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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 SEPTEMBER 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _______________
 
COMMISSION FILE NO. 1-12494 (CBL & ASSOCIATES PROPERTIES, INC.)
COMMISSION FILE NO. 333-182515-01 (CBL & ASSOCIATES LIMITED PARTNERSHIP)
______________
CBL & ASSOCIATES PROPERTIES INC
CBL & Associates Limited Partnership
(Exact Name of registrant as specified in its charter)
______________
Delaware
(CBL & ASSOCIATES PROPERTIES, INC.)
 
62-1545718
Delaware
(CBL & ASSOCIATES LIMITED PARTNERSHIP)
 
62-1542285
(State or other jurisdiction of incorporation or organization)     
 
 (I.R.S. Employer Identification Number)
                       
 2030 Hamilton Place Blvd., Suite 500, ChattanoogaTN  37421-6000
(Address of principal executive office, including zip code)
423-855-0001
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
CBL & Associates Properties, Inc.
 
Yes
No
CBL & Associates Limited Partnership
 
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).
CBL & Associates Properties, Inc.
 
Yes
No
CBL & Associates Limited Partnership
 
Yes
No
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. 
CBL & Associates Properties, Inc.
 
Large accelerated filer
 
Accelerated filer 
Non-accelerated filer  
 
Smaller reporting company 
Emerging growth company 
 
 
 
 
 
 
 
 
CBL & Associates Limited Partnership
 
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).
CBL & Associates Properties, Inc.
 
 Yes   
No 
CBL & Associates Limited Partnership
 
 Yes   
No 



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Securities registered under Section 12(b) of the Act:
CBL & Associates Properties, Inc.
Title of each Class
Trading
Symbol(s)
Name of each exchange on
which registered
Common Stock, $0.01 par value 
CBL
New York Stock Exchange
7.375% Series D Cumulative Redeemable Preferred Stock, $0.01 par value 
CBLprD
New York Stock Exchange
6.625% Series E Cumulative Redeemable Preferred Stock, $0.01 par value 
CBLprE
New York Stock Exchange
CBL & Associates Limited Partnership: None

As of November 8, 2019, there were 173,503,412 shares of CBL & Associates Properties, Inc.'s common stock, par value $0.01 per share, outstanding.


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EXPLANATORY NOTE
(Dollars in thousands, except share data)
This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2019 of CBL & Associates Properties, Inc. and CBL & Associates Limited Partnership. Unless stated otherwise or the context otherwise requires, references to the "Company" mean CBL & Associates Properties, Inc. and its subsidiaries. References to the "Operating Partnership" mean CBL & Associates Limited Partnership and its subsidiaries. The terms "we," "us" and "our" refer to the Company or the Company and the Operating Partnership collectively, as the context requires.
The Company is a real estate investment trust ("REIT") whose stock is traded on the New York Stock Exchange. The Company is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At September 30, 2019, 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 an 85.6% limited partner interest for a combined interest held by the Company of 86.6%.
As the sole general partner of the Operating Partnership, the Company's subsidiary, CBL Holdings I, Inc., has exclusive control of the Operating Partnership's activities. Management operates the Company and the Operating Partnership as one business. The management of the Company consists of the same individuals that manage the Operating Partnership. The Company's only material asset is its indirect ownership of partnership interests of the Operating Partnership. As a result, the Company conducts substantially all its business through the Operating Partnership as described in the preceding paragraph. The Company also issues public equity from time to time and guarantees certain debt of the Operating Partnership. The Operating Partnership holds all of the assets and indebtedness of the Company and, through affiliates, retains the ownership interests in the Company's joint ventures. Except for the net proceeds of offerings of equity by the Company, which are contributed to the Operating Partnership in exchange for partnership units on a one-for-one basis, the Operating Partnership generates all remaining capital required by the Company's business through its operations and its incurrence of indebtedness.
We believe that combining the two quarterly reports on Form 10-Q for the Company and the Operating Partnership provides the following benefits:
enhances investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner that management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation, since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
To help investors understand the differences between the Company and the Operating Partnership, this report provides separate condensed consolidated financial statements for the Company and the Operating Partnership. Noncontrolling interests, shareholders' equity and partners' capital are the main areas of difference between the condensed consolidated financial statements of the Company and those of the Operating Partnership. A single set of notes to condensed consolidated financial statements is presented that includes separate discussions for the Company and the Operating Partnership, when applicable. A combined Management's Discussion and Analysis of Financial Condition and Results of Operations section is also included that presents combined information and discrete information related to each entity, as applicable.
In order to highlight the differences between the Company and the Operating Partnership, this report includes the following sections that provide separate financial and other information for the Company and the Operating Partnership:
condensed consolidated financial statements;
certain accompanying notes to condensed consolidated financial statements, including Note 7 - Unconsolidated Affiliates and Noncontrolling Interests; Note 8 - Mortgage and Other Indebtedness, Net; and Note 11 - Earnings per Share and Earnings per Unit;
controls and procedures in Item 4 of Part I of this report;
information concerning unregistered sales of equity securities and use of proceeds in Item 2 of Part II of this report; and
certifications of the Chief Executive Officer and Chief Financial Officer included as Exhibits 31.1 through 32.4.


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Combined Guarantor Subsidiaries of the Operating Partnership
In January 2019, the Operating Partnership entered into a new $1,185,000 senior secured credit facility which replaced all of the Operating Partnership’s prior unsecured bank facilities. The secured credit facility is secured by 17 malls and 3 associated centers that are directly or indirectly owned by 36 wholly owned subsidiaries of the Operating Partnership (collectively the “Combined Guarantor Subsidiaries”). The Combined Guarantor Subsidiaries own an additional five malls, two associated centers and four mortgage notes receivable that are not collateral for the secured credit facility. The properties that are collateral for the secured credit facility and the properties and mortgage notes receivable that are not collateral are collectively referred to as the “Guarantor Properties.” In addition to the secured credit facility, the Operating Partnership’s debt includes three separate series of senior unsecured notes (the “Notes”). Based on the terms of the Notes, to the extent that any subsidiary of the Operating Partnership executes and delivers a guarantee to another debt facility, the Operating Partnership shall also cause the subsidiary to guarantee the Operating Partnership’s obligations under the Notes on a senior basis. In January 2019, the Combined Guarantor Subsidiaries entered a guarantee agreement with the issuer of the Notes to satisfy the guaranty requirement.    
This report also includes as an exhibit the combined financial statements and notes to the combined financial statements of the Combined Guarantor Subsidiaries. Each of the Combined Guarantor Subsidiaries meet the criteria in Rule 3-10(f) of SEC Regulation S-X to provide condensed consolidating financial information as additional disclosure in the notes to the Operating Partnership's condensed consolidated financial statements because each Combined Guarantor Subsidiary is 100% owned by the Operating Partnership, the guaranty issued by each Combined Guarantor Subsidiary is full and unconditional and the guaranty issued by each Combined Guarantor Subsidiary is joint and several. However, the Operating Partnership has elected to provide combined financial statements and accompanying notes for the Combined Guarantor Subsidiaries in lieu of including the condensed consolidating financial information in the notes to its condensed consolidated financial statements. These combined financial statements and notes are presented as an exhibit to this quarterly report on Form 10-Q for ease of reference.



Table of Contents

CBL & Associates Properties, Inc.
CBL & Associates Limited Partnership
Table of Contents
PART I
FINANCIAL INFORMATION
1
1
 
 
 
CBL & Associates Properties, Inc.
 
1
 
 
 
 
2
 
 
 
 
3
 
 
 
 
7
 
 
 
CBL & Associates Limited Partnership
 
9
 
 
 
 
10
 
 
 
 
11
 
 
 
 
15
 
 
 
CBL & Associates Properties, Inc. and CBL & Associates Limited Partnership
 
17
 
 
 
46
66
66
 
 
 
67
 
 
 
67
68
68
68
68
68
69
 
 
 
 
70


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PART I – FINANCIAL INFORMATION

ITEM 1:   Financial Statements
CBL & Associates Properties, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
ASSETS (1)
September 30,
2019
 
December 31,
2018
Real estate assets:
 
 
 
Land
$
741,060

 
$
793,944

Buildings and improvements
5,819,655

 
6,414,886

 
6,560,715

 
7,208,830

Accumulated depreciation
(2,404,565
)
 
(2,493,082
)
 
4,156,150

 
4,715,748

Held for sale

 
30,971

Developments in progress
63,891

 
38,807

Net investment in real estate assets
4,220,041

 
4,785,526

Cash and cash equivalents
34,565

 
25,138

Receivables:
 
 
 
Tenant, net of allowance for doubtful accounts of $2,337 in 2018
76,947

 
77,788

Other, net of allowance for doubtful accounts of $838 in 2018
6,577

 
7,511

Mortgage and other notes receivable
5,818

 
7,672

Investments in unconsolidated affiliates
279,934

 
283,553

Intangible lease assets and other assets
146,036

 
153,665

 
$
4,769,918

 
$
5,340,853

 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 

 
 

Mortgage and other indebtedness, net
$
3,699,007

 
$
4,043,180

Accounts payable and accrued liabilities
260,264

 
218,217

Liabilities related to assets held for sale

 
43,716

Total liabilities (1)
3,959,271

 
4,305,113

Commitments and contingencies (Note 8 and Note 12)


 


Redeemable noncontrolling interests
1,864

 
3,575

Shareholders' equity:
 
 
 
Preferred stock, $.01 par value, 15,000,000 shares authorized:
 
 
 
7.375% Series D Cumulative Redeemable Preferred
      Stock, 1,815,000 shares outstanding
18

 
18

6.625% Series E Cumulative Redeemable Preferred
      Stock, 690,000 shares outstanding
7

 
7

Common stock, $.01 par value, 350,000,000 shares
authorized, 173,469,264 and 172,656,458 issued and
outstanding in 2019 and 2018, respectively
1,735

 
1,727

Additional paid-in capital
1,965,230

 
1,968,280

Dividends in excess of cumulative earnings
(1,194,620
)
 
(1,005,895
)
Total shareholders' equity
772,370

 
964,137

Noncontrolling interests
36,413

 
68,028

Total equity
808,783

 
1,032,165

 
$
4,769,918

 
$
5,340,853

(1)
As of September 30, 2019, includes $484,345 of assets related to consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and $346,999 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.

1


CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
REVENUES:
 
 
 
 
 
 
 
Rental revenues
$
180,616

 
$
200,311

 
$
556,989

 
$
620,608

Management, development and leasing fees
2,216

 
2,658

 
7,325

 
8,022

Other
4,419

 
3,909

 
14,344

 
13,046

Total revenues
187,251

 
206,878

 
578,658

 
641,676

 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 

 
 

 
 
 
 
Property operating
(27,344
)
 
(30,004
)
 
(82,856
)
 
(92,357
)
Depreciation and amortization
(64,168
)
 
(71,945
)
 
(198,438
)
 
(217,261
)
Real estate taxes
(18,699
)
 
(19,433
)
 
(57,766
)
 
(61,737
)
Maintenance and repairs
(10,253
)
 
(11,475
)
 
(34,327
)
 
(36,713
)
General and administrative
(12,467
)
 
(16,051
)
 
(48,901
)
 
(47,845
)
Loss on impairment
(135,688
)
 
(14,600
)
 
(202,121
)
 
(84,644
)
Litigation settlement
22,688

 

 
(65,462
)
 

Other
(7
)
 
(38
)
 
(41
)
 
(377
)
Total operating expenses
(245,938
)
 
(163,546
)
 
(689,912
)
 
(540,934
)
 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSES):
 
 
 
 
 
 
 
Interest and other income
1,367

 
283

 
2,212

 
714

Interest expense
(50,515
)
 
(55,194
)
 
(156,995
)
 
(163,164
)
Gain on extinguishment of debt

 

 
71,722

 

Gain on investments/deconsolidation
11,174

 

 
11,174

 
387

Gain on sales of real estate assets
8,056

 
7,880

 
13,811

 
15,998

Income tax benefit (provision)
(1,670
)
 
(1,034
)
 
(2,622
)
 
1,846

Equity in earnings (losses) of unconsolidated affiliates
(1,759
)
 
1,762

 
3,421

 
9,869

Total other expenses
(33,347
)
 
(46,303
)
 
(57,277
)
 
(134,350
)
Net loss
(92,034
)
 
(2,971
)

(168,531
)

(33,608
)
Net (income) loss attributable to noncontrolling interests in:
 

 
 
 
 
 
 
Operating Partnership
13,904

 
1,628

 
27,116

 
8,978

Other consolidated subsidiaries
(763
)
 
(24
)
 
(631
)
 
369

Net loss attributable to the Company
(78,893
)
 
(1,367
)
 
(142,046
)
 
(24,261
)
Preferred dividends
(11,223
)
 
(11,223
)
 
(33,669
)
 
(33,669
)
Net loss attributable to common shareholders
$
(90,116
)
 
$
(12,590
)
 
$
(175,715
)
 
$
(57,930
)
 
 
 
 
 
 
 
 
Basic and diluted per share data attributable to common shareholders:
 
 
Net loss attributable to common shareholders
$
(0.52
)
 
$
(0.07
)
 
$
(1.01
)
 
$
(0.34
)
Weighted-average common and potential dilutive common shares outstanding
173,471

 
172,665

 
173,400

 
172,426


The accompanying notes are an integral part of these condensed consolidated statements.

2


CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands, except share data)
 (Unaudited)
 
 
 
Equity
 
 
 
Shareholders' Equity
 
 
 
 
 
Redeemable
Noncontrolling
Interests
 
Preferred
 Stock
 
Common
 Stock
 
Additional
 Paid-in
 Capital
 
Dividends in
Excess of
Cumulative
Earnings
 
Total
Shareholders'
Equity
 
Noncontrolling
Interests
 
Total
 Equity
Balance, January 1, 2018
$
8,835

 
$
25

 
$
1,711

 
$
1,974,537

 
$
(836,269
)
 
$
1,140,004

 
$
96,474

 
$
1,236,478

Net income (loss)
(94
)
 

 

 

 
903

 
903

 
(1,470
)
 
(567
)
Cumulative effect of accounting change

 

 

 

 
70,380

 
70,380

 

 
70,380

Dividends declared - common stock ($0.200 per share)

 

 

 

 
(34,531
)
 
(34,531
)
 

 
(34,531
)
Dividends declared - preferred stock

 

 

 

 
(11,223
)
 
(11,223
)
 

 
(11,223
)
Issuances of 700,534 shares of common stock and restricted common stock

 

 
7

 
734

 

 
741

 

 
741

Conversion of 915,338 Operating Partnership common units into shares of common stock

 

 
9

 
3,050

 

 
3,059

 
(3,059
)
 

Cancellation of 47,867 shares of restricted common stock

 

 

 
(233
)
 

 
(233
)
 

 
(233
)
Performance stock units

 

 

 
419

 

 
419

 

 
419

Amortization of deferred compensation

 

 

 
1,196

 

 
1,196

 

 
1,196

Adjustment for noncontrolling interests
1,399

 

 

 
(11,737
)
 

 
(11,737
)
 
10,338

 
(1,399
)
Adjustment to record redeemable noncontrolling interests at redemption value
(2,530
)
 

 

 
2,203

 

 
2,203

 
328

 
2,531

Distributions to noncontrolling interests
(1,143
)
 

 

 

 

 

 
(7,804
)
 
(7,804
)
Balance, March 31, 2018
6,467

 
25

 
1,727

 
1,970,169

 
(810,740
)
 
1,161,181

 
94,807

 
1,255,988

Net loss
(324
)
 

 

 

 
(23,797
)
 
(23,797
)
 
(5,855
)
 
(29,652
)
Dividends declared - common stock ($0.200 per share)

 

 

 

 
(34,532
)
 
(34,532
)
 

 
(34,532
)
Dividends declared - preferred stock

 

 

 

 
(11,223
)
 
(11,223
)
 

 
(11,223
)
Issuances of 8,579 shares of common stock and restricted common stock

 

 

 
37

 

 
37

 

 
37

Redemption of Operating Partnership common units

 

 

 

 

 

 
(2,246
)
 
(2,246
)
Cancellation of 3,654 shares of restricted common stock

 

 

 
(3
)
 

 
(3
)
 

 
(3
)
Performance stock units

 

 

 
275

 

 
275

 

 
275

Amortization of deferred compensation

 

 

 
814

 

 
814

 

 
814

Adjustment for noncontrolling interests
829

 

 

 
(2,300
)
 

 
(2,300
)
 
1,469

 
(831
)
Adjustment to record redeemable noncontrolling interests at redemption value
2,865

 

 

 
(2,501
)
 

 
(2,501
)
 
(363
)
 
(2,864
)
Contributions from noncontrolling interests

 

 

 

 

 

 
7,859

 
7,859

Distributions to noncontrolling interests
(1,143
)
 

 

 

 

 

 
(7,169
)
 
(7,169
)
Balance, June 30, 2018
8,694

 
25

 
1,727

 
1,966,491

 
(880,292
)
 
1,087,951

 
88,502

 
1,176,453


3


Net loss
(97
)
 

 

 

 
(1,367
)
 
(1,367
)
 
(1,507
)
 
(2,874
)
Dividends declared - common stock ($0.200 per share)

 

 

 

 
(34,534
)
 
(34,534
)
 

 
(34,534
)
Dividends declared - preferred stock

 

 

 

 
(11,223
)
 
(11,223
)
 

 
(11,223
)
Issuances of 7,177 shares of common stock and restricted common stock

 

 

 
39

 

 
39

 

 
39

Cancellation of 5,012 shares of restricted common stock

 

 

 
(13
)
 

 
(13
)
 

 
(13
)
Performance stock units

 

 

 
299

 

 
299

 

 
299

Forfeiture of performance stock units

 

 

 
(250
)
 

 
(250
)
 

 
(250
)
Amortization of deferred compensation

 

 

 
836

 

 
836

 

 
836

Adjustment for noncontrolling interests
805

 

 

 
(1,292
)
 

 
(1,292
)
 
489

 
(803
)
Adjustment to record redeemable noncontrolling interests at redemption value
(2,031
)
 

 

 
1,772

 

 
1,772

 
257

 
2,029

Distributions to noncontrolling interests
(1,143
)
 

 

 

 

 

 
(8,466
)
 
(8,466
)
Balance, September 30, 2018
$
6,228

 
$
25

 
$
1,727

 
$
1,967,882

 
$
(927,416
)
 
$
1,042,218

 
$
79,275

 
$
1,121,493



4


CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands, except share data)
(Unaudited)
(Continued)
 
 
 
Equity
 
 
 
Shareholders' Equity
 
 
 
 
 
Redeemable
Noncontrolling
Interests
 
Preferred
 Stock
 
Common
 Stock
 
Additional
 Paid-in
 Capital
 
Dividends in
Excess of
Cumulative
Earnings
 
Total
Shareholders'
Equity
 
Noncontrolling
 Interests
 
Total
 Equity
Balance, January 1, 2019
$
3,575

 
$
25

 
$
1,727

 
$
1,968,280

 
$
(1,005,895
)
 
$
964,137

 
$
68,028

 
$
1,032,165

Net loss
(453
)
 

 

 

 
(38,976
)
 
(38,976
)
 
(7,380
)
 
(46,356
)
Dividends declared - common stock ($0.075 per share)

 

 

 

 
(13,010
)
 
(13,010
)
 

 
(13,010
)
Dividends declared - preferred stock

 

 

 

 
(11,223
)
 
(11,223
)
 

 
(11,223
)
Issuances of 863,174 shares of common stock
and restricted common stock

 

 
9

 
708

 

 
717

 

 
717

Cancellation of 57,656 shares of restricted common stock

 

 
(1
)
 
(133
)
 

 
(134
)
 

 
(134
)
Performance stock units

 

 

 
313

 

 
313

 

 
313

Amortization of deferred compensation

 

 

 
1,033

 

 
1,033

 

 
1,033

Adjustment for noncontrolling interests
1,038

 

 

 
(2,356
)
 

 
(2,356
)
 
1,318

 
(1,038
)
Contributions from noncontrolling interests

 

 

 

 

 

 
455

 
455

Distributions to noncontrolling interests
(1,143
)
 

 

 

 

 

 
(4,450
)
 
(4,450
)
Balance, March 31, 2019
3,017

 
25

 
1,735

 
1,967,845

 
(1,069,104
)
 
900,501

 
57,971

 
958,472

Net loss
(317
)
 

 

 

 
(24,177
)
 
(24,177
)
 
(5,194
)
 
(29,371
)
Dividends declared - preferred stock

 

 

 

 
(11,223
)
 
(11,223
)
 

 
(11,223
)
Issuances of 15,634 shares of common stock and restricted common stock

 

 

 
21

 

 
21

 

 
21

Cancellation of 5,717 shares of restricted common stock

 

 

 
(5
)
 

 
(5
)
 

 
(5
)
Performance stock units

 

 

 
312

 

 
312

 

 
312

Amortization of deferred compensation

 

 

 
587

 

 
587

 

 
587

Adjustment for noncontrolling interests
1,130

 

 

 
(2,211
)
 

 
(2,211
)
 
1,081

 
(1,130
)
Contributions from noncontrolling interests

 

 

 

 

 

 
4,148

 
4,148

Distributions to noncontrolling interests
(1,143
)
 

 

 

 

 

 
(3,225
)
 
(3,225
)
Balance, June 30, 2019
2,687

 
25

 
1,735

 
1,966,549

 
(1,104,504
)
 
863,805

 
54,781

 
918,586


5


Net loss
(811
)
 

 

 

 
(78,893
)
 
(78,893
)
 
(12,330
)
 
(91,223
)
Dividends declared - preferred stock

 

 

 

 
(11,223
)
 
(11,223
)
 

 
(11,223
)
Issuances of 1,681 shares of common stock and restricted common stock

 

 

 
2

 

 
2

 

 
2

Cancellation of 4,310 shares of restricted common stock

 

 

 
(4
)
 

 
(4
)
 

 
(4
)
Performance stock units

 

 

 
313

 

 
313

 

 
313

Amortization of deferred compensation

 

 

 
591

 

 
591

 

 
591

Adjustment for noncontrolling interests
1,131

 

 

 
(2,221
)
 

 
(2,221
)
 
1,089

 
(1,132
)
Distributions to noncontrolling interests
(1,143
)
 

 

 

 

 

 
(2,857
)
 
(2,857
)
Deconsolidation of investment

 

 

 

 

 

 
(4,270
)
 
(4,270
)
Balance, September 30, 2019
$
1,864

 
$
25

 
$
1,735

 
$
1,965,230

 
$
(1,194,620
)
 
$
772,370

 
$
36,413

 
$
808,783


The accompanying notes are an integral part of these condensed consolidated statements.


6



CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 
Nine Months Ended
September 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 
Net loss
$
(168,531
)
 
$
(33,608
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 

Depreciation and amortization
198,438

 
217,261

Net amortization of deferred financing costs, debt premiums and discounts
6,328

 
5,451

Net amortization of intangible lease assets and liabilities
(1,212
)
 
198

Gain on sales of real estate assets
(13,811
)
 
(15,998
)
Gain on insurance proceeds
(421
)
 

Gain on investments/deconsolidation
(11,174
)
 
(387
)
Write-off of development projects
41

 
377

Share-based compensation expense
3,838

 
4,310

Loss on impairment
202,121

 
84,644

Gain on extinguishment of debt
(71,722
)
 

Equity in earnings of unconsolidated affiliates
(3,421
)
 
(9,869
)
Distributions of earnings from unconsolidated affiliates
15,635

 
12,574

Change in estimate of uncollectable rental revenues
1,504

 
3,273

Change in deferred tax accounts
1,026

 
(2,706
)
Changes in:
 
 
 

Tenant and other receivables
(2,926
)
 
3,493

Other assets
(5,541
)
 
(4,640
)
Accounts payable and accrued liabilities
75,071

 
16,034

Net cash provided by operating activities
225,243

 
280,407

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Additions to real estate assets
(90,436
)
 
(107,981
)
Acquisitions of real estate assets

 
(3,301
)
Proceeds from sales of real estate assets
128,364

 
70,419

Proceeds from disposal of investment
9,225

 

Proceeds from insurance
740

 

Payments received on mortgage and other notes receivable
1,853

 
775

Additional investments in and advances to unconsolidated affiliates
(2,634
)
 
(2,243
)
Distributions in excess of equity in earnings of unconsolidated affiliates
11,255

 
33,909

Changes in other assets
(2,497
)
 
(5,903
)
Net cash provided by (used in) investing activities
55,870

 
(14,325
)

7


CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
(Continued)

 
Nine Months Ended
September 30,
 
2019
 
2018
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from mortgage and other indebtedness
$
1,043,496

 
$
530,679

Principal payments on mortgage and other indebtedness
(1,232,480
)
 
(649,904
)
Additions to deferred financing costs
(15,545
)
 
(238
)
Proceeds from issuances of common stock
39

 
117

Purchases of noncontrolling interests in the Operating Partnership

 
(2,246
)
Contributions from noncontrolling interests
4,603

 
7,859

Payment of tax withholdings for restricted stock awards
(132
)
 
(271
)
Distributions to noncontrolling interests
(15,722
)
 
(27,156
)
Dividends paid to holders of preferred stock
(33,669
)
 
(33,669
)
Dividends paid to common shareholders
(25,959
)
 
(103,280
)
Net cash used in financing activities
(275,369
)
 
(278,109
)
 
 
 
 
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
5,744

 
(12,027
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
57,512

 
68,172

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
63,256

 
$
56,145

 
 
 
 
Reconciliation from condensed consolidated statements of cash flows to condensed consolidated balance sheets:
Cash and cash equivalents
$
34,565

 
$
20,695

Restricted cash (1):
 
 
 
Restricted cash
180

 
4,681

Mortgage escrows
28,511

 
30,769

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
63,256

 
$
56,145

 
 
 
 
SUPPLEMENTAL INFORMATION:
 

 
 

Cash paid for interest, net of amounts capitalized
$
136,117

 
$
136,301

(1)
Included in intangible lease assets and other assets in the condensed consolidated balance sheets.
 
