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, 2022
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _______________
COMMISSION FILE NO. 1-12494 (CBL & ASSOCIATES PROPERTIES, INC.)
CBL & ASSOCIATES PROPERTIES, INC.
(Exact Name of registrant as specified in its charter)
Delaware (CBL & ASSOCIATES PROPERTIES, INC.)
62-1545718
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
2030 Hamilton Place Blvd., Suite 500, Chattanooga, TN 37421-6000
(Address of principal executive office, including zip code)
423-855-0001
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered under Section 12(b) of the Act:
Title of each Class
Trading
Symbol(s)
Name of each exchange on
which registered
Common Stock, $0.001 par value
CBL
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: 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.
Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes ☒
No ☐
As of May 10, 2022, 31,814,178 shares of common stock were outstanding.
CBL & Associates Properties, Inc.
PART I
FINANCIAL INFORMATION
1
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021
2
Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021
3
Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2022 and 2021
4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021
5
Notes to Unaudited Condensed Consolidated Financial Statements
6
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
22
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
36
Item 4.
Controls and Procedures
PART II
OTHER INFORMATION
38
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
39
SIGNATURES
40
PART I – FINANCIAL INFORMATION
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
ASSETS (1)
March 31,
2022
December 31,
2021
Real estate assets:
Land
$
594,355
599,283
Buildings and improvements
1,161,414
1,173,106
1,755,769
1,772,389
Accumulated depreciation
(49,188
)
(19,939
1,706,581
1,752,450
Developments in progress
18,493
16,665
Net investment in real estate assets
1,725,074
1,769,115
Cash and cash equivalents
185,744
169,554
Available-for-sale securities - at fair value (amortized cost of $149,936 and $149,999 as of March 31, 2022 and December 31, 2021, respectively)
149,975
149,996
Receivables:
Tenant
21,818
25,190
Other
5,356
4,793
Investments in unconsolidated affiliates
100,685
103,655
In-place leases, net
341,152
384,705
Above market leases, net
216,648
234,286
Intangible lease assets and other assets
102,872
104,685
2,849,324
2,945,979
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Mortgage and other indebtedness, net
1,639,469
1,813,209
10% senior secured notes - at fair value (carrying amount of $395,000 as of March 31, 2022 and December 31, 2021, respectively)
395,593
395,395
Below market leases, net
141,388
151,871
Accounts payable and accrued liabilities
159,531
184,404
Total liabilities
2,335,981
2,544,879
Shareholders' equity:
Common stock, $.001 par value, 200,000,000 shares authorized, 31,807,511 and 20,774,716 issued and outstanding in 2022 and 2021, respectively
32
21
Additional paid-in capital
702,996
547,726
Accumulated other comprehensive income (loss)
(3
Accumulated deficit
(192,267
(151,545
Total shareholders' equity
510,800
396,199
Noncontrolling interests
2,543
4,901
Total equity
513,343
401,100
(1)
As of March 31, 2022, includes $254,237 of assets related to consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and $142,132 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Company. See Note 7.
The accompanying notes are an integral part of these condensed consolidated statements.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Successor
Predecessor
For the Three Months Ended March 31,
REVENUES:
Rental revenues
135,332
128,175
Management, development and leasing fees
1,769
1,659
3,001
3,350
Total revenues
140,102
133,184
EXPENSES:
Property operating
(23,344
(21,802
Depreciation and amortization
(68,943
(48,112
Real estate taxes
(14,435
(16,551
Maintenance and repairs
(10,566
(10,781
General and administrative
(18,074
(12,612
Loss on impairment
—
(57,182
Litigation settlement
81
858
Total expenses
(135,281
(166,182
OTHER INCOME (EXPENSES):
Interest and other income
155
776
Interest expense
(90,659
(24,130
Gain on deconsolidation
36,250
55,131
Gain (loss) on sales of real estate assets
16
(299
Reorganization items, net
(1,571
(22,933
Income tax provision
(801
(751
Equity in earnings (losses) of unconsolidated affiliates
8,566
(3,076
Total other income (expenses)
(48,044
4,718
Net loss
(43,223
(28,280
Net loss attributable to noncontrolling interests in:
Operating Partnership
15
698
Other consolidated subsidiaries
2,486
819
Net loss attributable to common shareholders
(40,722
(26,763
Basic and diluted per share data attributable to common shareholders:
(1.45
(0.14
Weighted-average common and potential dilutive common shares outstanding
27,998
196,509
Condensed Consolidated Statements of Comprehensive Loss
Three Months Ended March 31,
Other comprehensive loss:
Unrealized gain on available-for-sale securities
42
Comprehensive loss
(43,181
(28,259
Comprehensive loss attributable to noncontrolling interests in:
Comprehensive loss attributable to the Company:
(40,680
(26,742
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, 2020 (Predecessor)
(265
25
1,966
1,986,269
18
(1,456,435
531,843
2,454
534,297
(213
(1,304
(28,067
Other comprehensive income
Cancellation of 111,139 shares of restricted common stock
(1
Amortization of deferred compensation
304
Performance stock units
93
Distributions to noncontrolling interests
(11
Balance, March 31, 2021 (Predecessor)
(478
1,965
1,986,666
(1,483,198
505,479
1,139
506,618
Income (Loss)
Balance, December 31, 2021 (Successor)
(2,501
Shared-based compensation expense
2,743
Conversion of exchangeable notes into 10,982,795 shares of common stock
11
152,527
152,538
Contributions from noncontrolling interests
143
Balance, March 31, 2022 (Successor)
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:
68,943
48,112
Net amortization of deferred financing costs and debt discounts
63,655
923
Net amortization of intangible lease assets and liabilities
6,323
58
(Gain) loss on sales of real estate assets
(16
299
(36,250
(55,131
Share-based compensation expense
395
57,182
Equity in (earnings) losses of unconsolidated affiliates
(8,566
3,076
Distributions of earnings from unconsolidated affiliates
7,840
2,566
Change in estimate of uncollectable revenues
(737
6,486
Change in deferred tax accounts
(67
Changes in:
Tenant and other receivables
3,305
11,017
Other assets
(5,114
(8,115
(16,407
24,181
Net cash provided by operating activities
42,429
62,769
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate assets
(5,762
(6,865
Proceeds from sales of real estate assets
2,510
Purchases of available-for-sale securities
(149,936
(136,392
Redemptions of available-for-sale securities
149,998
135,987
Payments received on mortgage and other notes receivable
13
224
Additional investments in and advances to unconsolidated affiliates
(997
57
Distributions in excess of equity in earnings of unconsolidated affiliates
4,697
2,279
Changes in other assets
(471
(364
Net cash used in investing activities
(2,442
(2,564
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage and other indebtedness
(29,500
(13,732
Additions to deferred financing costs
(1,668
Payment of tax withholdings for restricted stock awards
Net cash used in financing activities
(31,025
(13,760
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
8,962
46,445
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
236,198
121,713
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
245,160
168,158
Reconciliation from condensed consolidated statements of cash flows to condensed consolidated balance sheets:
84,646
Restricted cash (1):
Restricted cash
28,678
61,146
Mortgage escrows
30,738
22,366
SUPPLEMENTAL INFORMATION
Cash paid for interest, net of amounts capitalized
21,453
14,055
Cash paid for reorganization items
3,156
12,044
Included in intangible lease assets and other assets in the condensed consolidated balance sheets.
(Dollars in thousands, except per share and per unit data)
Note 1 – Organization and Basis of Presentation
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, outlet centers, lifestyle centers, open-air centers, office buildings and other properties, including single-tenant and multi-tenant parcels. 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, 2022, the Operating Partnership owned interests in the following properties:
Malls (1)
Outlet Centers (1)
Lifestyle Centers (1)
Open-Air Centers (2)
Other (2) (3)
Consolidated Properties
41
72
Unconsolidated Properties (4)
9
8
50
29
94
The Company has aggregated malls, outlet centers and lifestyle centers into one reportable segment, the Malls category, because they have similar economic characteristics and they provide similar products and services to similar types of, and in many cases, the same tenants.
(2)
Included in “All Other” for purposes of segment reporting.
(3)
CBL's two consolidated corporate office buildings are included in the Other category.
(4)
The Operating Partnership accounts for these investments using the equity method because one or more of the other partners have substantive participating rights.
CBL is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. As of March 31, 2022, CBL Holdings I, Inc., the sole general partner of the Operating Partnership, owned a 1.0% general partner interest in the Operating Partnership and CBL Holdings II, Inc. owned a 98.9% limited partner interest for a combined interest held by CBL of 99.9%. As of March 31, 2022, third parties owned a 0.1% limited partner interest in the Operating Partnership.
As used herein, the term "Company" includes CBL & Associates Properties, Inc. and its subsidiaries, including CBL & Associates Limited Partnership and its subsidiaries, unless the context indicates otherwise. The term "Operating Partnership" refers to CBL & Associates Limited Partnership and its subsidiaries.
The Operating Partnership conducts the Company's property management and development activities through its wholly owned subsidiary, CBL & Associates Management, Inc. (the “Management Company"), to comply with certain requirements of the Internal Revenue Code.
The accompanying condensed consolidated financial statements are unaudited; however, they have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. All intercompany transactions have been eliminated. The results for the interim period ended March 31, 2022 are not necessarily indicative of the results to be obtained for the full fiscal year.
