resulted in a reduction of the expected hold period for this asset based on Management’s assessment that there was an increased likelihood that the loan secured by the mall may not be successfully restructured or refinanced. Management determined the fair value of Burnsville Center using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 14.5% and a discount rate of 15.5%.
In accordance with the Company’s quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $67,000. The mall had experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of Monroeville Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 14.0% and a discount rate of 14.5%.
Note 7 – Dispositions and Held for Sale
The Company evaluates its disposals utilizing the guidance in ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Based on its analysis, the Company determined that the dispositions described below do not meet the criteria for classification as discontinued operations and are not considered to be significant disposals based on its quantitative and qualitative evaluation. Thus, the results of operations of the properties described below, as well as any related gains or losses, are included in net loss for all periods presented, as applicable.
2021 Dispositions
The Company realized a loss of $299 related to the sale of an outparcel during the three months ended March 31, 2021.
2020 Dispositions
The Company realized a gain of $140 related to the sale of an outparcel during the three months ended March 31, 2020.
Note 8 – Unconsolidated Affiliates and Noncontrolling Interests
Unconsolidated Affiliates
Although the Company had majority ownership of certain joint ventures during 2021 and 2020, it evaluated the investments and concluded that the other partners or owners in these joint ventures had substantive participating rights, such as approvals of:
the pro forma for the development and construction of the project and any material deviations or modifications thereto;
the site plan and any material deviations or modifications thereto;
the conceptual design of the project and the initial plans and specifications for the project and any material deviations or modifications thereto;
any acquisition/construction loans or any permanent financings/refinancings;
the annual operating budgets and any material deviations or modifications thereto;
the initial leasing plan and leasing parameters and any material deviations or modifications thereto; and
any material acquisitions or dispositions with respect to the project.
As a result of the joint control over these joint ventures, the Company accounts for these investments using the equity method of accounting.
At March 31, 2021, the Company had investments in 29 entities, which are accounted for using the equity method of accounting. The Company's ownership interest in these unconsolidated affiliates ranges from 20% to 65%. Of these entities, 17 are owned in 50/50 joint ventures.
2021 Activity - Unconsolidated Affiliates
Asheville Mall CBMS, LLC and Park Plaza Mall CBMS, LLC
During the three months ended March 31, 2021, the Company deconsolidated Asheville Mall and Park Plaza as a result of the Company losing control of these properties when each was placed in receivership as part of the foreclosure process. The 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 Company adjusted the combined negative equity in the two entities to zero, which represents the estimated fair value of the Company’s investments in these properties, and recognized a gain on deconsolidation of $55,131.
West Melbourne I, LLC
In March 2021, the Company 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. Additionally, the agreements provide forbearance related to the default triggered as a result of the Chapter 11 Cases. These loans had a combined outstanding loan balance of $54,260 at March 31, 2021.
Port Orange I, LLC
In March 2021, the Company 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. Additionally, the agreement provides forbearance related to the default triggered as a result of the Chapter 11 Cases. This loan had an outstanding balance of $52,898 at March 31, 2021.
Ambassador Infrastructure, LLC
The Company 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 $8,250 at March 31, 2021, as $1,110 was paid down in conjunction with the modification. Additionally, the agreement provides a waiver related to the default triggered as a result of the Chapter 11 Cases.
Impact of Chapter 11 Proceedings
As described in Note 2, the filing of the Chapter 11 Cases also constituted an event of default with respect to certain property-level debt of the Operating Partnership’s subsidiaries, which may have resulted in automatic acceleration of certain monetary obligations or may give the applicable lender the right to accelerate such amounts. The loans have an aggregate outstanding balance of $689,695 at March 31, 2021.
Condensed Combined Financial Statements - Unconsolidated Affiliates
Condensed combined financial statement information of the unconsolidated affiliates is as follows:
2,433,766
2,346,124
(885,045
(862,435
1,548,721
1,483,689
32,780
28,138
1,581,501
1,511,827
187,993
174,966
1,769,494
1,686,793
LIABILITIES:
1,574,879
1,439,454
60,101
45,280
Total liabilities
1,634,980
1,484,734
OWNERS' EQUITY:
The Company
126,301
132,350
Other investors
8,213
69,709
Total owners' equity
134,514
202,059
58,756
60,514
Net income (loss) (1)
(3,321
5,043
The Company's pro rata share of net income (loss) is $(3,076) and $1,018 for the three months ended March 31, 2021 and 2020, respectively.
Variable Interest Entities
In accordance with the guidance in ASU 2015-02, Amendments to the Consolidation Analysis, and ASU 2016-17, Interests Held Through Related Parties That Are under Common Control, the Operating Partnership and certain of its subsidiaries are deemed to have the characteristics of a VIE primarily because the limited partners of these entities do not collectively possess substantive kick-out or participating rights.
The Company consolidates the Operating Partnership, which is a VIE, for which the Company is the primary beneficiary. The Company, through the Operating Partnership, consolidates all VIEs for which it is the primary beneficiary. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership is considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether the Company is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which 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 March 31, 2021, the Company had investments in 12 consolidated VIEs with ownership interests ranging from 50% to 92%.
Unconsolidated VIEs
The table below lists the Company's unconsolidated VIEs as of March 31, 2021:
Unconsolidated VIEs:
Investment in
Real Estate
Joint
Ventures
and
Partnerships
Maximum
Risk of Loss
Ambassador Infrastructure, LLC (1)
8,250
Asheville Mall CBMS, LLC
Atlanta Outlet JV, LLC (1)
25,567
30,135
CBL-T/C, LLC
69,478
CBL-TRS Joint Venture, LLC
19,667
Continental 425 Fund LLC
4,878
EastGate Storage, LLC (1)
507
3,757
El Paso Outlet Center Holding, LLC
10,315
Fremaux Town Center JV, LLC
7,180
Hamilton Place Self Storage (1)
1,092
4,593
Louisville Outlet Shoppes, LLC (1)
(10,891
8,752
Mall of South Carolina L.P.
(13,827
Mall of South Carolina Outparcel L.P.
(2,222
Park Plaza Mall CBMS, LLC
Parkdale Self Storage, LLC (1)
711
7,211
PHG-CBL Lexington, LLC
35
Self Storage at Mid Rivers, LLC (1)
524
3,518
Shoppes at Eagle Point, LLC (1)
17,605
30,345
Vision - CBL Hamilton Place, LLC
3,800
134,419
211,914
The Operating Partnership has guaranteed all or a portion of the debt of each of these VIEs. See Note 12 for more information.
Note 9 – Mortgage and Other Indebtedness, Net
Debt of the Company
CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries, that it has a direct or indirect ownership interest in, is the borrower on all the Company's debt. CBL is a limited guarantor of the senior unsecured notes (the "Notes"), as described below, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates.
The Company also provides a similar limited guarantee of the Operating Partnership's obligations with respect to its secured credit facility and secured term loan as of March 31, 2021.
Debt of the Operating Partnership
Mortgage and other indebtedness, net, consisted of the following:
Amount
Weighted-
Average
Interest
Rate (1)
Fixed-rate debt:
Non-recourse loans on operating Properties
972,553
5.07
%
1,120,203
5.12
Total fixed-rate debt
Variable-rate debt:
Recourse loans on operating Properties
67,611
4.65
68,061
4.69
Total variable-rate debt
Total fixed-rate and variable-rate debt
1,040,164
5.04
1,188,264
5.10
Unamortized deferred financing costs (2)
(3,194
(3,433
Total mortgage and other indebtedness, net
Mortgage and other indebtedness included in liabilities subject to compromise consisted of the following:
Senior unsecured notes due 2023 (3)
450,000
5.25
Senior unsecured notes due 2024 (3)
300,000
4.60
Senior unsecured notes due 2026 (3)
625,000
5.95
1,375,000
5.43
Secured line of credit (4)
675,926
9.50
Secured term loan (4)
438,750
1,114,676
2,489,676
7.25
Unpaid accrued interest (5)
57,644
Prepetition unsecured or under secured liabilities
4,034
4,170
Total liabilities subject to compromise
Weighted-average interest rate excludes amortization of deferred financing costs.
Unamortized deferred financing costs of $2,841 for certain property-level, non-recourse mortgage loans may be required to be written off in the event a waiver or restructuring of terms cannot be negotiated and the debt is either redeemed or otherwise extinguished.
In accordance with ASC 852, which limits the recognition of interest expense during a bankruptcy proceeding to only amounts that will be paid during the bankruptcy proceeding or that are probable of becoming allowed claims, interest has not been accrued on the senior unsecured notes subsequent to the filing of the Chapter 11 Cases. The outstanding amount of the senior unsecured notes is included in liabilities subject to compromise in the accompanying condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020.
The administrative agent informed the Company that interest will accrue on all outstanding obligations at the post-default rate, which is equal to the rate that otherwise would be in effect plus 5.0%. The post-default interest rate at March 31, 2021 and December 31, 2020 was 9.50%. In accordance with ASC 852, which limits the recognition of interest expense during a bankruptcy proceeding to only amounts that will be paid during the bankruptcy proceeding or that are probable of becoming allowed claims, interest has not been accrued on the secured credit facility subsequent to the filing of the Chapter 11 Cases. The outstanding amount of the secured credit facility is included in liabilities subject to compromise in the accompanying condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020.
Represents interest accrued on the secured credit facility and senior unsecured notes prior to the filing of the Chapter 11 Cases.
Non-recourse term loans, recourse term loans, the secured line of credit and the secured term loan include loans that are secured by Properties owned by the Company that have a net carrying value of $2,085,230 at March 31, 2021.
Senior Unsecured Notes (1)
Issued (2)
Rate
Maturity
2023 Notes
November 2013
December 2023
2024 Notes
October 2014
October 2024
2026 Notes
December 2016 / September 2017
December 2026
In March 2021, the Company entered into an amended and restated Restructuring Support Agreement with its secured credit facility lenders and senior unsecured noteholders that provides for a fully consensual comprehensive restructuring.
Issued by the Operating Partnership. CBL is a limited guarantor of the Operating Partnership’s obligations under the Notes.
Senior Secured Credit Facility
The Company has a $1,185,000 senior secured credit facility, which includes a revolving line of credit drawn to its maximum borrowing capacity of $675,926 and a term loan with an outstanding balance of $438,750 at March 31, 2021. As further described in Note 2 and in Financial Covenants and Restrictions below, the filing of the Chapter 11 Cases constituted an event of default that resulted in certain monetary obligations becoming immediately due and payable with respect to the secured credit facility.
The Operating Partnership is required to pay an annual facility fee, to be paid quarterly, which ranges from 0.25% to 0.35%, based on the unused capacity of the line of credit. The terms of the facility also require the principal balance on the term loan to be reduced by $35,000 per year in quarterly installments. In March 2020, the Company drew $280,000 on its secured credit facility to increase liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic. At March 31, 2021, the secured line of credit had an outstanding balance of $675,926. As a result of the events of default described under Financial Covenants and Restrictions below, the Operating Partnership cannot borrow any additional amounts under the secured line of credit.
The secured credit facility is secured by 17 malls and 3 associated centers that are owned by 36 wholly owned subsidiaries of the Operating Partnership (collectively the “Combined Guarantor Subsidiaries”). The Combined Guarantor Subsidiaries own an additional four malls, two associated centers and four mortgage notes receivable that are not collateral for the secured credit facility. The properties that are collateral for the secured credit facility and the properties and mortgage notes receivable that are not collateral are collectively referred to as the “Guarantor Properties.” The terms of the Notes provide that, to the extent that any subsidiary of the Operating Partnership executes and delivers a guarantee to another debt facility, the Operating Partnership shall also cause the subsidiary to guarantee the Operating Partnership’s obligations under the Notes on a senior basis. In January 2019, the Combined Guarantor Subsidiaries entered into a guarantee agreement with the issuer of the Notes to satisfy the guaranty requirement.