The accompanying notes are an integral part of these condensed consolidated statements.


8


CBL & Associates Limited Partnership
Condensed Consolidated Balance Sheets
(In thousands, except unit data)
(Unaudited)
ASSETS (1)
September 30,
2019
 
December 31,
2018
Real estate assets:
 
 
 
Land
$
741,060

 
$
793,944

Buildings and improvements
5,819,655

 
6,414,886

 
6,560,715

 
7,208,830

Accumulated depreciation
(2,404,565
)
 
(2,493,082
)
 
4,156,150

 
4,715,748

Held for sale

 
30,971

Developments in progress
63,891

 
38,807

Net investment in real estate assets
4,220,041

 
4,785,526

Cash and cash equivalents
34,562

 
25,138

Receivables:
 

 
 

Tenant, net of allowance for doubtful accounts of $2,337 in 2018
76,947

 
77,788

Other, net of allowance for doubtful accounts of $838 in 2018
6,528

 
7,462

Mortgage and other notes receivable
5,818

 
7,672

Investments in unconsolidated affiliates
280,466

 
284,086

Intangible lease assets and other assets
145,917

 
153,545

 
$
4,770,279

 
$
5,341,217

 
 
 
 
LIABILITIES, REDEEMABLE INTERESTS AND CAPITAL
 

 
 

Mortgage and other indebtedness, net
$
3,699,007

 
$
4,043,180

Accounts payable and accrued liabilities
260,335

 
218,288

Liabilities related to assets held for sale

 
43,716

Total liabilities (1)
3,959,342

 
4,305,184

Commitments and contingencies (Note 8 and Note 12)


 


 Redeemable common units  
1,864

 
3,575

Partners' capital:
 

 
 

Preferred units
565,212

 
565,212

Common units:
 
 
 
 General partner
2,388

 
4,628

 Limited partners
233,339

 
450,507

Total partners' capital
800,939

 
1,020,347

Noncontrolling interests
8,134

 
12,111

Total capital
809,073

 
1,032,458

 
$
4,770,279

 
$
5,341,217

(1)
As of September 30, 2019, includes $484,345 of assets related to consolidated variable interest entities that can only be used to settle obligations of the consolidated variable interest entities and $346,999 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Operating Partnership. See Note 7.

The accompanying notes are an integral part of these condensed consolidated statements.

9


CBL & Associates Limited Partnership
Condensed Consolidated Statements of Operations
(In thousands, except per unit data)
(Unaudited)

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
REVENUES:
 
 
 
 
 
 
 
Rental revenues
$
180,616

 
$
200,311

 
$
556,989

 
$
620,608

Management, development and leasing fees
2,216

 
2,658

 
7,325

 
8,022

Other
4,419

 
3,909

 
14,344

 
13,046

Total revenues
187,251

 
206,878

 
578,658

 
641,676

 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 

 
 

 
 
 
 
Property operating
(27,344
)
 
(30,004
)
 
(82,856
)
 
(92,357
)
Depreciation and amortization
(64,168
)
 
(71,945
)
 
(198,438
)
 
(217,261
)
Real estate taxes
(18,699
)
 
(19,433
)
 
(57,766
)
 
(61,737
)
Maintenance and repairs
(10,253
)
 
(11,475
)
 
(34,327
)
 
(36,713
)
General and administrative
(12,467
)
 
(16,051
)
 
(48,901
)
 
(47,845
)
Loss on impairment
(135,688
)
 
(14,600
)
 
(202,121
)
 
(84,644
)
Litigation settlement
22,688

 

 
(65,462
)
 

Other
(7
)
 
(38
)
 
(41
)
 
(377
)
Total operating expenses
(245,938
)
 
(163,546
)
 
(689,912
)
 
(540,934
)
 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSES):
 
 
 
 
 
 
 
Interest and other income
1,367

 
283

 
2,212

 
714

Interest expense
(50,515
)
 
(55,194
)
 
(156,995
)
 
(163,164
)
Gain on extinguishment of debt

 

 
71,722

 

Gain on investments/deconsolidation
11,174

 

 
11,174

 
387

Gain on sales of real estate assets
8,056

 
7,880

 
13,811

 
15,998

Income tax benefit (provision)
(1,670
)
 
(1,034
)
 
(2,622
)
 
1,846

Equity in earnings (losses) of unconsolidated affiliates
(1,759
)
 
1,762

 
3,421

 
9,869

Total other expenses
(33,347
)
 
(46,303
)
 
(57,277
)
 
(134,350
)
Net loss
(92,034
)
 
(2,971
)

(168,531
)

(33,608
)
Net (income) loss attributable to noncontrolling interests
(763
)
 
(24
)
 
(631
)
 
369

Net loss attributable to the Operating Partnership
(92,797
)
 
(2,995
)
 
(169,162
)
 
(33,239
)
Distributions to preferred unitholders
(11,223
)
 
(11,223
)
 
(33,669
)
 
(33,669
)
Net loss attributable to common unitholders
$
(104,020
)
 
$
(14,218
)
 
$
(202,831
)
 
$
(66,908
)
 
 
 
 
 
 
 
 
Basic and diluted per unit data attributable to common unitholders:
 
 
Net loss attributable to common unitholders
$
(0.52
)
 
$
(0.07
)
 
$
(1.01
)
 
$
(0.34
)
Weighted-average common and potential dilutive common units outstanding
200,230

 
199,432

 
200,158

 
199,630


The accompanying notes are an integral part of these condensed consolidated statements.

10


CBL & Associates Limited Partnership
Condensed Consolidated Statements of Capital
(In thousands)
 (Unaudited)
 
 
 
 
Number of
 
 
 
Common Units
 
 
 
 
 
 
 
 
Redeemable
Common
Units
 
Preferred
Units
 
Common
Units
 
Preferred
Units
 
General
Partner
 
Limited
Partners
 
Total
Partners'
Capital
 
Noncontrolling
Interests
 
Total
Capital
Balance, January 1, 2018
 
$
8,835

 
25,050

 
199,297

 
$
565,212

 
$
6,735

 
$
655,120

 
$
1,227,067

 
$
9,701

 
$
1,236,768

Net income (loss)
 
(94
)
 

 

 
11,223

 
(122
)
 
(11,769
)
 
(668
)
 
101

 
(567
)
Cumulative effect of accounting change
 

 

 

 

 
722

 
69,658

 
70,380

 

 
70,380

Distributions declared - common units ($0.209 per unit)
 
(1,143
)
 

 

 

 
(402
)
 
(40,215
)
 
(40,617
)
 

 
(40,617
)
Distributions declared - preferred units
 

 

 

 
(11,223
)
 

 

 
(11,223
)
 

 
(11,223
)
Issuances of common units
 

 

 
701

 

 

 
741

 
741

 

 
741

Cancellation of restricted common stock
 

 

 
(48
)
 

 

 
(233
)
 
(233
)
 

 
(233
)
Performance stock units
 

 

 

 

 
4

 
415

 
419

 

 
419

Amortization of deferred compensation
 

 

 

 

 
12

 
1,184

 
1,196

 

 
1,196

Allocation of partners' capital
 
1,399

 

 

 

 
(48
)
 
(1,353
)
 
(1,401
)
 

 
(1,401
)
Adjustment to record redeemable interests at redemption value
 
(2,530
)
 

 

 

 
26

 
2,505

 
2,531

 

 
2,531

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 
(1,718
)
 
(1,718
)
Balance, March 31, 2018
 
6,467

 
25,050

 
199,950

 
565,212

 
6,927

 
676,053

 
1,248,192

 
8,084

 
1,256,276

Net loss
 
(324
)
 

 

 
11,223

 
(415
)
 
(39,966
)
 
(29,158
)
 
(494
)
 
(29,652
)
Distributions declared - common units ($0.209 per unit)
 
(1,143
)
 

 

 

 
(403
)
 
(40,110
)
 
(40,513
)
 

 
(40,513
)
Distributions declared - preferred units
 

 

 

 
(11,223
)
 

 

 
(11,223
)
 

 
(11,223
)
Issuances of common units
 

 

 
8

 

 

 
37

 
37

 

 
37

Redemptions of common units
 

 

 
(527
)
 

 

 
(2,246
)
 
(2,246
)
 

 
(2,246
)
Cancellation of restricted common stock
 

 

 
(3
)
 

 

 
(3
)
 
(3
)
 

 
(3
)
Performance stock units
 

 

 

 

 
3

 
272

 
275

 

 
275

Amortization of deferred compensation
 

 

 

 

 
9

 
805

 
814

 

 
814

Allocation of partners' capital
 
829

 

 

 

 
(18
)
 
(805
)
 
(823
)
 

 
(823
)
Adjustment to record redeemable interests at redemption value
 
2,865

 

 

 

 
(29
)
 
(2,835
)
 
(2,864
)
 

 
(2,864
)
Contributions from noncontrolling interests
 

 

 

 

 

 

 

 
7,859

 
7,859

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 
(1,188
)
 
(1,188
)
Balance, June 30, 2018
 
8,694

 
25,050

 
199,428

 
565,212

 
6,074

 
591,202

 
1,162,488

 
14,261

 
1,176,749


11


Net loss
 
(97
)
 

 

 
11,223

 
(145
)
 
(13,976
)
 
(2,898
)
 
24

 
(2,874
)
Distributions declared - common units ($0.209 per unit)
 
(1,143
)
 

 

 

 
(402
)
 
(40,111
)
 
(40,513
)
 

 
(40,513
)
Distributions declared - preferred units
 

 

 

 
(11,223
)
 

 

 
(11,223
)
 

 
(11,223
)
Issuances of common units
 

 

 
7

 

 

 
39

 
39

 

 
39

Cancellation of restricted common stock
 

 

 
(6
)
 

 

 
(13
)
 
(13
)
 

 
(13
)
Performance stock units
 

 

 

 

 
3

 
296

 
299

 

 
299

Forfeiture of performance stock units
 

 

 

 

 
(3
)
 
(247
)
 
(250
)
 

 
(250
)
Amortization of deferred compensation
 

 

 

 

 
8

 
828

 
836

 

 
836

Allocation of partners' capital
 
805

 

 

 

 
(15
)
 
(836
)
 
(851
)
 

 
(851
)
Adjustment to record redeemable interests at redemption value
 
(2,031
)
 

 

 

 
20

 
2,009

 
2,029

 

 
2,029

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 
(2,486
)
 
(2,486
)
Balance, September 30, 2018
 
$
6,228

 
25,050

 
199,429

 
$
565,212

 
$
5,540

 
$
539,191

 
$
1,109,943

 
$
11,799

 
$
1,121,742





12


CBL & Associates Limited Partnership
Condensed Consolidated Statements of Capital
(In thousands)
(Unaudited)
(Continued)
 
 
 
Number of
 
 
 
Common Units
 
 
 
 
 
 
 
Redeemable
Common
Units
 
Preferred
Units
 
Common
Units
 
Preferred
Units
 
General
Partner
 
Limited
Partners
 
Total
Partners'
Capital
 
Noncontrolling
Interests
 
Total
Capital
Balance, January 1, 2019
$
3,575

 
25,050

 
199,415

 
$
565,212

 
$
4,628

 
$
450,507

 
$
1,020,347

 
$
12,111

 
$
1,032,458

Net loss
(453
)
 

 

 
11,223

 
(590
)
 
(56,914
)
 
(46,281
)
 
(75
)
 
(46,356
)
Distributions declared - common units ($0.086 per unit)
(1,143
)
 

 

 

 
(151
)
 
(15,897
)
 
(16,048
)
 

 
(16,048
)
Distributions declared - preferred units

 

 

 
(11,223
)
 

 

 
(11,223
)
 

 
(11,223
)
Issuances of common units

 

 
863

 

 

 
717

 
717

 

 
717

Cancellation of restricted common stock

 

 
(58
)
 

 

 
(133
)
 
(133
)
 

 
(133
)
Performance stock units

 

 

 

 
3

 
309

 
312

 

 
312

Amortization of deferred compensation

 

 

 

 
11

 
1,022

 
1,033

 

 
1,033

Allocation of partners' capital
1,038

 

 

 

 
(34
)
 
(1,004
)
 
(1,038
)
 

 
(1,038
)
Contributions from noncontrolling interests

 

 

 

 

 

 

 
455

 
455

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(1,412
)
 
(1,412
)
Balance, March 31, 2019
3,017

 
25,050

 
200,220

 
565,212

 
3,867

 
378,607

 
947,686

 
11,079

 
958,765

Net loss
(317
)
 

 

 
11,223

 
(414
)
 
(40,123
)
 
(29,314
)
 
(57
)
 
(29,371
)
Distributions declared - common units ($0.012 per unit) (1)
(1,143
)
 

 

 

 

 
(1,239
)
 
(1,239
)
 

 
(1,239
)
Distributions declared - preferred units

 

 

 
(11,223
)
 

 

 
(11,223
)
 

 
(11,223
)
Issuances of common units

 

 
15

 

 

 
(17
)
 
(17
)
 

 
(17
)
Cancellation of restricted common stock

 

 
(5
)
 

 

 
(6
)
 
(6
)
 

 
(6
)
Performance stock units

 

 

 

 
3

 
310

 
313

 

 
313

Amortization of deferred compensation

 

 

 

 
6

 
581

 
587

 

 
587

Allocation of partners' capital
1,130

 

 

 

 
(14
)
 
(1,116
)
 
(1,130
)
 

 
(1,130
)
Contributions from noncontrolling interests

 

 

 

 

 

 

 
4,148

 
4,148

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(1,948
)
 
(1,948
)
Balance, June 30, 2019
2,687

 
25,050

 
200,230

 
565,212

 
3,448

 
336,997

 
905,657

 
13,222

 
918,879


13


Net income (loss)
(811
)
 

 

 
11,223

 
(1,056
)
 
(102,153
)
 
(91,986
)
 
763

 
(91,223
)
Distributions declared - common units ($0.012 per unit) (1)
(1,143
)
 

 

 

 

 
(1,314
)
 
(1,314
)
 

 
(1,314
)
Distributions declared - preferred units

 

 

 
(11,223
)
 

 

 
(11,223
)
 

 
(11,223
)
Issuances of common units

 

 
2

 

 

 
39

 
39

 

 
39

Cancellation of restricted common stock

 

 
(4
)
 

 

 
(4
)
 
(4
)
 

 
(4
)
Performance stock units

 

 

 

 
4

 
309

 
313

 

 
313

Amortization of deferred compensation

 

 

 

 
6

 
585

 
591

 

 
591

Allocation of partners' capital
1,131

 

 

 

 
(14
)
 
(1,120
)
 
(1,134
)
 

 
(1,134
)
Distributions to noncontrolling interests

 

 

 

 

 

 

 
(1,581
)
 
(1,581
)
Deconsolidation of investment

 

 

 

 

 

 

 
(4,270
)
 
(4,270
)
Balance, September 30, 2019
$
1,864

 
25,050

 
200,228

 
$
565,212

 
$
2,388

 
$
233,339

 
$
800,939

 
$
8,134

 
$
809,073

(1)
$0.740 per special common unit
The accompanying notes are an integral part of these condensed consolidated statements.


14



CBL & Associates Limited Partnership
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 
Nine Months Ended
September 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 
Net loss
$
(168,531
)
 
$
(33,608
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 

Depreciation and amortization
198,438

 
217,261

Net amortization of deferred financing costs, debt premiums and discounts
6,328

 
5,451

Net amortization of intangible lease assets and liabilities
(1,212
)
 
198

Gain on sales of real estate assets
(13,811
)
 
(15,998
)
Gain on insurance proceeds
(421
)
 

Gain on investments/deconsolidation
(11,174
)
 
(387
)
Write-off of development projects
41

 
377

Share-based compensation expense
3,838

 
4,310

Loss on impairment
202,121

 
84,644

Gain on extinguishment of debt
(71,722
)
 

Equity in earnings of unconsolidated affiliates
(3,421
)
 
(9,869
)
Distributions of earnings from unconsolidated affiliates
15,636

 
12,569

Change in estimate of uncollectable rental revenues
1,504

 
3,273

Change in deferred tax accounts
1,026

 
(2,706
)
Changes in:
 

 
 

Tenant and other receivables
(2,926
)
 
3,493

Other assets
(5,541
)
 
(4,640
)
Accounts payable and accrued liabilities
75,067

 
16,039

Net cash provided by operating activities
225,240

 
280,407

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Additions to real estate assets
(90,436
)
 
(107,981
)
Acquisition of real estate assets

 
(3,301
)
Proceeds from sales of real estate assets
128,364

 
70,419

Proceeds from disposal of investment
9,225

 

Proceeds from insurance
740

 

Payments received on mortgage and other notes receivable
1,853

 
775

Additional investments in and advances to unconsolidated affiliates
(2,634
)
 
(2,243
)
Distributions in excess of equity in earnings of unconsolidated affiliates
11,255

 
33,909

Changes in other assets
(2,497
)
 
(5,903
)
Net cash provided by (used in) investing activities
55,870

 
(14,325
)

15


CBL & Associates Limited Partnership
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
(Continued)

 
Nine Months Ended
September 30,
 
2019
 
2018
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from mortgage and other indebtedness
$
1,043,496

 
$
530,679

Principal payments on mortgage and other indebtedness
(1,232,480
)
 
(649,904
)
Additions to deferred financing costs
(15,545
)
 
(238
)
Proceeds from issuances of common units
39

 
117

Redemptions of common units

 
(2,246
)
Contributions from noncontrolling interests
4,603

 
7,859

Payment of tax withholdings for restricted stock awards
(132
)
 
(271
)
Distributions to noncontrolling interests
(8,369
)
 
(8,821
)
Distributions to preferred unitholders
(33,669
)
 
(33,669
)
Distributions to common unitholders
(33,312
)
 
(121,615
)
Net cash used in financing activities
(275,369
)
 
(278,109
)
 
 
 
 
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
5,741

 
(12,027
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
57,512

 
68,172

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
63,253

 
$
56,145

 
 
 
 
Reconciliation from condensed consolidated statements of cash flows to condensed consolidated balance sheets:
Cash and cash equivalents
$
34,562

 
$
20,695

Restricted cash (1):
 
 
 
Restricted cash
180

 
4,681

Mortgage escrows
28,511

 
30,769

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
63,253

 
$
56,145

 
 
 
 
SUPPLEMENTAL INFORMATION:
 

 
 

Cash paid for interest, net of amounts capitalized
$
136,117

 
$
136,301

(1)
Included in intangible lease assets and other assets in the condensed consolidated balance sheets.

 
The accompanying notes are an integral part of these condensed consolidated statements.


16


CBL & Associates Properties, Inc.
CBL & Associates Limited Partnership
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per share and per unit data)
Note 1 – Organization and Basis of Presentation
Unless stated otherwise or the context otherwise requires, references to the "Company" mean CBL & Associates Properties, Inc. and its subsidiaries. References to the "Operating Partnership" mean CBL & Associates Limited Partnership and its subsidiaries.
CBL & Associates Properties, Inc. (“CBL”), a Delaware corporation, is a self-managed, self-administered, fully-integrated real estate investment trust (“REIT”) that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers and office properties.  Its properties are located in 26 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 September 30, 2019, the Operating Partnership owned interests in the following properties:
 
 
 
Other Properties
 
 
 
Malls (1)
 
Associated
Centers
 
Community
Centers
 
Office
Buildings/Other
 
Total
Consolidated properties
55
 
20
 
1
 
4
(2) 
80
Unconsolidated properties (3)
8
 
3
 
5
 
2
 
18
Total
63
 
23
 
6
 
6
 
98
(1)
Category consists of regional malls, open-air centers and outlet centers (including one mixed-use center).
(2)
Includes CBL's two corporate office buildings.
(3)
The Operating Partnership accounts for these investments using the equity method because one or more of the other partners have substantive participating rights.

At September 30, 2019, the Operating Partnership had interests in the following properties under development:
 
Consolidated Properties
 
Unconsolidated Properties
 
Malls
 
All Other
 
Malls
 
All Other
Development
 
 
 
2
Redevelopments
6
 
 
 

CBL is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At September 30, 2019, 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 an 85.6% limited partner interest for a combined interest held by CBL of 86.6%.
The noncontrolling interest in the Operating Partnership is held by CBL & Associates, Inc., its shareholders and affiliates and certain senior officers of the Company (collectively "CBL's Predecessor"), all of which contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for a limited partner interest when the Operating Partnership was formed in November 1993, and by various third parties. At September 30, 2019, CBL’s Predecessor owned a 9.1% limited partner interest and third parties owned a 4.3% limited partner interest in the Operating Partnership.  CBL's Predecessor also owned 4.3 million shares of CBL’s common stock at September 30, 2019, for a total combined effective interest of 11.2% in the Operating Partnership.
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 of 1986, as amended (the “Internal Revenue Code”).

17


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 of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. All intercompany transactions have been eliminated. The results for the interim period ended September 30, 2019 are not necessarily indicative of the results to be obtained for the full fiscal year.
These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2018.
Reclassifications
Certain reclassifications have been made to amounts in the Company's prior-year financial statements to conform to the current period presentation. The Company reclassified certain amounts related to operating expense reimbursements in its condensed consolidated statements of operations for the three and nine months ended September 30, 2018 related to the adoption of ASC 606. As a result, operating expense reimbursements of $2,086 and $6,597, previously included in tenant reimbursements, were reclassified to other revenues for the three months and nine months ended September 30, 2018, respectively. Additionally, the Company reclassified minimum rents, percentage rents, other rents and tenant reimbursements into one line item, rental revenues, for the three and nine months ended September 30, 2018 related to the adoption of ASC 842. Lastly, in accordance with ASC 360, and in response to the SEC's "Disclosure Update and Simplification" release effective November 5, 2018, the Company reclassified gains and losses resulting from wholly owned real estate dispositions from the line item following "Income (loss) from continuing operations before gain on sales of real estate assets" to the "Other Income (Expenses)" section within its condensed consolidated statements of operations. As a result, in the condensed consolidated statements of operations, the Company reclassified $7,880 and $15,998 to the "Other Income (Expenses)" section for the three and nine months ended September 30, 2018, respectively.
Note 2 – Recent Accounting Pronouncements
Accounting Guidance Adopted    
Description
 
Date Adopted &
Application
Method
 
Financial Statement Effect and Other Information
ASU 2016-02, Leases, and related subsequent amendments
 
January 1, 2019 -
Modified Retrospective (elected optional transition method to apply at adoption date and record cumulative-effect adjustment as of January 1, 2019)
 
The objective of the leasing guidance is to increase transparency and comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Putting nearly all leases on the balance sheet is the biggest change for lessees, as lessees will now be required to recognize a right-of-use (“ROU”) asset and corresponding lease liability for leases with terms greater than 12 months. Under the FASB model, lessees will classify a lease as either a finance lease or an operating lease, while a lessor will classify a lease as either a sales-type, direct financing, or operating lease. A lessee should classify a lease based on whether the arrangement is effectively a purchase of the underlying asset. Leases that transfer control of the underlying asset to a lessee are classified as finance leases for lessees and sales-type leases for lessors, whereas leases where the lessee obtains control of only the use of the underlying asset, but not the underlying asset itself, will be classified as operating leases for both lessees and lessors. A lease may meet the lessee finance lease criteria even when control of the underlying asset is not transferred to the lessee, and in these cases the lease would be classified as an operating lease for the lessee and a direct finance lease by the lessor. The guidance to be applied by lessors is substantially similar to existing GAAP. In order to align lessor accounting with the principles in the revenue recognition guidance in ASC 606, a lessor is precluded from recognizing selling profit or sales revenue at lease commencement for a lease that does not transfer control of the underlying asset to the lessee. As a lessee, the guidance impacted the Company's condensed consolidated financial statements through the recognition of right-of-use ("ROU") assets and corresponding lease liabilities for operating leases as of January 1, 2019. As a lessor, the guidance impacted the Company's condensed consolidated financial statements in regard to the narrowed definition of initial direct costs that can be capitalized, the change in the presentation of rental revenues as one line item and the change in reporting uncollectable operating lease receivables as a reduction of rental revenues instead of property operating expense. The adoption did not result in a cumulative catch-up adjustment to opening equity. See Note 4 for further details.