Fresh Start Accounting and Reorganizations
Upon the Company’s emergence from the Chapter 11 Cases (defined below), the Company adopted fresh start accounting, which resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes. As a result of the application of fresh start accounting and the effects of the implementation of the third amended joint chapter 11 plan of CBL & Associates Properties, Inc. and its affiliated debtors (with technical modifications) (as modified at Docket No. 1521) (the “Plan”), the condensed consolidated financial statements after November 1, 2021 (the “Effective Date”) are not comparable with the condensed consolidated financial statements on or before that date. The lack of comparability is emphasized by the use of a “black line” to separate the Predecessor (defined below) and Successor (defined below) periods in the condensed consolidated financial statements and footnote tables. References to “Successor” or “Successor Company” relate to the financial position and results of operations of the Company after the Effective Date. References to "Predecessor" or "Predecessor Company" refer to the financial position and results of operations of the Company on or before the Effective Date.
During the Predecessor period, the Company applied Accounting Standards Codification (“ASC”) 852 - Reorganizations (“ASC 852”) in preparing the condensed consolidated financial statements. ASC 852 requires the financial statements, for periods subsequent to the commencement of the Chapter 11 Cases, to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. As a result, the Company classified all expenses, gains and losses that were incurred as a result of the Chapter 11 proceedings since filing as “Reorganization items, net” in the Predecessor Company’s condensed consolidated statements of operations.
Liquidity and Loan Defaults
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 of March 31, 2022, the Company had $1.15 billion of property-level debt and related obligations maturing or callable within the next 12 months from the issuance of the financial statements. Subsequent to March 31, 2022 and through the issuance of the financial statements, the Company obtained certain waivers and/or refinanced and extended the maturity dates for $0.2 billion of mortgage debt obligations.
Accordingly, the Company still had $0.9 billion of property-level debt and related obligations maturing or callable within the next 12 months from the issuance of the financial statements, including $474 million reported within mortgage debt payable and $474 million related to unconsolidated affiliates, a portion of which is guaranteed by the Company as disclosed in Note 11 to the condensed consolidated financial statements. Such properties serving as collateral for this property-level debt and related obligations represent approximately 10-12% of projected annual operating cash flows of the Company. The Company currently does not have sufficient liquidity to meet these obligations as they become due, which raises substantial doubt about the Company’s ability to continue as a going concern.
Management intends to refinance and/or extend the maturity dates for such mortgage notes payable. In such instances where a refinancing and/or extension of maturity dates is unsuccessful the Company will repay certain of the mortgage notes based on the availability of liquidity and convey certain properties to the lender to satisfy the debt obligation. As a result, the Company has concluded that management’s plans are probable of being achieved to alleviate substantial doubt about the Company’s ability to continue as a going concern.
The Company has prepared its financial statements in conformity with accounting principles generally accepted in the United States of America applicable to a going concern. The 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.
Reclassifications
The Successor Company reclassified mortgage and other notes receivable of $384 into other receivables for the year ended December 31, 2021.
Note 2 – Summary of Significant Accounting Policies
Accounting Guidance Not Yet Adopted
Description
Expected
Adoption Date &
Application
Method
Financial Statement Effect and Other Information
Accounting Standards Update (“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, 2022, 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.
7
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.
Management’s collection assessment took into consideration the type of retailer, billing disputes, lease negotiation status and executed deferral or abatement agreements, as well as recent rent collection experience and tenant bankruptcies based on the best information available to management at the time of evaluation. For the three-month Successor period ended March 31, 2022 there was a reversal of $737 related to uncollectable revenues. For the three-month Predecessor period ended March 31, 2021, revenues were reduced by $6,486 associated with uncollectable revenues, which includes the write-off of $1,679 for straight line rent receivables.
Note 3 – Revenues
Revenues
The following table presents the Company's revenues disaggregated by revenue source:
Revenues from contracts with customers (ASC 606):
Operating expense reimbursements
2,189
2,156
Management, development and leasing fees (1)
Marketing revenues (2)
(15
301
3,943
4,116
Other revenues
827
893
Total revenues (3)
Included in All Other segment.
Marketing revenues solely relate to the Malls segment for all periods presented.
Sales taxes are excluded from revenues.
See Note 9 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, 2022, the Company expects to recognize these amounts as revenue over the following periods:
Performance obligation
Less than 5
years
5-20
Over 20
Fixed operating expense reimbursements
22,877
50,967
47,352
121,196
The Company evaluates its performance obligations each period and makes adjustments to reflect any known additions or cancellations. Performance obligations related to variable consideration, which is based on sales, are constrained.
Note 4 – Leases
The components of rental revenues are as follows:
Fixed lease payments
95,648
71,227
Variable lease payments
39,684
56,948
Total rental revenues
The undiscounted future fixed lease payments to be received under the Successor Company's operating leases as of March 31, 2022, are as follows:
Years Ending December 31,
Operating Leases
2022 (1)
266,243
2023
311,345
2024
253,351
2025
196,536
2026
145,634
2027
99,328
Thereafter
225,650
Total undiscounted lease payments
1,498,087
Reflects rental payments for the fiscal period April 1, 2022 to December 31, 2022.
Note 5 – Fair Value Measurements
The Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy in accordance with ASC 820, Fair Value Measurements and Disclosure, ("ASC 820") based on whether the inputs to valuation techniques are observable or unobservable. The fair value hierarchy contains three levels of inputs that may be used to measure fair value as follows:
Level 1 –
Inputs represent quoted prices in active markets for identical assets and liabilities as of the measurement date.
Level 2 –
Inputs, other than those included in Level 1, represent observable measurements for similar instruments in active markets, or identical or similar instruments in markets that are not active, and observable measurements or market data for instruments with substantially the full term of the asset or liability.
Level 3 –
Inputs represent unobservable measurements, supported by little, if any, market activity, and require considerable assumptions that are significant to the fair value of the asset or liability. Market valuations must often be determined using discounted cash flow methodologies, pricing models or similar techniques based on the Company’s assumptions and best judgment.
The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under ASC 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date and under current market conditions. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs and consider assumptions such as inherent risk, transfer restrictions and risk of nonperformance.
Fair Value Measurements on a Recurring Basis
The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term nature of these financial instruments. The estimated fair value of the 10% senior secured notes due 2029 (the “Secured Notes”) and mortgage and other indebtedness was $1,854,171 and $2,059,094 at March 31, 2022 and December 31, 2021, respectively. The fair value of mortgage and other indebtedness 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.
The Company elected the fair value option in conjunction with the issuance of the Secured Notes because it believes that the fair value option provides the most accurate depiction of the current value of the Secured Notes. The following table sets forth information regarding the Secured Notes for the three months ended March 31, 2022:
Debt Instrument
Carrying amount as of March 31,2022
Change in fair value (1)
Fair value as of March 31, 2022 (2)
Secured Notes
395,000
593
For the three months ended March 31, 2022, the change in fair value is included within “Interest Expense” in the Company’s condensed consolidated income statement.
The fair value was calculated using Level 1 inputs.
The following table sets forth information regarding the Secured Notes for the year ended December 31, 2021:
Carrying amount as of December 31, 2021
Fair value as of December 31, 2021 (2)
For the two months ended December 31, 2021, the change in fair value is included within “Interest Expense” in the Company’s condensed consolidated income statement.
During the three months ended March 31, 2022, the Company has continued to reinvest the cash from maturing U.S. Treasury securities into new U.S. Treasury securities. The Company designated the U.S. Treasury securities as available-for-sale (“AFS”). The following table sets forth information regarding the Company’s AFS securities that were measured at fair value for the three months ended March 31, 2022:
AFS Security
Amortized
Cost (1)
Allowance
for credit
losses (2)
Total unrealized gain
Fair value as of March 31, 2022
U.S. Treasury securities
149,936
The U.S. Treasury securities have maturities through May 2022. Subsequent to March 31, 2022, the Company used funds from its matured U.S. Treasury securities to purchase additional U.S. Treasury securities. See Note 14 for more information.
U.S Treasury securities have a long history with no credit losses. Additionally, the Company notes that U.S Treasury securities are explicitly fully guaranteed by a sovereign entity that can print its own currency and that the sovereign entity’s currency is routinely held by central banks and other major financial institutions, is used in international commerce, and commonly viewed as a reserve currency, all of which qualitatively indicate that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. Therefore, the Company did not record expected credit losses for its U.S Treasury securities for the three months ended March 31, 2022.
The following table sets forth information regarding the Company’s AFS securities that were measured at fair value for the year ended December 31, 2021:
Cost
losses (1)
Fair value as of December 31, 2021
149,999
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, 2021.
10
Fair Value Measurements on a Nonrecurring Basis
The Company measures the fair value of certain long-lived assets on a nonrecurring basis, through quarterly impairment testing or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company’s evaluation of the recoverability of long-lived assets involves the comparison of undiscounted future cash flows expected to be generated by each property over the Company’s expected remaining holding period to the respective carrying amount. The determination of whether the carrying value is recoverable also requires management to make estimates related to probability weighted scenarios impacting undiscounted cash flow models. The Company considers both quantitative and qualitative factors in its impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each property such as net operating income, occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the property and tenant mix. The quantitative and qualitative factors impact the selection of the terminal capitalization rate which is used in both an undiscounted and discounted cash flow model and the discount rate used in a discounted cash flow model. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experience impairment, the Company classifies such long-lived assets under Level 3 in the fair value hierarchy. Level 3 inputs primarily consist of sales and market data, independent valuations and discounted cash flow models. See below for a description of the estimates and assumptions the Company used in its impairment analysis.
See Note 3 in the annual report on Form 10-K for the year ended December 31, 2021 for information regarding the fair value adjustments associated with fresh start accounting.
Long-lived Assets Measured at Fair Value in 2022
During the three months ended March 31, 2022, the Successor Company adjusted the negative equity in Greenbrier Mall to zero upon deconsolidation, which represents the estimated fair value of the Successor Company’s investment in that property. See Note 7 for additional information.