See Financial Covenants and Restrictions below and Liquidity and Going Concern Considerations and Voluntary Reorganization under Chapter 11 in Note 2 for information on the event of default resulting from the filing of the Chapter 11 Cases.
Financial Covenants and Restrictions
The agreements for the Notes and senior secured credit facility contain default provisions customary for transactions of this nature (with applicable customary grace periods). Any default in the payment of any recourse indebtedness greater than or equal to $50,000 of the Operating Partnership will constitute an event of default under the Notes and the senior secured credit facility. Additionally, the secured credit facility contains a provision that any default on a payment of non-recourse indebtedness in excess of $150,000 is also a default of the senior secured credit facility.
The filing of the Chapter 11 Cases constituted an event of default that resulted in certain monetary obligations becoming immediately due and payable with respect to the secured credit facility and the senior unsecured notes. The filing of the Chapter 11 Cases also constituted an event of default with respect to certain property-level debt of the Operating Partnership’s subsidiaries, which may result in acceleration of the outstanding principal and other sums due.
Certain of the Company’s properties that are pledged as collateral on non-recourse mortgage loans and the secured credit facility 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 and operating expense obligations.
Loans in Default
As of March 31, 2021, two non-recourse loans that are each secured by one of the Company’s malls were in default. The default of the two non-recourse loans occurred prior to the filing of the Chapter 11 Cases. As of March 2021, the lenders under each of these loans accelerated the outstanding amount due and payable on the loans. The foreclosure process has not yet commenced for EastGate Mall. The Company is in discussions with the lender regarding a restructure of the loan secured by Greenbrier Mall. Management has previously impaired the mall that secures each loan due to a shortened expected hold period resulting from management’s assessment that there is an increased likelihood that the loan secured by each mall may not be successfully restructured or refinanced. The non-recourse loans that are in default at March 31, 2021 are as follows:
Interest Rate
Scheduled Maturity Date
Loan Amount
Greenbrier Mall
Chesapeake, VA
5.41%
Dec-19
61,647
EastGate Mall
Cincinnati, OH
5.83%
Apr-21
30,942
As described in Note 2, the filing of the Chapter 11 Cases also 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 give the applicable lender the right to accelerate such amounts. The loans have an aggregate outstanding balance of $825,856 at March 31, 2021.
In conjunction with the deconsolidation of Asheville Mall and Park Plaza, the Company deconsolidated the loan securing each property, which represented $138,926 of previously consolidated debt. See Note 8 for additional information.
Scheduled Principal Payments
As of March 31, 2021, the scheduled principal amortization and balloon payments of the Company’s consolidated debt, excluding extensions available at the Company’s option, on all mortgage and other indebtedness, including the secured line of credit, are as follows:
330,456
408,399
1,511,219
343,397
37,612
763,796
Total (2)
3,394,879
Principal balance of loans with maturity date prior to March 31, 2021 (3)
134,960
3,529,839
Reflects scheduled principal amortization and balloon payments for the fiscal period April 1, 2021 through December 31, 2021.
Includes $2,489,676 of liabilities subject to compromise in the accompanying condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, and as the expected maturity date is subject to the outcome of the Chapter 11 Cases, the original, legal maturity dates are reflected in this table.
Represents the aggregate principal balance as of March 31, 2021 of the loans secured by Greenbrier Mall and Parkdale Mall & Crossing, which are both in default. The Company is in discussions with the lender regarding the loan secured by Parkdale Mall & Crossing. The loan secured by Greenbrier Mall matured in December 2019 and had a balance of $61,647 as of March 31, 2021. The loan secured by Parkdale Mall & Crossing matured in March 2021 and had a balance of $73,313 as of March 31, 2021.
Of the $330,456 of scheduled principal payments for the remainder of 2021, $289,657 relates to the maturing principal balances of six operating Property loans.
The loan secured by Hamilton Crossing matured in April 2021 and is currently in default. The Company is in discussions with the lender regarding a loan extension.
The Company’s mortgage and other indebtedness had a weighted-average maturity of 2.8 years as of March 31, 2021 and 3.0 years as of December 31, 2020.
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Note 10 – Segment Information
The Company measures performance and allocates resources according to property type, which is determined based on certain criteria such as type of tenants, capital requirements, economic risks, leasing terms, and short and long-term returns on capital. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments.
Information on the Company’s segments is presented as follows:
All
Other (1)
Revenues (2)
119,328
13,856
Property operating expenses (3)
(45,595
(3,539
(49,134
Interest expense
(23,170
(960
Segment profit
50,563
9,058
59,621
General and administrative expense
Equity in losses of unconsolidated affiliates
Capital expenditures (4)
3,491
637
4,128
153,351
14,223
(52,098
(3,267
(55,365
(18,147
(28,845
Other expense
(25
165
Segment profit (loss)
83,081
(17,882
65,199
Equity in earnings of unconsolidated affiliates
18,056
2,276
20,332
3,497,709
782,478
3,702,523
741,217
The All Other category includes associated centers, community centers, mortgage and other notes receivable, office buildings, self-storage facilities, corporate-level debt and the Management Company.
Management, development and leasing fees are included in the All Other category. See Note 4 for information on the Company's revenues disaggregated by revenue source for each of the above segments.
Property operating expenses include property operating, real estate taxes and maintenance and repairs.
28
Includes additions to and acquisitions of real estate assets and investments in unconsolidated affiliates. Developments in progress are included in the All Other category.
Note 11 – Earnings per Share and Earnings per Unit
Earnings per Share of the Company
Basic earnings per share (“EPS”) is computed by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS assumes the issuance of common stock for all potential dilutive common shares outstanding. The limited partners’ rights to convert their noncontrolling interests in the Operating Partnership into shares of common stock are not dilutive. There were no potential dilutive common shares and there were no anti-dilutive shares for the three months ended March 31, 2021 and 2020.
Earnings per Unit of the Operating Partnership
Basic earnings per unit (“EPU”) is computed using the two-class method. The two-class method is required when either (i) participating securities or (ii) multiple classes of common stock exists. The Operating Partnership’s special common units, and common units issued upon the conversion or redemption of special common units, meet the definition of participating securities as these units have the contractual right and obligation to share in the Operating Partnership’s net income (loss) and distributions. Under this approach net income (loss) attributable to common unitholders is reduced by the amount of distributions made (declared) to all common unitholders and by the amount of distributions that are required to be made (declared and undeclared) to special common unitholders. Distributed and undistributed earnings is subsequently divided by the weighted-average number of common and special common units outstanding for the period to compute basic EPU for each unit. Undistributed losses are allocated 100 percent to common units, other than common units issued upon the conversion or redemption of special common units. The special common units, and common units issued upon the conversion or redemption of special common units, only participate in undistributed losses in the event of a liquidation. Diluted EPU is computed by considering either the two-class method or the if-converted method, whichever results in more dilution. The if-converted method assumes the issuance of common units for all potential dilutive special common units outstanding. Due to the loss position (negative earnings) of the Operating Partnership for the three months ended March 31, 2021 and 2020 all special common units, and common units issued upon the conversion or redemption of special common units, are antidilutive. The calculation of diluted EPU through the if-converted method would reduce the loss per share (as a result of an increase number of shares in the denominator) for the common units. Therefore, in a loss position diluted EPU is equal to basic EPU. There were no potential dilutive common units and there were no anti-dilutive units other than the special common units, and common units issued upon the conversion or redemption of special common units, outstanding for the three months ended March 31, 2021 and 2020.
29
The following table presents basic and diluted EPU for common and special common units for the three months ended March 31, 2021 and 2020.
Net Loss Attributable to Common Unitholders
Distributions to Common Unitholders - Declared Only
Distributions to Special Common Unitholders - Declared and Undeclared
Common units issued on conversion of SCUs
S-SCUs
(1,143
L-SCUs
(433
K-SCUs
(844
Total Undistributed Loss Available to Common and Special Common Unitholders
(152,730
Distributed Earnings:
1,143
433
844
Undistributed Loss:
Weighted Average:
936
2,300
1,561
572
869
1,137
197,689
195,688
Basic EPU:
0.73
0.76
0.74
(0.78
Total Basic EPU
Diluted EPU:
Total Diluted EPU
For additional information regarding the participation rights and minimum distributions relating to the common and special common units, see Note 10. Shareholders’ Equity and Partners’ Capital and Note 11. Redeemable Interests and Noncontrolling Interests of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Pursuant to the terms of the Series L special common units of limited partnership interest, the Series L special common units began receiving distributions equal to those on the common units beginning on June 1, 2020. The undeclared distributions on the preferred units and special common units ceased to cumulate as of the Commencement Date as a result of the Chapter 11 Cases.
30
Note 12 – Contingencies
Litigation
In April 2019, the Company entered into a settlement agreement and release with respect to the class action lawsuit filed on March 16, 2016 in the United States District Court for the Middle District of Florida by Wave Lengths Hair Salons of Florida, Inc. d/b/a Salon Adrian. As of May 4, 2021, $8,422 in tenant credits related to the settlement agreement remain outstanding and are expected to expire on or before December 31, 2024. The Company received document requests in the third quarter of 2019, in the form of subpoenas, from the Securities and Exchange Commission and the Department of Justice regarding the Wave Lengths Hair Salons of Florida, Inc. litigation and other related matters. The Company cooperated in these matters and has been advised by the Securities and Exchange Commission and the Department of Justice that the agencies have closed their investigations.
Securities Litigation
The Company and certain of its officers and directors were named as defendants in three putative securities class action lawsuits (collectively, the “Securities Class Action Litigation”), each filed in the United States District Court for the Eastern District of Tennessee, on behalf of all persons who purchased or otherwise acquired the Company’s securities during a specified period of time. Those cases were consolidated on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Securities Litigation, 1:19-cv-00149-JRG-CHS.
The complaints filed in the Securities Class Action Litigation allege violations of the securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions regarding the Company’s contingent liabilities, business, operations, and prospects during the periods of time specified above. The plaintiffs seek compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the amount of damages sought. The outcome of these legal proceedings cannot be predicted with certainty. A notice of suggestion of bankruptcy was filed by the Company in this litigation on November 9, 2020.
Certain of the Company’s current and former directors and officers were named as defendants in nine shareholder derivative lawsuits (collectively, the “Derivative Litigation”). On June 4, 2019, a shareholder filed a putative derivative complaint captioned Robert Garfield v. Stephen D. Lebovitz et al., 1:19-cv-01038-LPS, in the United States District Court for the District of Delaware (the “Garfield Derivative Action”), purportedly on behalf of the Company against certain of its officers and directors. On June 24, 2019, September 5, 2019 and September 25, 2019, respectively, other shareholders filed three additional putative derivative complaints, each in the United States District Court for the District of Delaware, captioned as follows: Robert Cohen v. Stephen D. Lebovitz et al., 1:19-cv-01185-LPS (the “Cohen Derivative Action”); Travis Lore v. Stephen D. Lebovitz et al., 1:19-cv-01665-LPS (the “Lore Derivative Action”), and City of Gainesville Cons. Police Officers’ and Firefighters Retirement Plan v. Stephen D. Lebovitz et al., 1:19-cv-01800 (the “Gainesville Derivative Action”), each asserting substantially similar claims purportedly on behalf of the Company against similar defendants. The Court consolidated the Garfield Derivative Action and the Cohen Derivative Action on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Derivative Litigation, 1:19-cv-01038-LPS (the "Consolidated Derivative Action"). On July 25, 2019, the Court stayed proceedings in the Consolidated Derivative Action pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation. On October 14, 2019, the parties to the Gainesville Derivative Action and the Lore Derivative Action filed a joint stipulation and proposed order confirming that each of those cases is subject to the consolidation order previously entered by the Court in the Consolidated Derivative Action and that further proceedings in those cases are stayed pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation. On July 22, 2019, a shareholder filed a putative derivative complaint captioned Shebitz v. Lebovitz et al., 1:19-cv-00213, in the United States District Court for the Eastern District of Tennessee (the “Shebitz Derivative Action”); on January 10, 2020, a shareholder filed a putative derivative complaint captioned Chatman v. Lebovitz, et al., 2020-0011-JTL, in the Delaware Chancery Court (the “Chatman Derivative Action”); on February 12, 2020, a shareholder filed a putative derivative complaint captioned Kurup v. Lebovitz, et al., 2020-0070-JTL, in the Delaware Chancery Court (the “Kurup Derivative Action”); on February 26, 2020, a shareholder filed a putative derivative complaint captioned Kemmer v. Lebovitz, et al., 1:20-cv-00052, in the United States District Court for the Eastern District of Tennessee (the “Kemmer Derivative Action”); and on April 14, 2020, a shareholder filed a putative derivative complaint captioned Hebig v. Lebovitz, et al., 1:19-cv-00149-JRG-CHS, in the United States District Court for the Eastern District of Tennessee (the “Hebig Derivative Action”), each asserting substantially similar claims purportedly on behalf of the Company against similar defendants. The actions pending in Delaware Chancery Court have been consolidated into one case, and likewise, the actions pending in Delaware federal court have been consolidated into one case. The Tennessee actions have not been consolidated. On October 7, 2019, the Court stayed the Shebitz Derivative Action, pending resolution of an eventual motion to dismiss in the related Securities Class Action Litigation; the Company expects the other Derivative Actions to be stayed as well.