18


Accounting Guidance Not Yet Effective
Description
 
Expected
Adoption Date &
Application
Method
 
Financial Statement Effect and Other Information
ASU 2016-13, Measurement of Credit Losses on Financial Instruments
 
January 1, 2020 -
Modified Retrospective
 
The guidance replaces the current incurred loss impairment model, which reflects credit events, with a current expected credit loss model, which recognizes an allowance for credit losses based on an entity's estimate of contractual cash flows not expected to be collected.
The Company has determined that its guarantees, mortgage and other notes receivable and receivables within the scope of ASC 606 fall under the scope of this standard. After evaluating the impact that this update will have on its condensed consolidated financial statements and related disclosures, the Company does not believe it will have a material impact upon adoption.
 
 
 
 
 
ASU 2018-13, Fair Value Measurement
 
January 1, 2020 - Prospective
 
The guidance eliminates, adds and modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.
The Company does not expect the adoption of this guidance will have a material impact on its condensed consolidated financial statements or disclosures.
 
 
 
 
 
ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
 
January 1, 2020 -
Prospective
 
The guidance addresses diversity in practice in accounting for the costs of implementation activities in a cloud computing arrangement that is a service contract. Under the guidance, the Company is to follow Subtopic 350-40 on internal-use software to determine which implementation costs to capitalize and which to expense.
The guidance also requires an entity to expense capitalized implementation costs over the term of the hosting arrangement and include that expense in the same line item as the fees associated with the service element of the arrangement.
The Company does not expect the adoption of this guidance will have a material impact on its condensed consolidated financial statements or disclosures.
 
 
 
 
 

Note 3 – Revenues
Contract Balances
A summary of the Company's contract assets activity during the nine months ended September 30, 2019 is presented below:
 
 
Contract Assets
Balance as of December 31, 2018
 
$
289

Tenant openings
 
(139
)
Executed leases
 
25

Balance as of March 31, 2019
 
175

Tenant openings
 
(139
)
Executed leases
 
190

Balance as of June 30, 2019
 
226

Tenant openings
 
(142
)
Executed leases
 
118

Balance as of September 30, 2019
 
$
202



    




19


A summary of the Company's contract liability activity during the nine months ended September 30, 2019 is presented below:
 
 
Contract Liability
Balance as of December 31, 2018
 
$
265

Completed performance obligation
 
(4
)
Contract obligation
 

Balance as of March 31, 2019
 
261

Completed performance obligation
 

Contract obligation
 

Balance as of June 30, 2019
 
261

Completed performance obligation
 

Contract obligation
 

Balance as of September 30, 2019
 
$
261


The Company has the following contract balances as of September 30, 2019:
 
 
 
As of
September 30, 2019
 
Expected Settlement Period
Description
Financial Statement Line Item
 
 
2019 (1)
 
2020
 
2021
 
2022
 
2023
Contract assets (2)
Management, development and leasing fees
 
$
202

 
$
(19
)
 
$
(136
)
 
$
(43
)
 
$

 
$
(4
)
Contract liability (3)
Other rents
 
261

 
(99
)
 
(54
)
 
(54
)
 
(54
)
 

(1)
Reflects fiscal period October 1, 2019 through December 31, 2019.
(2)
Represents leasing fees recognized as revenue in the period in which the lease is executed. Under certain third party and unconsolidated affiliates' contracts, the remaining 50% of the commissions are paid when the tenant opens. The tenant typically opens within a year, unless the project is in development.
(3)
Relates to a contract in which the Company received advance payments in the initial year of the multi-year contract.
Revenues
The following table presents the Company's revenues disaggregated by revenue source:
 
 
Three Months Ended
September 30, 2019
 
Three Months Ended
September 30, 2018
 
Nine Months Ended
September 30, 2019
 
Nine Months Ended
September 30, 2018
Rental revenues (1)
 
$
180,616

 
$
200,311

 
$
556,989

 
$
620,608

Revenues from contracts with customers (ASC 606):
 
 
 
 
 
 
 
 
  Operating expense reimbursements (2)
 
2,449

 
2,086

 
6,653

 
6,597

  Management, development and leasing fees (3)
 
2,216

 
2,658

 
7,325

 
8,022

  Marketing revenues (4)
 
1,056

 
1,162

 
3,148

 
3,385

 
 
5,721

 
5,906

 
17,126

 
18,004

 
 
 
 
 
 
 
 
 
Other revenues
 
914

 
661

 
4,543

 
3,064

Total revenues (5)
 
$
187,251

 
$
206,878

 
$
578,658

 
$
641,676

(1)
Revenues from leases that commenced subsequent to December 31, 2018 are accounted for in accordance with ASC 842, Leases, whereas all leases existing prior to that date are accounted for in accordance with ASC 840, Leases. See Note 4.
(2)
Includes $2,374 in the Malls segment and $75 in the All Other segment for the three months ended September 30, 2019, and includes $1,903 in the Malls segment and $183 in the All Other segment for the three months ended September 30, 2018. Includes $6,458 in the Malls segment and $195 in the All Other segment for the nine months ended September 30, 2019, and includes $6,176 in the Malls segment and $421 in the All Other segment for the nine months ended September 30, 2018.
(3)
Included in All Other segment.
(4)
Marketing revenues solely relate to the Malls segment for all periods presented. See description below.
(5)
Sales taxes are excluded from revenues.

20


See Note 10 for information on the Company's segments.
Revenue from Contracts with Customers
Operating expense reimbursements
Under operating and other agreements with third parties that own anchor or outparcel buildings at the Company's properties and pay no rent, the Company receives reimbursements for certain operating expenses such as ring road and parking lot maintenance, landscaping and other fees. These arrangements are primarily either set at a fixed rate with rate increases typically every five years or are on a variable (pro rata) basis, typically as a percentage of costs allocated based on square footage or sales. The majority of these contracts have an initial term and one or more extension options, which cumulatively approximate 50 or more years as historically the initial term and any extension options are reasonably certain of being executed by the third party. The standalone selling price of each performance obligation is determined based on the terms of the contract, which typically assign a price to each performance obligation that directly relates to the value the customer receives for the services being provided. Revenue is recognized as services are transferred to the customer. Variable consideration is based on historical experience and is generally recognized over time using the cost-to-cost method of measurement because it most accurately depicts the Company's performance in satisfying the performance obligation. The cumulative catch-up method is used to recognize any adjustments in variable consideration estimates. Under this method, any adjustment is recognized in the period it is identified.
Management, development and leasing fees    
The Company earns revenue from contracts with third parties and unconsolidated affiliates for property management, leasing, development and other services. These contracts are accounted for on a month-to-month basis if the agreement does not contain substantive penalties for termination. The majority of the Company's contracts with customers are accounted for on a month-to-month basis. The standalone selling price of each performance obligation is determined based on the terms of the contract, which typically assign a price to each performance obligation that directly relates to the value the customer receives for the services being provided. These contracts generally are for the following:
Management fees - Management fees are charged as a percentage of revenues (as defined in the contract) and recognized as revenue over time as services are provided.
Leasing fees - Leasing fees are charged for newly executed leases and lease renewals and are recognized as revenue upon lease execution, when the performance obligation is completed. In cases for which the agreement specifies 50% of the leasing commission will be paid upon lease execution with the remainder paid when the tenant opens, the Company estimates the amount of variable consideration it expects to receive by evaluating the likelihood of tenant openings using the most likely amount method and records the amount as an unbilled receivable (contract asset).
Development fees - Development fees may be either set as a fixed rate in a separate agreement or be a variable rate based on a percentage of work costs. Variable consideration related to development fees is generally recognized over time using the cost-to-cost method of measurement because it most accurately depicts the Company's performance in satisfying the performance obligation. Contract estimates are based on various assumptions including the cost and availability of materials, anticipated performance and the complexity of the work to be performed. The cumulative catch-up method is used to recognize any adjustments in variable consideration estimates. Under this method, any adjustment is recognized in the period it is identified.
Development and leasing fees received from an unconsolidated affiliate are recognized as revenue only to the extent of the third-party partner’s ownership interest. The Company's share of such fees is recorded as a reduction to the Company’s investment in the unconsolidated affiliate.
Marketing revenues
The Company earns marketing revenues from advertising and sponsorship agreements. These fees may be for tangible items in which the Company provides advertising services and creates signs and other promotional materials for the tenant or may be arrangements in which the customer sponsors a play area or event and receives specified brand recognition and other benefits over a set period of time. Revenue related to advertising services is recognized as goods and services are provided to the customer. Sponsorship revenue is recognized on a straight-line basis over the time period specified in the contract.

21


Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. If the contract does not specify the revenue by performance obligation, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price. Such prices are generally determined using prices charged to customers or using the Company’s expected cost plus margin. Revenue is recognized as the Company’s performance obligations are satisfied over time, as services are provided, or at a point in time, such as leasing a space to earn a commission. Open performance obligations are those in which the Company has not fully or has partially provided the applicable good or services to the customer as specified in the contract. If consideration is received in advance of the Company’s performance, including amounts which are refundable, recognition of revenue is deferred until the performance obligation is satisfied or amounts are no longer refundable.
Practical Expedients
The Company does not disclose the value of open performance obligations for (1) contracts with an original expected duration of one year or less and (2) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice, which primarily relate to services performed for certain operating expense reimbursements and management, leasing and development activities, as described above. Performance obligations related to pro rata operating expense reimbursements for certain noncancellable contracts are disclosed below.
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 September 30, 2019, the Company expects to recognize these amounts as revenue over the following periods:
Performance obligation
 
Less than 5 years
 
5-20 years
 
Over 20 years
 
Total
Fixed operating expense reimbursements
 
$
25,698

 
$
48,088

 
$
48,283

 
$
122,069


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
Adoption of ASU 2016-02, and all related subsequent amendments
The Company adopted ASC 842 (which includes ASU 2016-02 and all related subsequent amendments) on January 1, 2019 and applied the guidance to leases that commenced on or after January 1, 2019. Historical amounts for prior periods were not adjusted and will continue to be reported using the guidance in ASC 840, Leases.
To determine whether a contract contained a lease, the Company evaluated its contracts and verified that there was an identified asset and that the Company, or the tenant, had the right to obtain substantially all the economic benefits from the use of the asset throughout the contract term. If a contract was determined to contain a lease and the Company was a lessee, the lease was evaluated to determine whether it was an operating or financing lease. If a contract was determined to contain a lease and the Company was a lessor, the lease was evaluated to determine whether it was an operating, direct financing or sales-type lease. After determining that the contract contained a lease, the Company identified the lease component and any nonlease components associated with that lease component, and through the Company’s election to combine lease and nonlease components for all asset classes, combined the components into a single lease component within each applicable lease where the Company was the lessor.
The discount rate to be used for each lease was determined by assessing the Company’s debt information, assessing the credit rating of the Company and the Company’s debt, estimating a synthetic “secured” credit rating for the Company and estimating an appropriate incremental borrowing rate. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.

22


See Note 2 for additional information about these accounting standards.
Lessor
Rental Revenues
The majority of the Company’s revenues are earned through the lease of space at its properties. All of the Company's leases with tenants for the use of space at our properties are classified as operating leases. Rental revenues include minimum rent, percentage rent, other rents and reimbursements from tenants for real estate taxes, insurance, common area maintenance ("CAM") and other operating expenses as provided in the lease agreements. The option to extend or terminate our leases is specific to each underlying tenant lease agreement. Typically, the Company's leases contain penalties for early termination. The Company doesn't have any leases that convey the right for the lessee to purchase the leased asset.
Minimum rental revenue from operating leases is recognized on a straight-line basis over the initial terms of the related leases. Certain tenants are required to pay percentage rent if their sales volumes exceed thresholds specified in their lease agreements. Percentage rent is recognized as revenue when the thresholds are achieved and the amounts become determinable.
The Company receives reimbursements from tenants for real estate taxes, insurance, CAM and other recoverable operating expenses as provided in the lease agreements. Any tenant reimbursements that require fixed payments are recognized on a straight-line basis over the initial terms of the related leases, whereas any variable payments are recognized when earned in accordance with the tenant lease agreements. Tenant reimbursements related to certain capital expenditures are billed to tenants over periods of 5 to 15 years.
Additionally, ASU 2018-19 clarifies that operating lease receivables are within the scope of ASC 842. Therefore, in conjunction with our adoption of ASC 842 on January 1, 2019, the Company began recognizing changes in the collectability assessment of its operating lease receivables as a reduction of rental revenues, rather than as a property operating expense. As a result, the Company recognized $(188) and $1,504 of uncollectable operating lease receivables as an (increase)/reduction of rental revenues for the three months and nine months ended September 30, 2019, respectively, and recognized $487 and $3,273 of uncollectable operating lease receivables as a property operating expense for the three months and nine months ended September 30, 2018, respectively.
The components of rental revenues are as follows:
 
 
Three Months
Ended
September 30, 2019
 
Three Months
Ended
September 30, 2018
 
Nine Months
Ended
September 30, 2019
 
Nine Months
Ended
September 30, 2018
Fixed lease payments
 
$
149,582

 
$
166,927

 
$
460,584

 
$
513,356

Variable lease payments
 
31,034

 
33,384

 
96,405

 
107,252

Total rental revenues
 
$
180,616

 
$
200,311

 
$
556,989

 
$
620,608

The undiscounted future fixed lease payments to be received under the Company's operating leases as of September 30, 2019, are as follows:
Years Ending December 31,
 
Operating Leases
2019 (1)
 
$
136,521

2020
 
510,318

2021
 
448,880

2022
 
373,820

2023
 
312,028

2024
 
245,029

Thereafter
 
615,720

Total undiscounted lease payments
 
$
2,642,316

(1)
Reflects rental payments for the fiscal period October 1, 2019 through December 31, 2019.
As required by the Comparative Under ASC 840 Option, which is a transitional amendment that allows for the

23


presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), the Company's future minimum rental income from lessees under non-cancellable operating leases where the Company is the lessor as of December 31, 2018 is also presented below:
Years Ending December 31,
 
Operating Leases
2019
 
$
497,014

2020
 
426,228

2021
 
363,482

2022
 
294,441

2023
 
234,191

Thereafter
 
531,792

Total
 
$
2,347,148


Lessee
The Company has eight ground leases and one office lease in which it is a lessee. The maturities of these leases range from 2021 to 2089 and generally provide for renewal options ranging from five to ten years. We included the renewal options in our lease terms for purposes of calculating our lease liability and ROU asset because we have no plans to cease operating our assets associated with each ground lease. The ground leases relate to properties where the Company owns the buildings and improvements, but leases the underlying land. The lease payments on the majority of the ground leases are fixed, but in the instances where they are variable they are either based on the CPI index or a percentage of sales. The one office lease is subleased as of September 30, 2019. As of September 30, 2019, these leases have a weighted-average remaining lease term of 39.7 years and a weighted-average discount rate of 8.0%.
The Company's ROU asset and lease liability are presented in the condensed consolidated balance sheets within intangible lease assets and other assets and accounts payable and accrued liabilities, respectively. A summary of the Company's ROU asset and lease liability activity during the nine months ended September 30, 2019 is presented below:
 
 
ROU Asset
 
Lease Liability
Balance as of January 1, 2019
 
$
4,160

 
$
4,074

Cash reduction
 
(365
)
 
(365
)
Noncash increase
 
172

 
266

Balance as of September 30, 2019
 
$
3,967

 
$
3,975


The components of lease expense are presented below:
 
 
Three Months
Ended
September 30, 2019
 
Nine Months
Ended
September 30, 2019
Lease expense:
 
 
 
 
Operating lease expense
 
$
10

 
$
435

Variable lease expense
 
247

 
277

Rent Expense
 
$
257

 
$
712







24


The undiscounted future lease payments to be paid under the Company's operating leases as of September 30, 2019, are as follows:
Year Ending December 31,
 
Operating
Leases
2019 (1)
 
$
193

2020
 
567

2021
 
608

2022
 
332

2023
 
284

2024
 
263

Thereafter
 
12,019

Total undiscounted lease payments
 
$
14,266

Less imputed interest
 
(10,291
)
Lease Liability
 
$
3,975

(1)
Reflects rental payments for the fiscal period October 1, 2019 through December 31, 2019.
As required by the Comparative Under ASC 840 Option, which is a transitional amendment that allows for the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), the Company's future obligations to be paid under the Company's operating leases where the Company is the lessee as of December 31, 2018 is also presented below:
2019
 
$
504

2020
 
610

2021
 
517

2022
 
321

2023
 
281

Thereafter
 
12,297

 
 
$
14,530


Practical Expedients
In regard to leases that commenced before January 1, 2019, the Company elected to use a package of practical expedients to not reassess whether any expired or existing contracts are or contain a lease, to not reassess lease classification for any expired or existing leases, and to not reassess initial direct costs for any existing leases. The Company also elected a practical expedient to not assess whether existing or expired land easements that were not previously accounted for as leases under ASC 840 are or contain a lease under ASC 842. Additionally, the Company elected a practical expedient by class of underlying asset applied to all leases to elect not to separate lease and nonlease components as long as the lease and at least one nonlease component have the same timing and pattern of transfer and the lease is classified as an operating lease. The combined component is being accounted for under ASC 842. The Company made an accounting policy election to exclude sales and other similar taxes from revenues, and instead account for them as costs of the lessee. Lastly, the Company has elected not to apply the recognition requirements of ASC 842 to short-term leases.
See Note 2 for additional information about these accounting standards.


25


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.  Based on the interest rates for similar financial instruments, the carrying value of mortgage and other notes receivable is a reasonable estimate of fair value.  The estimated fair value of mortgage and other indebtedness was $3,283,919 and $3,740,431 at September 30, 2019 and December 31, 2018, respectively.  The fair value was calculated using Level 2 inputs by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently.
Fair Value Measurements on a 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 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 ("NOI"), occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the property and tenant mix. 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.
Long-lived Assets Measured at Fair Value in 2019
The following table sets forth information regarding the Company's assets that are measured at fair value on a nonrecurring basis and related impairment charges for the nine months ended September 30, 2019:
 
 
 
Fair Value Measurements at Reporting Date Using
 
 
 
Total
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Loss on
Impairment
Long-lived assets
$
160,740

 
$

 
$

 
$
160,740

 
$
202,121



26


During the nine months ended September 30, 2019, the Company recognized impairments of real estate of $202,121 related to five malls and one community center.
Impairment Date
 
Property
 
Location
 
Segment
Classification
 
Loss on
Impairment
 
Fair
Value
March
 
Greenbrier Mall (1)
 
Chesapeake, VA
 
Malls
 
$
22,770

 
$
56,300

March/April
 
Honey Creek Mall (2)
 
Terre Haute, IN
 
Malls
 
2,045

 

June
 
The Forum at Grandview (3)
 
Madison, MS
 
All Other
 
8,582

 

June
 
EastGate Mall (4)
 
Cincinnati, OH
 
Malls
 
33,265

 
25,100

September
 
Mid Rivers Mall (5)
 
St. Peters, MO
 
Malls
 
83,621

 
53,340

September
 
Laurel Park Place (6)
 
Livonia, MI
 
Malls
 
52,067

 
26,000

January/March
 
Other adjustments (7)
 
Various
 
Malls
 
(229
)
 

 
 
 
 
 
 
 
 
$
202,121

 
$
160,740

(1)
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $56,300. The mall has experienced a decline in cash flows due to store closures and rent reductions. Additionally, one anchor was vacant as of the date of impairment. Management determined the fair value of Greenbrier Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 11.0% and a discount rate 11.5%.
(2)
During the quarter ended March 31, 2019, the Company adjusted the book value of the mall to the net sales price of $14,360 based on a signed contract with a third party buyer, adjusted to reflect estimated disposition costs. The mall was sold in April 2019 and $(239) was recorded related to a true-up of closing costs. See Note 6 for additional information.
(3)
The Company adjusted the book value to the net sales price of $31,559 based on a signed contract with a third party buyer, adjusted to reflect estimated disposition costs. The property was classified as held for sale at June 30, 2019 and was sold in July 2019. See Note 6 for additional information.
(4)
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $25,100. The mall has experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of EastGate Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 14.5% and a discount rate 15.0%.
(5)
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $53,340. The mall has experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of Mid Rivers Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 12.5% and a discount rate 13.25%.
(6)
In accordance with the Company's quarterly impairment process, the Company wrote down the book value of the mall to its estimated fair value of $26,000. The mall has experienced a decline in cash flows due to store closures and rent reductions. Management determined the fair value of Laurel Park Place using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 13.5% and a discount rate 14.0%.
(7)
Related to true-ups of estimated expenses to actual expenses for properties sold in prior periods.
Long-lived Assets Measured at Fair Value in 2018
The following table sets forth information regarding the Company's assets that were measured at fair value on a nonrecurring basis and related impairment charges for the nine months ended September 30, 2018:
 
 
 
Fair Value Measurements at Reporting Date Using
 
 
 
Total
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Loss on
Impairment
Long-lived assets
$
42,100

 
$

 
$

 
$
42,100

 
$
84,644






27


During the nine months ended September 30, 2018, the Company recognized impairments of real estate of $84,644 related to two malls and undeveloped land:
Impairment Date
 
Property
 
Location
 
Segment
Classification
 
Loss on
Impairment
 
Fair
Value
March
 
Janesville Mall (1)
 
Janesville, WI
 
Malls
 
$
18,061

 
$

(2) 
June
 
Cary Towne Center (3)
 
Cary, NC
 
Malls
 
51,985

 
34,000

 
September
 
Vacant land (4)
 
D'Iberville, MS
 
All Other
 
14,598

 
8,100

 
 
 
 
 
 
 
 
 
$
84,644

 
$
42,100

 
(1)
The Company adjusted the book value of the mall to the net sales price of $17,640 in a signed contract with a third party buyer, adjusted to reflect estimated disposition costs. The mall was sold in July 2018.
(2)
The long-lived asset was not included in the Company's condensed consolidated balance sheets at December 31, 2018 as the Company no longer had an interest in the property.
(3)
In June 2018, the Company was notified by IKEA that, as a result of a shift in its corporate strategy, it was terminating the contract to purchase land at the mall upon which it would develop and open a store. Under the terms of the interest-only non-recourse loan secured by the mall, the loan matures on the date the IKEA contract terminates if that date is prior to the scheduled maturity date of March 5, 2019. The Company engaged in conversations with the lender regarding a potential restructure of the loan. Based on the results of these conversations, the Company concluded that an impairment was required because it was unlikely to recover the asset's net carrying value through future cash flows. The Company wrote down the book value of the mall to its estimated fair value of $34,000. Management determined the fair value of Cary Towne Center using a discounted cash flow methodology. The discounted cash flow used assumptions including a 10-year holding period, a capitalization rate of 12.0% and a discount rate of 13%. See Note 8 for additional information.
(4)
In accordance with the Company's quarterly impairment review process, the Company wrote down the book value of land to its estimated value of $8,100. The Company evaluated comparable land parcel transactions and determined that $8,100 was the land's estimated fair value.
Note 6 – Dispositions and Held for Sale
The Company evaluates its disposals utilizing the guidance in ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Based on its analysis, the Company determined that the dispositions described below do not meet the criteria for classification as discontinued operations and are not considered to be significant disposals based on its quantitative and qualitative evaluation. Thus, the results of operations of the properties described below, as well as any related gains or losses, are included in net loss for all periods presented, as applicable.
2019 Dispositions
Net proceeds realized from the 2019 dispositions listed below were used to reduce the outstanding balance on the Company's credit facility.
 
 
 
 
 
 
 
 
Sales Price
 
 
Sales Date
 
Property
 
Property Type
 
Location
 
Gross
 
Net
 
Gain
April
 
Honey Creek Mall (1)
 
Malls
 
Terre Haute, IN
 
$
14,600

 
$
14,360

 
$

April
 
The Shoppes at Hickory Point
 
Malls
 
Forsyth, IL
 
2,508

 
2,407

 
1,326

June
 
Courtyard by Marriott at Pearland Town Center
 
All Other
 
Pearland, TX
 
15,100

 
14,795

 
1,910

July
 
850 Greenbrier Circle
 
All Other
 
Chesapeake, VA
 
10,500

 
10,332

 
96

July
 
Kroger at Foothills Plaza
 
All Other
 
Maryville, TN
 
2,350

 
2,267

 
1,139

July
 
The Forum at Grandview
 
All Other
 
Madison, MS
 
31,750

 
31,606

 
47

July
 
Barnes & Noble parcel
 
All Other
 
High Point, NC
 
2,000

 
1,899

 
821

September
 
Dick's Sporting Goods at Hanes Mall
 
All Other
 
Winston-Salem, NC
 
10,000

 
9,649

 
2,907

 
 
 
 
 
 
 
 
$
88,808

 
$
87,315

 
$
8,246

(1) The Company recognized a loss on impairment of $2,284 in March 2019 when it adjusted the book value of the mall to the net sales price based on a signed contract with a third party buyer and recognized $(239) in April 2019 related to a true-up of closing costs. See Note 5 for additional information.
The Company also realized a gain of $2,631 related to the sale of two outparcels and a loss of $187 related to land contributed in the formation of the Hamilton Place Self Storage, LLC joint venture (See Note 7 for additional

28


information) during the three months ended September 30, 2019. The Company realized gains of $4,731 related to the sale of three outparcels, a gain of $433 related to the formation of the Parkdale Self Storage, LLC joint venture and a loss of $187 related to the formation of the Hamilton Place Self Storage, LLC joint venture during the nine months ended September 30, 2019. Also, the Company realized gains of $602 and $588 related to a reversal of estimated prior period expenses during the three and nine months ended September 30, 2019, respectively, for outparcel sales that occurred in prior periods.
The Company recognized a gain on extinguishment of debt for the properties listed below, which represented the amount by which the outstanding debt balance exceeded the net book value of the property as of the transfer date. See Note 8 for more information.