Long-lived Assets Measured at Fair Value in 2021
The following table sets forth information regarding the Predecessor Company's assets that were measured at fair value on a nonrecurring basis and related impairment charges for the 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: Predecessor
Long-lived assets
38,500
During the three months ended March 31, 2021, the Predecessor 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 Predecessor 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 Predecessor 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 Predecessor 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 Predecessor Company adjusted the combined negative equity in Asheville Mall and Park Plaza to zero upon deconsolidation, which represents the estimated fair values of the Predecessor Company’s investments in these properties.
Note 6 – Dispositions
Dispositions
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.
2022 Dispositions
The Successor Company had no significant dispositions during the three months ended March 31, 2022.
2021 Dispositions
The Predecessor Company realized a loss of $299 related to the sale of an outparcel during the three months ended March 31, 2021.
Note 7 – Unconsolidated Affiliates and Noncontrolling Interests
Unconsolidated Affiliates
Although the Company had majority ownership of certain joint ventures during 2022 and 2021, 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, 2022, the Company had investments in 27 entities, which are accounted for using the equity method of accounting. The Company's ownership interest in these unconsolidated affiliates ranges from 20% to 100%. Of these entities, 14 are owned in 50/50 joint ventures.
2022 Activity - Unconsolidated Affiliates
Atlanta Outlet JV, LLC
In February 2022, the joint venture entered into a forbearance agreement with the lender regarding the default triggered by the filing of voluntary petitions (the “Chapter 11 Cases”) under chapter 11 of title 11 (“Chapter 11”) of the United States Code in the United States Bankruptcy Court for the Southern District of Texas related to the loan secured by The Outlet Shoppes at Atlanta.
Bullseye, LLC
In March 2022, the joint venture sold its income-producing property, which generated gross proceeds of $10,500. The Company’s share of the net profit from the sale was $629.
Fremaux Town Center JV, LLC
In March 2022, the joint venture entered into a forbearance agreement with the lender regarding the default triggered by the Chapter 11 Cases related to the loan secured by Fremaux Town Center.
Greenbrier Mall II, LLC
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In March 2022, the Company deconsolidated Greenbrier Mall as a result of the Company losing control when the property was placed in receivership. As of March 31, 2022, the loan secured by Greenbrier Mall had an outstanding balance of $61,647. For the three months ended March 31, 2022, the Company recognized a gain on deconsolidation of $36,250.
Louisville Outlet Shoppes, LLC
Subsequent to March 31, 2022, the joint venture entered into a forbearance agreement with the lender regarding the default triggered by the bankruptcy filing related to the loan secured by The Outlet Shoppes of the Bluegrass. See Note 14.
Mall of South Carolina, LP and Mall of South Carolina Outparcel, LP
In March 2022, the joint ventures entered into forbearance agreements with the lenders regarding the default triggered by the Chapter 11 Cases related to the loans secured by Coastal Grand.
Shoppes at Eagle Point, LLC
Subsequent to March 31, 2022, the joint venture entered into a new $40,000, ten-year, non-recourse loan secured by The Shoppes at Eagle Point. See Note 14 for additional information.
York Town Center Holding, LP
In March 2022, the joint venture entered into a $30,000 non-recourse mortgage note payable, secured by York Town Center, that provides for a three-year term and a fixed interest rate of 4.75%. The monthly debt service is interest only for the first eighteen months. Proceeds from the new loan were used to retire the existing loans.
Condensed Combined Financial Statements - Unconsolidated Affiliates
Condensed combined financial statement information of the unconsolidated affiliates are as follows:
ASSETS:
Investment in real estate assets
2,048,670
2,364,154
(791,622
(934,374
1,257,048
1,429,780
6,717
7,288
1,263,765
1,437,068
197,179
188,683
Total assets
1,460,944
1,625,751
LIABILITIES:
1,501,094
1,452,794
Other liabilities
62,755
64,598
1,563,849
1,517,392
OWNERS' EQUITY:
The Company
17,238
102,792
Other investors
(120,143
5,567
Total owners' equity
(102,905
108,359
Total liabilities and owners’ equity
63,737
58,756
Net income (loss) (1)
20,678
(3,321
The Successor Company's pro rata share of net income is $8,566 for the three months ended March 31, 2022. The Predecessor Company’s pro rata share of net loss is $(3,076) for the three months ended March 31, 2021.
Variable Interest Entities
The Operating Partnership and certain of its subsidiaries are deemed to have the characteristics of a VIE primarily because the limited partners of these entities do not collectively possess substantive kick-out or participating rights.
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, 2022, 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, 2022:
Unconsolidated VIEs:
Investment in
Real Estate
Joint
Ventures
and
Partnerships
Maximum
Risk of Loss
Ambassador Infrastructure, LLC (1)
7,001
Asheville Mall CMBS, LLC
Atlanta Outlet JV, LLC (1)
881
5,318
CBL-T/C, LLC
EastGate Mall CMBS, LLC
El Paso Outlet Center Holding, LLC
285
2,052
Louisville Outlet Shoppes, LLC (1)
7,947
Mall of South Carolina L.P.
Shoppes at Eagle Point, LLC (1)(2)
21,058
33,798
Vision - CBL Hamilton Place, LLC
2,112
26,388
58,513
The Operating Partnership has guaranteed all or a portion of the debt of each of these VIEs. See Note 11 for more information.
Subsequent to March 31, 2022, the guaranty was removed. See Note 14 for additional information.
Note 8 – Mortgage and Other Indebtedness, Net
Debt of the Company
CBL has no indebtedness. Consolidated subsidiaries that it has a direct or indirect ownership interest in are the borrowers on all the Company's debt.
CBL is a limited guarantor of the secured term loan and the Secured Notes for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates.
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Debt of the Operating Partnership
Our Secured Notes and mortgage and other indebtedness, net, consisted of the following:
March 31, 2022
December 31, 2021
Amount
Weighted-
Average
Interest
Rate (1)
Fixed-rate debt at fair value:
Secured Notes - at fair value (carrying amount of $395,000 as of March 31, 2022 and December 31, 2021)
10.00
%
Fixed-rate debt:
Exchangeable senior secured notes
150,000
7.00
Non-recourse loans on operating properties
847,208
4.83
916,927
5.04
Total fixed-rate debt
1,066,927
5.32
Variable-rate debt:
Secured term loan
864,611
3.75
880,091
66,386
3.45
66,911
3.21
Total variable-rate debt
930,997
3.73
947,002
3.71
Total fixed-rate and variable-rate debt
1,778,205
4.26
2,013,929
4.56
Unamortized deferred financing costs
(2,928
(1,567
Debt discounts (2)
(135,808
(199,153
Total mortgage and other indebtedness, net
Weighted-average interest rate excludes amortization of deferred financing costs.
In conjunction with fresh start accounting, the Company estimated the fair value of its mortgage notes with the assistance of a third-party valuation advisor. This resulted in recognizing a debt discount on the Effective Date. The debt discount is accreted over the term of the respective debt using the effective interest method. The remaining debt discounts at March 31, 2022 will be accreted over a weighted average period of 3.1 years.
As of March 31, 2022, all the real estate assets and working capital of the Company’s consolidated subsidiaries are secured as collateral on either property-level loans, the secured term loan or the Secured Notes.
In February 2022, the loan secured by Fayette Mall was modified to reduce the fixed interest rate to 4.25% and extend the maturity date through May 2023, with three one-year extension options, subject to certain requirements. As part of the modification, two ground leased outparcels were released from the collateral in exchange for the addition of the redeveloped former middle anchor location.
In March 2022, the Company deconsolidated Greenbrier Mall as a result of the Company losing control when the property was placed in receivership. See Note 7 for additional information.
In March 2022, the loan secured by Cross Creek Mall was extended through May 2022. The Company remains in discussions with the lender regarding an extension. As of March 31, 2022, the loan had an outstanding balance of $101,077.
Several of the Company’s properties are owned by special purpose entities, created as a requirement under certain loan agreements that are included in the Company’s condensed consolidated financial statements. The sole business purpose of the special purpose entities is to own and operate these properties. The real estate and other assets owned by these special purpose entities are restricted under the loan agreements in that they are not available to settle other debts of the Company. However, so long as the loans are not under an event of default, as defined in the loan agreement, the cash flows from these properties, after payments of debt service, operating expenses and reserves, are available for distribution to the Company.
Exit Credit Agreement
On November 1, 2021, CBL & Associates HoldCo I, LLC (“HoldCo I”), a wholly owned subsidiary of the Operating Partnership, entered into an amended and restated credit agreement (the “Exit Credit Agreement”), providing for an $883,700 senior secured term loan that matures
November 1, 2025. The Operating Partnership provided a limited guaranty up to a maximum of $175,000 (the “Principal Liability Cap”). The Principal Liability Cap will be reduced by an amount equal to 100% of the first $2,500 in principal amortization made by HoldCo I each calendar year and will be reduced further by 50% of the principal amortization payments made by HoldCo I each calendar year in excess of the first $2,500 in principal amortization for such calendar year. As of March 31, 2022, the Principal Liability Cap had been reduced to $160,661. The Principal Liability Cap is eliminated when the loan balance is reduced below $650,000.
Secured Notes Indenture
Subsequent to March 31, 2022, HoldCo II delivered a conditional notice of redemption to holders of the Secured Notes, pursuant to the terms of the indenture governing the Secured Notes, to redeem $60,000 aggregate principal amount of the Secured Notes on May 26, 2022. See Note 14 for additional information.