The complaints filed in the Derivative Litigation allege, among other things, breaches of fiduciary duties, unjust enrichment, waste of corporate assets, and violations of the federal securities laws. The factual allegations upon which these claims are based are similar to the factual allegations made in the Securities Class Action Litigation, described above. The complaints filed in the Derivative Litigation seek, among other things, unspecified damages and restitution for the Company from the individual defendants, the payment of costs and attorneys’ fees, and that the Company be directed
31
to reform certain governance and internal procedures. The outcome of these legal proceedings cannot be predicted with certainty. A notice of suggestion of bankruptcy was filed by the Company in this litigation on November 9, 2020.
The Company's insurance carriers have been placed on notice of these matters.
The Company is currently involved in certain other litigation that arises in the ordinary course of business, most of which is expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.
Environmental Contingencies
The Company evaluates potential loss contingencies related to environmental matters using the same criteria described above related to litigation matters. Based on current information, an unfavorable outcome concerning such environmental matters, both individually and in the aggregate, is considered to be reasonably possible. However, the Company believes its maximum potential exposure to loss would not be material to its results of operations or financial condition. The Company has a master insurance policy that provides coverage through 2022 for certain environmental claims up to $10,000 per occurrence and up to $50,000 in the aggregate, subject to deductibles and certain exclusions. At certain locations, individual policies are in place.
Guarantees
The Operating Partnership may guaranty the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on the Operating Partnership's investment in the joint venture. The Operating Partnership may receive a fee from the joint venture for providing the guaranty. Additionally, when the Operating Partnership issues a guaranty, the terms of the joint venture agreement typically provide that the Operating Partnership may receive indemnification from the joint venture partner or have the ability to increase its ownership interest. The guarantees expire upon repayment of the debt, unless noted otherwise.
The following table represents the Operating Partnership's guarantees of unconsolidated affiliates' debt as reflected in the accompanying condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020:
As of March 31, 2021
Obligation
recorded to reflect
guaranty
Unconsolidated Affiliate
Company's
Ownership
Outstanding
Balance
Percentage
Guaranteed
by the
Operating
Partnership
Debt
Date (1)
West Melbourne I, LLC - Phase I
50%
39,944
19,972
Feb-2025
200
201
West Melbourne I, LLC - Phase II
14,316
7,158
72
52,898
26,449
264
266
65%
100%
Mar-2025
83
94
Shoppes at Eagle Point, LLC
34,435
35%
12,740
Oct-2021
127
EastGate Storage, LLC
6,500
3,250
Dec-2022
33
Self Storage at Mid Rivers, LLC
5,939
2,994
Apr-2023
Parkdale Self Storage, LLC
6,318
Jul-2024
65
Hamilton Place Self Storage, LLC
54%
6,668
3,501
Sep-2024
Atlanta Outlet JV, LLC
4,568
Nov-2023
Louisville Outlet Shoppes, LLC
Total guaranty liability
909
Excludes any extension options.
These loans have a one-year extension option at the joint venture’s election.
The guaranty is for a fixed amount of $12,740 throughout the term of the loan, including any extensions. The loan has a one-year extension option, at the joint venture’s election, for an outside maturity date of October 2022.
Subject to the bankruptcy default being waived, the guaranty may be reduced to 25% once certain debt and operational metrics are met.
The guaranty was increased to 100% as a result of the Chapter 11 Cases filed by the Company.
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As described in Note 2, the filing of the Chapter 11 Cases also constituted an event of default with respect to certain property-level debt of the Operating Partnership’s subsidiaries, which may have resulted in automatic acceleration of certain monetary obligations or may give the applicable lender the right to accelerate such amounts. As of March 31, 2021,there is a default under each of the guaranteed loans above as a result of the filing of the Chapter 11 Cases, except for Ambassador Infrastructure, LLC, Louisville Outlet Shoppes, LLC, Port Orange I, LLC, Shoppes at Eagle Point, LLC, West Melbourne I, LLC – Phase I and West Melbourne I, LLC – Phase II.
The Company has guaranteed the lease performance of York Town Center, LP ("YTC"), an unconsolidated affiliate in which the Company owns a 50% interest, under the terms of an agreement with a third party that owns property as part of York Town Center. Under the terms of that agreement, YTC is obligated to cause performance of the third party’s obligations as landlord under its lease with its sole tenant, including, but not limited to, provisions such as co-tenancy and exclusivity requirements. Should YTC fail to cause performance, then the tenant under the third-party landlord’s lease may pursue certain remedies ranging from rights to terminate its lease to receiving reductions in rent. The Company has guaranteed YTC’s performance under this agreement up to a maximum of $22,000, which decreases by $800 annually until the guaranteed amount is reduced to $10,000. The maximum guaranteed obligation was $10,800 as of March 31, 2021. The Company entered into an agreement with its joint venture partner under which the joint venture partner has agreed to reimburse the Company 50% of any amounts it is obligated to fund under the guaranty. The Company did not record a credit loss related to this guaranty for the three months ended March 31, 2021 and March 31, 2020.
For the three months ended March 31, 2021 and March 31, 2020, the 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 Company did not record a credit loss related to the guarantees listed in the table above for the three months ended March 31, 2021 and March 31, 2020.
Performance Bonds
The Company has issued various bonds that it would have to satisfy in the event of non-performance. The total amount outstanding on these bonds was $412 at March 31, 2021 and December 31, 2020.
Note 13 – Share-Based Compensation
As of March 31, 2021, the Company has outstanding awards under the CBL & Associates Properties, Inc. 2012 Stock Incentive Plan (the “2012 Plan"), which was approved by the Company's shareholders in May 2012. The 2012 Plan permits the Company to issue stock options and common stock to selected officers, employees and non-employee directors of the Company up to a total of 10,400,000 shares. As the primary operating subsidiary of the Company, the Operating Partnership participates in and bears the compensation expense associated with the Company's share-based compensation plan. The Compensation Committee of the Board of Directors (the “Committee”) administers the 2021 Plan.
Restricted Stock Awards
Share-based compensation expense related to the restricted stock awards was $297 and $1,144 for the three months ended March 31, 2021 and 2020, respectively. Share-based compensation cost capitalized as part of real estate assets was $4 and $7 for the three months ended March 31, 2021 and 2020, respectively.
A summary of the status of the Company’s nonvested restricted stock awards as of March 31, 2021, and changes during the three months ended March 31, 2021, is presented below:
Shares
Grant-Date
Fair Value
Nonvested at January 1, 2021
1,519,606
2.15
Vested
(480,463
3.11
Forfeited
(1,518
4.41
Nonvested at March 31, 2021
1,037,625
1.71
As of March 31, 2021, there was $1,634 of total unrecognized compensation cost related to nonvested stock awards granted under the plans, which is expected to be recognized over a weighted-average period of 2.0 years.
Long-Term Incentive Program
A summary of the Company’s long-term incentive program (“LTIP”) is disclosed in Note 18 to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020.
Annual Restricted Stock Awards
Under the LTIP, annual restricted stock awards consist of shares of time-vested restricted stock awarded based on a qualitative evaluation of the performance of the Company and the named executive officer during the fiscal year. Annual restricted stock awards under the LTIP, which are included in the totals reflected in the preceding table, vest 20% on the date of grant with the remainder vesting in four equal annual installments. Outstanding restricted stock, and related grant/vesting/forfeiture activity during 2021 for awards made to named executive officers under the LTIP, is included in the information presented in the table above.
Performance Stock Units
There were no PSUs granted in the first quarter of 2021. The outstanding PSUs at March 31, 2021 was 1,103,537, which solely relates to the PSUs granted in the first quarter of 2019. Of that amount, 566,862 shares are classified as a liability due to the potential cash component, which is described in the summary of the Company’s LTIP program set forth in Note 18 to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020. None of the PSUs outstanding at March 31, 2021 were vested.
Shares earned pursuant to the PSU awards vest 60% at the conclusion of the performance period while the remaining 40% of the PSU award vests 20% on each of the first two anniversaries thereafter.
Compensation cost is recognized on a tranche-by-tranche basis using the accelerated attribution method. The resulting expense, for awards classified as equity, is recorded regardless of whether any PSU awards are earned as long as the required service period is met.
Share-based compensation expense related to the PSUs was $94 and $478 for the three months ended March 31, 2021 and 2020. Unrecognized compensation costs related to the PSUs was $453 as of March 31, 2021, which is expected to be recognized over a weighted-average period of 1.6 years.
The following table summarizes the assumptions used in the Monte Carlo simulation pricing model related to the PSUs:
2019 PSUs
Grant date
February 11, 2019
Fair value per share on valuation date (1)
4.74
Risk-free interest rate (2)
2.54
Expected share price volatility (3)
60.99
The value of the PSU awards is estimated on the date of grant using a Monte Carlo simulation model. The valuation consists of computing the fair value using CBL's simulated stock price as well as TSR over a three-year performance period. The award is modeled as a contingent claim in that the expected return on the underlying shares is risk-free and the rate of discounting the payoff of the award is also risk-free. The weighted-average fair value per share related to the 2019 PSUs classified as equity consists of 357,800 shares at a fair value of $2.45 per share (which relate to relative TSR) and 178,875 shares at a fair value of $2.29 per share (which relate to absolute TSR).
The risk-free interest rate was based on the yield curve on zero-coupon U.S. Treasury securities in effect as of the valuation date, which is the grant date listed above.
The computation of expected volatility was based on a blend of the historical volatility of CBL's shares of common stock based on annualized daily total continuous returns over a three-year period for the 2019 PSUs and implied volatility data based on the trailing month average of daily implied volatilities implied by stock call option contracts that were both closest to the terms shown and closest to the money.
Note 14 – Noncash Investing and Financing Activities
The Company’s noncash investing and financing activities were as follows:
Additions to real estate assets accrued but not yet paid
3,190
19,478
Deconsolidation upon loss of control (1):
Decrease in real estate assets
(84,860
Decrease in mortgage and other indebtedness
134,354
Decrease in operating assets and liabilities
5,808
Decrease in intangible lease and other assets
(171
Conversion of Operating Partnership units to common stock
See Note 7 for additional information.
Note 15 – Subsequent Events
In April 2021, the Company filed the Proposed Plan and the Proposed Disclosure Statement with the Bankruptcy Court to implement the restructuring transactions. See Note 2 for additional information.