Sale/Transfer
Date
 
 
 
 
 
 
 
Balance of
Non-recourse
Debt
 
Gain on
Extinguishment
of Debt
 
Property
 
Property Type
 
Location
 
 
January
 
Acadiana Mall (1)
 
Malls
 
Lafayette, LA
 
$
119,760

 
$
61,796

January
 
Cary Towne Center (2)
 
Malls
 
Cary, NC
 
43,716

 
9,926

 
 
 
 
 
 
 
 
$
163,476

 
$
71,722

(1)
The Company transferred title to the mall to the mortgage holder in satisfaction of the non-recourse debt secured by the property. A loss on impairment of real estate of $43,007 was recorded in 2017 to write down the book value of the mall to its then estimated fair value. The Company also recorded $305 of aggregate non-cash default interest expense during the first quarter of 2019.
(2)
The Company sold the mall for $31,500 and the net proceeds from the sale were used to satisfy a portion of the loan secured by the mall. The remaining principal balance was forgiven. The Company recorded a loss on impairment of real estate of $54,678 during 2018 to write down the book value of the mall to its then estimated fair value. The Company also recorded $237 of aggregate non-cash default interest expense during the first quarter of 2019.
In a separate transaction during January 2019, the Company also sold an anchor store parcel and vacant land at Acadiana Mall, which were not collateral on the loan, for a cash price of $4,000. A loss on impairment of real estate of $1,593 was recorded in 2018 to write down the book value of the anchor store parcel and vacant land to its then estimated fair value.
 
 
 
 
 
 
 
 
 
 
 

Note 7 – Unconsolidated Affiliates and Noncontrolling Interests
Unconsolidated Affiliates
Although the Company had majority ownership of certain joint ventures during 2019 and 2018, 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 September 30, 2019, the Company had investments in 24 entities, which are accounted for using the equity method of accounting. The Company's ownership interest in these unconsolidated affiliates ranges from 20.0% to 65.0%. Of these entities, 16 are owned in 50/50 joint ventures.

29


2019 Activity - Unconsolidated Affiliates
Bullseye, LLC
In September 2018, the Company entered into a joint venture, Bullseye, LLC, to develop a vacant land parcel adjacent to Hamilton Corner in Chattanooga, TN. During January 2019, the joint venture closed on the purchase of the land parcel for a gross purchase price of $3,310. The Company has a 20% membership interest in the joint venture. Additionally, the Company made no initial investment and has no future funding obligations. The unconsolidated affiliate is a variable interest entity ("VIE").
El Paso Outlet Center Holding, LLC, and El Paso Outlet Outparcels, LLC
In August 2019, the Company sold 25% of its interest in The Outlet Shoppes at El Paso, in El Paso, TX, to its existing joint venture partner for total consideration of $27,750. The sales price included $18,525 in related debt. Following the sale, the Company and its joint venture partner both own a 50% interest in The Outlet Shoppes at El Paso. This resulted in the Company deconsolidating this property and recognizing a gain on investment/deconsolidation of $11,174, which was made up of a $3,884 gain on the sale of the Company's 25% interest and a $7,290 gain related to adjusting the Company's remaining 50% share to fair value.
G&I VIII CBL Triangle LLC
In July 2019, the lender foreclosed on the loan secured by Triangle Town Center. In September 2018, the Company wrote down its investment in the unconsolidated 90/10 joint venture to zero.
Hamilton Place Self Storage, LLC
In September 2019, the Company entered into a joint venture, Hamilton Place Self Storage, LLC, to develop a self-storage facility adjacent to Hamilton Place Mall. The Company has a 54% share in the joint venture, and recorded a $187 loss on sale of real estate assets related to land that it contributed to the joint venture. The unconsolidated affiliate is a VIE. See additional information in Variable Interest Entities below. In conjunction with the formation of the joint venture, the unconsolidated affiliate closed on a construction loan. See details below under 2019 Financings.
Parkdale Self Storage, LLC
In May 2019, the Company entered into a 50/50 joint venture, Parkdale Self Storage, LLC, to develop a self-storage facility adjacent to Parkdale Mall. The Company recorded a $433 gain on sale of real estate assets related to land that it contributed to the joint venture. The unconsolidated affiliate is a VIE. See additional information in Variable Interest Entities below. In conjunction with the formation of the joint venture, the unconsolidated affiliate closed on a construction loan. See details below under 2019 Financings.
Vision-CBL Hamilton Place, LLC
In November 2018, the Company entered into a 50/50 joint venture, Vision-CBL Hamilton Place, LLC, to acquire, develop and operate a hotel on a parcel adjacent to Hamilton Place Mall. See Note 15 for further details.











30


Condensed Combined Financial Statements - Unconsolidated Affiliates
Condensed combined financial statement information of the unconsolidated affiliates is as follows:
 
September 30,
2019
 
December 31,
2018
ASSETS
 
 
 
Investment in real estate assets
$
2,135,627

 
$
2,097,088

Accumulated depreciation
(741,802
)
 
(674,275
)
 
1,393,825

 
1,422,813

Developments in progress
27,309

 
12,569

Net investment in real estate assets
1,421,134

 
1,435,382

Other assets
150,597

 
188,521

    Total assets
$
1,571,731

 
$
1,623,903

LIABILITIES
 
 
 
Mortgage and other indebtedness, net
$
1,252,003

 
$
1,319,949

Other liabilities
44,194

 
39,777

    Total liabilities
1,296,197

 
1,359,726

 
 
 
 
OWNERS' EQUITY
 
 
 
The Company
173,340

 
191,050

Other investors
102,194

 
73,127

Total owners' equity
275,534

 
264,177

    Total liabilities and owners' equity
$
1,571,731

 
$
1,623,903


 
Total for the Three Months
Ended September 30,
 
2019
 
2018
Total revenues
$
52,867

 
$
54,579

Net income (loss) (1)
$
81,300

 
$
(85,136
)
(1)
The Company's share of net income (loss) is $(1,759) and $1,762 for the three months ended September 30, 2019 and 2018, respectively.
 
Total for the Nine Months
Ended September 30,
 
2019
 
2018
Total revenues
$
162,964

 
$
166,843

Net income (loss) (1)
$
90,303

 
$
(72,585
)

(1)
The Company's share of net income is $3,421 and $9,869 for the nine months ended September 30, 2019 and 2018, respectively.
Financings - Unconsolidated Affiliates
All of the debt on the properties owned by the unconsolidated affiliates is non-recourse, except for debt secured by Ambassador Infrastructure, Hammock Landing, The Pavilion at Port Orange, The Shoppes at Eagle Point and the self-storage developments adjacent to EastGate Mall, Mid Rivers Mall, Parkdale Mall and Hamilton Place Mall. See Note 12 for a description of guarantees the Operating Partnership has issued related to these unconsolidated affiliates.






31


2019 Financings
The Company's unconsolidated affiliates had the following loan activity in 2019:
Date
 
Property
 
Stated
Interest Rate
 
Maturity Date
 
Amount
Financed or
Extended
May
 
Parkdale Self Storage (1)
 
5.25%
(2) 
 
July 2024
 
 
$
6,500

September
 
Hamilton Place Self Storage (3)
 
LIBOR + 2.75
 
 
September 2024
 
 
$
7,002

(1)
Parkdale Self Storage, LLC, a 50/50 joint venture, closed on a construction loan with a total borrowing capacity of up to $6,500 for the development of a climate controlled self-storage facility adjacent to Parkdale Mall in Beaumont, TX. The Company's share of the outstanding balance of the construction loan was $189 at September 30, 2019. The Operating Partnership has a joint and several guaranty with its 50/50 partner. Therefore, the maximum guarantee is 100% of the loan. See Note 12 for more information.
(2)
The interest rate is variable and is the greater of 5.25% or LIBOR + 2.80%.
(3)
Hamilton Place Self Storage, LLC, a 54/46 joint venture, closed on a construction loan with a total borrowing capacity of up to $7,002 for the development of a climate controlled self-storage facility adjacent to Hamilton Place Mall in Chattanooga, TN. There were no draws on the construction loan at September 30, 2019. The Operating Partnership has guaranteed 100% of the construction loan, but it has a back-up guaranty with its joint venture partner for 50% of the construction loan. See Note 12 for more information.
Noncontrolling Interests
Noncontrolling interests consist of the following:
 
As of
 
September 30,
 2019
 
December 31, 2018
Noncontrolling interests:
 
 
 
  Operating Partnership
$
28,279

 
$
55,917

  Other consolidated subsidiaries
8,134

 
12,111

 
$
36,413

 
$
68,028


Variable Interest Entities
In accordance with the guidance in ASU 2015-02, Amendments to the Consolidation Analysis, and ASU 2016-17, Interests Held Through Related Parties That Are under Common Control, the Operating Partnership and certain of its subsidiaries are deemed to have the characteristics of a VIE primarily because the limited partners of these entities do not collectively possess substantive kick-out or participating rights.
The Company consolidates the Operating Partnership, which is a VIE, for which the Company is the primary beneficiary. The Company, through the Operating Partnership, consolidates all VIEs for which it is the primary beneficiary. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership is considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether the Company is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of the Company's investment; the obligation or likelihood for the Company or other investors to provide financial support; and the similarity with and significance to the Company's business activities and the business activities of the other investors.     
Consolidated VIEs
As of September 30, 2019, the Company had investments in 14 consolidated VIEs with ownership interests ranging from 50% to 92%.

32


Unconsolidated VIEs
The table below lists the Company's unconsolidated VIEs as of September 30, 2019:
 
 
Investment in Real
Estate Joint
Ventures and
Partnerships
 
Maximum
Risk of Loss
Ambassador Infrastructure, LLC (1)
 
$

 
$
10,050

Bullseye, LLC
 
5

 
5

Continental 425 Fund LLC
 
7,243

 
7,243

EastGate Storage, LLC (1)
 
885

 
3,250

Hamilton Place Self Storage, LLC (1)
 
1,463

 
7,002

Parkdale Self Storage, LLC (1)
 
1,190

 
6,500

Self-Storage at Mid Rivers, LLC (1)
 
844

 
2,994

Shoppes at Eagle Point, LLC (1)
 
16,268

 
16,268

(1)
The Operating Partnership has guaranteed all or a portion of the debt of each of the VIEs listed above. See Note 12 for more information.
Note 8 – Mortgage and Other Indebtedness, Net
Debt of the Company
CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries, that it has a direct or indirect ownership interest in, is the borrower on all of the Company's debt. CBL is a limited guarantor of the Senior Unsecured Notes (the "Notes"), as described below, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates.
The Company also provides a similar limited guarantee of the Operating Partnership's obligations with respect to its secured credit facility and secured term loan as of September 30, 2019.
Debt of the Operating Partnership
Net mortgage and other indebtedness consisted of the following:
 
September 30, 2019
 
December 31, 2018
 
Amount
 
Weighted-
Average
Interest
Rate (1)
 
Amount
 
Weighted-
Average
Interest
Rate (1)
Fixed-rate debt:
 

 
 
 
 
 
 
Non-recourse loans on operating properties 
$
1,495,896

 
5.21%
 
$
1,783,097

 
5.33%
Senior unsecured notes due 2023 (2)
447,775

 
5.25%
 
447,423

 
5.25%
Senior unsecured notes due 2024 (3)
299,958

 
4.60%
 
299,953

 
4.60%
Senior unsecured notes due 2026 (4)
617,260

 
5.95%
 
616,635

 
5.95%
Total fixed-rate debt
2,860,889

 
5.31%
 
3,147,108

 
5.37%

33


 
September 30, 2019
 
December 31, 2018
 
Amount
 
Weighted-
Average
Interest
Rate (1)
 
Amount
 
Weighted-
Average
Interest
Rate (1)
Variable-rate debt:
 

 
 
 
 

 
 
Recourse loans on operating properties
56,178

 
4.71%
 
68,607

 
4.97%
Construction loan
21,061

 
4.99%
 
8,172

 
5.25%
Secured line of credit 
304,769

 
4.35%
 

 
—%
Unsecured lines of credit 

 
—%
 
183,972

 
3.90%
Secured term loan
473,750

 
4.35%
 

 
—%
Unsecured term loans

 
—%
 
695,000

 
4.21%
Total variable-rate debt
855,758

 
4.39%
 
955,751

 
4.21%
Total fixed-rate and variable-rate debt
3,716,647

 
5.10%
 
4,102,859

 
5.10%
Unamortized deferred financing costs
(17,640
)
 
 
 
(15,963
)
 
 
Liabilities related to assets held for sale (5)

 
 
 
(43,716
)
 
 
Total mortgage and other indebtedness, net
$
3,699,007

 
 
 
$
4,043,180

 
 
(1)
Weighted-average interest rate includes the effect of debt premiums and discounts, but excludes amortization of deferred financing costs.
(2)
The balance is net of an unamortized discount of $2,225 and $2,577 as of September 30, 2019 and December 31, 2018, respectively.
(3)
The balance is net of an unamortized discount of $42 and $47 as of September 30, 2019 and December 31, 2018, respectively.
(4)
The balance is net of an unamortized discount of $7,740 and $8,365 as of September 30, 2019 and December 31, 2018, respectively.
(5)
Represents a non-recourse mortgage loan secured by Cary Towne Center that was classified on the condensed consolidated balance sheet as liabilities related to assets held for sale as of December 31, 2018.
Senior Unsecured Notes
Description
 
Issued (1)
 
Amount
 
Interest Rate (2)
 
Maturity Date (3)
2023 Notes
 
November 2013
 
$
450,000

 
5.25%
 
December 2023
2024 Notes
 
October 2014
 
300,000

 
4.60%
 
October 2024
2026 Notes
 
December 2016 / September 2017
 
625,000

 
5.95%
 
December 2026
(1)
Issued by the Operating Partnership. CBL is a limited guarantor of the Operating Partnership's obligations under the Notes as described above.
(2)
Interest is payable semiannually in arrears. The interest rate for the 2024 Notes and the 2023 Notes is subject to an increase ranging from 0.25% to 1.00% from time to time if, on or after January 1, 2016 and prior to January 1, 2020, the ratio of secured debt to total assets of the Company, as defined, is greater than 40% but less than 45%. The required ratio of secured debt to total assets for the 2026 Notes is 40% or less. As of September 30, 2019, this ratio was 34% as shown below.
(3)
The Notes are redeemable at the Operating Partnership's election, in whole or in part from time to time, on not less than 30 days and not more than 60 days' notice to the holders of the Notes to be redeemed. The 2026 Notes, the 2024 Notes and the 2023 Notes may be redeemed prior to September 15, 2026, July 15, 2024, and September 1, 2023, respectively, for cash at a redemption price equal to the aggregate principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date and a make-whole premium calculated in accordance with the indenture. On or after the respective dates noted above, the Notes are redeemable for cash at a redemption price equal to the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest. If redeemed prior to the respective dates noted above, each issuance of Notes is redeemable at the treasury rate plus 0.50%, 0.35% and 0.40% for the 2026 Notes, the 2024 Notes and the 2023 Notes, respectively.
Senior Secured Credit Facility
In January 2019, the Company entered into a new $1,185,000 senior secured credit facility, which included a fully-funded $500,000 term loan and a revolving line of credit with a borrowing capacity of $685,000. The facility replaced all of the Company's prior unsecured bank facilities, which included three unsecured term loans with an aggregate balance of $695,000 and three unsecured revolving lines of credit with an aggregate capacity of $1,100,000. At closing, the Company utilized the line of credit to reduce the principal balance of the unsecured term loan from $695,000 to $500,000. The facility matures in July 2023 and bears interest at a variable rate of LIBOR plus 2.25%. The facility had an interest rate of 4.35% at September 30, 2019. The Operating Partnership is required to pay an annual facility fee, to be paid quarterly, which ranges from 0.25% to 0.35%, based on the unused capacity of the line of credit. The principal balance on the term loan will be reduced by $35,000 per year in quarterly installments. At September 30, 2019, the secured line of credit had an outstanding balance of $304,769 and the secured term loan had an outstanding balance of $473,750.

34


The secured credit facility is secured by 17 malls and 3 associated centers that are owned by 36 wholly owned subsidiaries of the Operating Partnership (collectively the “Combined Guarantor Subsidiaries”). The Combined Guarantor Subsidiaries own an additional five malls, two associated centers and four mortgage notes receivable that are not collateral for the secured credit facility. The properties that are collateral for the secured credit facility and the properties and mortgage notes receivable that are not collateral are collectively referred to as the “Guarantor Properties.” The terms of the Notes provide that, to the extent that any subsidiary of the Operating Partnership executes and delivers a guarantee to another debt facility, the Operating Partnership shall also cause the subsidiary to guarantee the Operating Partnership’s obligations under the Notes on a senior basis. In January 2019, the Combined Guarantor Subsidiaries entered into a guarantee agreement with the issuer of the Notes to satisfy the guaranty requirement.
Each of the Combined Guarantor Subsidiaries meet the criteria in Rule 3-10(f) of SEC Regulation S-X to provide condensed consolidating financial information as additional disclosure in the notes to the Operating Partnership's condensed consolidated financial statements because each Combined Guarantor Subsidiary is 100% owned by the Operating Partnership, the guaranty issued by each Combined Guarantor Subsidiary is full and unconditional and the guaranty issued by each Combined Guarantor Subsidiary is joint and several. However, the Operating Partnership has elected to provide combined financial statements and accompanying notes for the Combined Guarantor Subsidiaries in lieu of including the condensed consolidating financial information in the notes to its condensed consolidated financial statements. These combined financial statements and notes are presented as an exhibit to this quarterly report on Form 10-Q for ease of reference.
Financial Covenants and Restrictions
The agreements for the Notes and the senior secured credit facility contain, among other restrictions, certain financial covenants including the maintenance of certain financial coverage ratios, minimum unencumbered asset and interest ratios, maximum secured indebtedness ratios, maximum total indebtedness ratios and limitations on cash flow distributions.  The Company believes that it was in compliance with all financial covenants and restrictions at September 30, 2019.
The following presents the Company's compliance with key covenant ratios, as defined, of the Notes and the senior secured credit facility as of September 30, 2019:
Ratio
 
Required
 
Actual
Total debt to total assets
 
< 60%
 
53%
Secured debt to total assets
 
< 40% (1)
 
34%
Total unencumbered assets to unsecured debt
 
> 150%
 
169%
Consolidated income available for debt service to annual debt service charge
 
> 1.5x
 
2.4x
(1)
Secured debt to total assets must be less than 40% for the 2026 Notes. Secured debt to total assets must be less than 45% for the 2023 Notes and the 2024 Notes until January 1, 2020, after which the required ratio will be reduced to 40%.
The agreements for the Notes and senior secured credit facility described above contain default provisions customary for transactions of this nature (with applicable customary grace periods). Additionally, any default in the payment of any recourse indebtedness greater than or equal to $50,000 of the Operating Partnership will constitute an event of default under the Notes.
Mortgages on Operating Properties
2019 Financings
In April 2019, the loan secured by Volusia Mall was refinanced to increase the principal balance to $50,000. In addition, the maturity date was extended to April 2024 and the fixed interest rate was reduced from 8.00% to 4.56%. The net proceeds from the new loan were used to retire the $41,000 existing loan.
In May 2019, the Company exercised an option to extend the loan secured by The Outlet Shoppes at Laredo to May 2021. In conjunction with the amendment, a payment of $10,800 was made to reduce the outstanding balance of the loan to $43,000. The noncontrolling interest partner in the joint venture funded its 35% share of the $10,800 payment.

35


2019 Loan Repayments
Date
 
Property
 
Interest
Rate at
Repayment
Date
 
Scheduled
Maturity Date
 
Principal
Balance
Repaid
April
 
Honey Creek Mall (1)
 
8.00%
 
July 2019
 
$
23,539

(1)
The Company retired the loan using proceeds from the refinancing of the loan secured by Volusia Mall as well as proceeds from the sale of Honey Creek Mall.
2019 Dispositions
The following is a summary of the Company's 2019 dispositions for which the fixed-rate loan secured by the mall was extinguished:
Transfer
Date
 
 
 
Interest
Rate at
Repayment
Date
 
Scheduled
Maturity Date
 
Balance of
Non-recourse
Debt
 
Gain on
Extinguishment
of Debt
 
Property
 
 
 
 
January
 
Acadiana Mall (1)
 
5.67%
 
April 2017
 
$
119,760

 
$
61,795

January
 
Cary Towne Center (2)
 
4.00%
 
June 2018
 
43,716

 
9,927

 
 
 
 
 
 
 
 
$
163,476

 
$
71,722

(1)
The Company transferred title to the mall to the mortgage holder in satisfaction of the non-recourse debt secured by the property.
(2)
The Company sold the mall for $31,500 and the net proceeds from the sale were used to satisfy a portion of the loan secured by the mall. The remaining principal balance was forgiven.
Scheduled Principal Payments
As of September 30, 2019, the scheduled principal amortization and balloon payments of the Company’s consolidated debt, excluding extensions available at the Company’s option, on all mortgage and other indebtedness, including construction loans and lines of credit, are as follows: 
2019 (1)
 
$
117,948

2020
 
246,342

2021
 
551,962

2022
 
469,036

2023
 
1,189,130

2024
 
404,496

Thereafter
 
747,740

 
 
3,726,654

Unamortized discounts
 
(10,007
)
Unamortized deferred financing costs
 
(17,640
)
Total mortgage and other indebtedness, net
 
$
3,699,007


(1)
Reflects payments for the fiscal period October 1, 2019 through December 31, 2019.
Of the $117,948 of scheduled principal payments in 2019, $97,323 relates to the maturing principal balance of three operating property loans.
The Company’s mortgage and other indebtedness had a weighted-average maturity of 4.0 years as of September 30, 2019 and 3.7 years as of December 31, 2018.
Note 9 – Mortgage and Other Notes Receivable
Each of the Company’s mortgage notes receivable is collateralized by either a first mortgage, a second mortgage, or by an assignment of 100% of the partnership interests that own the real estate assets.  Other notes receivable include amounts due from tenants or government-sponsored districts and unsecured notes received from third parties as whole or partial consideration for property or investments.