Exchangeable Notes Indenture
On the Effective Date, HoldCo II entered into a secured exchangeable notes indenture relating to the issuance of 7.0% exchangeable senior secured notes due 2028 (the “Exchangeable Notes”) in an aggregate principal amount of $150,000. In December 2021, the Company announced that HoldCo II exercised its optional exchange right with respect to all the $150,000 aggregate principal amount of the Exchangeable Notes. The exchange date was January 28, 2022, and settlement occurred on February 1, 2022. Per the terms of the indenture governing the Exchangeable Notes, shares of the Company’s common stock, par value $0.001, plus cash in lieu of fractional shares, were issued to settle the exchange. On February 1, 2022, the Company issued 10,982,795 shares of common stock to holders of the Exchangeable Notes in satisfaction of principal, accrued interest and the makewhole payment, and all the Exchangeable Notes were cancelled in accordance with the terms of the indenture.
Scheduled Principal Payments
As of March 31, 2022, the scheduled principal amortization and balloon payments of the Company’s consolidated debt, excluding extensions available at the Company’s option, on all mortgage and other indebtedness, are as follows:
2022 (1) (2)
409,393
215,407
111,867
785,230
137,616
2,054,513
Principal balance of loans with maturity date prior to March 31, 2022 (3)
118,692
Total mortgage and other indebtedness
2,173,205
Reflects scheduled principal amortization and balloon payments for the fiscal period April 1, 2022 through December 31, 2022.
Subsequent to March 31, 2022, the loan secured by Arbor Place was extended for an additional four years, with a new maturity date of May 2026. See Note 14.
Represents the aggregate principal balance as of March 31, 2022 of the loans secured by Alamance Crossing, Hamilton Crossing and Parkdale Mall & Crossing, which are in default. The Company is in discussions with the lender regarding the loans secured by these properties. The loan secured by Parkdale Mall & Crossing matured in March 2021 and had a balance of $68,662 as of March 31, 2022. The loan secured by Hamilton Crossing matured in April 2021 and had a balance of $7,780 as of March 31, 2022. The loan secured by Alamance Crossing matured in July 2021 and had a balance of $42,250 as of March 31, 2022.
Of the $409,393 of scheduled principal payments for the remainder of 2022, $362,722 relates to the maturing principal balance of six operating property loans. The Company is in discussions with the lenders regarding extensions.
Note 9 – Segment Information
The Company measures performance and allocates resources according to property type, which is determined based on certain criteria such as type of tenants, capital requirements, economic risks, leasing terms, and short and long-term returns on capital. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments.
Information on the Company’s segments is presented as follows:
Three Months Ended March 31, 2022 (Successor)
All
Other (2)
Revenues (3)
121,428
18,674
Property operating expenses (4)
(44,684
(3,661
(48,345
(71,159
(19,500
Gain on sales of real estate assets
Segment profit (loss)
5,585
(4,471
1,114
Equity in earnings of unconsolidated affiliates
Capital expenditures (5)
3,960
1,870
5,830
Three Months Ended March 31, 2021 (Predecessor)
119,328
13,856
(45,595
(3,539
(49,134
(23,170
(960
Loss on sales of real estate assets
Segment profit
50,563
9,058
59,621
Reorganization items
Equity in losses of unconsolidated affiliates
3,491
637
4,128
1,860,718
988,606
1,961,061
984,918
The Malls category includes malls, lifestyle centers and outlet centers.
The All Other category includes open-air centers, outparcels, office buildings, self-storage facilities, corporate-level debt and the Management Company.
Management, development and leasing fees are included in All Other category. See Note 3 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.
(5)
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 10 – Earnings per Share
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. There were no potential dilutive common shares and there were no anti-dilutive shares for the three months ended March 31, 2022 and 2021.
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Note 11 – Contingencies
Securities Litigation
The Company and certain of its officers and directors were named as defendants in three putative securities class action lawsuits (collectively, the “Securities Class Action Litigation”), each filed in the United States District Court for the Eastern District of Tennessee, on behalf of all persons who purchased or otherwise acquired the Company’s securities during a specified period of time. Those cases were consolidated on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Securities Litigation, 1:19-cv-00149-JRG-CHS, and a consolidated amended complaint was filed on November 5, 2019, seeking to represent a class of purchasers from July 29, 2014 through March 26, 2019.
The operative complaint filed in the Securities Class Action Litigation alleges violations of the securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions regarding the Company’s contingent liabilities, business, operations, and prospects during the 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. On May 3, 2022, the court dismissed the Company from the Securities Class Action Litigation but declined to dismiss the individual defendants. The court also lifted the stay of the proceedings and instructed the parties to confer on a proposed schedule. The outcome of these legal proceedings cannot be predicted with certainty.
The Company's insurance carriers remain on notice of the Securities Class Action Litigation.
The Company is currently involved in certain other litigation that arises in the ordinary course of business, most of which is expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.
Environmental Contingencies
The Company evaluates potential loss contingencies related to environmental matters using the same criteria described above related to litigation matters. Based on current information, an unfavorable outcome concerning such environmental matters, both individually and in the aggregate, is considered to be reasonably possible. However, the Company believes its maximum potential exposure to loss would not be material to its results of operations or financial condition. The Company has a master insurance policy that provides coverage through 2022 for certain environmental claims up to $10,000 per occurrence and up to $50,000 in the aggregate, subject to deductibles and certain exclusions. At certain locations, individual policies are in place.
Guarantees
The Operating Partnership may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on the Operating Partnership's investment in the joint venture. The Operating Partnership may receive a fee from the joint venture for providing the guaranty. Additionally, when the Operating Partnership issues a guaranty, the terms of the joint venture agreement typically provide that the Operating Partnership may receive indemnification from the joint venture partner or have the ability to increase its ownership interest. The guarantees expire upon repayment of the debt, unless noted otherwise.
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, 2022 and December 31, 2021:
As of March 31, 2022
Obligation
recorded to reflect
guaranty
Unconsolidated Affiliate
Company's
Ownership
Outstanding
Balance
Percentage
Guaranteed
by the
Operating
Partnership
Debt
Maturity
Date (1)
West Melbourne I, LLC - Phase I
50%
38,691
19,345
Feb-2025
193
195
West Melbourne I, LLC - Phase II
13,743
6,872
69
Port Orange I, LLC
51,073
25,536
255
258
Ambassador Infrastructure, LLC
65%
100%
Mar-2025
82
83
33,585
35%
12,740
Oct-2022
127
4,437
Nov-2023
Total guaranty liability
726
732
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. Subsequent to March 31, 2022, the joint venture entered into a new non-recourse loan, which removed the guaranty. See Note 14 for additional information.
For the three months ended March 31, 2022, the Successor Company evaluated each guaranty, listed in the table above, individually by evaluating the debt service ratio, cash flow forecasts and the performance of each loan. The result of the analysis was that each loan is current and performing. The Successor Company did not record a credit loss related to the guarantees listed in the table above for the three months ended March 31, 2022.
For the three months ended March 31, 2021, the Predecessor Company evaluated each guaranty, listed in the table above, individually by evaluating the debt service ratio, cash flow forecasts, the performance of each loan and, where applicable, the collateral value in relation to the outstanding amount of the loan. The result of the analysis was that each loan is current, performing and, where applicable, the collateral value was greater than the outstanding amount of the loan. The Predecessor Company did not record a credit loss related to the guarantees listed in the table above for the three months ended March 31, 2021.
Note 12 – Share-Based Compensation
2021 Equity Incentive Plan
Following the Effective Date, the board of directors of the Successor Company adopted the CBL & Associates Properties, Inc. 2021 Equity Incentive Plan (the “EIP”). The EIP authorizes the grant of equity awards to eligible participants based on the new common stock, in the form of stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards. Awards under the EIP may be granted to officers, employees, directors, consultants and independent contractors of the reorganized company. Initially, 3,222,222 shares of new common stock are available under the EIP. The initial new common stock under the EIP is subject to an annual increase of a number of shares equal to 3% of the number of shares of new common stock issued and outstanding at the end of the relevant calendar year (beginning January 2023), or such lesser amount as the board of directors may determine. The EIP will be administered by the compensation committee of the board of directors, which will determine the participants who will be granted awards under the EIP and the terms and conditions of EIP awards.
In accordance with the provisions of ASU 2016-09, which are designed to simplify the accounting for share-based payments transactions, the Successor Company elected to account for forfeitures of share-based payments as they occur rather than estimating them in advance.
Restricted Stock Awards
Compensation expense is recognized on a straight-line basis over the requisite service period. The share-based compensation expense related to the restricted stock awards of the Successor Company was $1,622 for the three months ended March 31, 2022. The share-based compensation expense related to the restricted stock awards of the Predecessor Company was $297 for the three months ended March 31, 2021. Share-based compensation cost resulting from share-based awards is recorded at the Management Company, which is a taxable entity.
A summary of the status of the Company’s nonvested restricted stock awards as of March 31, 2022, and changes during the period from January 1, 2022 through March 31, 2022, are presented below:
19
Shares
Grant-Date
Fair Value Per Share
Nonvested at January 1, 2022
784,999
27.57
Granted
50,000
27.69
Nonvested at March 31, 2022
834,999
27.58
As of March 31, 2022, there was $21,106 of total unrecognized compensation cost related to nonvested restricted stock awards granted under the EIP, which is expected to be recognized over a weighted-average period of 3.5 years.
As of the Effective Date, nonvested restricted stock of the Predecessor Company was deemed vested and the Company’s 2012 stock incentive plan, as amended, pursuant to which such restricted stock had been granted, was terminated.