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During April 2021, the Company purchased $49,998 in U.S. Treasury securities that mature in July 2021. The Company designated the U.S. Treasury securities purchased as AFS.
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and accompanying notes that are included in this Form 10-Q. Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as defined in the notes to the condensed consolidated financial statements. In this discussion, the terms “we,” ”us” and “our” refer to the Company or the Company and the Operating Partnership collectively, as the text requires.
Certain statements made in this section or elsewhere in this report may be deemed “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical fact should be considered to be forward-looking statements. In many cases, these forward-looking statements may be identified by the use of words such as “will,” “may,” “should,” “could,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “projects,” “goals,” “objectives,” “targets,” “predicts,” “plans,” “seeks,” and variations of these words and similar expressions. Any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this report.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained. It is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties. Currently, a significant factor that could cause actual outcomes to differ materially from our forward-looking statements is the impact of the risks and uncertainties associated with the Chapter 11 process on our operations and ability to develop and execute the Company’s business plans, and to satisfy the conditions and milestones applicable under an amended and restated Restructuring Support Agreement (the “Amended RSA”), for the duration of the Chapter 11 Cases. Another significant factor that could cause actual outcomes to differ materially from our forward-looking statements is the adverse effect of the COVID-19 pandemic, and state and/or local regulatory responses to control it, on our financial condition, operating results and cash flows, our tenants and their customers, the real estate market in which we operate, the global economy and the financial markets. The extent to which the COVID-19 pandemic impacts us and our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the direct and indirect economic effects of the pandemic and containment measures, and potential changes in consumer behavior, among others. In addition to the risk factors described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, such known risks and uncertainties, many of which may be influenced by the COVID-19 pandemic, include, without limitation:
general industry, economic and business conditions;
the impact of the risks and uncertainties associated with the Chapter 11 process on our operations and ability to develop and execute the Company’s business plans, and to satisfy the conditions and milestones applicable under the Amended RSA, for the duration of the Chapter 11 Cases;
interest rate fluctuations;
costs and availability of capital, including debt, and capital requirements;
the ongoing suspension of trading, and potential delisting, of our common stock and depositary shares representing interests in our Series D Preferred Stock and Series E Preferred Stock, from the NYSE, which has resulted in our common stock and the depositary shares representing interests in our Series D Preferred Stock and Series E Preferred Stock currently trading on the OTC Markets, operated by the OTC Markets Group, Inc.;
costs and availability of real estate;
inability to consummate acquisition opportunities and other risks associated with acquisitions;
competition from other companies and retail formats;
changes in retail demand and rental rates in our markets;
shifts in customer demands including the impact of online shopping;
tenant bankruptcies or store closings;
changes in vacancy rates at our Properties;
changes in operating expenses;
changes in applicable laws, rules and regulations;
disposition of real property;
uncertainty and economic impact of pandemics, epidemics or other public health emergencies or fear of such events, such as the recent COVID-19 pandemic;
cyber-attacks or acts of cyber-terrorism;
the withdrawal that occurred during 2020 of the credit ratings of the Operating Partnership's senior unsecured long-term indebtedness;
the ability to obtain suitable equity and/or debt financing and the continued availability of financing, in the amounts and on the terms necessary to support our future refinancing requirements and business; and
other risks referenced from time to time in filings with the SEC and those factors listed or incorporated by reference into this report.
This list of risks and uncertainties is only a summary and is not intended to be exhaustive. We disclaim any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information.
Executive Overview
We are a self-managed, self-administered, fully integrated REIT that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers, office and other properties. See Note 1 to the condensed consolidated financial statements for information on our property interests as of March 31, 2021. We have elected to be taxed as a REIT for federal income tax purposes.
On March 11, 2020, the World Health Organization classified COVID-19 as a pandemic. Due to the extraordinary governmental actions taken to contain COVID-19, we are unable to predict the full extent of the pandemic’s impact on our results of operations for 2021. As a result, we did not issue full-year 2021 guidance.
In response to COVID-19, we have implemented strict procedures and guidelines for our employees, tenants and property visitors based on CDC and other health agency recommendations. Our properties continue to update these policies and procedures, following any new mandates and regulations, as required. The safety and health of our customers, employees and tenants remains a top priority.
Our financial and operating results for the first quarter reflect the ongoing impact of COVID-19. While all properties are open, many state and local markets continue to impose occupancy and other restrictions. These additional restrictions may have the effect of restricting traffic and sales for our tenants and may put additional pressure on our tenants’ financial health. We have worked with our tenants to enhance customer reach despite the restrictions, including offering curbside, delivery and opening buy-online-pick-up-instore locations. We are beginning to see improvements in sales and traffic at our centers as vaccination rates increase and government restrictions are lessened. Same-center sales in our mall portfolio for the first two months of 2021 were down only 3% as compared with the same period in 2020. Additionally, sales for the first quarter 2021 increased more than 12% as compared with first quarter 2019. However, revenues for the quarter continue to be impacted by a sustained increase in the estimate for uncollectable revenues related to rents due from tenants that filed for bankruptcy or are struggling financially. The pandemic accelerated a number of tenant bankruptcies, resulting in a heightened level of store closures and lost rent in 2020, the impact of which has carried forward into 2021. We are optimistic that the improvements to sales and traffic will continue and will begin to benefit our leasing negotiations later in the year.
The mandated property closures in 2020 resulted in nearly all our tenants closing for a period of time and/or shortening operating hours. As a result, we experienced an increased level of requests for rent deferrals and abatements, as well as defaults on rent obligations. While, in general, we believe that tenants have a clear contractual obligation to pay rent, we have been working with our tenants to address rent deferral and abatement requests. We have granted rent deferrals of $38.5 million since the COVID-19 pandemic began, which includes rent deferrals of $7.1 million during the three months ended March 31, 2021. We also granted rent abatements of approximately $5.3 million during the three months ended March 31, 2021.
As discussed under Voluntary Reorganization under Chapter 11 below, the Debtors commenced the filing of the Chapter 11 Cases. The filing of the Chapter 11 Cases constituted an event of default that resulted in certain monetary obligations becoming immediately due and payable with respect to the secured credit facility and the senior unsecured notes. The filing of the Chapter 11 Cases also constituted an event of default with respect to certain property-level debt of the Operating Partnership’s subsidiaries, which may result in acceleration of the outstanding principal and other sums due. See Note 2 and Liquidity and Capital Resources for additional information.
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We had a net loss for the three months ended March 31, 2021 of $28.3 million as compared to a net loss for the three months ended March 31, 2020 of $139.3 million. We recorded a net loss attributable to common shareholders for the three months ended March 31, 2021 of $26.8 million as compared to a net loss attributable to common shareholders for the three months ended March 31, 2020 of $133.9 million. In addition to the ongoing impact of the COVID-19 pandemic, significant items that affected the comparability between the three-month periods include:
Loss on impairment for the three months ended March 31, 2021 that is $76.5 million lower;
Gain on deconsolidation of $55.1 million for the three months ended March 31, 2021;
Interest expense for the three months ended March 31, 2021 that is $22.9 million lower;
Costs of $22.9 million related to our reorganization efforts;
Equity in losses of unconsolidated affiliates of $3.1 million for the three months ended March 31, 2021 compared to equity in earnings of unconsolidated affiliates of $1.0 million for the three months ended March 31, 2020.
Our focus is on continuing to execute our strategy to transform our properties into suburban town centers, 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. As discussed further below under Voluntary Reorganization under Chapter 11, we are pursuing a plan to recapitalize the Company, including restructuring portions of its debt, through the Chapter 11 Cases. While the industry and our Company continue to face challenges, some of which may not be within 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.
Same-center NOI and FFO are non-GAAP measures. For a description of same-center NOI, a reconciliation from net income (loss) to same-center NOI, and an explanation of why we believe this is a useful performance measure, see Non-GAAP Measure - Same-center Net Operating Income in Results of Operations. For a description of FFO, a reconciliation from net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders, and an explanation of why we believe this is a useful performance measure, see Non-GAAP Measure - Funds from Operations.
Beginning on November 1, 2020 (the “Commencement Date”), CBL & Associates Properties, Inc. together with its majority owned subsidiary, CBL & Associates Limited Partnership, together with certain of its direct and indirect subsidiaries (collectively, the “Debtors”), commenced voluntary chapter 11 cases (the “Chapter 11 Cases”) by filing voluntary petitions for reorganization under chapter 11 of title 11 (“Chapter 11”) of the United States Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Debtors are authorized to continue to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. Pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, the Debtors’ 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. Documents filed on the docket of and other information related to the Chapter 11 Cases are available free of charge online at https://dm.epiq11.com/case/cblproperties/dockets.
We are currently operating our business as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. After we filed our Chapter 11 petitions, the Bankruptcy Court granted certain relief requested by the Debtors enabling us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to pay employee wages and benefits, to pay taxes and certain governmental fees and charges, to continue to operate our cash management system in the ordinary course, and to pay the prepetition claims of certain of our service providers. For goods and services provided following the Commencement Date, we intend to pay service providers in the ordinary course.
Subject to certain exceptions, under the Bankruptcy Code, the filing of the Chapter 11 Cases automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Commencement Date. Accordingly, although the filing of the Chapter 11 Cases triggered defaults under the Debtors’ funded debt obligations, creditors are stayed from taking any actions against the Debtors as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code. Absent an order of the Bankruptcy Court, substantially all the Debtors’ prepetition liabilities are subject to settlement under the Bankruptcy Code.
The filing of the Chapter 11 Cases constituted an event of default that resulted in certain monetary obligations becoming immediately due and payable with respect to the secured credit facility and the senior unsecured notes. The filing of the Chapter 11 Cases also 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 give the applicable lender the right to accelerate such amounts. Due to the Chapter 11 Cases, however,
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the creditors’ ability to exercise remedies against the Debtors under their respective credit agreements and debt instruments was stayed as of the date of the Chapter 11 petition and continues to be stayed.
After engaging in negotiations in a Bankruptcy Court-ordered mediation, on March 21, 2021, the Company entered into the Amended RSA, with the Consenting Noteholders in excess of 69% (including joinders) of the aggregate principal amount of the senior unsecured notes and the Consenting Bank Lenders party to the Company’s secured credit facility who hold in the aggregate in excess of 96% (including joinders) of the aggregate outstanding principal amount of debt under the secured credit facility. The Amended RSA amends and restates the Original RSA, dated as of August 18, 2020, and sets forth, subject to certain conditions, the commitments to and obligations of, on the one hand, the Company, and on the other hand, the Consenting Noteholders and Consenting Bank Lenders, in connection with the Restructuring Transactions set forth in the Amended RSA and the Plan Term Sheet. The Amended RSA contemplates that the restructuring and recapitalization of the Debtors will occur through a joint plan of reorganization in the Chapter 11 Cases.
The Amended RSA requires that the Company file the Amended Plan and related disclosure statement no later than 25 days after the Agreement Effective Date and under the Amended RSA we must seek to have the Amended Plan confirmed and declared effective no later than November 1, 2021. On April 15, 2021, we filed an amended Chapter 11 plan of reorganization (the “Proposed Plan”) and accompanying disclosure statement (the “Proposed Disclosure Statement”) with the Bankruptcy Court to implement the restructuring transactions. Before the Bankruptcy Court will confirm the Proposed Plan, the Bankruptcy Code requires that at least one “impaired” class of claims vote to accept the Proposed Plan. A class of claims votes to “accept” the Proposed Plan if voting creditors that hold a majority in number and two-thirds in amount of claims in that class approve the Proposed Plan. The Amended RSA requires the Consenting Stakeholders vote in favor of and support the Proposed Plan. As of the date hereof, the Consenting Bank Lenders and Consenting Noteholders each represent the requisite amount of claims necessary to accept the Proposed Plan in each of their respective classes. For the foregoing reasons, among others, the Debtors believe that they will be able to confirm the Proposed Plan in the Chapter 11 Cases.