36


Mortgage and other notes receivable consist of the following:
 
 
 
 
As of September 30, 2019
 
As of December 31, 2018
 
 
Maturity
Date
 
Interest
Rate
 
Balance
 
Interest
Rate
 
Balance
Mortgages (1)
 
Dec 2016 - Jan 2047 (2)
 
4.90% - 9.50%
 
$
3,604

 
4.00% - 9.50%
 
$
4,884

Other Notes Receivable
 
Sep 2021 - Apr 2026
 
4.00% - 5.00%
 
2,214

 
4.00% - 5.00%
 
2,788

 
 
 
 
 
 
$
5,818

 
 
 
$
7,672

(1)
Includes the Village Square note that was retired subsequent to September 30, 2019. See Note 15 for more information.
(2)
Includes a $1,100 note with D'Iberville Promenade, LLC, with a maturity date of December 2016, that is in default. This is secured by the joint venture partner's interest in the joint venture.
Note 10 – Segment Information
The Company measures performance and allocates resources according to property type, which is determined based on certain criteria such as type of tenants, capital requirements, economic risks, leasing terms, and short and long-term returns on capital. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments.
Information on the Company’s segments is presented as follows:
Three Months Ended September 30, 2019
 
Malls
 
All Other (1)
 
Total
Revenues (2)
 
$
171,514

 
$
15,737

 
$
187,251

Property operating expenses (3)
 
(53,384
)
 
(2,912
)
 
(56,296
)
Interest expense
 
(20,866
)
 
(29,649
)
 
(50,515
)
Other expense
 

 
(7
)
 
(7
)
Gain on sales of real estate assets
 
3,292

 
4,764

 
8,056

Segment profit (loss)
 
$
100,556

 
$
(12,067
)
 
88,489

Depreciation and amortization expense
 
 
 
 
 
(64,168
)
General and administrative expense
 
 
 
 
 
(12,467
)
Litigation settlement
 
 
 
 
 
22,688

Interest and other income
 
 
 
 
 
1,367

Loss on impairment
 
 
 
 
 
(135,688
)
Gain on investments/deconsolidation
 
 
 
 
 
11,174

Income tax provision
 
 
 
 
 
(1,670
)
Equity in losses of unconsolidated affiliates
 
 
 
 
 
(1,759
)
Net loss
 
 
 
 
 
$
(92,034
)
Capital expenditures (4)
 
$
34,961

 
$
1,530

 
$
36,491















37


Three Months Ended September 30, 2018
 
Malls
 
All Other (1)
 
Total
Revenues (2)
 
$
188,440

 
$
18,438

 
$
206,878

Property operating expenses (3)
 
(57,243
)
 
(3,669
)
 
(60,912
)
Interest expense
 
(24,665
)
 
(30,529
)
 
(55,194
)
Other expense
 

 
(38
)
 
(38
)
Gain on sales of real estate assets
 
92

 
7,788

 
7,880

Segment profit (loss)
 
$
106,624

 
$
(8,010
)
 
98,614

Depreciation and amortization expense
 
 

 
 

 
(71,945
)
General and administrative expense
 
 

 
 

 
(16,051
)
Interest and other income
 
 

 
 

 
283

Loss on impairment
 
 
 
 
 
(14,600
)
Income tax provision
 
 

 
 

 
(1,034
)
Equity in earnings of unconsolidated affiliates
 
 
 
 
 
1,762

Net loss
 
 

 
 

 
$
(2,971
)
Capital expenditures (4)
 
$
38,512

 
$
2,671

 
$
41,183


Nine Months Ended September 30, 2019
 
Malls
 
All Other (1)
 
Total
Revenues (2)
 
$
526,354

 
$
52,304

 
$
578,658

Property operating expenses (3)
 
(164,164
)
 
(10,785
)
 
(174,949
)
Interest expense
 
(65,612
)
 
(91,383
)
 
(156,995
)
Other expense
 

 
(41
)
 
(41
)
Gain on sales of real estate assets
 
5,770

 
8,041

 
13,811

Segment profit (loss)
 
$
302,348

 
$
(41,864
)
 
260,484

Depreciation and amortization expense
 
 
 
 
 
(198,438
)
General and administrative expense
 
 
 
 
 
(48,901
)
Litigation settlement expense
 
 
 
 
 
(65,462
)
Interest and other income
 
 
 
 
 
2,212

Gain on extinguishment of debt
 
 
 
 
 
71,722

Loss on impairment
 
 
 
 
 
(202,121
)
Gain on investments/deconsolidation
 
 
 
 
 
11,174

Income tax provision
 
 
 
 
 
(2,622
)
Equity in earnings of unconsolidated affiliates
 
 
 
 
 
3,421

Net loss
 
 
 
 
 
$
(168,531
)
Capital expenditures (4)
 
$
94,545

 
$
3,058

 
$
97,603

Nine Months Ended September 30, 2018
 
Malls
 
All Other (1)
 
Total
Revenues (2)
 
$
585,097

 
$
56,579

 
$
641,676

Property operating expenses (3)
 
(179,012
)
 
(11,795
)
 
(190,807
)
Interest expense
 
(76,401
)
 
(86,763
)
 
(163,164
)
Other expense
 
(84
)
 
(293
)
 
(377
)
Gain on sales of real estate assets
 
92

 
15,906

 
15,998

Segment profit (loss)
 
$
329,692

 
$
(26,366
)
 
303,326

Depreciation and amortization expense
 
 
 
 
 
(217,261
)
General and administrative expense
 
 
 
 
 
(47,845
)
Interest and other income
 
 
 
 
 
714

Loss on impairment
 
 
 
 
 
(84,644
)
Gain on investment
 
 
 
 
 
387

Income tax benefit
 
 
 
 
 
1,846

Equity in earnings of unconsolidated affiliates
 
 
 
 
 
9,869

Net loss
 
 
 
 
 
$
(33,608
)

38


Nine Months Ended September 30, 2018
 
Malls
 
All Other (1)
 
Total
Capital expenditures (4)
 
$
105,593

 
$
10,063

 
$
115,656



Total Assets
 
Malls
 
All Other (1)
 
Total
September 30, 2019
 
$
4,351,303

 
$
418,615

 
$
4,769,918

 
 
 
 
 
 
 
December 31, 2018
 
$
4,868,141

 
$
472,712

 
$
5,340,853

(1)
The All Other category includes associated centers, community centers, mortgage and other notes receivable, office buildings, self-storage facilities, corporate-level debt and the Management Company.
(2)
Management, development and leasing fees are included in the All Other category. See Note 3 for information on the Company's revenues disaggregated by revenue source for each of the above segments.
(3)
Property operating expenses include property operating, real estate taxes and maintenance and repairs.
(4)
Amounts include acquisitions of real estate assets and investments in unconsolidated affiliates. Developments in progress are included in the All Other category.
Note 11 – Earnings per Share and Earnings per Unit
Earnings per Share of the Company
Basic earnings per share (“EPS”) is computed by dividing net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS assumes the issuance of common stock for all potential dilutive common shares outstanding. The limited partners’ rights to convert their noncontrolling interests in the Operating Partnership into shares of common stock are not dilutive. There were no potential dilutive common shares and there were no anti-dilutive shares for the three and nine month periods ended September 30, 2019.
There were no potential dilutive common shares for the three and nine month periods ended September 30, 2018. There were no anti-dilutive shares for the three month period ended September 30, 2018. Due to a net loss for the nine month period ended September 30, 2018, the computation of diluted EPS does not include contingently issuable shares due to their anti-dilutive nature. Had the Company reported net income for the nine months ended September 30, 2018, the denominator for diluted EPS would have been 172,563,094, including 137,094 contingently issuable shares related to performance stock unit ("PSU") awards.
Earnings per Unit of the Operating Partnership
Basic earnings per unit (“EPU”) is computed by dividing net income (loss) attributable to common unitholders by the weighted-average number of common units outstanding for the period. Diluted EPU assumes the issuance of common units for all potential dilutive common units outstanding. There were no potential dilutive common units and there were no anti-dilutive units for the three and nine month periods ended September 30, 2019.
There were no potential dilutive common units for the three and nine month periods ended September 30, 2018. There were no anti-dilutive units for the three month period ended September 30, 2018. Due to a net loss for the nine month period ended September 30, 2018, the computation of diluted EPU does not include contingently issuable units due to their anti-dilutive nature. Had the Operating Partnership reported net income for the nine months ended September 30, 2018, the denominator for diluted EPU would have been 199,767,094, including 137,094 contingently issuable units related to PSU awards.
Note 12 – Contingencies
Litigation
In April 2019, the Company entered into a settlement agreement and release with respect to the class action lawsuit filed on March 16, 2016 in the United States District Court for the Middle District of Florida by Wave Lengths Hair Salons of Florida, Inc. d/b/a Salon Adrian. The settlement agreement stated that the Company had to set aside a common fund with a monetary and non-monetary value of $90,000 to be disbursed to class members in accordance with an agreed-upon formula that is based upon aggregate damages of $60,000. The Court granted final approval to the proposed settlement on August 22, 2019. Class members are comprised of past and current tenants at certain of the Company's shopping centers that it owns or formerly owned during the class period, which extended from January 1, 2011 through the date of preliminary court approval. Class members who are past tenants and made a claim pursuant

39


to the Court's order will receive payment of their claims in cash. Class members who are current tenants will receive monthly credits against rents and future charges, beginning no earlier than January 1, 2020 and continuing for the following five years. Any amounts under the settlement allocated to tenants with outstanding amounts payable to the Company, including tenants which have declared bankruptcy or declare bankruptcy over the relevant period, will first be deducted from the amounts owed to the Company. All attorney’s fees and associated costs to be paid to class counsel (up to a maximum of $28,000), any incentive award to the class representative (up to a maximum of $50), and class administration costs (which are expected to not exceed $100), have or will be funded by the common fund, which has been approved by the Court. Under the terms of the settlement agreement, the Company did not pay any dividends to holders of its common shares payable in the third and fourth quarters of 2019. The settlement agreement does not restrict the Company's ability to declare dividends payable in 2020 or in subsequent years. The Company recorded an accrued liability and corresponding litigation settlement expense of $88,150 in the three months ended March 31, 2019 related to the settlement agreement. The Company reduced the accrued liability by $22,688 during the three months ended September 30, 2019, a majority of which was related to past tenants that did not submit a claim pursuant to the terms of the settlement agreement with the remainder relating to tenants that opted out of the lawsuit. Subsequent to September 30, 2019, the Company paid $23,050 in attorney and administrative fees related to the previously accrued litigation settlement payable (see Note 15). The Company also received document requests in the third quarter, in the form of subpoenas, from the Securities and Exchange Commission and the Department of Justice regarding the Wave Lengths Hair Salons of Florida, Inc. litigation and other related matters.  The Company is cooperating in these matters.

The Company is currently involved in certain other litigation that arises in the ordinary course of business, most of which is expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.    
Securities Litigation
The Company and certain of its officers and directors have been 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.  The first such lawsuit, captioned Paskowitz v. CBL & Associates Properties, Inc., et al., 1:19-cv-00149-JRG-CHS, was filed on May 17, 2019, and asserts claims on behalf of persons or entities that purchased CBL securities between November 8, 2017 and March 26, 2019, inclusive.  The second such lawsuit, captioned Williams v. CBL & Associates Properties, Inc., et al., 1:19-cv-00181, was filed on June 21, 2019, and asserts claims on behalf of persons or entities that purchased CBL securities between April 29, 2016 and March 26, 2019, inclusive.  The third such lawsuit, captioned Merelles v. CBL & Associates Properties, Inc., et al., 1:19-CV-00193, was filed on July 2, 2019, and asserts claims on behalf of persons or entities that purchased CBL securities between July 29, 2014 and March 26, 2019.  The Court consolidated these cases on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Securities Litigation, 1:19-cv-00149-JRG-CHS. After plaintiff Laurence Paskowitz voluntarily dismissed his case on July 25, 2019, the Court re-consolidated the two remaining cases under the caption In re CBL & Associates Properties, Inc. Securities Litigation, 1:19-cv-00181-JRG-CHS, on August 2, 2019.  On September 26, 2019, the Merelles complaint was voluntarily dismissed.
The complaints filed in the Securities Class Action Litigation allege violations of the securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions regarding the Company’s contingent liabilities, business, operations, and prospects during the periods of time specified above.  The plaintiffs seek compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the amount of damages sought.  The outcome of these legal proceedings cannot be predicted with certainty.
Certain of the Company’s current and former directors and officers have been named as defendants in five shareholder derivative lawsuits (collectively, the “Derivative Litigation”).  On June 4, 2019, a shareholder filed a putative derivative complaint captioned Robert Garfield v. Stephen D. Lebovitz et al., 1:19-cv-01038-LPS, in the United States District Court for the District of Delaware (the “Garfield Derivative Action”), purportedly on behalf of the Company against certain of its officers and directors.  On June 24, 2019, September 5, 2019 and September 25, 2019, respectively,

40


other shareholders filed three additional putative derivative complaints, each in the United States District Court for the District of Delaware, captioned as follows: Robert Cohen v. Stephen D. Lebovitz et al., 1:19-cv-01185-LPS (the “Cohen Derivative Action”); Travis Lore v. Stephen D. Lebovitz et al., 1:19-cv-01665-LPS (the “Lore Derivative Action”), and City of Gainesville Cons. Police Officers’ and Firefighters Retirement Plan v. Stephen D. Lebovitz et al., 1:19-cv-01800 (the “Gainesville Derivative Action”), each asserting substantially similar claims purportedly on behalf of the Company against similar defendants.  The Court consolidated the Garfield Derivative Action and the Cohen Derivative Action on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Derivative Litigation, 1:19-cv-01038-LPS (the "Consolidated Derivative Action"). On July 25, 2019, the Court stayed proceedings in the Consolidated Derivative Action pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation.  On October 14, 2019, the parties to the Gainesville Derivative Action and the Lore Derivative Action filed a joint stipulation and proposed order confirming that each of those cases is subject to the consolidation order previously entered by the Court in the Consolidated Derivative Action and that further proceedings in those cases are stayed pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation. On July 22, 2019, another shareholder filed a putative derivative complaint captioned Shebitz v. Lebovitz et al., 1:19-cv-00213, in the United States District Court for the Eastern District of Tennessee (the “Shebitz Derivative Action”), asserting substantially similar claims purportedly on behalf of the Company against similar defendants. On October 7, 2019, the Court stayed the Shebitz Derivative Action pending resolution of an eventual motion to dismiss in the related Securities Class Action Litigation.
The complaints filed in the Derivative Litigation allege, among other things, breaches of fiduciary duties, unjust enrichment, waste of corporate assets, and violations of the federal securities laws.  The factual allegations upon which these claims are based are similar to the factual allegations made in the Securities Class Action Litigation, described above.  The complaints filed in the Derivative Litigation seek, among other things, unspecified damages and restitution for the Company from the individual defendants, the payment of costs and attorneys’ fees, and that the Company be directed to reform certain governance and internal procedures.  The outcome of these legal proceedings cannot be predicted with certainty.
The Company's insurance carriers have been placed on notice of these matters.
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 September 30, 2019 and December 31, 2018:
 
 
As of September 30, 2019
 
Obligation Recorded to
Reflect Guaranty
Unconsolidated
Affiliate
 
Company's
Ownership
Interest
 
Outstanding
Balance
 
Percentage
Guaranteed
by the
Operating
Partnership
 
 
Maximum
Guaranteed
Amount
 
Debt
Maturity
Date
(1)
 
9/30/2019
 
12/31/2018
West Melbourne I, LLC
- Phase I (2)
 
50%
 
$
40,002

 
50
%
 
 
$
20,001

 
Feb-2021
 
 
$
200

 
$
203


41


 
 
As of September 30, 2019
 
Obligation Recorded to
Reflect Guaranty
Unconsolidated
Affiliate
 
Company's
Ownership
Interest
 
Outstanding
Balance
 
Percentage
Guaranteed
by the
Operating
Partnership
 
 
Maximum
Guaranteed
Amount
 
Debt
Maturity
Date
(1)
 
9/30/2019
 
12/31/2018
West Melbourne I, LLC
- Phase II (2)
 
50%
 
15,737

 
50
%
 
 
7,869

 
Feb-2021
 
 
79

 
80

Port Orange I, LLC
 
50%
 
54,350

 
50
%
 
 
27,175

 
Feb-2021
 
 
272

 
280

Ambassador
Infrastructure, LLC
 
65%
 
10,050

 
100
%
 
 
10,050

 
Aug-2020
 
 
101

 
106

Shoppes at
Eagle Point, LLC
 
50%
 
35,189

 
35
%
(3) 
 
12,740

 
Oct-2020
(4) 
 
127

 
364

EastGate Storage, LLC
 
50%
 
6,145

 
50
%
(5) 
 
3,250

 
Dec-2022
 
 
33

 
65

Self-Storage at
Mid Rivers, LLC
 
50%
 
5,538

 
50
%
(6) 
 
2,994

 
Apr-2023
 
 
30

 
60

Parkdale Self Storage, LLC
 
50%
 
189

 
100
%
(7) 
 
6,500

 
Jul-2024
 
 
65

 

Hamilton Place Self Storage, LLC
 
54%
 

 
100
%
(8) 
 
7,002

 
Sep-2024
 
 
70

 

 
 
 
 
 
 
Total guaranty liability
 
 
$
977

 
$
1,158

(1)
Excludes any extension options.
(2)
The loan is secured by Hammock Landing - Phase I and Hammock Landing - Phase II, respectively.
(3)
The guaranty is for a fixed amount of $12,740 throughout the term of the loan, including any extensions.
(4)
The loan has one two-year extension option, at the joint venture's election, for an outside maturity date of October 2022.
(5)
The guaranty was reduced to 50% once construction was completed during the second quarter of 2019. The guaranty may be further reduced to 25% once certain debt and operational metrics are met.
(6)
The Company received a 1% fee for the guaranty when the loan was issued in April 2018. The guaranty was reduced to 50% once construction was completed during the second quarter of 2019. The guaranty may be further reduced to 25% once certain debt and operational metrics are met.
(7)
Parkdale Self Storage, LLC, a 50/50 joint venture, closed on a construction loan with a total borrowing capacity of up to $6,500 for the development of a climate controlled self-storage facility adjacent to Parkdale Mall in Beaumont, TX. The Operating Partnership has a joint and several guaranty with its 50/50 partner. Therefore, the maximum guarantee is 100% of the loan.
(8)
Hamilton Place Self Storage, LLC, a 54/46 joint venture, closed on a construction loan with a total borrowing capacity of up to $7,002 for the development of a climate controlled self-storage facility adjacent to Hamilton Place Mall in Chattanooga, TN. The Operating Partnership has guaranteed 100% of the construction loan, but it has a back-up guaranty with its joint venture partner for 50% of the construction loan.
The Company has guaranteed the lease performance of York Town Center, LP ("YTC"), an unconsolidated affiliate in which the Company owns a 50% interest, under the terms of an agreement with a third party that owns property as part of York Town Center. Under the terms of that agreement, YTC is obligated to cause performance of the third party’s obligations as landlord under its lease with its sole tenant, including, but not limited to, provisions such as co-tenancy and exclusivity requirements. Should YTC fail to cause performance, then the tenant under the third party landlord’s lease may pursue certain remedies ranging from rights to terminate its lease to receiving reductions in rent. The Company has guaranteed YTC’s performance under this agreement up to a maximum of $22,000, which decreases by $800 annually until the guaranteed amount is reduced to $10,000. The guaranty expires on December 31, 2020.  The maximum guaranteed obligation was $12,400 as of September 30, 2019.  The Company entered into an agreement with its joint venture partner under which the joint venture partner has agreed to reimburse the Company 50% of any amounts it is obligated to fund under the guaranty.  The Company did not include an obligation for this guaranty because it determined that the fair value of the guaranty was not material as of September 30, 2019 and December 31, 2018.
Performance Bonds
The Company has issued various bonds that it would have to satisfy in the event of non-performance. The total amount outstanding on these bonds was $15,824 and $16,003 at September 30, 2019 and December 31, 2018, respectively. 
Note 13 – Share-Based Compensation
As of September 30, 2019, the Company has outstanding awards under the CBL & Associates Properties, Inc. 2012 Stock Incentive Plan ("the 2012 Plan"), which was approved by the Company's shareholders in May 2012. The 2012 Plan permits the Company to issue stock options and common stock to selected officers, employees and non-

42


employee directors of the Company up to a total of 10,400,000 shares. As the primary operating subsidiary of the Company, the Operating Partnership participates in and bears the compensation expense associated with the Company's share-based compensation plan.
Restricted Stock Awards
The Company may make restricted stock awards to independent directors, officers and its employees under the 2012 Plan. These awards are generally granted based on the performance of the Company and its employees. None of these awards have performance requirements other than a service condition of continued employment, unless otherwise provided. Compensation expense is recognized on a straight-line basis over the requisite service period.
Share-based compensation expense related to the restricted stock awards was $571 and $787 for the three months ended September 30, 2019 and 2018, respectively, and $2,830 and $3,263 for the nine months ended September 30, 2019 and 2018, respectively. Share-based compensation cost capitalized as part of real estate assets was $13 and $36 for the three months ended September 30, 2019 and 2018, respectively, and $54 and $260 for the nine months ended September 30, 2019 and 2018, respectively.
A summary of the status of the Company’s nonvested restricted stock awards as of September 30, 2019, and changes during the nine months ended September 30, 2019, is presented below: 
 
Shares
 
Weighted-Average
Grant Date
Fair Value
Nonvested at January 1, 2019
875,497

 
$
7.99

Granted
855,681

 
$
2.23

Vested
(746,134
)
 
$
5.11

Forfeited
(12,024
)
 
$
5.98

Nonvested at September 30, 2019
973,020

 
$
5.16


As of September 30, 2019, there was $3,534 of total unrecognized compensation cost related to nonvested stock awards granted under the plans, which is expected to be recognized over a weighted-average period of 2.5 years.
Long-Term Incentive Program
In 2015, the Company adopted a long-term incentive program ("LTIP") for its named executive officers, which consists of performance stock unit ("PSU") awards and annual restricted stock awards, that may be issued under the 2012 Plan. The number of shares related to the PSU awards that each named executive officer may receive upon the conclusion of a three-year performance period is determined based on the Company's achievement of specified levels of long-term total stockholder return ("TSR") performance relative to the National Association of Real Estate Investment Trusts ("NAREIT") Retail Index, provided that at least a "Threshold" level must be attained for any shares to be earned.
Beginning with the 2018 PSUs, two-thirds of the quantitative portion of the award over the performance period will be based on the achievement of TSR relative to the NAREIT Retail Index while the remaining one-third will be based on the achievement of absolute TSR metrics for the Company. To maintain compliance with the 200,000 share annual equity grant limit under the 2012 Plan, beginning with the 2018 PSU grant, to the extent that a grant of PSUs could result in the issuance of a number of shares of common stock at the conclusion of the performance period that, when coupled with the number of shares of time-vesting restricted stock granted in the same year the PSUs were granted, would exceed the annual limit, any such excess will be converted to a cash bonus award with a value equivalent to the number of shares of common stock constituting such excess times the average of the high and low trading prices reported for CBL's common stock on the date such shares would otherwise have been issuable. Any such portion of the value of the 2018 PSUs or the 2019 PSUs earned payable as a cash bonus will be subject to the same vesting provisions as the issuance of common stock pursuant to the PSUs and is not expected to be significant. In addition, to the extent any cash is to be paid, the cash will be paid first relative to the vesting schedule, ahead of the issuance of shares of common stock with respect to the balance of PSUs earned.
Annual Restricted Stock Awards
Under the LTIP, annual restricted stock awards consist of shares of time-vested restricted stock awarded based on a qualitative evaluation of the performance of the Company and the named executive officer during the fiscal year. Annual restricted stock awards under the LTIP, which are included in the totals reflected in the preceding table, vest 20% on the date of grant with the remainder vesting in four equal annual installments.

43


Performance Stock Units
A summary of the status of the Company’s PSU activity as of September 30, 2019, and changes during the nine months ended September 30, 2019, is presented below: 
 
PSUs
 
Weighted-Average
Grant Date
Fair Value
Outstanding at January 1, 2019
910,911

 
$
4.67

2019 PSUs granted (1)
1,103,537

 
$
2.40

Outstanding at September 30, 2019 (2)
2,014,448

 
$
3.42

(1)
Includes 566,862 shares classified as a liability due to the potential cash component described above.
(2)
None of the PSUs outstanding at September 30, 2019 were vested.
Shares earned pursuant to the PSU awards vest 60% at the conclusion of the performance period while the remaining 40% of the PSU award vests 20% on each of the first two anniversaries thereafter.
Compensation cost is recognized on a tranche-by-tranche basis using the accelerated attribution method. The resulting expense, for awards classified as equity, is recorded regardless of whether any PSU awards are earned as long as the required service period is met.
The fair value of the potential cash component related to the 2019 PSUs is measured at each reporting period, using the same methodology as was used at the initial grant date, and classified as a liability on the condensed consolidated balance sheet as of September 30, 2019 with an adjustment to compensation expense. If the performance criterion is not satisfied at the end of the performance period for the 2019 PSUs, previously recognized compensation expense related to the liability-classified awards would be reversed as there would be no value at the settlement date.
Share-based compensation expense related to the PSUs was $409 and $178 for the three months ended September 30, 2019 and 2018, respectively, and $1,278 and $1,130 for the nine months ended September 30, 2019 and 2018, respectively. Unrecognized compensation costs related to the PSUs was $2,930 as of September 30, 2019, which is expected to be recognized over a weighted-average period of 4.0 years.
The following table summarizes the assumptions used in the Monte Carlo simulation pricing model related to the PSUs:
 
2019 PSUs
 
2018 PSUs
 
2017 PSUs
Grant date
February 11, 2019
 
February 12, 2018
 
February 7, 2017
Fair value per share on valuation date (1)
$
4.74

 
 
$
4.76

 
 
$
6.86

 
Risk-free interest rate (2)
2.54
%
 
 
2.36
%
 
 
1.53
%
 
Expected share price volatility (3)
60.99
%
 
 
42.02
%
 
 
32.85
%
 
(1)
The value of the PSU awards is estimated on the date of grant using a Monte Carlo simulation model. The valuation consists of computing the fair value using CBL's simulated stock price as well as TSR over a three-year performance period. The award is modeled as a contingent claim in that the expected return on the underlying shares is risk-free and the rate of discounting the payoff of the award is also risk-free. The weighted-average fair value per share related to the 2019 PSUs classified as equity consists of 357,800 shares at a fair value of $2.45 (which relate to relative TSR) and 178,875 shares at a fair value of $2.29 per share (which relate to absolute TSR). The weighted-average fair value per share related to the 2018 PSUs classified as equity consists of 240,164 shares at a fair value of $3.13 per share (which relate to relative TSR) and $120,064 shares at a fair value of $1.63 per share (which relate to absolute TSR).
(2)
The risk-free interest rate was based on the yield curve on zero-coupon U.S. Treasury securities in effect as of the valuation date, which is the respective grant date listed above.
(3)
The computation of expected volatility was based on a blend of the historical volatility of CBL's shares of common stock based on annualized daily total continuous returns over a three-year period and implied volatility data based on the trailing month average of daily implied volatilities implied by stock call option contracts that were both closest to the terms shown and closest to the money.     
Note 14 – Noncash Investing and Financing Activities
The Company’s noncash investing and financing activities were as follows:
 
Nine Months Ended
September 30,
 
2019
 
2018
Accrued dividends and distributions payable
$
2,420

 
$
41,657



44


 
Nine Months Ended
September 30,
 
2019
 
2018
Additions to real estate assets accrued but not yet paid
23,148

 
22,428

Conversion of Operating Partnership units for common stock

 
3,059

Lease liabilities arising from obtaining right-of-use assets
3,975

 

Deconsolidation upon contribution/assignment of interests in joint venture: (1) 
 
 
 
Decrease in real estate assets
(93,360
)
 
(587
)
Increase in investment in unconsolidated affiliates
17,903

 
974

Decrease in mortgage and other indebtedness
73,283

 

Decrease in operating assets and liabilities
2,443

 

Decrease in intangible lease and other assets
(908
)
 

Decrease in noncontrolling interest and joint venture interest
4,271

 

Transfer of real estate assets in settlement of mortgage debt obligation:
 
 
 
Decrease in real estate assets
(60,059
)
 

Decrease in mortgage and other indebtedness
124,111

 

Decrease in operating assets and liabilities
9,333

 

Decrease in intangible lease and other assets
(1,663
)
 


(1)
See Note 7 for additional information.
Note 15 – Subsequent Events
In October 2019, the Company contributed land to its 50/50 joint venture, Vision-CBL Hamilton Place, LLC, and closed on a loan, with a borrowing capacity of $16,800, for the construction of an Aloft by Marriott hotel.
In October 2019, the Village Square note receivable was retired in the amount of $910.
In October 2019, the Company paid $23,050 in attorney and administrative fees related to the previously accrued litigation settlement payable discussed in Note 12.