Performance Stock Awards
In February 2022, the compensation committee of the board of directors of the Company approved the terms of new awards of performance stock units (“PSUs”). The PSUs are earned over a four-year performance period aligned with fiscal years 2022 (includes the Successor period from November 1, 2021 through December 31, 2021) through 2025, with one-quarter of the PSUs assigned to each fiscal year within the four-year performance period (each, an “Annual Performance Period” and all four, collectively, the “Full Performance Period”). The number of PSUs earned for each fiscal year within the four-year performance period will be determined based on the achievement of both (i) a quantitative total market return goal (the “TMR Goal”), and (ii) a Company-specific stated goal (the “Stated Goal”), for such fiscal year. The total market return (or TMR) is calculated as the sum of: (i) the average of the multiple of the Company’s average number of shares of common stock outstanding and the average closing share price of common stock for twenty consecutive trading days, and (ii) the value of cash dividends declared during the applicable fiscal year performance period. The TMR Goal will be met if the required level of total market return is achieved at any time during the last 90 trading days of the applicable fiscal year; provided that an additional six month extended measurement period will be applied for the fourth and final fiscal year (the “TMR Year 4 Grace Period”). The Stated Goal for each year will be met if it is achieved at any time during a cumulative performance period beginning November 1, 2021 and ending on December 31 of the applicable calendar year (the “Stated Goal Performance Period”), subject to a grace period of 6-months following the last day of each Stated Goal Performance Period (the “Stated Goal Grace Period”). If the Stated Goal is not achieved for any fiscal year measurement period (including the applicable grace period), then the PSUs allocable to that fiscal year will be forfeited. If the Stated Goal for a fiscal year is achieved but the TMR Goal is not achieved, then the unearned PSUs for the fiscal year will carry over to the succeeding fiscal year and may be earned based on attainment of the goals for the subsequent performance period. If the Stated Goal is achieved for all four fiscal years, then 50% of any outstanding PSUs will be earned. If a participating officer’s employment is terminated prior to the end of any annual performance period due to death or disability (as defined in the PSU award agreements), or due to a termination by the Company without cause (as defined in the PSU award agreements), then the officer will be entitled to receive a pro rata portion of any PSUs earned for that annual performance period (determined by dividing the number of days from January 1 of the applicable annual performance period through the date of such termination by 365), and any remaining PSUs for such annual performance period, and any subsequent annual performance period, will be forfeited.
In February 2022, the Company issued 727,223 PSUs to senior officers. The PSUs had a weighted-average grant date fair value of $24.67.
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 Successor Company’s PSUs was $1,121 for the three months ended March 31, 2022. Share-based compensation expense related to the Predecessor Company’s PSUs was $94 for the three months ended March 31, 2021. The unrecognized compensation expense related to the Successor Company’s PSUs was $16,821 as of March 31, 2022, which is expected to be recognized over a weighted-average period of 3.8 years.
As of the Effective Date, all outstanding PSUs of the Predecessor Company were deemed cancelled.
20
Note 13 – 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
11,177
3,190
Deconsolidation upon loss of control (1):
Decrease in real estate assets
(18,810
(84,860
Decrease in mortgage and other indebtedness
56,226
134,354
Decrease in operating assets and liabilities
5,686
5,808
Decrease in intangible lease and other assets
(6,852
(171
See Note 7 for additional information.
Note 14 – Subsequent Events
In April 2022, HoldCo II delivered a conditional notice of redemption to holders of the Secured Notes, pursuant to the terms of the indenture governing the Secured Notes, to redeem $60,000 aggregate principal amount of the Secured Notes on May 26, 2022. The redemption is conditioned upon the receipt by HoldCo II of cash proceeds from a new debt financing. There can be no assurances as to when or if such condition will be satisfied and HoldCo II may waive the condition at its discretion.
In April 2022, the Company and its joint venture partner closed on a new $40,000, ten-year, non-recourse loan secured by The Shoppes at Eagle Point. The new loan bears a fixed interest rate of 5.4%. Proceeds from the new loan were utilized to retire the existing $33,585 partial recourse loan, which was set to mature in October 2022.
In May 2022, the Company used funds from its matured U.S. Treasury securities to purchase $148,965 in U.S. Treasury securities with maturities through November 2022.
In May 2022, the loan secured by Arbor Place was extended for an additional four years, with a new maturity date of May 2026. The interest rate will remain at the current fixed rate of 5.1%.
In May 2022, the Company and its joint venture partner entered into a forbearance agreement with the lender regarding the default triggered by the bankruptcy filing related to the loan secured by The Outlet Shoppes of the Bluegrass.
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. Unless stated otherwise or the context otherwise requires, references to the “Company,” “we,” “us” and “our” mean CBL & Associates Properties, Inc. and its subsidiaries.
Certain statements made in this section or elsewhere in this report may be deemed “forward-looking statements” within the meaning of the federal securities laws. 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 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, 2021, such known risks and uncertainties include, without limitation:
general industry, economic and business conditions;
interest rate fluctuations;
costs and availability of capital, including debt, and capital requirements;
costs and availability of real estate;
inability to consummate acquisition opportunities and other risks associated with acquisitions;
competition from other companies and retail formats;
changes in retail demand and rental rates in our markets;
shifts in customer demands including the impact of online shopping;
tenant bankruptcies or store closings;
changes in vacancy rates at our properties;
changes in operating expenses;
changes in applicable laws, rules and regulations;
disposition of real property;
uncertainty and economic impact of pandemics, epidemics or other public health emergencies or fear of such events, such as the COVID-19 pandemic and related governmental responses;
cyber-attacks or acts of cyber-terrorism;
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 Securities and Exchange Commission (“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.
Fresh Start Accounting
Upon emergence from bankruptcy, we qualified for and adopted fresh start accounting in accordance with Accounting Standards Codification Topic 852 – Reorganizations (“ASC 852”), which resulted in our becoming a new entity for financial reporting purposes. Our financial results for the three months ended March 31, 2021 are referred to as those of the “Predecessor.” Our financial results for the three months ended March 31, 2022 are referred to as those of the “Successor.” Our results of operations as reported in our condensed consolidated financial statements for these periods are prepared in accordance with GAAP. See Note 3 in the annual report on Form 10-K for the year ended December 31, 2021 for additional information.
Executive Overview
We are a self-managed, self-administered, fully integrated REIT that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, outlet centers, lifestyle centers, open-air centers and other properties. See Note 1 to the condensed consolidated financial statements for information on our property interests as of March 31, 2022. We have elected to be taxed as a REIT for federal income tax purposes.
The first quarter of 2022 demonstrated continued strong improvement operationally with encouraging growth in occupancy as well as strong traffic and positive in-line sales at our centers. For the three months ended March 31, 2022, sales increased 0.9% as compared with the three months ended March 31, 2021. Percentage rents and short-term rents increased during the period due to the continued positive sales growth. Improvements in the leasing environment, including increasing tenant demand and significantly lower bankruptcy-related store closures, drove healthy occupancy growth.
We had a net loss for the three months ended March 31, 2022 of $43.2 million, as compared to a net loss for the three months ended March 31, 2021 of $28.3 million. We recorded a net loss attributable to common shareholders for the three months ended March 31, 2022 of $40.7 million, as compared to a net loss attributable to common shareholders for the three months ended March 31, 2021 of $26.8 million. Significant items that affected the comparability between the three-month periods include:
▪
Items increasing net loss for the three months ended March 31, 2022 compared to the prior-year period:
Depreciation and amortization expense was $20.8 million higher;
Interest expense was $66.5 million higher;
Gain on deconsolidation was $18.9 million lower;
General and administrative expense was $5.5 million higher.
Items decreasing net loss for the three months ended March 31, 2022 compared to the prior-year period:
Loss on impairment was $57.2 million lower;
Reorganization items, net, was $21.4 million lower;
Equity in earnings was $11.6 million higher.
Our focus is on continuing to execute our strategy to transform our properties into dominant centers that offer a mix of retail, service, dining, entertainment and other non-retail uses, primarily through the re-tenanting of former anchor locations as well as diversification of in-line tenancy. This operational strategy is also supported by our balance sheet strategy focused on reducing overall debt, extending our debt maturity schedule and lowering our overall cost of borrowings to limit maturity risk, improve net cash flow and enhance enterprise value. While the industry and our Company continue to face challenges, some of which may not be under 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.
COVID-19
On March 11, 2020, the World Health Organization classified COVID-19 as a pandemic. In response to COVID-19, we initially 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.
23
Results of Operations
Properties that were in operation for the entire year during 2021 and the three months ended March 31, 2022 are referred to as the “Comparable Properties.” Since January 1, 2021, we have deconsolidated four properties and disposed of six properties:
Deconsolidations
Date of Deconsolidation
Asheville Mall (1)
Asheville, NC
January 2021
Park Plaza (1)(2)
Little Rock, AR
March 2021
EastGate Mall (1)
Cincinnati, OH
December 2021
Greenbrier Mall (1)
Chesapeake, VA
March 2022
We deconsolidated the property due to a loss of control when the property was placed into receivership in connection with the foreclosure process.
In October 2021, the foreclosure process was completed.
Sales Date
The Residences at Pearland Town Center
Pearland, TX
October 2021
EastGate Mall Self Storage (1)
November 2021
Hamilton Place Self Storage (1)
Chattanooga, TN
Mid Rivers Mall Self Storage (1)
St. Peters, MO
Parkdale Mall Self Storage (1)
Beaumont, TX
Springs at Port Orange (1)
Port Orange, FL
(1)The property was owned by a joint venture that was accounted for using the equity method of accounting.
Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021
Comparable
Properties
Change
Core
Non-core
Deconsolidation
7,157
11,641
(30
(4,320
(134
110
(349
(239
(89
(28
6,918
11,512
(23
(4,409
(162
Rental revenues from the Comparable Properties increased primarily due to a significantly higher estimate of uncollectable revenues in the prior year period due to the impacts of the COVID-19 pandemic, as well as prior year rent concessions to tenants in bankruptcy or that were struggling financially due to the impacts of the COVID-19 pandemic. The increase was partially offset by higher amortization of net above market leases due to the adoption of fresh start accounting upon our emergence from bankruptcy. Percentage rent increased due to higher sales in the current period as sales and traffic have improved as vaccination rates increased and government restrictions were lessened.
24
Operating Expenses
(1,542
(2,889
73
1,137
137
2,116
1,474
64
514
215
(133
340
Property operating expenses
789
(1,548
138
1,991
208
(20,831
(21,155
(105
541
(112
(5,462
56,888
294
(777
Total operating expenses
30,901
27,946
327
2,532
96
Property operating expenses at the Comparable Properties increased primarily due to the actions taken in the prior year period 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 increase in depreciation and amortization expense related to the Comparable Properties primarily relates to a new basis in depreciable assets and intangible in-place lease assets resulting from the adoption of fresh start accounting upon our emergence from bankruptcy.
General and administrative expenses increased primarily due to an increase in compensation expense, including share-based compensation expense, as we got back to normal operations following the early impacts of COVID-19, as well as our emergence from bankruptcy.
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. See Note 5 to the condensed consolidated financial statements for more information.
Other Income and Expenses
Interest expense increased $66.5 million during the three months ended March 31, 2022 compared to the prior-year period primarily due to the recognition of debt discount accretion of $62.7 million on property-level debt that is approaching maturity and an increase in interest expense on the secured term loan, the exchangeable notes and the secured notes due to not recognizing interest expense on corporate debt in the prior-year period subsequent to the bankruptcy filing. The increase was partially offset by a decrease of $12.9 million related to the reversal of previously recognized default interest expense. The property-level debt discounts were recognized in conjunction with recording our property-level debt at fair value upon the adoption of fresh start accounting.
For the three months ended March 31, 2022, we recorded a $36.3 million gain on deconsolidation related to a mall that was deconsolidated due to a loss of control when the mall was placed into receivership in connection with the foreclosure process. For the three months ended March 31, 2021, we recorded a $55.1 million gain on deconsolidation related to two malls that were deconsolidated due to a loss of control when each mall was placed into receivership in connection with the foreclosure process.
For the three months ended March 31, 2022, we recorded $1.6 million of reorganization items, net, which mostly consisted of professional fees and U.S. Trustee fees directly related to the bankruptcy filing. For the three months ended March 31, 2021, we recorded $22.9 million of reorganization items, which consisted of professional and legal fees directly related to the bankruptcy filing.
Equity in earnings of unconsolidated affiliates improved $11.6 million during the three months ended March 31, 2022 compared to the prior-year period. The improvement was primarily due to the application of fresh start accounting and recognizing equity in earnings on unconsolidated affiliates that had equity in losses in the prior-year period.
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 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 our properties 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 excluded properties. We exclude properties for which we are working or intend to work with the lender on a restructure of the terms of the loan secured by the property or convey the secured property to the lender (“Excluded Properties”).
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, 2022 and 2021 is as follows (in thousands):
Adjustments: (1)
76,564
61,061
106,586
33,012
Gain on sales of real estate assets of unconsolidated affiliates
(629
Adjustment for unconsolidated affiliates with negative investment
(12,547
(81
(858
1,571
22,933
801
751
Lease termination fees
(1,395
(1,111
Straight-line rent and above- and below-market lease amortization
3,240
3,211
Net loss attributable to noncontrolling interests in other consolidated subsidiaries
General and administrative expenses
18,074
12,612
Management fees and non-property level revenues
(1,086
(2,580
Operating Partnership's share of property NOI
114,095
103,920
Non-comparable NOI
(2,979
(3,569
Total same-center NOI
111,116
100,351
Adjustments are based on our Operating Partnership's pro rata ownership share, including our share of unconsolidated affiliates and excluding noncontrolling interests' share of consolidated properties.
Same-center NOI increased 10.7% for the three months ended March 31, 2022 as compared to the prior-year period. The $10.8 million increase for the three months ended March 31, 2022 compared to the same period in 2021 primarily consisted of a $12.8 million increase in revenues offset by a $2.0 million increase in operating expenses. Rental revenues increased $12.3 million during the quarter primarily due to a positive variance in uncollectable revenues in the current period as compared to the prior year period, as well as prior year rent concessions to tenants that are in bankruptcy or were struggling financially due to the impacts of the COVID-19 pandemic. Percentage rent increased due to higher sales in the current period as sales and traffic have improved as vaccination rates increased and government restrictions were lessened.
26
Operational Review
The shopping center business is, to some extent, seasonal in nature with tenants typically achieving the highest levels of sales during the fourth quarter due to the holiday season, which generally results in higher percentage rents in the fourth quarter. Additionally, malls, lifestyle centers and outlet centers earn a large portion of their rents from short-term tenants during the holiday period. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of the fiscal year.
We derive the majority of our revenues from the malls, lifestyle centers and outlet centers. The sources of our revenues by property type were as follows:
Malls, Lifestyle Centers and Outlet Centers
86.7
89.6
All Other
13.3
10.4
Inline and Adjacent Freestanding Store Sales
Inline and adjacent freestanding store sales include reporting mall, lifestyle center and outlet center tenants of 10,000 square feet or less and exclude license agreements, which are retail leases that are temporary or short-term in nature and generally last more than three months but less than twelve months. The following is a comparison of our same-center sales per square foot for mall, lifestyle center and outlet center tenants of 10,000 square feet or less (Excluded Properties are not included in sales metrics):
Sales Per Square Foot for the Trailing Twelve Months Ended March 31,
2021 (1)
% Change
Mall, Lifestyle Center and Outlet Center same-center sales per square foot
447
397
12.6%
Due to the temporary property and store closures that occurred during 2020 related to COVID-19, the majority of our tenants did not report sales for the full reporting period. As a result, we are not able to provide a complete measure of sales per square foot for periods in the year ended December 31, 2020. Sales per square foot for the trailing twelve months ended March 31, 2021 is comprised of sales reported for the periods April through December 2019 and January through March 31, 2021.
Occupancy
Our portfolio occupancy is summarized in the following table (Excluded Properties are not included in occupancy metrics):
Total portfolio
88.3%
85.4%
Malls, Lifestyle Centers and Outlet Centers:
Total malls
86.4%
83.0%
Total lifestyle centers
86.3%
82.8%
Total outlet centers
87.0%
Total same-center malls, lifestyle centers and outlet centers
86.5%
83.2%
All Other:
Total open-air centers
94.4%
92.0%
Total other
89.0%
98.7%
27
Bankruptcy-related store closures impacted March 31, 2022 occupancy by approximately 11 basis points or 17,000 square feet.
Leasing
The following is a summary of the total square feet of leases signed in the three-month periods ended March 31, 2022 and 2021:
Operating portfolio:
New leases
234,890
144,197
Renewal leases
816,806
594,582
Development portfolio:
3,300
Total leased
1,051,696
742,079
Average annual base rents per square foot are based on contractual rents in effect as of March 31, 2022 and 2021, including the impact of any rent concessions. Average annual base rents per square foot for comparable small shop space of less than 10,000 square feet were as follows for each property type:
24.98
25.97
Malls, Lifestyle Centers and Outlet Centers (1):
29.43
30.99
30.16
31.98
27.25
27.29
26.22
26.92
15.03
15.08
19.20
19.25
Excluded Properties are not included.
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, 2022 for spaces that were previously occupied, based on the contractual terms of the related leases inclusive of the impact of any rent concessions, are as follows:
Property Type
Square
Feet
Prior Gross
Rent PSF
New Initial
Gross Rent
PSF
Initial
New Average
PSF (1)
Quarter-to-Date:
All Property Types (2)
552,514
33.30
29.11
(12.6
)%
29.55
(11.3
Malls, Lifestyle Centers & Outlet Centers
537,896
33.66
29.32
(12.9
29.77
(11.6
62,569
47.78
39.55
(17.2
42.94
(10.1
475,327
31.80
27.98
(12.0
28.04
(11.8
Average gross rent does not incorporate allowable future increases for recoverable common area expenses.
Includes malls, lifestyle centers, outlet centers, open-air centers and other.
28
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 2022:
New
51
135,676
6.64
38.49
41.36
41.64
(3.15
(7.6
(0.28
(0.7
Renewal
313
972,148
2.53
29.99
30.15
32.78
(2.79
(8.5
(2.63
(8.0
Commencement 2022 Total
364
1,107,824
3.10
31.03
31.52
33.87
(2.84
(8.4
(2.35
(6.9
Commencement 2023:
6,286
5.46
31.82
33.58
45.87
(14.05
(30.6
(12.29
(26.8
138,436
2.69
53.55
53.81
53.52
0.03
0.1
0.29
0.5
Commencement 2023 Total
60
144,722
2.78
52.61
52.93
53.18
(0.57
(1.1
(0.25
(0.5
Total 2022/2023
424
1,252,546
3.06
33.53
33.99
36.10
(2.57
(7.1
(2.11
(5.8
Liquidity and Capital Resources
In February 2022, we issued 10,982,795 shares of common stock to holders of the exchangeable notes in satisfaction of principal, accrued interest and the makewhole payment, and all the exchangeable notes were cancelled in accordance with the terms of the indenture.