Under the Amended RSA, the Proposed Plan provides for the elimination of more than $1.6 billion of debt and preferred obligations as well as a significant reduction in interest expense. In exchange for their approximately $1.375 billion in principal amount of senior unsecured notes and $133 million in principal amount of the secured credit facility, Consenting Noteholders and other noteholders will receive, in the aggregate, $95 million in cash, $555 million of new senior secured notes, of which up to $100 million, upon election by the Consenting Noteholders, may be received in the form of new convertible secured notes and 89% in common equity of the newly reorganized Company. Certain Consenting Noteholders will also provide up to $50 million of new money in exchange for additional convertible secured notes. The Amended RSA provides that the remaining Bank Lenders, holding $983.7 million in principal amount under the secured credit facility, will receive $100 million in cash and a new $883.7 million secured term loan. Existing common and preferred stakeholders are expected to receive up to 11% of common equity in the newly reorganized company. On April 29, 2021, we received court approval to perform under the Amended RSA.
We cannot predict the ultimate outcome of our Chapter 11 Cases at this time. For the duration of the Chapter 11 proceedings, our operations and ability to develop and execute our business plan are subject to the risks and uncertainties associated with the chapter 11 process. As a result of these risks and uncertainties, the amount and composition of our assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 proceedings, and the description of our operations, properties and liquidity and capital resources included in this quarterly report may not accurately reflect our operations, properties and liquidity and capital resources following the Chapter 11 process.
In particular, subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, assume and assign or reject executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a prepetition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors of performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a prepetition general unsecured claim for damages caused by such deemed breach subject, in the case of the rejection of unexpired leases of real property, to certain caps on damages. Counterparties to such rejected contracts or leases may assert unsecured claims in the Bankruptcy Court against the applicable Debtor’s estate for such damages. Generally, the assumption or assumption and assignment of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance thereunder. Accordingly, any description of an executory contract or unexpired lease with the Debtors in this quarterly report, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease with the Debtors is qualified by any overriding rights we have under the Bankruptcy Code. Further, nothing herein is or shall be deemed an admission with respect to any claim amounts or calculations arising from the assumption, assumption and assignment or rejection of any executory contract or unexpired lease and the Debtors expressly preserve all their rights with respect thereto.
Given the acceleration of the secured credit facility, the senior unsecured notes and certain property-level debt, as well as the inherent risks, unknown results and inherent uncertainties associated with the bankruptcy process and the direct correlation between these matters and our ability to satisfy our financial obligations that may arise, we believe that
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there is substantial doubt that we will continue to operate as a going concern within one year after the date our condensed consolidated financial statements are issued. Our ability to continue as a going concern is contingent upon our ability to successfully implement the Proposed Plan, set forth in the Amended RSA, which is pending confirmation by the Bankruptcy Court. See Note 2 to the condensed consolidated financial statements for additional information.
Results of Operations
Properties that were in operation for the entire year during 2020 and the three months ended March 31, 2021 are referred to as the “Comparable Properties.” Since January 1, 2020, we have opened two self-storage facilities, deconsolidated two properties and disposed of two properties:
Properties Opened
Date Opened
Parkdale Mall – Self Storage (1)
Beaumont, TX
April 2020
Hamilton Place – Self Storage (1)
Chattanooga, TN
July 2020
The property is owned by a 50/50 joint venture that is accounted for using the equity method of accounting and is included in equity in earnings of unconsolidated affiliates in the accompanying condensed consolidated statements of operations.
Deconsolidations
Date of Deconsolidation
Asheville Mall (1)
Asheville, NC
January 2021
Park Plaza (1)
Little Rock, AR
March 2021
The Company deconsolidated the property due to a loss of control when the property was placed into receivership in connection with the foreclosure process.
Dispositions
Sales Date
Hickory Point Mall (1)
Forsyth, IL
August 2020
December 2020
Title to the property was transferred to the mortgage holder in satisfaction of the non-recourse debt secured by the property.
Comparison of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2020
Total for the
Three Months
Ended March 31,
Comparable
Properties
Change
Core
Non-core
Deconsolidation
Total Change
(32,998
(25,213
(723
(3,184
(3,878
(959
(574
(135
(90
(160
(34,390
(26,220
(858
(3,274
(4,038
Rental revenues from the Comparable Properties declined due to rent concessions to tenants that are in bankruptcy or are struggling financially due to the impacts of the COVID-19 pandemic, including $5.3 million of rent abatements on past due rents and $6.8 million in uncollectable revenues for past due rents.
40
Operating Expenses
3,907
2,340
(48
978
1,897
651
155
245
846
427
(297
(30
614
Property operating expenses
6,231
2,694
77
1,022
2,438
7,790
3,624
1,283
1,389
1,494
76,462
49,070
830
Total operating expenses
96,723
61,628
2,190
2,411
30,494
Property operating expenses at the Comparable Properties decreased primarily due to the implementation of comprehensive programs to reduce operating expenses to mitigate the impact of mandated property closures and the effects of the COVID-19 pandemic, including a reduction-in-force and other operating expense initiatives.
The decrease in depreciation and amortization expense related to the Comparable Properties primarily relates to a lower basis in depreciable assets resulting from impairments recorded since the prior year period and a greater amount of tenant improvement write-offs in the prior year period related to tenants that closed as a result of bankruptcy.
General and administrative expenses decreased primarily due to the implementation of comprehensive programs to reduce expenses, including a reduction-in-force and other general and administrative expenses.
In the first quarter of 2021, we recognized $57.2 million of loss on impairment of real estate to write down the book value of three malls. In the first quarter of 2020, we recognized $133.6 million of loss on impairment of real estate to write down the book value of two malls. See Note 6 to the condensed consolidated financial statements for more information.
Other Income and Expenses
Interest and other income decreased $1.6 million to $0.8 million compared to the prior-year period primarily due to several mortgage and other notes receivable being retired since the prior year period, as well as a reduction in insurance proceeds since the prior year period. This was partially offset by interest income related to the U.S. Treasury securities that we invested in using a portion of the $280 million we drew on our secured line of credit in March 2020 to increase liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic.
Interest expense decreased $22.9 million primarily due to not recognizing interest expense on the senior unsecured notes and the secured credit facility subsequent to the filing of the Chapter 11 Cases. The decrease was partially offset by an increase of default interest expense related to property-level non-recourse loans that are in default, which may not be payable depending on the outcome of negotiations with the lenders. In accordance with ASC 852, which limits the recognition of interest expense during a bankruptcy proceeding to only amounts that will be paid during the bankruptcy proceeding or that are probable of becoming allowed claims, interest has not been accrued on the secured credit facility or the senior unsecured notes subsequent to the filing of the Chapter 11 Cases.
For the three months ended March 31, 2021, we recorded $55.1 million of gain on deconsolidation related to Asheville Mall and Park Plaza. See Note 7 for more information.
For the three months ended March 31, 2021, we recorded $22.9 million of reorganization items, which consists of professional and legal fees directly related to the Chapter 11 Cases.
Equity in earnings (losses) of unconsolidated affiliates decreased by $4.1 million during the three months ended March 31, 2021 compared to the prior-year period. The decrease was primarily due to the impacts of the COVID-19 pandemic, including an increase in estimates of uncollectable rental revenues and abatements of rent.
41
Non-GAAP Measure
Same-center Net Operating Income
NOI is a supplemental non-GAAP measure of the operating performance of our shopping centers and other properties. We define NOI as property operating revenues (rental revenues and other income) less property operating expenses (property operating, real estate taxes and maintenance and repairs).
We compute NOI based on the Operating Partnership's pro rata share of both consolidated and unconsolidated Properties. We believe that presenting NOI and same-center NOI (described below) based on our Operating Partnership’s pro rata share of both consolidated and unconsolidated Properties is useful since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the Properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in the Operating Partnership. Our definition of NOI may be different than that used by other companies, and accordingly, our calculation of NOI may not be comparable to that of other companies.
Since NOI includes only those revenues and expenses related to the operations of our shopping center Properties, we believe that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates, sales at the malls and operating costs and the impact of those trends on our results of operations. Our calculation of same-center NOI excludes lease termination income, straight-line rent adjustments, amortization of above and below market lease intangibles and write-offs of landlord inducement assets in order to enhance the comparability of results from one period to another.
We include a Property in our same-center pool when we have owned all or a portion of the Property since January 1 of the preceding calendar year and it has been in operation for both the entire preceding calendar year and current year-to-date period. New Properties are excluded from same-center NOI until they meet these criteria. Properties excluded from the same-center pool that would otherwise meet these criteria are categorized as Lender Malls, as defined below under Operational Review.
Due to the exclusions noted above, same-center NOI should only be used as a supplemental measure of our performance and not as an alternative to GAAP operating income (loss) or net income (loss). A reconciliation of our same-center NOI to net loss for the three-month periods ended March 31, 2021 and 2020 is as follows (in thousands):
Adjustments: (1)
61,061
68,489
33,012
54,086
Abandoned projects expense
22,933
751
526
Lease termination fees
(1,111
(220
Straight-line rent and above- and below-market rent
3,211
(1,795
Net loss attributable to noncontrolling interests in other consolidated subsidiaries
General and administrative expenses
12,612
17,836
Management fees and non-property level revenues
(2,580
(4,177
Operating Partnership's share of property NOI
103,920
129,320
Non-comparable NOI
(3,896
(8,542
Total same-center NOI
100,024
120,778
Adjustments are based on our Operating Partnership's pro rata ownership share, including our share of unconsolidated affiliates and excluding noncontrolling interests' share of consolidated properties.
Same-center NOI decreased 17.2% for the three months ended March 31, 2021 as compared to the prior-year period. The $20.8 million decrease for the three months ended March 31, 2021 compared to the same period in 2020 primarily consisted of a $24.1 million decrease in revenues offset by a $3.3 million decline in operating expenses. Rental revenues declined $23.7 million during the quarter primarily related to rent concessions to tenants that are in bankruptcy or are struggling financially due to the impacts of the COVID-19 pandemic, including $5.8 million of rent abatements on past due rents and $4.9 million in uncollectable revenues for past due rents.
42
Our consolidated unencumbered properties generated approximately 35.6% of total consolidated NOI of $80.3 million (which excludes NOI related to dispositions) for the three months ended March 31, 2021.
Operational Review
The shopping center business is, to some extent, seasonal in nature with tenants typically achieving the highest levels of sales during the fourth quarter due to the holiday season, which generally results in higher percentage rents in the fourth quarter. Additionally, the malls earn most of their rents from short-term tenants during the holiday period. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of the fiscal year.
We classify our regional malls into three categories:
Stabilized Malls – Malls that have completed their initial lease-up and have been open for more than three complete calendar years.
Non-stabilized Malls - Malls that are in their initial lease-up phase. After three complete calendar years of operation, they are reclassified on January 1 of the fourth calendar year to the stabilized mall category. The Outlet Shoppes at Laredo was classified as a non-stabilized mall as of March 31, 2020.
Excluded Malls - We exclude malls from our core portfolio if they are categorized as a Lender Mall, for which operational metrics are excluded:
Lender Malls - Malls for which we are working or intend to work with the lender on a restructure of the terms of the loan secured by the property or convey the secured property to the lender. EastGate Mall, Greenbrier Mall and The Outlet Shoppes of Laredo were classified as Lender Malls as of March 31, 2021. Burnsville Center, EastGate Mall, Hickory Point Mall, Greenbrier Mall and Park Plaza were classified as Lender Malls as of March 31, 2020. Lender Malls are excluded from our same-center pool as decisions made while in discussions with the lender may lead to metrics that do not provide relevant information related to the condition of these properties.