45


The following discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and accompanying notes that are included in this Form 10-Q.  Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as defined in the notes to the condensed consolidated financial statements. In this discussion, the terms “we,” “us” and “our” refer to the Company or the Company and the Operating Partnership collectively, as the text requires.
Certain statements made in this section or elsewhere in this report may be deemed “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical fact should be considered to be forward-looking statements. In many cases, these forward-looking statements may be identified by the use of words such as “will,” “may,” “should,” “could,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “projects,” “goals,” “objectives,” “targets,” “predicts,” “plans,” “seeks,” and variations of these words and similar expressions.  Any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this report.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained.  It is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties.  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, 2018, 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;
sales of real property;
cyber-attacks or acts of cyber-terrorism;
changes in the credit ratings of the Operating Partnership's senior unsecured long-term indebtedness;
the ability to obtain suitable equity and/or debt financing and the continued availability of financing, in the amounts and on the terms necessary to support our future refinancing requirements and business; and
other risks referenced from time to time in filings with the SEC and those factors listed or incorporated by reference into this report.
This list of risks and uncertainties is only a summary and is not intended to be exhaustive.  We disclaim any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information. 




46


EXECUTIVE OVERVIEW
We are a self-managed, self-administered, fully integrated REIT that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers and office properties. See Note 1 to the condensed consolidated financial statements for information on our property interests as of September 30, 2019. We have elected to be taxed as a REIT for federal income tax purposes.
We had a net loss for the three and nine months ended September 30, 2019 of $(92.0) million and $(168.5) million, respectively, compared to a net loss for the three and nine months ended September 30, 2018 of $(3.0) million and $(33.6) million, respectively. We recorded a net loss attributable to common shareholders for the three and nine months ended September 30, 2019 of $(90.1) million and $(175.7) million, respectively, compared to a net loss for the three and nine months ended September 30, 2018 of $(12.6) million and $(57.9) million, respectively. For the three month period, earnings from Comparable Properties (defined below) were down primarily due to store closures and rent concessions for tenants with high occupancy cost levels, including tenants that declared bankruptcy in 2018 and 2019. Additionally, a greater amount of loss on impairment was recognized as compared to the prior period, which was partially offset by a gain on the disposition of a portion of our interest in an outlet center. The decline in earnings from the Comparable Properties for the nine month period was primarily due to store closures and rent concessions for tenants with high occupancy cost levels, including tenants that declared bankruptcy in 2018 and 2019. Also contributing to the decline was the litigation settlement expense that was recognized in the first quarter of 2019 along with a greater amount of loss on impairment, which was partially offset by gain on extinguishment of debt recognized in the first quarter of 2019, the reduction of the accrued liability related to the litigation settlement and a gain on the disposition of a portion of our interest in an outlet center in the third quarter of 2019.
Quarterly results were in-line with our expectations. Lease spreads on new leases improved and same-center sales increased over 3% during the third quarter.  We have 27 replacements committed, under construction or open for the more than 40 closed anchors in our portfolio, demonstrating tremendous progress on our anchor replacement program. This program will help stabilize our income as we replace lost revenues, mitigate co-tenancy exposure and deliver new uses that drive traffic and strengthen our properties.  See the "Liquidity and Capital Resources" section for information on our development, expansion and redevelopment projects as of September 30, 2019.
We continue to strengthen our balance sheet by extending our maturity schedule. In January 2019, we replaced all of our unsecured lines of credit and unsecured term loans with a new $1.185 billion secured credit facility, which is comprised of a $685.0 million line of credit and a fully funded $500.0 million term loan. With this closing, we have addressed our significant debt maturities for 2019 and have addressed all of our unsecured debt maturities until 2023. See "Liquidity and Capital Resources" for more information on financing activity.
In March 2019, our Board of Directors approved the structure of a settlement in a class action lawsuit. We have denied, and continue to deny, any wrongdoing and believe that our actions at all times have been proper and lawful. However, given the class certification, the accelerated trial schedule, the inherent risk of any trial, and the potential cost of an adverse resolution of the litigation, we believed that a settlement was in the Company's best interest and in the best interests of our shareholders. We recognized litigation settlement expense of $88.2 million during the first quarter as a result of the settlement, and during the third quarter that amount was reduced by $22.7 million, a majority of which was related to past tenants that did not submit a claim pursuant to the terms of the settlement agreement with the remainder relating to tenants that opted out of the lawsuit. See Note 12 to the condensed consolidated financial statements for more information.
We continue to capitalize on opportunities to raise attractively priced capital from non-core assets, as evidenced by the $161.4 million in gross asset sales that have been completed year-to-date. Net cash proceeds from sales of $128.4 million, combined with our estimated free cash flow of approximately $200.0 million, provides liquidity to invest in our redevelopment program and reduce debt.
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."

47


RESULTS OF OPERATIONS
Properties that were in operation for the entire year during 2018 and the nine months ended September 30, 2019 are referred to as the “Comparable Properties.”  Since January 1, 2018, we have opened two self-storage facilities and one community center as follows: 
Property
 
Location
 
Date Opened
EastGate Mall - CubeSmart Self-storage (1)
 
Cincinnati, OH
 
September 2018
The Shoppes at Eagle Point (1)
 
Cookeville, TN
 
November 2018
Mid Rivers Mall - CubeSmart Self-storage (1)
 
St. Peters, MO
 
January 2019
(1)
Each of these properties is owned by a 50/50 joint venture that is accounted for using the equity method of accounting and is included in equity in earnings of unconsolidated affiliates in the accompanying condensed consolidated statements of operations.    
Non-core properties are defined as Excluded Malls - see definition that follows under "Operational Review."
Comparison of the Three Months Ended September 30, 2019 to the Three Months Ended September 30, 2018
Revenues
 
 
Total for the Three
Months
Ended September 30,
 
 
 
Comparable
Properties
 
 
 
 
 
 
2019
 
2018
 
Change
 
Core
 
Non-core
 
Dispositions
 
Change
Rental revenues
 
$
180,616

 
$
200,311

 
$
(19,695
)
 
$
(7,999
)
 
$
(750
)
 
$
(10,946
)
 
$
(19,695
)
Management, development and leasing fees
 
2,216

 
2,658

 
(442
)
 
(442
)
 

 

 
(442
)
Other
 
4,419

 
3,909

 
510

 
474

 
11

 
25

 
510

Total revenues
 
$
187,251

 
$
206,878

 
$
(19,627
)
 
$
(7,967
)
 
$
(739
)
 
$
(10,921
)
 
$
(19,627
)
Rental revenues from the Comparable Properties declined primarily due to store closures and rent concessions for tenants with high occupancy cost levels, including tenants that declared bankruptcy in 2018 and 2019.
Operating Expenses
 
 
Total for the Three
Months
Ended September 30,
 
 
 
Comparable
Properties
 
 
 
 
 
 
2019
 
2018
 
Change
 
Core
 
Non-core
 
Dispositions
 
Change
Property operating
 
$
(27,344
)
 
$
(30,004
)
 
$
2,660

 
$
629

 
$
(51
)
 
$
2,082

 
$
2,660

Real estate taxes
 
(18,699
)
 
(19,433
)
 
734

 
(185
)
 
131

 
788

 
734

Maintenance and repairs
 
(10,253
)
 
(11,475
)
 
1,222

 
221

 
(7
)
 
1,008

 
1,222

Property operating expenses
 
(56,296
)
 
(60,912
)
 
4,616

 
665

 
73

 
3,878

 
4,616

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
(64,168
)
 
(71,945
)
 
7,777

 
3,246

 
1,484

 
3,047

 
7,777

General and administrative
 
(12,467
)
 
(16,051
)
 
3,584

 
3,584

 

 

 
3,584

Loss on impairment
 
(135,688
)
 
(14,600
)
 
(121,088
)
 
(121,090
)
 

 
2

 
(121,088
)
Litigation settlement
 
22,688

 

 
22,688

 
22,688

 

 

 
22,688

Other
 
(7
)
 
(38
)
 
31

 
31

 

 

 
31

Total operating expenses
 
$
(245,938
)
 
$
(163,546
)
 
$
(82,392
)
 
$
(90,876
)
 
$
1,557

 
$
6,927

 
$
(82,392
)
Property operating expenses at the Comparable Properties decreased partially due to a change in the classification of bad debt expense as a result of the adoption of ASC 842 effective January 1, 2019. Bad debt expense of $0.5 million was included in property operating expenses for the three months ended September 30, 2018; however, beginning January 1, 2019, rental revenues that are estimated to be uncollectable are reflected as a decrease in rental revenues. The remaining decrease in property operating expenses of the Comparable Properties was primarily due to lower utilities, security and payroll expenses. Real estate tax expense declined as a number of the Comparable Properties experienced reductions in real estate taxes in their respective markets. Maintenance and repairs expenses decreased primarily due to lower janitorial costs.
The $7.8 million decrease in depreciation and amortization expense related to the Comparable Properties primarily relates to a decrease in write-offs of tenant improvements and intangible lease assets related to store closings in the prior year period, as well as store closures since September 30, 2018.

48


General and administrative expenses decreased primarily due to reductions in salary and stock compensation expenses, which were partially offset by legal expenses related to ongoing litigation and no longer capitalizing the cost of leasing personnel for development projects as a result of adopting the new leasing standard in 2019.
In the third quarter of 2019, we recognized $135.7 million of loss on impairment of real estate to write down the book value of two malls. In the third quarter of 2018, we recognized a $14.6 million loss on impairment of real estate to write down the book value of vacant land. See Note 5 to the condensed consolidated financial statements for more information.
Other Income and Expenses
Interest expense decreased $4.7 million for the three months ended September 30, 2019 compared to the prior-year period. The decrease was primarily due to a $5.1 million decrease in property-level interest expense, including default interest expense, due to dispositions of encumbered properties during 2019. This decrease was partially offset by an increase of $0.4 million in corporate-level interest expense due to higher variable rates on our corporate-level debt as compared to the prior-year quarter, partially related to the higher interest rate spread under our new credit facility as compared with the prior, as well as increases in LIBOR.
Equity in earnings of unconsolidated affiliates decreased by $3.5 million during the three months ended September 30, 2019 compared to the prior-year period. The decrease was primarily due to an increase in depreciation and amortization expense related to the retirement of certain real estate assets and decreases in rental revenues at several malls primarily due to store closures and rent concessions for tenants with high occupancy cost levels, including tenants in bankruptcy.
During the three months ended September 30, 2019, we recognized $8.1 million of gain on sales of real estate assets primarily related the sale of a community center, an office building and five outparcels. During the three months ended September 30, 2018, we recognized $7.9 million of gain on sales of real estate assets primarily related to the sale of a community center and five outparcels.
For the three months ended September 30, 2019, we recorded a reduction of $22.7 million to the litigation settlement liability that was recorded in the first quarter of 2019 related to the settlement of a class action lawsuit. See Note 12 to the condensed consolidated financial statements for more information.
Comparison of the Nine Months Ended September 30, 2019 to the Nine Months Ended September 30, 2018
Revenues
 
 
Total for the Nine
Months
Ended September 30,
 
 
 
Comparable
Properties
 
 
 
 
 
 
2019
 
2018
 
Change
 
Core
 
Non-core
 
Dispositions
 
Change
Rental revenues
 
$
556,989

 
$
620,608

 
$
(63,619
)
 
$
(34,158
)
 
$
(968
)
 
$
(28,493
)
 
$
(63,619
)
Management, development and leasing fees
 
7,325

 
8,022

 
(697
)
 
(697
)
 

 

 
(697
)
Other
 
14,344

 
13,046

 
1,298

 
1,316

 
73

 
(91
)
 
1,298

Total revenues
 
$
578,658

 
$
641,676

 
$
(63,018
)
 
$
(33,539
)
 
$
(895
)
 
$
(28,584
)
 
$
(63,018
)
Rental revenues from the Comparable Properties declined primarily due to store closures and rent concessions for tenants with high occupancy cost levels, including tenants that declared bankruptcy in 2018 and 2019.
Operating Expenses
 
 
Total for the Nine
Months
Ended September 30,
 
 
 
Comparable
Properties
 
 
 
 
 
 
2019
 
2018
 
Change
 
Core
 
Non-core
 
Dispositions
 
Change
Property operating
 
$
(82,856
)
 
$
(92,357
)
 
$
9,501

 
$
4,764

 
$
(4
)
 
$
4,741

 
$
9,501

Real estate taxes
 
(57,766
)
 
(61,737
)
 
3,971

 
2,224

 
140

 
1,607

 
3,971

Maintenance and repairs
 
(34,327
)
 
(36,713
)
 
2,386

 
(18
)
 
193

 
2,211

 
2,386

Property operating expenses
 
(174,949
)
 
(190,807
)
 
15,858

 
6,970

 
329

 
8,559

 
15,858

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

49


 
 
Total for the Nine
Months
Ended September 30,
 
 
 
Comparable
Properties
 
 
 
 
 
 
2019
 
2018
 
Change
 
Core
 
Non-core
 
Dispositions
 
Change
Depreciation and amortization
 
(198,438
)
 
(217,261
)
 
18,823

 
7,890

 
1,156

 
9,777

 
18,823

General and administrative
 
(48,901
)
 
(47,845
)
 
(1,056
)
 
(1,056
)
 

 

 
(1,056
)
Loss on impairment
 
(202,121
)
 
(84,644
)
 
(117,477
)
 
(151,057
)
 
(26,532
)
 
60,112

 
(117,477
)
Litigation settlement
 
(65,462
)
 

 
(65,462
)
 
(65,462
)
 

 

 
(65,462
)
Other
 
(41
)
 
(377
)
 
336

 
336

 

 

 
336

Total operating expenses
 
$
(689,912
)
 
$
(540,934
)
 
$
(148,978
)
 
$
(202,379
)
 
$
(25,047
)
 
$
78,448

 
$
(148,978
)
Property operating expenses at the Comparable Properties decreased primarily due to a change in the classification of bad debt expense as a result of the adoption of ASC 842 effective January 1, 2019. Bad debt expense of $3.3 million was included in property operating expenses for the nine months ended September 30, 2018; however, beginning January 1, 2019, rental revenues that are estimated to be uncollectable are reflected as a decrease in rental revenues. For the nine months ended September 30, 2019, we recognized $1.5 million as a reduction to rental revenues for amounts that are estimated to be uncollectable, substantially all of which was related to the Comparable Properties. The remaining decrease in property operating expenses of the Comparable Properties was primarily due to lower utilities, security, marketing and payroll expenses. Real estate tax expense declined as a number of the Comparable Properties experienced reductions in real estate taxes in their respective markets.
The $18.8 million decrease in depreciation and amortization expense related to the Comparable Properties primarily relates to a decrease due to write-offs of tenant improvements and intangible lease assets related to store closings in the prior year period, as well as store closures since September 30, 2018.
General and administrative expenses increased primarily due to higher legal expense related to litigation and no longer capitalizing the cost of leasing personnel for development projects as a result of adopting the new leasing standard in 2019, which were partially offset by reductions in salary and stock compensation costs.
For the nine months ended September 30, 2019, we recognized $202.1 million of loss on impairment of real estate to write down the book value of five malls and one community center. For the nine months ended September 30, 2018, we recognized a $84.6 million loss on impairment of real estate to write down the book value of two malls and vacant land. See Note 5 to the condensed consolidated financial statements for more information.
For the nine months ended September 30, 2019, we recognized $65.5 million of litigation settlement expense related to the settlement of a class action lawsuit. See Note 12 to the condensed consolidated financial statements for more information.
Other Income and Expenses
Interest expense decreased $6.2 million for the nine months ended September 30, 2019 compared to the prior-year period. The decrease was primarily due to a $11.0 million decrease in property-level interest expense, including default interest expense, due to dispositions of encumbered properties during 2019 and a paydown in May 2019 of a portion of the loan that is secured by The Outlet Shoppes at Laredo. This decrease was partially offset by an increase of $4.7 million in corporate-level interest expense due to higher variable rates on our corporate-level debt as compared to the prior-year quarter, partially related to the higher interest rate spread under our new credit facility as compared with the previous credit facility, as well as increases in LIBOR.
During the nine months ended September 30, 2019, we recorded $71.7 million of gain on extinguishment of debt related to two malls. We transferred Acadiana Mall to the lender in satisfaction of the non-recourse debt secured by the property. We sold Cary Towne Center and used the net proceeds from the sale to satisfy a portion of the non-recourse loan that secured the property and the remaining principal balance was forgiven.
Equity in earnings of unconsolidated affiliates decreased by $6.4 million during the nine months ended September 30, 2019 compared to the prior-year period. The decrease was primarily due to an increase in depreciation and amortization expense related to the retirement of certain real estate assets and decreases in rental revenues at several malls primarily due to store closures and rent concessions for tenants with high occupancy cost levels, including tenants in bankruptcy.
During the nine months ended September 30, 2019, we recognized $13.8 million of gain on sales of real estate assets primarily related to the sale of two centers, a hotel, an office building and six outparcels. During the nine months

50


ended September 30, 2018, we recognized $16.0 million of gain on sales of real estate assets primarily related to the sale of two community centers and 10 outparcels.
Non-GAAP Measure
Same-center Net Operating Income
NOI is a supplemental non-GAAP measure of the operating performance of our shopping centers and other properties. We define NOI as property operating revenues (rental revenues and other income) less property operating expenses (property operating, real estate taxes and maintenance and repairs).
We compute NOI based on the Operating Partnership's pro rata share of both consolidated and unconsolidated properties. We believe that presenting NOI and same-center NOI (described below) based on our Operating Partnership’s pro rata share of both consolidated and unconsolidated properties is useful since we conduct substantially all of our business through our Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in the Operating Partnership. Our definition of NOI may be different than that used by other companies, and accordingly, our calculation of NOI may not be comparable to that of other companies.
Since NOI includes only those revenues and expenses related to the operations of our shopping center properties, we believe that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates, sales at the malls and operating costs and the impact of those trends on our results of operations. Our calculation of same-center NOI excludes lease termination income, straight-line rent adjustments, amortization of above and below market lease intangibles and write-offs of landlord inducement assets in order to enhance the comparability of results from one period to another.
We include a property in our same-center pool when we have owned all or a portion of the property since January 1 of the preceding calendar year and it has been in operation for both the entire preceding calendar year and current year-to-date period. New properties are excluded from same-center NOI until they meet these criteria. Properties excluded from the same-center pool that would otherwise meet these criteria are properties which are being repositioned or properties where we are considering alternatives for repositioning, where we intend to renegotiate the terms of the debt secured by the related property or return the property to the lender and those in which we own a noncontrolling interest of 25% or less. Hickory Point Mall and Greenbrier Mall were classified as Lender Malls at September 30, 2019.
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 and nine month periods ended September 30, 2019 and 2018 is as follows (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Net loss
$
(92,034
)
 
$
(2,971
)
 
$
(168,531
)
 
$
(33,608
)
Adjustments: (1)
 
 
 
 
 
 
 
Depreciation and amortization
76,608

 
80,247

 
228,201

 
242,014

Interest expense
55,640

 
59,870

 
171,793

 
176,101

Abandoned projects expense
7

 
38

 
41

 
377

Gain on sales of real estate assets
(8,056
)
 
(7,852
)
 
(14,438
)
 
(16,562
)
Gain on investments/deconsolidation
(11,174
)
 

 
(11,174
)
 
(387
)
Gain on extinguishment of debt

 

 
(71,722
)
 

Loss on impairment
135,688

 
14,600

 
202,121

 
84,644

Litigation settlement
(22,688
)
 

 
65,462

 

Income tax (benefit) provision
1,670

 
1,034

 
2,622

 
(1,846
)
Lease termination fees
(848
)
 
(783
)
 
(2,938
)
 
(9,788
)
Straight-line rent and above- and below-market lease amortization
(1,881
)
 
822

 
(4,334
)
 
2,941


51


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Net (income) loss attributable to noncontrolling interests in other consolidated subsidiaries
(763
)
 
(24
)
 
(631
)
 
369

General and administrative expenses
12,467

 
16,051

 
48,901

 
47,845

Management fees and non-property level revenues
(2,293
)
 
(2,293
)
 
(9,077
)
 
(9,642
)
Operating Partnership's share of property NOI
142,343

 
158,739

 
436,296

 
482,458

Non-comparable NOI
(3,292
)
 
(10,967
)
 
(14,855
)
 
(36,409
)
Total same-center NOI
$
139,051

 
$
147,772

 
$
421,441

 
$
446,049

(1)
Adjustments are based on our Operating Partnership's pro rata ownership share, including our share of unconsolidated affiliates and excluding noncontrolling interests' share of consolidated properties.
Same-center NOI decreased 5.9% for the three months ended September 30, 2019 as compared to the prior-year period. The $8.7 million decrease for the three months ended September 30, 2019 compared to the same period in 2018 primarily consisted of a $10.0 million decrease in revenues offset by a $1.3 million decline in operating expenses. Rental revenues declined $12.5 million during the quarter primarily due to the impact of store closures and rent concessions for tenants with high occupancy cost levels, including tenants that declared bankruptcy. The $1.3 million decrease in operating expenses includes a decrease in property operating expenses of $1.1 million.
Same-center NOI decreased 5.5% for the nine months ended September 30, 2019 as compared to the prior-year period. The $24.6 million decrease for the nine months ended September 30, 2019 compared to the same period in 2018 primarily consisted of a $34.4 million decrease in revenues partially offset by an $9.8 million decline in operating expenses. Rental revenues declined $41.7 million during the year primarily due to the impact of store closures and rent concessions for tenants with high occupancy cost levels, including tenants that declared bankruptcy. The decrease in rental revenues includes the impact of $1.1 million of uncollectable revenues, which was formerly described as bad debt expense that was included in property operating expense in the prior-year period. The $9.8 million decrease in operating expenses was primarily driven by bad debt expense of $3.7 million in the prior-year period. Maintenance and repair expenses decreased $1.0 million and real estate tax expenses decreased $2.7 million.
Operational Review
The shopping center business is, to some extent, seasonal in nature with tenants typically achieving the highest levels of sales during the fourth quarter due to the holiday season, which generally results in higher percentage rents in the fourth quarter. Additionally, the malls earn most of their rents from short-term tenants during the holiday period. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of the fiscal year.
We classify our regional malls into three categories:
(1)
Stabilized Malls – Malls that have completed their initial lease-up and have been open for more than three complete calendar years.
(2)
Non-stabilized Malls - Malls that are in their initial lease-up phase. After three complete calendar years of operation, they are reclassified on January 1 of the fourth calendar year to the stabilized mall category. The Outlet Shoppes at Laredo was classified as a non-stabilized mall as of September 30, 2019 and 2018.
(3)
Excluded Malls - We exclude malls from our core portfolio if they fall in one of the following categories, for which operational metrics are excluded:
a.
Lender Malls - Malls for which we are working or intend to work with the lender on a restructure of the terms of the loan secured by the property or convey the secured property to the lender. Hickory Point Mall and Greenbrier Mall were classified as Lender Malls as of September 30, 2019, and Acadiana Mall and Cary Towne Center were classified as Lender Malls as of September 30, 2018. Lender Malls are excluded from our same-center pool as decisions made while in discussions with the lender may lead to metrics that do not provide relevant information related to the condition of these properties or they may be under cash management agreements with the respective servicers.