As of March 31, 2022, we had $335.7 million available in unrestricted cash and U.S. Treasury securities. Our total pro rata share of debt, excluding unamortized deferred financing costs and debt discounts, at March 31, 2022 was $2,982.3 million. We had $59.4 million in restricted cash at March 31, 2022 related to cash held in escrow accounts for insurance, real estate taxes, capital expenditures and tenant allowances as required by the terms of certain mortgage notes payable, as well as amounts related to cash management agreements with lenders of certain property-level mortgage indebtedness, which are designated for debt service and operating expense obligations.
During the three months ended March 31, 2022, we continued to reinvest the cash from maturing U.S. Treasury securities into new U.S. Treasury securities. We designated our U.S. Treasury securities as available-for-sale. As of March 31, 2022, our U.S. Treasury securities have maturities through May 2022. Subsequent to March 31, 2022, we reinvested proceeds from matured U.S. Treasury securities into new U.S. Treasury securities. See Note 14 to the condensed consolidated financial statements for additional information.
In February 2022, we entered into a forbearance agreement with the lender regarding the default triggered by the bankruptcy filing related to the loan secured by The Outlet Shoppes at Atlanta.
In March 2022, the loan secured by Cross Creek Mall was extended through May 2022. We remain in discussions with the lender regarding a long-term extension. As of March 31, 2022, the loan had an outstanding balance of $101.1 million.
In March 2022, we deconsolidated Greenbrier Mall as a result of losing control when the property was placed in receivership. As of March 31, 2022, the loan secured by Greenbrier Mall had an outstanding balance of $61.6 million.
In March 2022, we entered into a new $30.0 million non-recourse mortgage note payable, secured by York Town Center, that provides for a three-year term and a fixed interest rate of 4.75%. The monthly debt service is interest only for the first eighteen months.
In March 2022, we entered into a forbearance agreement with the respective lenders regarding the default triggered by the bankruptcy filing related to the loans secured by Coastal Grand and Fremaux Town Center.
Subsequent to March 31, 2022, we delivered a conditional notice of redemption to holders of the secured notes, pursuant to the terms of the indenture governing the secured notes, to redeem $60.0 million aggregate principal amount of the secured notes on May 26, 2022. The redemption is conditioned upon our receipt of cash proceeds from a new debt financing. There can be no assurances as to when or if such condition will be satisfied and we may waive the condition at our discretion.
Subsequent to March 31, 2022, we closed on a new $40.0 million, ten-year, non-recourse loan secured by The Shoppes at Eagle Point. See Note 14 to the condensed consolidated financial statements for additional information.
Subsequent to March 31, 2022, the loan secured by Arbor Place was extended for an additional four years, with a new maturity date of May 2026. The interest rate will remain at the current fixed rate of 5.1%. See Note 14 to the condensed consolidated financial statements.
Subsequent to March 31, 2022, we entered into a forbearance agreement with the lender regarding the default triggered by the bankruptcy filing related to the loan secured by The Outlet Shoppes of the Bluegrass. See Note 14 to the condensed consolidated financial statements.
Our total share of consolidated, unconsolidated and other outstanding debt, excluding debt discounts and deferred financing costs, maturing during 2022, assuming all extension options are elected, is $444.1 million, and our total share of consolidated, unconsolidated and other outstanding debt, excluding debt discounts and deferred financing costs, that matured prior to 2022, which remains outstanding at March 31, 2022, is $271.8 million. We are in discussions with the existing lenders to modify and extend or otherwise refinance the loans.
As of March 31, 2022, we had $1.15 billion of property-level debt and related obligations maturing or callable within the next 12 months from the issuance of the financial statements. Subsequent to March 31, 2022 and through the issuance of the financial statements, we obtained certain waivers and/or refinanced and extended the maturity dates for $0.2 billion of mortgage debt obligations.
Accordingly, we still had $0.9 billion of property-level debt and related obligations maturing or callable within the next 12 months from the issuance of the financial statements, including $474 million reported within mortgage debt payable and $474 million related to unconsolidated affiliates, a portion of which is guaranteed by us as disclosed in Note 11 to the condensed consolidated financial statements. Such properties serving as collateral for this property-level debt and related obligations represent approximately 10-12% of our projected annual operating cash flows. We currently do not have sufficient liquidity to meet these obligations as they become due, which raises substantial doubt about our ability to continue as a going concern.
Management intends to refinance and/or extend the maturity dates for such mortgage notes payable. In such instances where a refinancing and/or extension of maturity dates is unsuccessful we will repay certain of the mortgage notes based on the availability of liquidity and convey certain properties to the lender to satisfy the debt obligation. As a result, we have concluded that management’s plans are probable of being achieved to alleviate substantial doubt about our ability to continue as a going concern.
We have prepared our financial statements in conformity with accounting principles generally accepted in the United States of America applicable to a going concern. The financial statements do not reflect any adjustments related to the recoverability of assets and satisfaction of liabilities that might be necessary should we be unable to continue as a going concern.
Cash Flows - Operating, Investing and Financing Activities
There was $245.2 million of cash, cash equivalents and restricted cash as of March 31, 2022, an increase of $9.0 million from December 31, 2021. Of this amount, $185.7 million was unrestricted cash and cash equivalents as of March 31, 2022. Also, at March 31, 2022, we had $150.0 million in U.S. Treasuries with maturities through May 2022.
Our net cash flows are summarized as follows (in thousands):
(20,340
122
(17,265
Net cash flows
(37,483
Cash Provided By Operating Activities
Cash provided by operating activities decreased primarily because we did not pay interest in the prior-year period on the secured credit facility and senior unsecured notes as a result of the bankruptcy filing, but we did incur interest expense on our new corporate debt during the three months ended March 31, 2022.
Cash Used In Investing Activities
During the three months ended March 31, 2022, net cash used in investing activities decreased primarily due to an increase in distributions from unconsolidated affiliates as compared to the prior-year period. The decrease was partially
30
offset by lower proceeds from sales of real estate assets during the three months ended March 31, 2022 as compared to the prior-year period.
Cash Used In Financing Activities
During the three months ended March 31, 2022, net cash used in financing activities increased primarily due to principal payments on the secured term loan and mortgage notes payable.
The following tables summarize debt based on our pro rata ownership share, including our pro rata share of unconsolidated affiliates and excluding noncontrolling investors’ share of consolidated properties. Prior to consideration of unamortized deferred financing costs or debt discounts, of our $2,982.3 million outstanding debt at March 31, 2022, $1,674.7 million constituted non-recourse debt obligations and $1,307.6 million constituted recourse debt obligations. We believe the tables below provide investors and lenders a clearer understanding of our total debt obligations and liquidity (in thousands):
March 31, 2022:
Consolidated
Other Debt (1)
Unconsolidated
Affiliates
Rate (2)
Non-recourse loans on operating properties (3)
(29,212
153,719
598,521
1,570,236
4.61%
Senior secured notes - at carrying value (fair value of $395,593 as of March 31, 2022)
10.00%
Recourse loans on operating properties
10,463
3.68%
1,242,208
608,984
1,975,699
5.68%
(13,703
51,753
104,436
3.09%
37,577
3.27%
3.75%
89,330
1,006,624
3.66%
(42,915
698,314
2,982,323
5.00%
(5
(2,012
(4,945
Debt discounts (4)
17,276
(118,532
2,034,469
(25,644
696,302
2,858,846
Mortgage and other indebtedness, net, consisted of the following:
December 31, 2021:
(29,381
92,072
600,598
1,580,216
4.37%
Senior secured notes - at carrying value (fair value of $395,395 as of December 31, 2021)
7.00%
11,724
3.61%
1,461,927
612,322
2,136,940
5.84%
90,691
157,602
2.97%
1,037,693
3.63%
2,408,929
703,013
3,174,633
5.12%
(1,971
(3,538
13,519
(185,634
2,208,209
(15,862
701,042
2,985,461
Represents the outstanding loan balance for properties that were deconsolidated 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 $40,965 as of March 31, 2022 and $41,310 as of December 31, 2021 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%.
In conjunction with fresh start accounting, the Company estimated the fair value of its mortgage notes with the assistance of a third-party valuation advisor. This resulted in recognizing a debt discount upon emergence from bankruptcy on November 1, 2021. The debt discount is accreted over the term of the respective debt using the effective interest method.
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The weighted-average remaining term of our total share of consolidated, unconsolidated and other debt, excluding debt discounts and deferred financing costs, was 3.1 years and 3.3 years at March 31, 2022 and December 31, 2021, respectively. The weighted-average remaining term of our pro rata share of consolidated, unconsolidated and other fixed-rate debt, excluding debt discounts and deferred financing costs, was 2.8 years and 3.2 years at March 31, 2022 and December 31, 2021, respectively.
As of March 31, 2022 and December 31, 2021, our pro rata share of consolidated and unconsolidated variable-rate debt, excluding debt discounts and deferred financing costs, represented 33.8% and 32.8%, respectively, of our total pro rata share of debt, excluding debt discounts and deferred financing costs.
See Note 7 to the condensed consolidated financial statements for information concerning activity related to unconsolidated affiliates.
The decision to declare and pay dividends on any outstanding shares of our common stock, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our board of directors and will depend on our earnings, taxable income, FFO, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our then-current indebtedness, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, Delaware law and such other factors as our board of directors deems relevant. Any dividends payable will be determined by our board of directors based upon the circumstances at the time of declaration. Our actual results of operations will be affected by a number of factors, including the revenues received from our properties, our operating expenses, interest expense, unanticipated capital expenditures and the ability of our anchors and tenants at our properties to meet their obligations for payment of rents and tenant reimbursements.