We derive the majority of our total revenues from the mall properties. The sources of our total revenues by property type were as follows:
As of March 31,
89.6
91.5
Other Properties
10.4
8.5
Mall Store Sales
Mall store sales include reporting mall tenants of 10,000 square feet or less for stabilized malls and exclude license agreements, which are retail contracts that are temporary or short-term in nature and generally last more than three months but less than twelve months. Due to temporary mall and store closures that occurred in 2020 because of the COVID-19 pandemic, the majority of CBL’s tenants did not report sales for the full reporting period. As a result, the following is a comparison of the change in our same-center sales per square foot for the three months ended March 31, 2021 compared to the three months ended March 31, 2019:
% Change
Stabilized mall same-center sales per square foot
12.5%
Occupancy
Our portfolio occupancy is summarized in the following table (1):
Total portfolio
85.4
89.5
Malls:
Total Mall portfolio
83.2
87.8
Same-center Malls
88.0
Stabilized Malls
Other Properties:
92.4
94.7
Associated centers
91.0
93.2
Community centers
95.8
As noted above, excluded properties are not included in occupancy metrics. Occupancy for malls represents percentage of mall store gross leasable area occupied under 20,000 square feet. Occupancy for other properties represents percentage of gross leasable area occupied.
43
Bankruptcy-related store closures impacted 2021 occupancy by approximately 391 basis points or 645,000 square feet.
Leasing
The following is a summary of the total square feet of leases signed in the three-month periods ended March 31, 2021 and 2020:
Operating portfolio:
New leases
144,197
278,366
Renewal leases
594,582
632,760
Development portfolio:
3,300
7,929
Total leased
742,079
919,055
Average annual base rents per square foot are based on contractual rents in effect as of March 31, 2021 and 2020, 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:
Malls (1):
Same-center Stabilized Malls
30.99
31.90
31.91
Other Properties (2):
15.36
15.74
13.82
14.26
16.64
17.02
Office buildings
19.25
19.13
Excluded properties are not included.
Average base rents for associated centers, community centers and office buildings include all leased space, regardless of size.
Results from new and renewal leasing of comparable small shop space of less than 10,000 square feet during the three-month period ended March 31, 2021 for spaces that were previously occupied, based on the contractual terms of the related leases inclusive of the impact of any rent concessions, are as follows:
Property Type
Square
Feet
Prior Gross
Rent PSF
New Initial
Gross Rent
PSF
Initial
New Average
PSF (2)
All Property Types (1)
609,765
30.44
24.08
(20.9
)%
24.64
(19.1
545,441
31.69
24.11
(23.9
24.62
(22.3
67,504
31.88
22.63
(29.0
23.81
(25.3
477,937
31.66
24.32
(23.2
24.73
(21.9
Average gross rent does not incorporate allowable future increases for recoverable common area expenses.
Includes stabilized malls, associated centers, community centers and office buildings.
44
New and renewal leasing activity of comparable small shop space of less than 10,000 square feet based on the lease commencement date is as follows:
Number
of
Leases
Term
(in
years)
Rent
Expiring
Initial Rent
Spread
Average Rent
Commencement 2021:
New
125,563
6.93
29.78
31.84
(1.88
(5.9
0.18
0.6
Renewal
259
893,260
2.06
25.36
25.52
31.22
(5.86
(18.8
(5.70
(18.3
Commencement 2021 Total
297
1,018,823
2.68
25.90
26.30
31.27
(5.37
(17.2
(4.97
(15.9
Commencement 2022:
2,617
9.67
42.36
44.40
42.37
(0.01
0.0
2.03
4.8
188,773
2.57
38.08
38.36
42.41
(4.33
(10.2
(4.05
(9.5
Commencement 2022 Total
59
191,390
2.69
38.14
38.44
(4.27
(10.1
(3.97
(9.4
Total 2021/2022
356
1,210,213
2.74
27.84
28.22
33.03
(5.19
(15.7
(4.81
(14.6
Liquidity and Capital Resources
As of March 31, 2021, we had $84.7 million available in unrestricted cash, $232.8 million in U.S. Treasury securities and $1,114.7 million outstanding on our secured credit facility. Our total pro rata share of debt at March 31, 2021 was $4,377.2 million. The $83.5 million in restricted cash at March 31, 2021 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 that are designated for debt service and operating expense obligations.
During January 2021, the Company purchased $22.0 million in U.S. Treasury securities that matured in February 2021. During February 2021, the Company purchased $32.0 million in U.S. Treasury securities that matured in March 2021. During March 2021, the Company purchased $82.4 million in U.S. Treasury securities that are scheduled to mature in June 2021. The Company designated the U.S. Treasury securities purchased in these transactions as available-for-sale.
In March 2021, the Company reached agreements with the lenders to modify the loans secured by Hammock Landing Phases I & II and The Pavilion at Port Orange. Each agreement provides an additional four-year term, with a one-year extension option, for a fully extended maturity date of February 2026. These loans had a combined outstanding loan balance of $107.2 million at March 31, 2021. Additionally, each such agreement provides forbearance related to the default triggered as a result of the Chapter 11 Cases. Also, in March 2021, the Company 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 $8.3 million, as $1.1 million was paid down in conjunction with the modification. The agreement provides a waiver related to the default triggered as a result of the Chapter 11 Cases.
The filing of the Chapter 11 Cases constituted an event of default that resulted in certain monetary obligations becoming immediately due and payable with respect to the secured credit facility and the senior unsecured notes. We anticipate restructuring our unsecured debt maturities through the Chapter 11 bankruptcy process.
Our total share of consolidated, unconsolidated and other outstanding debt maturing during 2021, assuming all extension options are elected, is $501.9 million, and we are in discussions with the existing lenders to modify and extend or otherwise refinance the loans. We anticipate restructuring our unsecured debt maturities through the Chapter 11 bankruptcy process. The filing of the Chapter 11 Cases also 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 give the applicable lender the right to accelerate such amounts. See Note 8 and Note 9 for more information.
We derive the majority of our revenues from leases with retail tenants, which have historically been the primary source for funding short-term liquidity and capital needs such as operating expenses, debt service, tenant construction allowances, recurring capital expenditures, dividends and distributions. We believe that the combination of cash flows generated from our operations, combined with cash on hand and our investment in U.S. Treasury securities will, for the foreseeable future, provide adequate liquidity to meet our cash needs assuming we continue to operate as a going concern within twelve months of the date our condensed consolidated financial statements are issued. In addition to these factors, we have options available to us to generate additional liquidity, including but not limited to, joint venture investments and decreasing expenditures related to tenant construction allowances and other capital expenditures. We also generate revenues from sales of peripheral land at our properties and from sales of real estate assets when it is determined that we can realize an optimal value for the assets.
45
Cash Flows - Operating, Investing and Financing Activities
There was $168.2 million of cash, cash equivalents and restricted cash as of March 31, 2021, an increase of $46.4 million from December 31, 2020. Of this amount, $84.7 million was unrestricted cash and cash equivalents as of March 31, 2021. Also, at March 31, 2021, we had $232.8 million in U.S. Treasuries that are scheduled to mature between April 2021 and June 2021.
Our net cash flows are summarized as follows (in thousands):
24,041
170,067
(273,731
Net cash flows
(79,623
Cash Provided by Operating Activities
Cash provided by operating activities increased $24.0 million primarily due to not paying interest on the secured credit facility and senior unsecured notes as a result of the filing of the Chapter 11 Cases.
Cash Used in Investing Activities
Net cash used in investing activities for first quarter of 2020 was primarily related to the purchase of U.S. Treasury securities for $153.2 million using a portion of the $280.0 million that we drew on our secured line of credit. Whereas, in the first quarter of 2021, we had U.S. Treasury securities mature that we immediately reinvested in additional U.S. Treasury securities. We also had a decrease in additions to real estate assets in the first quarter of 2021 as compared to the first quarter of 2020 as a result of programs put in place to reduce capital expenditures and preserve liquidity.
Cash Provided by (Used in) Financing Activities
The net cash inflow for the first quarter of 2020 is primarily due to the $280.0 million draw on our secured credit facility in order to increase liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic. In the first quarter of 2021, cash used in financing activities primarily relates to principal payments on mortgages.
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 Notes, as described in Note 9 to the condensed consolidated financial statements, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates. We also provide a similar limited guarantee of the Operating Partnership's obligations with respect to our secured credit facility as of March 31, 2021.
46
The following tables summarize debt based on our pro rata ownership share, including our pro rata share of unconsolidated affiliates and excluding noncontrolling investors’ share of consolidated properties, because we believe this provides investors and lenders a clearer understanding of our total debt obligations and liquidity (in thousands):
March 31, 2021:
Consolidated
Other Debt (1)
Unconsolidated
Affiliates
Rate (2)
Non-recourse loans on operating Properties (3)
(29,922
138,926
609,197
1,690,754
Recourse loans on operating Properties (4)
3.00
Construction loan
3,449
5.05
620,896
1,702,453
4.73
87,937
155,548
3.60
Construction loans
35,372
2.87
123,309
190,920
3.46
744,205
1,893,373
Unamortized deferred financing costs (5)
251
(2,865
(5,808
(29,671
741,340
1,887,565
Senior unsecured notes due 2023 (6)
Senior unsecured notes due 2024 (6)
Senior unsecured notes due 2026 (6)
Secured line of credit (7)
Secured term loan (7)
Unpaid accrued interest (8)
47
December 31, 2020:
(30,177
612,458
1,702,484
9,360
3.74
3,406
625,224
1,715,250
88,511
156,572
4.59
33,222
121,733
189,794
4.33
746,957
1,905,044
4.70
Unamortized deferred financing costs
265
(2,844
(6,012
(29,912
744,113
1,899,032
During the three months ended March 31, 2021, we deconsolidated Asheville Mall and Park Plaza due to a loss of control when the properties were placed into receivership in connection with the foreclosure process.
An unconsolidated affiliate has an interest rate swap on a notional amount outstanding of $42,323 as of March 31, 2021 and $42,654 as of December 31, 2020 related to a variable-rate loan on Ambassador Town Center to effectively fix the interest rate on this loan to a fixed-rate of 3.22%.
The unconsolidated affiliate had an interest rate swap on a notional amount outstanding of $9,360 as of December 31, 2020 related to a variable-rate loan on Ambassador Town Center - Infrastructure Improvements to effectively fix the interest rate on this loan to a fixed-rate of 3.74%. In March 2021, the loan was modified and provides an additional four-year term with a fixed interest rate of 3.0%. In conjunction with the modification, we paid additional principal of $1,110.
Unamortized deferred financing costs amounting to $2,841 and $2,005 for certain consolidated and unconsolidated property-level, non-recourse mortgage loans, respectively, may be required to be written off in the event that a waiver or restructuring of terms cannot be negotiated and the debt is either redeemed or otherwise extinguished.
(6)
(7)
(8)
The weighted-average remaining term of our total share of consolidated, unconsolidated and other debt was 2.9 years and 3.1 years at March 31, 2021 and December 31, 2020, respectively. The weighted-average remaining term of our pro rata share of fixed-rate debt was 3.1 years and 3.4 years at March 31, 2021 and December 31, 2020, respectively.
As of March 31, 2021 and December 31, 2020, our pro rata share of consolidated and unconsolidated variable-rate debt represented 29.8% and 29.7%, respectively, of our total pro rata share of debt.
See Note 8 to the condensed consolidated financial statements for information concerning activity related to unconsolidated affiliates.
48
Issuer and Guarantor Subsidiaries of Guaranteed Securities
In March 2020, the SEC issued Rule Release No. 33-10762, Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities ("Release 33-10762”). Release 33-10762 simplifies the disclosure requirements related to certain registered securities under Rules 3-10 and 3-16 of SEC Regulation S-X, permitting registrants to provide certain alternative financial disclosures and non-financial disclosures in lieu of separate consolidating financial statements for subsidiary issuers and guarantors of registered debt securities if certain conditions are met. The amendments in Release 33-10762 are generally effective for filings on or after January 4, 2021, with early application permitted. We adopted the new disclosure requirements permitted under Release 33-10762 effective for the period as of and for the nine months ended September 30, 2020.