52


b.
Repositioning Malls - Malls that are currently being repositioned or where we have determined that the current format of the mall no longer represents the best use of the mall and we are in the process of evaluating alternative strategies for the mall. This may include major redevelopment or an alternative retail or non-retail format, or after evaluating alternative strategies for the mall, we may determine that the mall no longer meets our criteria for long-term investment. The steps taken to reposition these malls, such as signing tenants to short-term leases, which are not included in occupancy percentages, or leasing to regional or local tenants, which typically do not report sales, may lead to metrics which do not provide relevant information related to the condition of these malls. Therefore, traditional performance measures, such as occupancy percentages and leasing metrics, exclude Repositioning Malls. There were no malls classified as Repositioning Malls as of September 30, 2019. Hickory Point Mall was classified as a Repositioning Mall as of September 30, 2018.
c.
Minority Interest Malls - Malls in which we have a 25% or less ownership interest. There were no malls classified as Minority Interest Malls as of September 30, 2019. Triangle Town Center was classified as a Minority Interest Mall as of September 30, 2018.
We derive the majority of our revenues from the mall properties. The sources of our revenues by property type were as follows: 
 
Nine Months Ended September 30,
 
2019
 
2018
Malls
91.6%
 
91.2%
Other properties
8.4%
 
8.8%
Mall Store Sales
Mall store sales include reporting mall tenants of 10,000 square feet or less for stabilized malls and exclude license agreements, which are retail contracts that are temporary or short-term in nature and generally last more than three months but less than twelve months. The following is a comparison of our same-center sales per square foot:
 
Twelve Months Ended September 30,
 
 
 
2019
 
2018
 
% Change
Stabilized mall same-center sales per square foot
$383
 
$379
 
1.1%
Stabilized mall sales per square foot
$383
 
$378
 
1.3%
Occupancy
Our portfolio occupancy is summarized in the following table (1):  
 
As of September 30,
 
2019
 
2018
Total portfolio
90.5%
 
92.0%
Malls:
 
 
 
Total mall portfolio
88.7%
 
90.5%
Same-center malls
88.7%
 
90.7%
Stabilized malls
88.8%
 
90.8%
Non-stabilized malls (2)
83.8%
 
73.6%
Other properties:
96.4%
 
96.9%
Associated centers
96.3%
 
97.2%
Community centers
96.3%
 
96.8%
(1)
As noted above, excluded properties are not included in occupancy metrics. Occupancy for malls represents percentage of mall store gross leasable area occupied under 20,000 square feet. Occupancy for other properties represents percentage of gross leasable area occupied.
(2)
Represents occupancy for The Outlet Shoppes at Laredo as of September 30, 2019 and 2018.
Bankruptcy-related store closures impacted third quarter occupancy by approximately 409 basis points or

53


722,000 square feet. See Leasing below for an update on our progress in replacing these stores.
Leasing
The following is a summary of the total square feet of leases signed in the three- and nine-month periods ended September 30, 2019:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Operating portfolio:
 
 
 
 
 
 
 
New leases
239,645

 
154,968

 
768,106

 
763,104

Renewal leases
472,636

 
590,923

 
1,626,014

 
1,907,874

Development portfolio:
 
 
 
 
 
 
 
New leases
1,175

 
87,293

 
205,614

 
190,951

Total leased
713,456

 
833,184

 
2,599,734

 
2,861,929

Average annual base rents per square foot are based on contractual rents in effect as of September 30, 2019 and 2018, including the impact of any rent concessions. Average annual base rents per square foot for comparable small shop space of less than 10,000 square feet were as follows for each property type (1)
 
 
As of September 30,
 
 
2019
 
2018
Malls:
 
$
31.94

 
$
32.69

Same-center stabilized malls
 
31.94

 
32.79

Stabilized malls
 
32.05

 
32.77

Non-stabilized malls (2)
 
24.12

 
25.48

Other properties:
 
15.40

 
15.16

Associated centers
 
13.75

 
13.68

Community centers
 
16.99

 
16.44

Office buildings
 
18.87

 
18.01

(1)
As noted above, excluded properties are not included. Average base rents for associated centers, community centers and office buildings include all leased space, regardless of size.
(2)
Represents average annual base rents for The Outlet Shoppes at Laredo as of September 30, 2019 and 2018.
Results from new and renewal leasing of comparable small shop space of less than 10,000 square feet during the three and nine month periods ended September 30, 2019 for spaces that were previously occupied, based on the contractual terms of the related leases inclusive of the impact of any rent concessions, are as follows: 
Property Type
 
Square
Feet
 
Prior
Gross
Rent PSF
 
New
Initial
Gross
Rent PSF
 
% Change
Initial
 
New
Average
Gross
Rent PSF
 (1)
 
% Change
Average
Quarter:
 
 
 
 
 
 
 
 
 
 
 
 
All Property Types (2)
 
423,779

 
$
35.97

 
$
33.44

 
(7.0
)%
 
$
33.98

 
(5.5
)%
Stabilized malls
 
396,998

 
36.82

 
33.96

 
(7.8
)%
 
34.49

 
(6.3
)%
  New leases
 
64,537

 
35.15

 
38.79

 
10.4
 %
 
41.79

 
18.9
 %
  Renewal leases
 
332,461

 
37.15

 
33.03

 
(11.1
)%
 
33.07

 
(11.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Year-to-Date:
 
 
 
 
 
 
 
 
 
 
 
 
All Property Types (2)
 
1,406,372

 
$
37.28

 
$
34.24

 
(8.2
)%
 
$
34.82

 
(6.6
)%
Stabilized malls
 
1,278,943

 
38.20

 
35.01

 
(8.4
)%
 
35.58

 
(6.9
)%
  New leases
 
158,382

 
44.00

 
45.40

 
3.2
 %
 
48.07

 
9.3
 %
  Renewal leases
 
1,120,561

 
37.38

 
33.54

 
(10.3
)%
 
33.81

 
(9.6
)%
(1)
Average gross rent does not incorporate allowable future increases for recoverable common area expenses.
(2)
Includes stabilized malls, associated centers, community centers and office buildings.

54


Spreads on new leases for stabilized malls increased 18.9% and renewal leases were signed at an average of 11.0% lower than the expiring rent. This quarter’s results demonstrate a significant improvement from recent past quarters.
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
 
Square
Feet
 
Term
(in
years)
 
Initial
Rent
PSF
 
Average
Rent
PSF
 
Expiring
Rent
PSF
 
Initial Rent
Spread
 
 Average Rent
Spread
Commencement 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New
99

 
204,992

 
7.21

 
$
44.12

 
$
46.56

 
$
44.65

 
$
(0.53
)
 
(1.2
)%
 
$
1.91

 
4.3
 %
Renewal
485

 
1,537,015

 
2.72

 
30.65

 
30.88

 
35.11

 
(4.46
)
 
(12.7
)%
 
(4.23
)
 
(12.0
)%
Commencement 2019 Total
584

 
1,742,007

 
3.48

 
32.23

 
32.72

 
36.23

 
(4.00
)
 
(11.0
)%
 
(3.51
)
 
(9.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commencement 2020:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New
11

 
29,737

 
8.46

 
44.93

 
48.74

 
32.24

 
12.69

 
39.4
 %
 
16.50

 
51.2
 %
Renewal
97

 
301,448

 
3.24

 
32.65

 
33.21

 
33.96

 
(1.31
)
 
(3.9
)%
 
0.75

 
(2.2
)%
Commencement 2020 Total
108

 
331,185

 
3.77

 
33.75

 
34.60

 
33.80

 
(0.05
)
 
0.1
 %
 
0.80

 
2.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total 2019/2020
692

 
2,073,192

 
3.53

 
$
32.48

 
$
33.02

 
$
35.84

 
$
(3.36
)
 
(9.4
)%
 
$
(2.82
)
 
(7.9
)%
Across our portfolio, we are diversifying the uses at our centers, which will provide a more stable base of revenues. Overall, 74% of new mall leasing and 60% of total mall leasing, including renewals, this year has been non-apparel. Adding non-retail and mixed uses is another focus and we are currently under construction, have agreements executed or are in active negotiation on two multi-family projects, 15 entertainment operations, including two casinos, 9 hotels, 31 restaurants, eight fitness centers, eight medical uses, two self-storage facilities and several other non-retail uses.  The market dominant locations of our properties are driving this strong interest. These uses complement our existing tenant base, drive new traffic to our properties and strengthen the overall portfolio.
LIQUIDITY AND CAPITAL RESOURCES    
As of September 30, 2019, we had $304.8 million outstanding on our secured credit facility leaving $380.2 million of availability, after considering outstanding letters of credit of $4.8 million, as well as unrestricted cash and cash equivalents of $34.6 million. Our total pro rata share of debt at September 30, 2019 was $4.3 billion. Our consolidated unencumbered properties generated approximately 26.5% of total consolidated NOI for the nine months ended September 30, 2019 (excluding dispositions and Excluded Malls).
In January 2019, we completed the sale of Cary Towne Center and the transfer of Acadiana Mall and recognized a $71.7 million gain on extinguishment of the related $163.5 million in debt.
In January 2019, we entered into a new $1.185 billion senior secured credit facility, which included a fully-funded $500 million term loan and a revolving line of credit with a borrowing capacity of $685 million. The facility replaced all of the Company's prior unsecured bank facilities, which included three unsecured term loans with an aggregate balance of $695 million and three unsecured revolving lines of credit with an aggregate capacity of $1.1 billion. At closing, we utilized the line of credit to reduce the principal balance of the unsecured term loans from $695 million to $500 million. The facility matures in July 2023 and bears interest at a variable rate of LIBOR plus 2.25%. The Operating Partnership is required to pay an annual facility fee on the line of credit balance, to be paid quarterly, which ranges from 0.25% to 0.35%, based on the unused capacity of the line of credit. The principal balance on the term loan will be reduced by $35 million per year in quarterly installments.
In April 2019, the loan secured by Volusia Mall was refinanced to increase the principal balance to $50.0 million. In addition, the maturity date was extended to April 2024 and the fixed interest rate was reduced from 8.00% to 4.56%. The net proceeds from the new loan were used to retire the $41.0 million existing loan. During the three months ended June 30, 2019, we sold three properties for a total gross sales price of $32.2 million. The majority of the excess sales proceeds were used to reduce the outstanding balance on our secured line of credit. The remaining portion of those proceeds related to the Honey Creek Mall sale, which were combined with the net proceeds from the refinancing of the loan secured by Volusia Mall to retire the $23.5 million loan secured by Honey Creek Mall (See Note 6 for additional information on dispositions). In May 2019, we exercised an option to extend the loan secured by The Outlet Shoppes at Laredo to May 2021. In conjunction with the amendment, a payment of $10.8 million was made to reduce the

55


outstanding balance of the loan to $43.0 million. The noncontrolling interest partner in The Outlet Shoppes at Laredo joint venture funded its 35% share of the $10.8 million payment. We also formed a new 50/50 joint venture to develop a self-storage facility adjacent to Parkdale Mall and closed in May 2019 on a five-year $6.5 million construction loan which bears interest at the greater of 5.25% or LIBOR plus 2.80% to fund the project.
In April 2019, we entered into a settlement agreement and release with respect to a class action lawsuit. Under the terms of the settlement agreement, we did not pay any dividends to holders of our common shares payable in the third and fourth quarters of 2019. The settlement agreement does not restrict our ability to declare dividends payable in 2020 or in subsequent years. See Note 12 to the condensed consolidated financial statements for more information related to the settlement.
During the three months ended September 30, 2019, the Company sold a 25% interest in The Outlet Shoppes at El Paso to its existing joint venture partner, five properties, two outparcels and a tract of land for a total gross sales price of $87.8 million. After the joint venture partner’s assumption of $18.5 million of debt on The Outlet Shoppes at El Paso, the aggregate net sales proceeds of $68.1 million were used to reduce the outstanding balance on our secured line of credit. Following the sale of the 25% interest in The Outlet Shoppes at El Paso, the Company and its joint venture partner both own a 50% interest.
Subsequent to September 30, 2019, the Company contributed land to its 50/50 joint venture, Vision-CBL Hamilton Place, LLC, and closed on a loan, with a borrowing capacity of $16.8 million, for the construction of an Aloft by Marriott hotel.
We derive the majority of our revenues from leases with retail tenants, which have historically been the primary source for funding short-term liquidity and capital needs such as operating expenses, debt service, tenant construction allowances, recurring capital expenditures, dividends and distributions. We believe that the combination of cash flows generated from our operations, combined with our debt and equity sources and the availability under our credit facilities and proceeds from dispositions will, for the foreseeable future, provide adequate liquidity to meet our cash needs.  In addition to these factors, we have options available to us to generate additional liquidity, including but not limited to, debt and equity offerings, joint venture investments, issuances of noncontrolling interests in our Operating Partnership, and decreasing expenditures related to tenant construction allowances and other capital expenditures. We also generate revenues from sales of peripheral land at our properties and from sales of real estate assets when it is determined that we can realize an optimal value for the assets.
Cash Flows - Operating, Investing and Financing Activities
There was $63.3 million of cash, cash equivalents and restricted cash as of September 30, 2019, an increase of $5.7 million from December 31, 2018. Of this amount, $34.6 million was unrestricted cash and cash equivalents as of September 30, 2019.
Our net cash flows are summarized as follows (in thousands):
 
Nine Months Ended
September 30,
 
 
 
2019
 
2018
 
Change
Net cash provided by operating activities
$
225,243

 
$
280,407

 
$
(55,164
)
Net cash provided by (used in) investing activities
55,870

 
(14,325
)
 
70,195

Net cash used in financing activities
(275,369
)
 
(278,109
)
 
2,740

Net cash flows
$
5,744

 
$
(12,027
)
 
$
17,771

Cash Provided by Operating Activities
Cash provided by operating activities decreased $55.2 million primarily due to a decline in rental revenues related to sold properties and a decline in rental revenues related to store closures and rent concessions for tenants with high occupancy cost levels, including tenants in bankruptcy.
Cash Provided by (Used in) Investing Activities
Cash flows provided by investing activities increased $70.2 million compared to the prior year. The cash inflow for 2019 was primarily related to a greater amount of proceeds from sales in the current period combined with lower cash paid for capital expenditures as we continue to focus on controlling such expenditures. These increases were partially offset by a lower amount of distributions from unconsolidated affiliates in 2019 as we received a distribution from an unconsolidated affiliate in 2018 related to excess proceeds from the refinancing of a mortgage loan.

56


Cash Used in Financing Activities
Cash flows used in financing activities decreased $2.7 million in 2019 compared to the prior year. Although the reduction in our common stock dividend resulted in savings in dividends and distributions paid to common shareholders and the noncontrolling interest holders in the Operating Partnership, this was offset by the additional principal payments on debt and the payment of deferred financing costs, which were mostly related to our new secured credit facility.
Debt
Debt of the Company
CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries, that it has a direct or indirect ownership interest in, is the borrower on all of our debt. CBL is a limited guarantor of the Notes, as described in Note 8 to the condensed consolidated financial statements, for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates. We also provide a similar limited guarantee of the Operating Partnership's obligations with respect to our secured credit facility as of September 30, 2019.
Debt of the Operating Partnership
The following tables summarize debt based on our pro rata ownership share, including our pro rata share of unconsolidated affiliates and excluding noncontrolling investors’ share of consolidated properties, because we believe this provides investors and lenders a clearer understanding of our total debt obligations and liquidity (in thousands):
September 30, 2019
 
Consolidated
 
Noncontrolling
Interests
 
Unconsolidated
Affiliates
 
Total
 
Weighted-
Average
Interest
Rate
(1)
Fixed-rate debt:
 
 
 
 
 
 
 
 
 
 
  Non-recourse loans on operating
properties (2)
 
$
1,495,896

 
$
(74,486
)
 
$
555,192

 
$
1,976,602

 
4.89%
Recourse loan on operating property (3)
 

 

 
10,050

 
10,050

 
3.74%
  Senior unsecured notes due 2023 (4)
 
447,775

 

 

 
447,775

 
5.25%
  Senior unsecured notes due 2024 (5)
 
299,958

 

 

 
299,958

 
4.60%
  Senior unsecured notes due 2026 (6)
 
617,260

 

 

 
617,260

 
5.95%
Total fixed-rate debt
 
2,860,889

 
(74,486
)
 
565,242

 
3,351,645

 
5.10%
Variable-rate debt:
 
 

 
 

 
 

 
 

 
 
  Recourse loans on operating properties
 
56,178

 

 
82,995

 
139,173

 
4.58%
  Construction loans
 
21,061

 

 

 
21,061

 
4.99%
  Secured line of credit (7)
 
304,769

 

 

 
304,769

 
4.35%
  Secured term loan (7)
 
473,750

 

 

 
473,750

 
4.35%
Total variable-rate debt
 
855,758

 

 
82,995

 
938,753

 
4.40%
Total fixed-rate and variable-rate debt
 
3,716,647

 
(74,486
)
 
648,237

 
4,290,398

 
4.95%
  Unamortized deferred financing costs
 
(17,640
)
 
516

 
(2,607
)
 
(19,731
)
 
 
Mortgage and other indebtedness, net
 
$
3,699,007

 
$
(73,970
)
 
$
645,630

 
$
4,270,667

 
 

December 31, 2018
 
Consolidated
 
Noncontrolling
Interests
 
Unconsolidated
Affiliates
 
Total
 
Weighted-
Average
Interest
Rate
(1)
Fixed-rate debt:
 
 

 
 

 
 

 
 

 
 
  Non-recourse loans on operating properties (2)
 
$
1,783,097

 
$
(94,361
)
 
$
540,068

 
$
2,228,804

 
5.01%
  Recourse loans on operating properties (3)
 

 

 
10,605

 
10,605

 
3.74%
  Senior unsecured notes due 2023 (4)
 
447,423

 

 

 
447,423

 
5.25%
  Senior unsecured notes due 2024 (5)
 
299,953

 

 

 
299,953

 
4.60%

57


December 31, 2018
 
Consolidated
 
Noncontrolling
Interests
 
Unconsolidated
Affiliates
 
Total
 
Weighted-
Average
Interest
Rate
(1)
  Senior unsecured notes due 2026 (6)
 
616,635

 

 

 
616,635

 
5.95%
Total fixed-rate debt
 
3,147,108

 
(94,361
)
 
550,673

 
3,603,420

 
5.16%
Variable-rate debt:
 
 

 
 

 
 

 
 

 
 
Recourse loans on operating properties
 
68,607

 

 
96,012

 
164,619

 
4.91%
  Construction loan
 
8,172

 

 
3,892

 
12,064

 
5.20%
  Unsecured lines of credit (7)
 
183,972

 

 

 
183,972

 
3.90%
  Unsecured term loans (7)
 
695,000

 

 

 
695,000

 
4.21%
Total variable-rate debt
 
955,751

 

 
99,904

 
1,055,655

 
4.28%
Total fixed-rate and variable-rate debt
 
4,102,859

 
(94,361
)
 
650,577

 
4,659,075

 
4.96%
  Unamortized deferred financing costs
 
(15,963
)
 
804

 
(2,687
)
 
(17,846
)
 
 
  Liabilities related to assets held for sale (8)
 
(43,716
)
 

 

 
(43,716
)
 
 
Mortgage and other indebtedness, net
 
$
4,043,180

 
$
(93,557
)
 
$
647,890

 
$
4,597,513

 
 
(1)
Weighted-average interest rate includes the effect of debt premiums and discounts, but excludes amortization of deferred financing costs.
(2)
An unconsolidated affiliate has an interest rate swap on a notional amount outstanding of $43,938 as of September 30, 2019 and $44,863 as of December 31, 2018 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%.
(3)
The unconsolidated affiliate has an interest rate swap on a notional amount outstanding of $10,050 as of September 30, 2019 and $10,605 as of December 31, 2018 related to a variable-rate loan on Ambassador Town Center - Infrastructure Improvements to effectively fix the interest rate on this loan to a fixed-rate of 3.74%.
(4)
The balance is net of an unamortized discount of $2,225 and $2,577 as of September 30, 2019 and December 31, 2018, respectively.
(5)
The balance is net of an unamortized discount of $42 and $47 as of September 30, 2019 and December 31, 2018, respectively.    
(6)
The balance is net of an unamortized discount of $7,740 and $8,365 as of September 30, 2019 and December 31, 2018, respectively.
(7)
We replaced our unsecured lines of credit and unsecured term loans in January 2019 with a new secured senior credit facility.
(8)
Represents a $43,716 non-recourse mortgage loan secured by Cary Towne Center that was classified on the consolidated balance sheet as liabilities related to assets held for sale.
The weighted-average remaining term of our total share of consolidated and unconsolidated debt was 4.2 years and 4.0 years at September 30, 2019 and December 31, 2018, respectively. The weighted-average remaining term of our pro rata share of fixed-rate debt was 4.4 and 4.8 years at September 30, 2019 and December 31, 2018, respectively.
As of September 30, 2019 and December 31, 2018, our pro rata share of consolidated and unconsolidated variable-rate debt represented 22.0% and 22.8%, respectively, of our total pro rata share of debt.
See Note 8 to the condensed consolidated financial statements for additional information concerning the amount and terms of our outstanding indebtedness and compliance with applicable covenants and restrictions as of September 30, 2019, as well as activity related to consolidated property loans.
See Note 7 to the condensed consolidated financial statements for information concerning activity related to unconsolidated affiliates.
Credit Ratings
The Operating Partnership's credit ratings of its unsecured long-term indebtedness were as follows as of September 30, 2019:
Rating Agency
 
Rating
 
Outlook
Fitch
 
B-
 
Negative
Moody's
 
Caa1
 
Negative
S&P
 
BB-
 
Negative


58


Unencumbered Consolidated Portfolio Statistics
(Dollars in thousands, except sales per square foot data)
 
 
 
Sales Per Square
Foot for the Twelve
Months Ended (1) (2)
 
Occupancy (2)
 
% of
Consolidated
Unencumbered
NOI for the
Nine Months
Ended
9/30/19
(3)
 
 
09/30/19
 
09/30/18
 
09/30/19
 
09/30/18
 
 
Unencumbered consolidated properties:
 
 
 
 
 
 
 
 
 
 
 
Tier 1 Malls
 
N/A

 
N/A

 
N/A

 
N/A

 
6.0
%
(4) 
Tier 2 Malls
 
$
339

 
$
340

 
84.0
%
 
85.7
%
 
45.4
%
 
Tier 3 Malls
 
277

 
281

 
86.8
%
 
89.6
%
 
27.5
%
 
Total Malls
 
$
313

 
$
315

 
85.3
%
 
87.5
%
 
78.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Associated Centers
 
N/A

 
N/A

 
95.9
%
 
97.0
%
 
15.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Community Centers
 
N/A

 
N/A

 
97.3
%
 
98.1
%
 
5.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Office Buildings and Other
 
N/A

 
N/A

 
86.7
%
 
93.6
%
 
0.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Unencumbered Consolidated Portfolio
 
$
313

 
$
315

 
89.1
%
 
90.9
%
 
100.0
%
 
(1)
Represents same-center sales per square foot for mall tenants 10,000 square feet or less for stabilized malls.
(2)
Operating metrics are included for unencumbered operating properties and do not include sales or occupancy of unencumbered parcels.
(3)
Our consolidated unencumbered properties generated approximately 26.5% of total consolidated NOI of $383,213 (which excludes NOI related to dispositions) for the nine months ended September 30, 2019.
(4)
NOI is derived from unencumbered portions of Tier One properties that are otherwise secured by a loan. The unencumbered portions include outparcels, anchors and former anchors that have been redeveloped.
Equity
During the nine months ended September 30, 2019, we paid dividends of $59.6 million to holders of CBL's common stock and preferred stock, as well as $15.7 million in distributions to the noncontrolling interest investors in the Operating Partnership and other consolidated subsidiaries. The Operating Partnership paid distributions of $33.7 million and $33.3 million on the preferred units and common units, respectively, as well as distributions of $8.3 million to the noncontrolling interests in other consolidated subsidiaries.
Future dividends payable will be determined by our Board of Directors based upon circumstances at the time of declaration. The dividend was reduced to an annualized rate of $0.30 per share beginning with the dividend payable in January 2019 from the prior annualized rate of $0.80 per share. As previously noted, under the terms of the class action settlement agreement (see Note 12 to the condensed consolidated financial statements), we did not pay any dividends to holders of our common shares payable in the third and fourth quarters of 2019. The settlement agreement does not restrict our ability to declare dividends payable in 2020 or in subsequent years.
As a publicly traded company, and as a subsidiary of a publicly traded company, we previously have accessed capital through both the public equity and debt markets. We currently have a shelf registration statement on file with the SEC authorizing us to publicly issue unspecified amounts of senior and/or subordinated debt securities, shares of preferred stock (or depositary shares representing fractional interests therein), shares of common stock, warrants or rights to purchase any of the foregoing securities, and units consisting of two or more of these classes or series of securities and limited guarantees of debt securities issued by the Operating Partnership. This shelf registration statement also authorized the Operating Partnership to publicly issue unsubordinated debt securities. This shelf registration statement was due to expire in July 2021.  However, the Company no longer qualifies as a well-known seasoned issuer under SEC rules, and we therefore are unable to use this shelf registration.