As a publicly traded company, we previously accessed capital through both the public equity and debt markets. We had a shelf registration statement on Form S-3 on file with the Securities and Exchange Commission (“SEC”) that expired in July 2021. Until we regain Form S-3 eligibility, we will be required to use a registration statement on Form S-11 to register securities with the SEC. On May 6, 2022, we filed a resale registration statement on Form S-11 covering the offer and sale, from time to time, of up to 12,380,260 shares of common stock by the selling shareholders named therein, pursuant to the requirements of the registration rights agreement. We will not receive any proceeds from resales of share of common stock by the selling shareholders pursuant to this registration statement.
Capital Expenditures
The following table, which excludes expenditures for developments, redevelopments and expansions, summarizes our capital expenditures, including our share of unconsolidated affiliates' capital expenditures, for the three months ended March 31, 2022 compared to the same period in 2021 (in thousands):
Tenant allowances (1)
2,867
877
Deferred maintenance:
Parking area and parking area lighting
533
Roof replacements
124
Other capital expenditures
1,822
459
Total deferred maintenance
2,479
Capitalized overhead
449
Capitalized interest
228
Total capital expenditures
6,023
1,613
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
Properties Under Development at March 31, 2022
(Dollars in thousands)
CBL's Share of
Project
Square Feet
Cost to
Date (2)
Opening
Unleveraged
Yield
Outparcel Developments:
Kirkwood Mall - Five Guys, Blaze Pizza, Thrifty White, Pancheros, Chick-fil-A
Bismarck, ND
15,275
7,976
6,233
1,875
Q2 '22
8.9%
Total Cost is presented net of reimbursements to be received. Represents total cost incurred by the Predecessor and the Successor company.
Cost to Date does not reflect reimbursements until they are received. Represents total cost to date incurred by the Predecessor and the Successor.
Off-Balance Sheet Arrangements
We have ownership interests in 27 unconsolidated affiliates as of March 31, 2022 that are described in Note 7 to the condensed consolidated financial statements. The unconsolidated affiliates are accounted for using the equity method of accounting and are reflected in the condensed consolidated balance sheets as investments in unconsolidated affiliates.
The following are circumstances when we may consider entering into a joint venture with a third party:
Third parties may approach us with opportunities in which they have obtained land and performed some pre-development activities, but they may not have sufficient access to the capital resources or the development and leasing expertise to bring the project to fruition. We enter into such arrangements when we determine such a project is viable and we can achieve a satisfactory return on our investment. We typically earn development fees from the joint venture and provide management and leasing services to the property for a fee once the property is placed in operation.
We determine that we may have the opportunity to capitalize on the value we have created in a property by selling an interest in the property to a third party. This provides us with an additional source of capital that can be used to develop or acquire additional real estate assets that we believe will provide greater potential for growth. When we retain an interest in an asset rather than selling a 100% interest, it is typically because this allows us to continue to manage the property, which provides us the ability to earn fees for management, leasing, development and financing services provided to the joint venture.
We also pursue opportunities to contribute available land at our properties into joint venture partnerships for development of primarily non-retail uses such as hotels, office, self-storage and multifamily. We typically partner with developers who have expertise in the non-retail 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 11 to the condensed consolidated financial statements for information related to our guarantees of unconsolidated affiliates' debt as of March 31, 2022 and December 31, 2021.
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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, 2021 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, 2022. Our significant accounting policies are disclosed in Note 4 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Recent Accounting Pronouncements
See Note 2 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. 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.
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 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 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.
We believe that it is important to identify the impact of certain significant items on our FFO measures for a reader to have a complete understanding of our results of operations. Therefore, we have also presented adjusted FFO measures excluding these significant items from the applicable periods. Please refer to the reconciliation of net loss attributable to common shareholders to FFO allocable to Operating Partnership common unitholders below for a description of these adjustments.
34
FFO of the Operating Partnership decreased to $35.0 million for the three months ended March 31, 2022 from $90.2 million for the prior-year period. Excluding the adjustments noted below, FFO of the Operating Partnership, as adjusted, decreased to $57.5 million for the three months ended March 31, 2022 from $68.7 million for the same period in 2021. The decrease in FFO, as adjusted, was primarily driven by the recognition of interest expense in the current period on the secured term loan, the exchangeable notes and the secured notes. We did not recognize interest expense in the prior-year period on the senior unsecured notes and the secured credit facility due to the bankruptcy filing.
The reconciliation of net loss attributable to common shareholders to FFO allocable to Operating Partnership common unitholders is as follows (in thousands):
Noncontrolling interest in loss of Operating Partnership
(698
Depreciation and amortization expense of:
Consolidated properties
Unconsolidated affiliates
8,520
13,530
Non-real estate assets
(198
(541
Noncontrolling interests' share of depreciation and amortization in other consolidated subsidiaries
(899
(581
Gain on depreciable property
FFO allocable to Operating Partnership common unitholders
35,000
90,241
Debt discount accretion, net of noncontrolling interests' share (1)
78,463
Adjustment for unconsolidated affiliates with negative investment (2)
Senior secured notes fair value adjustment (3)
198
Litigation settlement (4)
Non-cash default interest expense (5)
(8,876
11,470
Gain on deconsolidation (6)
Reorganization items, net (7)
FFO allocable to Operating Partnership common
unitholders, as adjusted
57,478
68,655
In conjunction with fresh start accounting upon emergence from bankruptcy, we recognized debt discounts equal to the difference between the outstanding balance of mortgage notes payable and the estimated fair value of such mortgage notes payable. The debt discounts are accreted over the terms of the respective mortgage notes payable using the effective interest method.
Represents our share of the earnings (losses) before depreciation and amortization expense of unconsolidated affiliates where we are not recognizing equity in earnings (losses) because our investment in the unconsolidated affiliate is below zero.
Represents the fair value adjustment recorded on the secured notes as interest expense for the three months ended March 31, 2022. We elected the fair value option in conjunction with the issuance of the secured notes.
Represents a credit to litigation settlement expense in each of the three-month periods ended March 31, 2022 and 2021 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, 2022 includes the reversal of default interest expense when waivers or forbearance agreements were obtained. The three months ended March 31, 2021 includes default interest expense related to loans secured by properties that were in default prior to the bankruptcy filing, as well as loans secured by properties that were in default due to the bankruptcy filing.
(6)
For the three months ended March 31, 2022, the Successor Company deconsolidated Greenbrier Mall due to a loss of control when the property was placed into receivership in connection with the foreclosure process. For the three months ended March 31, 2021, the Predecessor Company 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.
(7)
Represents costs incurred subsequent to the bankruptcy filing, which consists of professional fees, legal fees, retention bonuses, U.S. Trustee fees and debt discounts expensed in accordance with ASC 852.
35
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
2.72
0.30
(0.02
FFO per diluted share
1.25
0.45
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, 2022, a 0.5% increase or decrease in interest rates on variable-rate debt would increase or decrease annual cash flows by approximately $5.0 million.
Based on our proportionate share of total consolidated and unconsolidated debt at March 31, 2022, a 0.5% increase in interest rates would decrease the fair value of debt by approximately $19.2 million, while a 0.5% decrease in interest rates would increase the fair value of debt by approximately $20.7 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 disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. The Company'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 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 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, 2022 and December 31, 2021, management of the Company determined that there was a control deficiency that constituted a material weakness, as described below.
As a result of turnover, the Company 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 internal control over financial reporting and that the Company did not maintain effective internal control over financial reporting as of March 31, 2022 and December 31, 2021 based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (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
During 2021, and the first quarter of 2022, the Company took steps to remediate the material weakness described above, which included hiring additional personnel. The Company is in the process of integrating these personnel in order for its internal controls over financial reporting to operate effectively. The Company continues to explore hiring additional personnel. Also, in the short term, the Company utilized the assistance of external parties to assist with the added reporting requirements brought on by its bankruptcy filing and its subsequent emergence on November 1, 2021.
Until our remediation plan is implemented and operating effectively, management will continue to devote time and attention to these efforts. Management has concluded that, because of the material weakness, our internal control over financial reporting and our disclosure controls and procedures were not effective as of March 31, 2022.
Changes in Internal Control over Financial Reporting
Except for the ongoing implementation of management’s remediation plan for the material weakness discussed above, there were no changes that occurred during the three months ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
37
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
The information in this Item 1 is incorporated by reference herein from Note 11.
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, 2021. 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
Issuance of Shares
On February 1, 2022, we issued 10,982,795 shares of common stock to holders of the Exchangeable Notes in satisfaction of principal, accrued interest and the makewhole payment, and all the Exchangeable Notes were cancelled in accordance with the terms of the indenture. The Company relied on the exemption provided by Section 3(a)(9) of the Securities Act of 1933, as amended, in connection with this exchange.
ITEM 3: Defaults Upon Senior Securities
Not applicable.
ITEM 4: Mine Safety Disclosures
ITEM 5: Other Information
None.
ITEM 6: Exhibits
INDEX TO EXHIBITS
Exhibit
10.1
Form of 2022 Performance Stock Unit Award Agreement under CBL & Associates Properties, Inc. 2021 Equity Incentive Plan (incorporated by reference from the Company's Current Report on Form 8-K, filed on February 23, 2022).
10.2
Forms of 2022 Individual and Entity Assignments of Partnership Interests to CBL & Associates Management, Inc. (incorporated by reference from the Company’s Current Report on Form 8-K, filed on March 29, 2022).
10.3
CBL & Associates Properties, Inc. Named Executive Officer Annual Incentive Compensation Plan (AIP) (Fiscal Year 2022) (incorporated by reference from the Company’s Current Report on Form 8-K, filed on March 29, 2022).
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.
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.
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.)
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.
Date: May 16, 2022
/s/ Farzana Khaleel
Farzana Khaleel
Executive Vice President -
Chief Financial Officer and Treasurer
(Authorized Officer and Principal Financial Officer)