The Operating Partnership’s senior secured credit facility is secured by 17 malls and 3 associated centers that are directly or indirectly owned by 36 wholly owned subsidiaries of the Operating Partnership (the “Guarantor Subsidiaries”). The Guarantor Subsidiaries own an additional four malls, two associated centers and four mortgage notes receivable that are not collateral for the secured credit facility. The Guarantor Subsidiaries also entered into agreements to guarantee the Operating Partnership’s obligations under the senior secured credit facility.
Based on the terms of the Notes, to the extent that any subsidiary of the Operating Partnership executes and delivers a guarantee to another debt facility, the Operating Partnership shall also cause the subsidiary to guarantee the Operating Partnership’s obligations under the Notes on a senior basis. In connection with entering the guarantee agreements related to the senior secured credit facility, the Guarantor Subsidiaries entered a guarantee agreement with the issuer of the Notes to satisfy the guaranty requirement.
The guarantees of the Guarantor Subsidiaries are joint and several and full and unconditional. The guarantees are unsecured and effectively subordinated to any existing and future secured debt that a Guarantor Subsidiary may have to the extent of the value of the assets securing such debt. Each Guarantor Property’s obligation will remain until the earlier of such time as (i) all guaranteed obligations have been paid in full in cash and each guaranteed obligation has been terminated or cancelled in accordance with its terms or (ii) any such Guarantor Subsidiary ceases to be a guarantor under the senior secured credit facility. The Guarantor Subsidiaries’ maximum guarantee related to the secured credit facility is $1,114.7 million as of March 31, 2021, and the maximum guarantee related to the Notes is $1,375.0 million as of March 31, 2021.
The following tables present summarized financial information for the Operating Partnership and the Guarantor Subsidiaries on a combined basis. The summarized financial information does not include the Operating Partnership’s investments in non-guarantor subsidiaries nor the earnings from non-guarantor subsidiaries. Intercompany transactions between the Operating Partnership and the Guarantor Subsidiaries have been eliminated. The summarized balance sheet information is as of March 31, 2021 and December 31, 2020 and the summarized statement of operations information is for the three-month periods ended March 31, 2021 and 2020 (amounts are presented in thousands).
Year Ended December 31, 2020
1,374,789
1,428,482
Total assets (1)
1,650,983
1,673,179
Total liabilities (2)
2,812,130
2,884,808
Total revenues (3)
54,772
65,427
Total expenses (4)
(76,955
(43,860
Net income
20,806
18,835
Total assets include an intercompany note receivable with a non-guarantor subsidiary of $2,030 and $4,698 as of March 31, 2021 and December 31, 2020, respectively.
Total liabilities include intercompany liabilities of $3,931 as of March 31, 2021.
Total revenues include revenues derived from non-guarantor subsidiaries of $24 for the three months ended March 31, 2021.
Total expenses include expenses incurred with non-guarantor subsidiaries of $8,331 and $10,890 for the three months ended March 31, 2021 and 2020, respectively.
As discussed in Note 2 to the condensed consolidated financial statements, the filing of the Chapter 11 Cases constituted an event of default that resulted in certain monetary obligations becoming immediately due and payable with respect to the secured credit facility and the senior unsecured notes. The filing of the Chapter 11 Cases also 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 give the applicable lender the right to accelerate such amounts.
In 2019, we suspended all future dividends on our common stock and preferred stock, as well as distributions to all noncontrolling interest investors in our Operating Partnership. The dividend arrearage created by our board of directors’ decision to suspend the dividends that continue to accrue on our outstanding preferred stock currently makes us ineligible to use the abbreviated, and less costly, SEC Form S-3 registration statement to register our securities for sale. This means we will be required to use a registration statement on Form S-1 to register additional securities for sale with the SEC, which we expect to hinder our ability to act quickly in relation to, and raise our costs incurred in, future capital raising activities. This preferred dividend arrearage (and the Operating Partnership’s related arrearage in distributions to its preferred units of limited partnership underlying our outstanding preferred shares), under the terms of our preferred stock, also require that we not resume any payment of dividends on our common stock unless full cumulative dividends accrued with respect to our preferred stock (and such underlying preferred units) for all past quarters and the then-current quarter are first declared and paid in cash, or declared with a sum sufficient for the payment thereof having been set apart for such payment in cash. In addition, for so long as this distribution suspension results in the existence of a distribution shortfall (as described in the Partnership Agreement of the Operating Partnership) with respect to any of the S-SCUs, the L-SCUs or the K-SCUs (an “SCU Distribution Shortfall”), the terms of the Operating Partnership Agreement state that we (i) may not cause the Operating Partnership to resume distributions to holders of its outstanding common units of limited partnership until all holders of SCUs have received distributions sufficient to satisfy the SCU Distribution Shortfall for all prior quarters and the then-current quarter (which effectively would also prevent the resumption of common stock dividends, since our common stock dividends are funded by distributions the Company receives on the underlying common units it holds in the Operating Partnership) and (ii) may not elect to settle any exchange requested by a holder of common units of the Operating Partnership in cash, and may only settle any such exchange through the issuance of shares of common stock or other units of the Operating Partnership ranking junior to any such units as to which a distribution shortfall exists. Our board of directors prospectively approved that, to the extent any partners exercise any or all of their exchange rights while the existence of the SCU Distribution Shortfall requires an exchange to be settled through the issuance of shares of common stock or other units of the Operating Partnership, the consideration paid shall be in the form of shares of common stock. We do not expect to pay any further dividends with respect to the Company’s outstanding common stock and preferred stock, or any distributions with respect to the Operating Partnership’s outstanding units of partnership interest, prior to the conclusion of our reorganization pursuant to the pending Chapter 11 Cases, which reorganization we also expect will extinguish all claims related to the accrued and unpaid preferred stock dividends and the Operating Partnership unit SCU Distribution Shortfall discussed above. If we successfully complete such reorganization, in connection with future dividend distributions with respect to new equity securities issued pursuant to the Chapter 11 Cases, we will review taxable income on a regular basis and take measures, if necessary, to ensure that we meet the minimum distribution requirements to maintain our status as a REIT.
See Delisting of Common Stock and Depositary Shares in Note 2 to the condensed consolidated financial statements for additional information regarding the suspension of NYSE trading in our common stock and the depositary shares representing our Series D Preferred Stock and Series E Preferred Stock pursuant to a notice we received from the NYSE regarding our non-compliance with the NYSE Listing Standards and the current status of our related appeal to the NYSE.
Market Capitalization
Our total-market capitalization as of March 31, 2021 was as follows (in thousands, except stock prices):
Price (1)
Common stock and operating partnership units
0.13
7.375% Series D Cumulative Redeemable Preferred Stock
1,815
250.00
6.625% Series E Cumulative Redeemable Preferred Stock
690
Stock price for common stock and Operating Partnership units equals the closing price of CBL's common stock on March 31, 2021 on the OTC Markets, operated by the OTC Markets Group, Inc. The stock prices for the preferred stock represent the liquidation preference of each respective series of preferred stock.
Capital Expenditures
Deferred maintenance expenditures are generally included in the determination of common area maintenance (“CAM”) expense that is billed to tenants in accordance with their lease agreements. These expenditures are generally recovered over a 5 to 15-year period. Renovation expenditures are primarily for remodeling and upgrades of malls, of which a portion is recovered from tenants over a 5 to 15-year period. We recover these costs through fixed amounts with annual increases or pro rata cost reimbursements based on the tenant’s occupied space.
50
The following table, which excludes expenditures for developments, redevelopments and expansions, summarizes these capital expenditures, including our share of unconsolidated affiliates' capital expenditures, for the three months ended March 31, 2021 compared to the same periods in 2020 (in thousands):
Tenant allowances (1)
877
7,223
Deferred maintenance:
Parking area and parking area lighting
254
Roof repairs and replacements
151
Other capital expenditures
459
3,090
Total deferred maintenance
3,495
Capitalized overhead
258
631
Capitalized interest
726
Total capital expenditures
1,613
12,075
Tenant allowances primarily relate to new leases. Tenant allowances related to renewal leases were not material for the periods presented.
Annual capital expenditures budgets are prepared for each of our properties that are intended to provide for all necessary recurring and non-recurring capital expenditures. We believe that property operating cash flows, which include reimbursements from tenants for certain expenses, and readily available cash on hand will provide the necessary funding for these expenditures.
Developments and Redevelopments
Properties Under Development at March 31, 2021
(Dollars in thousands)
CBL's Share of
CBL
Project
Square Feet
Cost (1)
Cost to
Date (2)
Opening
Unleveraged
Yield
Outparcel Developments:
Hamilton Place - Aloft Hotel (3)(4)
89,674
12,000
10,173
1,347
Q2 '21
9.2%
Pearland Town Center - HCA Offices
Pearland, TX
48,416
14,186
7,947
525
11.8%
138,090
26,186
18,120
1,872
Redevelopments:
Cross Creek Sears Redevelopment - Longhorn's, Rooms To Go (5)
Fayetteville, NC
13,494
5,252
2,259
1,035
Q3 '21
5.3%
Total Properties Under
Development
151,584
31,438
20,379
2,907
Total Cost is presented net of reimbursements to be received.
Cost to Date does not reflect reimbursements until they are received.
Yield is based on expected yield upon stabilization.
Total cost includes a non-cash allocated value for the Company’s land contribution and amounts funded by a construction loan.
The return reflected represents a pro forma incremental return as Total Cost excludes the cost related to the acquisition of the Sears (Cross Creek Mall) building.
Off-Balance Sheet Arrangements
We have ownership interests in 29 unconsolidated affiliates as of March 31, 2021 that are described in Note 8 to the condensed consolidated financial statements. The unconsolidated affiliates are accounted for using the equity method of accounting and are reflected in the condensed consolidated balance sheets as investments in unconsolidated affiliates.
The following are circumstances when we may consider entering into a joint venture with a third party:
Third parties may approach us with opportunities in which they have obtained land and performed some pre-development activities, but they may not have sufficient access to the capital resources or the development and leasing expertise to bring the project to fruition. We enter into such arrangements when we determine such a project is viable and we can achieve a satisfactory return on our investment. We typically
51
earn development fees from the joint venture and provide management and leasing services to the property for a fee once the property is placed in operation.
We determine that we may have the opportunity to capitalize on the value we have created in a property by selling an interest in the property to a third party. This provides us with an additional source of capital that can be used to develop or acquire additional real estate assets that we believe will provide greater potential for growth. When we retain an interest in an asset rather than selling a 100% interest, it is typically because this allows us to continue to manage the property, which provides us the ability to earn fees for management, leasing, development and financing services provided to the joint venture.
We also have the ability to contribute land into a joint venture partnership with diverse uses, such as hotels, self-storage and multifamily. We typically partner with developers who have expertise in the diverse property types.
We may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on our investment in the joint venture. We may receive a fee from the joint venture for providing the guaranty. Additionally, when we issue a guaranty, the terms of the joint venture agreement typically provide that we may receive indemnification from the joint venture or have the ability to increase our ownership interest.
See Note 12 to the condensed consolidated financial statements for information related to our guarantees of unconsolidated affiliates' debt as of March 31, 2021 and December 31, 2020.
Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements and disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex judgment about the effect of matters that are inherently uncertain and that may change in subsequent periods. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our Annual Report on Form 10-K for the year ended December 31, 2020 contains a discussion of our critical accounting policies and estimates in the Management's Discussion and Analysis of Financial Condition and Results of Operations section. There have been no material changes to these policies and estimates during the three months ended March 31, 2021. Our significant accounting policies are disclosed in Note 3 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Recent Accounting Pronouncements
See Note 3 to the condensed consolidated financial statements for information on recently issued accounting pronouncements.
Funds from Operations
FFO is a widely used non-GAAP measure of the operating performance of real estate companies that supplements net income (loss) determined in accordance with GAAP. NAREIT defines FFO as net income (loss) (computed in accordance with GAAP) excluding gains or losses on sales of depreciable operating properties and impairment losses of depreciable properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests. Adjustments for unconsolidated partnerships, joint ventures and noncontrolling interests are calculated on the same basis. We define FFO as defined above by NAREIT less dividends on preferred stock of the Company or distributions on preferred units of the Operating Partnership, as applicable. Our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
We believe that FFO provides an additional indicator of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assumes the value of real estate assets declines predictably over time. Since values of real estate assets have historically risen or fallen with market conditions, we believe that FFO, which excludes historical cost depreciation and amortization, enhances investors’ understanding of our operating performance. 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.
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We present both FFO allocable to Operating Partnership common unitholders and FFO allocable to common shareholders, as we believe that both are useful performance measures. We believe FFO allocable to Operating Partnership common unitholders is a useful performance measure since we conduct substantially all our business through our Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in our Operating Partnership. We believe FFO allocable to common shareholders is a useful performance measure because it is the performance measure that is most directly comparable to net income (loss) attributable to common shareholders.
In our reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders that is presented below, we make an adjustment to add back noncontrolling interest in income (loss) of our Operating Partnership in order to arrive at FFO of the Operating Partnership common unitholders. We then apply a percentage to FFO of the Operating Partnership common unitholders to arrive at FFO allocable to common shareholders. The percentage is computed by taking the weighted-average number of common shares outstanding for the period and dividing it by the sum of the weighted-average number of common shares and the weighted-average number of Operating Partnership units held by noncontrolling interests during the period.
FFO does not represent cash flows from operations as defined by GAAP, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to net income (loss) for purposes of evaluating our operating performance or to cash flow as a measure of liquidity.
The Company believes that it is important to identify the impact of certain significant items on its FFO measures for a reader to have a complete understanding of the Company’s results of operations. Therefore, the Company has also presented adjusted FFO measures excluding these significant items from the applicable periods. Please refer to the reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders below for a description of these adjustments.
FFO of the Operating Partnership increased to $90.2 million for the three months ended March 31, 2021 from $50.9 million for the prior-year period. Excluding the adjustments noted below, FFO of the Operating Partnership, as adjusted, increased to $68.7 million for the three months ended March 31, 2021 from $51.6 million for the same period in 2020. The increase in FFO, as adjusted, was primarily driven by lower operating expenses and the reduction in interest expense due to not recognizing post-petition interest expense on the senior unsecured notes and the secured credit facility subsequent to the filing of the Chapter 11 Cases.
The reconciliation of net loss attributable to common shareholders to FFO allocable to Operating Partnership common unitholders is as follows (in thousands, except per share data):
Noncontrolling interest in loss of Operating Partnership
(698
(16,414
Depreciation and amortization expense of:
Consolidated properties
Unconsolidated affiliates
13,530
13,510
Non-real estate assets
(541
(917
Noncontrolling interests' share of depreciation and amortization in other consolidated subsidiaries
(581
(923
Loss on depreciable property
FFO allocable to Operating Partnership common unitholders
90,241
50,931
Litigation settlement (1)
Non-cash default interest expense (2)
11,470
Gain on deconsolidation (3)
Reorganization items (4)
FFO allocable to Operating Partnership common unitholders, as
adjusted
68,655
51,621
FFO per diluted share
0.45
0.25
FFO, as adjusted, per diluted share
0.34
0.26
Represents a credit to litigation settlement expense related to claim amounts that were released pursuant to the terms of the settlement agreement related to the settlement of a class action lawsuit.
The three months ended March 31, 2021 includes default interest expense related to loans secured by properties that were in default prior to the filing of the Chapter 11 Cases, as well as loans secured by properties that are in default due to the filing of the Chapter 11 Cases. The three months ended March 31, 2020 includes default interest expense related to Greenbrier Mall and Hickory Point Mall.
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Represents costs incurred subsequent to the filing of the Chapter 11 Cases, which consists of professional and legal fees.
The reconciliation of diluted EPS to FFO per diluted share is as follows:
Diluted EPS attributable to common shareholders
Eliminate amounts per share excluded from FFO:
Depreciation and amortization expense, including amounts from
consolidated properties, unconsolidated affiliates, non-real estate
assets and excluding amounts allocated to noncontrolling
interests
0.30
0.29
0.66
The reconciliations of FFO allocable to Operating Partnership common unitholders to FFO allocable to common shareholders, including and excluding the adjustments noted above, are as follows (in thousands):
Percentage allocable to common shareholders (1)
97.46
89.01
FFO allocable to common shareholders
87,949
45,334
FFO allocable to Operating Partnership common unitholders, as adjusted
FFO allocable to common shareholders, as adjusted
66,911
45,948
Represents the weighted-average number of common shares outstanding for the period divided by the sum of the weighted-average number of common shares and the weighted-average number of Operating Partnership units outstanding during the period.
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risk exposures, including interest rate risk. The following discussion regarding our risk management activities includes forward-looking statements that involve risk and uncertainties. Estimates of future performance and economic conditions are reflected assuming certain changes in interest rates. Caution should be used in evaluating our overall market risk from the information presented below, as actual results may differ.
Interest Rate Risk
Based on our proportionate share of consolidated and unconsolidated variable-rate debt at March 31, 2021, and excluding the secured credit facility, which is included in liabilities subject to compromise in the accompanying condensed consolidated balance sheets due to the Chapter 11 Cases, a 0.5% increase or decrease in interest rates on variable-rate debt would result in annual cash flows of approximately $7.6 million and $5.7 million, respectively, and increase or decrease annual interest expense, after the effect of capitalized interest, by approximately $0.9 million.
Based on our proportionate share of consolidated and unconsolidated variable-rate debt at March 31, 2021, and including the secured credit facility, which is included in liabilities subject to compromise in the accompanying condensed consolidated balance sheets due to the Chapter 11 Cases, a 0.5% increase or decrease in interest rates on variable-rate debt would result in annual cash flows of approximately $119.0 million and $106.0 million, respectively, and increase or decrease annual interest expense, after the effect of capitalized interest, by approximately $6.5 million.
Based on our proportionate share of total consolidated, unconsolidated and other debt at March 31, 2021, and excluding the secured credit facility and senior unsecured notes, which are included in liabilities subject to compromise in the accompanying condensed consolidated balance sheets due to the Chapter 11 Cases, a 0.5% increase in interest rates would decrease the fair value of debt by approximately $14.9 million, while a 0.5% decrease in interest rates would increase the fair value of debt by approximately $15.7 million.
Based on our proportionate share of total consolidated, unconsolidated and other debt at March 31, 2021, and including the secured credit facility and senior unsecured notes, which are included in liabilities subject to compromise in the accompanying condensed consolidated balance sheets due to the Chapter 11 Cases, a 0.5% increase in interest rates would decrease the fair value of debt by approximately $28.4 million, while a 0.5% decrease in interest rates would increase the fair value of debt by approximately $28.9 million.
ITEM 4: Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, an evaluation was performed under the supervision of our Chief Executive Officer and Chief Financial Officer and with the participation of our management, of the effectiveness of the design and operation of the Company's and the Operating Partnership's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. The Company's and the Operating Partnership's disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and to ensure that information we are required to disclose is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s and the Operating Partnership’s disclosure controls and procedures were not effective as a result of the material weakness described below.
Material Weakness in Internal Control over Financial Reporting
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s and the Operating Partnership’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting at March 31, 2021 and December 31, 2020, management of the Company and the Operating Partnership determined that there was a control deficiency that constituted a material weakness, as described below.
As a result of turnover, the Company and the Operating Partnership did not maintain a sufficient complement of personnel commensurate with their accounting and financial reporting requirements in accordance with U.S. GAAP and SEC regulations.
The control deficiency described above created a reasonable possibility that a material misstatement of the annual or interim financial statements would not be prevented or detected on a timely basis and therefore we concluded that the deficiency represents a material weakness in the Company’s and the Operating Partnership’s internal control over financial reporting and that the Company and the Operating Partnership did not maintain effective internal control over financial reporting as of March 31, 2021 and December 31, 2020 based on criteria established in Internal Control-Integrated Framework issued by COSO.
Notwithstanding the identified material weakness, management believes that the condensed consolidated financial statements and related financial information included in this Form 10-Q fairly present, in all material respects, our balance sheets, statements of operations, comprehensive loss and cash flows as of and for the periods presented.
Remediation Plan
The Company and the Operating Partnership plan to remediate this material weakness by hiring additional personnel to enable them to meet their financial reporting requirements. The Company and the Operating Partnership may also utilize outside advisors to assist on a short-term basis.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s or the Operating Partnership’s internal control over financial reporting during our most recent fiscal quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
The information in this Item 1 is incorporated by reference herein from Note 2 and Note 12.
ITEM 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risks that could materially affect our business, financial condition or results of operations that are discussed under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to such risk factors since the filing of our Annual Report.
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds
Limitations on Payment of Dividends
See information presented under the heading Equity in the Liquidity and Capital Resources section of Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in PART I of this report for a discussion of current limitations on the payment of dividends by the Company.
ITEM 3: Defaults Upon Senior Securities
Defaults on Indebtedness
See information presented in Note 8 and Note 9 in the financial statements included in PART I of this report for a discussion of certain defaults with respect to the Company’s senior unsecured notes and secured credit facility, including defaults related to the filing of the Chapter 11 Cases, and additional asserted defaults with respect to the Company’s secured credit facility.
Preferred Dividend and Special Common Unit Distribution Arrearages
Dividends on the Series D and the Series E preferred stock are cumulative and therefore continued to accrue, prior to the filing of the Chapter 11 Cases, at an annual rate of $18.4375 per share and $16.5625 per share, respectively. We expect our Chapter 11 reorganization to extinguish all claims related to the accrued and unpaid preferred stock dividends. As of March 31, 2021, the cumulative amount of unpaid dividends on the preferred stock totaled $48.6 million.
Distributions on the Series K and S special common units are cumulative and therefore continued to accrue, prior to the filing of the Chapter 11 Cases, at an annual rate of $2.96875 per unit and $2.92875 per unit, respectively. Distributions on the Series L special common units were cumulative through May 31, 2020, and accrued at an annual rate of $3.0288 per unit. Pursuant to the terms of the Series L special common units, on June 1, 2020 the Series L special common units began receiving distributions at the same rate and on the same terms as the common units of limited partnership interest in the Operating Partnership. As of March 31, 2021, the cumulative amount of unpaid distributions on the special common units totaled $9.4 million.
ITEM 4: Mine Safety Disclosures
Not applicable.
ITEM 5: Other Information
None.
ITEM 6: Exhibits
INDEX TO EXHIBITS
Exhibit
10.1
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).*
10.2
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).*
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 for CBL & Associates Properties, Inc.
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 for CBL & Associates Properties, Inc.
31.3
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 for CBL & Associates Limited Partnership
31.4
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 for CBL & Associates Limited Partnership
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 for CBL & Associates Properties, Inc.
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 for CBL & Associates Properties, Inc.
32.3
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 for CBL & Associates Limited Partnership
32.4
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 for CBL & Associates Limited Partnership
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. (Filed herewith.)
101.SCH
Inline XBRL Taxonomy Extension Schema Document. (Filed herewith.)
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
104
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*). (Filed herewith.)
Commission File No. 1-12494 and 333-182515-01.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
/s/ Farzana Khaleel
Farzana Khaleel
Executive Vice President -
Chief Financial Officer and Treasurer
(Authorized Officer and Principal Financial Officer)
By: CBL HOLDINGS I, INC., its general partner
Date: May 17, 2021