59


Market Capitalization
Our total-market capitalization as of September 30, 2019 was computed as follows (in thousands, except stock prices): 
 
Shares
Outstanding
 
Stock Price (1)
 
Value
Common stock and operating partnership units
200,228

 
$
1.29

 
$
258,294

7.375% Series D Cumulative Redeemable Preferred Stock
1,815

 
250.00

 
453,750

6.625% Series E Cumulative Redeemable Preferred Stock
690

 
250.00

 
172,500

Total market equity
 

 
 

 
884,544

Company’s share of total debt, excluding unamortized deferred financing costs
 

 
 

 
4,290,398

Total market capitalization
 

 
 

 
$
5,174,942

 
(1)
Stock price for common stock and Operating Partnership units equals the closing price of CBL's common stock on September 30, 2019. The stock prices for the preferred stock represent the liquidation preference of each respective series of preferred stock.
Capital Expenditures
Deferred maintenance expenditures are generally included in the determination of CAM expense that is billed to tenants in accordance with their lease agreements. These expenditures are generally recovered over a 5 to 15-year period. Renovation expenditures are primarily for remodeling and upgrades of malls, of which a portion is recovered from tenants over a 5 to 15-year period.  We recover these costs through fixed amounts with annual increases or pro rata cost reimbursements based on the tenant’s occupied space.
The following table, which excludes expenditures for developments, redevelopments and expansions, summarizes these capital expenditures, including our share of unconsolidated affiliates' capital expenditures, for the three- and nine-month periods ended September 30, 2019 compared to the same periods in 2018 (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Tenant allowances (1)
$
10,781

 
$
6,978

 
$
21,831

 
$
35,199

 
 
 
 
 
 
 
 
Renovations

 

 

 
563

 
 
 
 
 
 
 
 
Deferred maintenance:
 
 
 
 
 
 
 
  Parking lot and parking lot lighting
315

 
206

 
529

 
871

  Roof repairs and replacements
2,083

 
270

 
4,757

 
3,694

  Other capital expenditures
5,610

 
5,255

 
15,094

 
15,035

Total deferred maintenance
8,008

 
5,731

 
20,380

 
19,600

 
 
 
 
 
 
 
 
Capitalized overhead
423

 
832

 
1,795

 
4,123

 
 
 
 
 
 
 
 
Capitalized interest
787

 
1,198

 
1,969

 
2,736

 
 
 
 
 
 
 
 
Total capital expenditures
$
19,999

 
$
14,739

 
$
45,975

 
$
62,221

(1)
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, will provide the necessary funding for these expenditures.

60


Developments, Expansions and Redevelopments
The following tables summarize our development, expansion and redevelopment projects as of September 30, 2019.
Properties Opened During the Nine Months Ended September 30, 2019
(Dollars in thousands)
 
 
 
 
 
 
 
 
CBL's Share of
 
 
 
 
Property
 
Location
 
CBL
Ownership
Interest
 
Total
Project
Square
Feet
 
Total
Cost
(1)
 
Cost to
Date
(2)
 
2019 YTD
Cost
 

Opening
Date
 
Initial
Unleveraged
Yield
Other - Outparcel Development:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mid Rivers Mall - CubeSmart Self-
storage
(3) (4)
 
St. Peters, MO
 
50%
 
93,540

 
$
4,122

 
$
3,646

 
$
973

 
Jan-19
 
9.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Total Cost is presented net of reimbursements to be received.
(2) Cost to Date does not reflect reimbursements until they are received.
(3) Outparcel development adjacent to the mall.
(4) Yield is based on the expected yield of the stabilized project.

We opened our second self-storage facility in January. This joint venture project is located adjacent to Mid Rivers Mall. We contributed land as our share of equity which limited the amount of cash investment required.

Redevelopments Completed During the Nine Months Ended September 30, 2019
(Dollars in thousands)
 
 
 
 
 
 
 
 
CBL's Share of
 
 
 
 
Property
 
Location
 
CBL
Ownership
Interest
 
Total
Project
Square
Feet
 
Total
Cost
(1)
 
Cost to
Date
(2)
 
2019 YTD
Cost
 

Opening
Date
 
Initial
Unleveraged
Yield
Mall Redevelopments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dakota Square Mall - HomeGoods
 
Minot, ND
 
100%
 
28,406

 
$
2,478

 
$
2,293

 
$
1,315

 
Apr-19
 
14.4%
East Towne Mall - Portillo's
 
Madison, WI
 
100%
 
9,000

 
2,956

 
2,487

 
71

 
Feb-19
 
8.0%
Friendly Center - O2 Fitness
 
Greensboro, NC
 
50%
 
27,048

 
2,285

 
1,696

 
289

 
Apr-19
 
10.3%
Hanes Mall - Dave & Buster's
 
Winston-Salem, NC
 
100%
 
44,922

 
5,932

 
4,559

 
2,413

 
May-19
 
11.0%
Northgate Mall - Sears Auto Center Redevelopment (Aubrey's/Panda Express)
 
Chattanooga, TN
 
100%
 
10,000

 
1,797

 
530

 
17

 
Feb-19
 
7.6%
Parkdale Mall - Macy's Redevelopment (Dick's Sporting Goods/Five Below/HomeGoods) (3)
 
Beaumont, TX
 
100%
 
86,136

 
20,899

 
17,641

 
11,161

 
May-19
 
6.4%
Volusia Mall - Sears Auto Center Redevelopment (Bonefish Grill/Metro Diner)
 
Daytona Beach, FL
 
100%
 
23,341

 
9,795

 
5,558

 
144

 
Apr-19
 
8.0%
Total Redevelopments Completed
 
 
 
 
 
228,853

 
$
46,142

 
$
34,764

 
$
15,410

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Total Cost is presented net of reimbursements to be received.
(2) Cost to Date does not reflect reimbursements until they are received.
(3) The return reflected represents a pro forma incremental return as Total Cost excludes the cost related to the acquisition of the Macy's building in 2017.


61


Properties Under Redevelopment at September 30, 2019
(Dollars in thousands)
 
 
 
 
 
 
 
 
CBL's Share of
 
 
 
 
Property
 
Location
 
CBL
Ownership
Interest
 
Total
Project
Square
Feet
 
Total
Cost
(1)
 
Cost to
Date
(2)
 
2019 YTD
Cost
 
Expected
Opening
Date
 
Initial
Unleveraged
Yield
Other Developments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hamilton Place - Self Storage (3)
 
Chattanooga, TN
 
60%
 
68,875

 
$
5,824

 
$
299

 
$
299

 
Q2 '20
 
8.7%
Parkdale Mall - Self Storage (3)
 
Beaumont, TX
 
50%
 
69,341

 
4,435

 
1,373

 
1,373

 
Q4 '19
 
10.2%
 
 
 
 
 
 
138,216

 
10,259

 
1,672

 
1,672

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mall Redevelopments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brookfield Square - Sears Redevelopment (Whirlyball/Marcus Theatres) (4)
 
Brookfield, WI
 
100%
 
130,075

 
$
25,233

 
$
24,061

 
$
10,890

 
Q3/Q4 '19
 
10.1%
CherryVale Mall - Sears Redevelopment (Tilt)
 
Rockford, IL
 
100%
 
114,118

 
3,508

 
1,564

 
1,564

 
Q2 '20
 
8.3%
Dakota Square Mall - Herberger's Redevelopment (Ross/Retail Shops/T-Mobile)
 
Minot, ND
 
100%
 
30,096

 
6,410

 
3,348

 
3,205

 
Q1 '20
 
7.2%
Hamilton Place - Sears Redevelopment (Cheesecake Factory/Dick's Sporting Goods/Dave & Buster's/Hotel/Office) (4)
 
Chattanooga, TN
 
100%
 
195,166

 
38,715

 
23,132

 
12,893

 
Q2/Q3 '20
 
7.8%
Laurel Park Place - Carson's Redevelopment (Dunham's Sports)
 
Livonia, MI
 
100%
 
45,000

 
3,886

 
2,898

 
2,876

 
Q4 '19
 
5.9%
Mall del Norte - Forever 21 Redevelopment (Main Event)
 
Laredo, TX
 
100%
 
81,242

 
10,514

 
3,959

 
3,914

 
Q3 '19/Q2 '20
 
9.3%
 
 
 
 
 
 
595,697

 
88,266

 
58,962

 
35,342

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Properties Under Redevelopment
 
 
 
733,913

 
$
98,525

 
$
60,634

 
$
37,014

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Total Cost is presented net of reimbursements to be received.
(2) Cost to Date does not reflect reimbursements until they are received.
(3) Yield is based on expected yield once project stabilizes.
(4) The return reflected represents a pro forma incremental return as Total Cost excludes the cost related to the acquisition of the Sears (Brookfield Square and Hamilton Place) buildings in 2017.

 
 
 
 
 
 
 
 
 
 
 
 
 
Off-Balance Sheet Arrangements
Unconsolidated Affiliates
We have ownership interests in 24 unconsolidated affiliates as of September 30, 2019 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

62


growth. When we retain an interest in an asset rather than selling a 100% interest, it is typically because this allows us to continue to manage the property, which provides us the ability to earn fees for management, leasing, development and financing services provided to the joint venture.
Guarantees
We may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on our investment in the joint venture. We may receive a fee from the joint venture for providing the guaranty. Additionally, when we issue a guaranty, the terms of the joint venture agreement typically provide that we may receive indemnification from the joint venture or have the ability to increase our ownership interest.
See Note 12 to the condensed consolidated statements for information related to our guarantees of unconsolidated affiliates' debt as of September 30, 2019 and December 31, 2018.
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, 2018 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 nine months ended September 30, 2019. Our significant accounting policies are disclosed in Note 2 to the consolidated financial statements included in our Annual Report on Form 10‑K for the year ended December 31, 2018.
Recent Accounting Pronouncements
See Note 2 to the condensed consolidated financial statements for information on recently issued accounting pronouncements.
Impact of Inflation and Deflation
Deflation can result in a decline in general price levels, often caused by a decrease in the supply of money or credit.  The predominant effects of deflation are high unemployment, credit contraction and weakened consumer demand.  Restricted lending practices could impact our ability to obtain financings or refinancings for our properties and our tenants’ ability to obtain credit.  Decreases in consumer demand can have a direct impact on our tenants and the rents we receive.
During inflationary periods, substantially all of our tenant leases contain provisions designed to mitigate the impact of inflation.  These provisions include clauses enabling us to receive percentage rent based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases.  In addition, many of the leases are for terms of less than 10 years, which may provide us the opportunity to replace existing leases with new leases at higher base and/or percentage rent if rents of the existing leases are below the then existing market rate.  Most of the leases require the tenants to pay a fixed amount, subject to annual increases, for their share of operating expenses, including CAM, real estate taxes, insurance and certain capital expenditures, which reduces our exposure to increases in costs and operating expenses resulting from inflation.

63


Non-GAAP Measure
Funds from Operations
FFO is a widely used non-GAAP measure of the operating performance of real estate companies that supplements net income (loss) determined in accordance with GAAP. NAREIT defines FFO as net income (loss) (computed in accordance with GAAP) excluding gains or losses on sales of depreciable operating properties and impairment losses of depreciable properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures and noncontrolling interests. Adjustments for unconsolidated partnerships, joint ventures and noncontrolling interests are calculated on the same basis. We define FFO as defined above by NAREIT less dividends on preferred stock of the Company or distributions on preferred units of the Operating Partnership, as applicable. Our method of calculating FFO may be different from methods used by other REITs and, accordingly, may not be comparable to such other REITs.
We believe that FFO provides an additional indicator of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assumes the value of real estate assets declines predictably over time. Since values of 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 of our business through our Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in our Operating Partnership.  We believe FFO allocable to common shareholders is a useful performance measure because it is the performance measure that is most directly comparable to net income (loss) attributable to common shareholders.
In our reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders that is presented below, we make an adjustment to add back noncontrolling interest in income (loss) of our Operating Partnership in order to arrive at FFO of the Operating Partnership common unitholders.  We then apply a percentage to FFO of the Operating Partnership common unitholders to arrive at FFO allocable to common shareholders. The percentage is computed by taking the weighted-average number of common shares outstanding for the period and dividing it by the sum of the weighted-average number of common shares and the weighted-average number of Operating Partnership units held by noncontrolling interests during the period.     
FFO does not represent cash flows from operations as defined by GAAP, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to net income (loss) for purposes of evaluating our operating performance or to cash flow as a measure of liquidity.
The Company believes that it is important to identify the impact of certain significant items on its FFO measures for a reader to have a complete understanding of the Company’s results of operations. Therefore, the Company has also presented adjusted FFO measures excluding these significant items from the applicable periods. Please refer to the reconciliation of net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders below for a description of these adjustments.
FFO of the Operating Partnership increased 16.8% to $90.4 million for the three months ended September 30, 2019 as compared to $77.4 million for the prior-year period, and decreased 19.6% to $203.0 million for the nine months ended September 30, 2019 as compared to $252.5 million for the prior-year period. Excluding the adjustments noted below, FFO of the Operating Partnership, as adjusted, decreased 14.5% for the three months ended September 30, 2019 to $67.8 million compared to $79.2 million for the same period in 2018, and decreased 23.1% for the nine months ended September 30, 2019 to $196.8 million compared to $255.8 million for the same period in 2018. The decrease in FFO, as adjusted, was primarily driven by lower property-level NOI, dilution from asset sales and higher general and administrative expenses resulting from legal fees related to litigation and third party fees related to the new secured term loan.
The reconciliation of net loss attributable to common shareholders to FFO allocable to Operating Partnership common unitholders is as follows (in thousands, except per share data):


64


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Net loss attributable to common shareholders
$
(90,116
)
 
$
(12,590
)
 
$
(175,715
)
 
$
(57,930
)
Noncontrolling interest in loss of Operating Partnership
(13,904
)
 
(1,628
)
 
(27,116
)
 
(8,978
)
Depreciation and amortization expense of:
 
 
 
 
 
 
 
Consolidated properties
64,168

 
71,945

 
198,438

 
217,261

Unconsolidated affiliates
14,471

 
10,438

 
36,599

 
31,177

   Non-real estate assets
(920
)
 
(910
)
 
(2,719
)
 
(2,748
)
Noncontrolling interests' share of depreciation and amortization in other consolidated subsidiaries
(2,031
)
 
(2,136
)
 
(6,836
)
 
(6,424
)
Loss on impairment
135,688

 
14,600

 
202,121

 
84,644

Loss on impairment of unconsolidated affiliates

 
1,022

 

 
1,022

Gain on depreciable property, net of taxes
(16,914
)
 
(3,307
)
 
(21,755
)
 
(5,543
)
FFO allocable to Operating Partnership common unitholders
90,442

 
77,434

 
203,017

 
252,481

Litigation settlement, net of taxes (1)
(22,688
)
 

 
64,979

 

Gain on investments, net of taxes (2)

 

 

 
(287
)
Non-cash default interest expense (3)

 
1,784

 
542

 
3,616

Gain on extinguishment of debt (4)

 

 
(71,722
)
 

FFO allocable to Operating Partnership common unitholders, as adjusted
$
67,754

 
$
79,218

 
$
196,816

 
$
255,810

 
 
 
 
 
 
 
 
FFO per diluted share
$
0.45

 
$
0.39

 
$
1.01

 
$
1.26

 
 
 
 
 
 
 
 
FFO, as adjusted, per diluted share
$
0.34

 
$
0.40

 
$
0.98

 
$
1.28

 
 
 
 
 
 
 
 
Weighted-average common and potential dilutive common shares outstanding with Operating Partnership units fully converted
200,230

 
199,432

 
200,158

 
199,630

 
 
 
 
 
 
 
 
(1) The three months ended September 30, 2019 represents a reduction of $22,688 to the accrued maximum expense of $88,150 related to the settlement of a class action lawsuit that was recorded in the three months ended March 31, 2019. A majority of the reduction of $22,688 relates to past tenants that did not submit a claim pursuant to the terms of the settlement agreement with the remainder relating to tenants that opted out of the lawsuit. The nine months ended September 30, 2019 is comprised of the accrued maximum expense related to the settlement of a class action lawsuit less the reduction recorded in the three months ended September 30, 2019.
(2) The nine months ended September 30, 2018 includes a gain on investment related to the land contributed by the Company to the Self Storage at Mid Rivers 50/50 joint venture.
(3) The nine months ended September 30, 2019 includes default interest expense related to Acadiana Mall and Cary Towne Center. The three months and nine months ended September 30, 2018 include default interest expense related to Acadiana Mall and Cary Towne Center.
(4) The nine months ended September 30, 2019 includes a gain on extinguishment of debt related to the non-recourse loan secured by Acadiana Mall, which was conveyed to the lender in the first quarter of 2019, and a gain on extinguishment of debt related to the non-recourse loan secured by Cary Towne Center, which was sold in the first quarter of 2019.


The reconciliation of diluted EPS to FFO per diluted share is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Diluted EPS attributable to common shareholders
$
(0.52
)
 
$
(0.07
)
 
$
(1.01
)
 
$
(0.34
)
Eliminate amounts per share excluded from FFO:
 
 
 
 
 
 
 
Depreciation and amortization expense, including amounts from consolidated properties, unconsolidated affiliates, non-real estate assets and excluding amounts allocated to noncontrolling interests
0.38

 
0.40

 
1.13

 
1.20

Loss on impairment
0.68

 
0.08

 
1.00

 
0.43

Gain on depreciable property, net of taxes
(0.09
)
 
(0.02
)
 
(0.11
)
 
(0.03
)
FFO per diluted share
$
0.45

 
$
0.39

 
$
1.01

 
$
1.26

    

65


The reconciliations of FFO allocable to Operating Partnership common unitholders to FFO allocable to common shareholders, including and excluding the adjustments noted above, are as follows (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
FFO allocable to Operating Partnership common unitholders
$
90,442

 
$
77,434

 
$
203,017

 
$
252,481

Percentage allocable to common shareholders (1)
86.64
%
 
86.58
%
 
86.63
%
 
86.37
%
FFO allocable to common shareholders
$
78,359

 
$
67,042

 
$
175,874

 
$
218,068

 
 
 
 
 
 
 
 
FFO allocable to Operating Partnership common unitholders, as adjusted
$
67,754

 
$
79,218

 
$
196,816

 
$
255,810

Percentage allocable to common shareholders (1)
86.64
%
 
86.58
%
 
86.63
%
 
86.37
%
FFO allocable to common shareholders, as adjusted
$
58,702

 
$
68,587

 
$
170,502

 
$
220,943

(1)
Represents the weighted-average number of common shares outstanding for the period divided by the sum of the weighted-average number of common shares and the weighted-average number of Operating Partnership units held by noncontrolling interests during the period.
ITEM 3:    Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risk exposures, including interest rate risk. The following discussion regarding our risk management activities includes forward-looking statements that involve risk and uncertainties.  Estimates of future performance and economic conditions are reflected assuming certain changes in interest rates.  Caution should be used in evaluating our overall market risk from the information presented below, as actual results may differ.  
Interest Rate Risk
Based on our proportionate share of consolidated and unconsolidated variable-rate debt at September 30, 2019, a 0.5% increase or decrease in interest rates on variable-rate debt would decrease or increase annual cash flows by approximately $4.7 million and increase or decrease annual interest expense, after the effect of capitalized interest, by approximately $4.6 million.
Based on our proportionate share of total consolidated and unconsolidated debt at September 30, 2019, a 0.5% increase in interest rates would decrease the fair value of debt by approximately $47.5 million, while a 0.5% decrease in interest rates would increase the fair value of debt by approximately $49.2 million. 
ITEM 4:    Controls and Procedures
 Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, an evaluation was performed under the supervision of our Chief Executive Officer and Chief Financial Officer and with the participation of our management, of the effectiveness of the design and operation of the Company's and the Operating Partnership's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's and the Operating Partnership's disclosure controls and procedures are effective to ensure that information that the Company and the Operating Partnership are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the 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.
 Changes in Internal Control over Financial Reporting
In conjunction with the implementation of ASC 842, Leases, which was adopted on January 1, 2019, we modified some of our processes around lease accounting. As a lessee, the guidance impacted the Company's condensed consolidated financial statements through the recognition of right-of-use ("ROU") assets and corresponding lease liabilities for operating leases as of January 1, 2019. As a lessor, the guidance impacted the Company's condensed consolidated financial statements in regard to the narrowed definition of initial direct costs that can be capitalized,

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the change in the presentation of rental revenues as one line item and the change in reporting uncollectable operating lease receivables as a reduction of rental revenues instead of property operating expense. There have been no other changes in the Company's or the Operating Partnership's internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION
 
ITEM 1:    Legal Proceedings
In April 2019, the Company entered into a settlement agreement and release with respect to the class action lawsuit filed on March 16, 2016 in the United States District Court for the Middle District of Florida by Wave Lengths Hair Salons of Florida, Inc. d/b/a Salon Adrian. The settlement agreement stated that the Company had to set aside a common fund with a monetary and non-monetary value of $90,000 to be disbursed to class members in accordance with an agreed-upon formula that is based upon aggregate damages of $60,000. The Court granted final approval to the proposed settlement on August 22, 2019. Class members are comprised of past and current tenants at certain of the Company's shopping centers that it owns or formerly owned during the class period, which extended from January 1, 2011 through the date of preliminary court approval. Class members who are past tenants and made a claim pursuant to the Court's order will receive payment of their claims in cash. Class members who are current tenants will receive monthly credits against rents and future charges, beginning no earlier than January 1, 2020 and continuing for the following five years. Any amounts under the settlement allocated to tenants with outstanding amounts payable to the Company, including tenants which have declared bankruptcy or declare bankruptcy over the relevant period, will first be deducted from the amounts owed to the Company. All attorney’s fees and associated costs to be paid to class counsel (up to a maximum of $28,000), any incentive award to the class representative (up to a maximum of $50), and class administration costs (which are expected to not exceed $100), have or will be funded by the common fund, which has been approved by the Court. Under the terms of the settlement agreement, the Company did not pay any dividends to holders of its common shares payable in the third and fourth quarters of 2019. The settlement agreement does not restrict the Company's ability to declare dividends payable in 2020 or in subsequent years. The Company recorded an accrued liability and corresponding litigation settlement expense of $88,150 in the three months ended March 31, 2019 related to the settlement agreement. The Company reduced the accrued liability by $22,688 during the three months ended September 30, 2019, a majority of which was related to past tenants that did not submit a claim pursuant to the terms of the settlement agreement with the remainder relating to tenants that opted out of the lawsuit. Subsequent to September 30, 2019, the Company paid $23,050 in attorney and administrative fees related to the previously accrued litigation settlement payable (see Note 15). The Company also received document requests in the third quarter, in the form of subpoenas, from the Securities and Exchange Commission and the Department of Justice regarding the Wave Lengths Hair Salons of Florida, Inc. litigation and other related matters.  The Company is cooperating in these matters.
We are 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. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on our liquidity, results of operations, business or financial condition.     
Securities Litigation
The Company and certain of its officers and directors have been 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.  The first such lawsuit, captioned Paskowitz v. CBL & Associates Properties, Inc., et al., 1:19-cv-00149-JRG-CHS, was filed on May 17, 2019, and asserts claims on behalf of persons or entities that purchased CBL securities between November 8, 2017 and March 26, 2019, inclusive.  The second such lawsuit, captioned Williams v. CBL & Associates Properties, Inc., et al., 1:19-cv-00181, was filed on June 21, 2019, and asserts claims on behalf of persons or entities that purchased CBL securities between April 29, 2016 and March 26, 2019, inclusive.  The third such lawsuit, captioned Merelles v. CBL & Associates Properties, Inc., et al., 1:19-CV-00193, was filed on July 2, 2019, and asserts claims on behalf of persons or entities that purchased CBL securities between July 29, 2014 and March 26, 2019.  The Court consolidated these cases on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Securities Litigation, 1:19-cv-00149-JRG-CHS. After plaintiff Laurence Paskowitz voluntarily dismissed his case on July 25, 2019, the Court re-consolidated the two remaining cases under the caption In re CBL & Associates Properties, Inc. Securities Litigation, 1:19-cv-00181-JRG-CHS, on August 2, 2019.  On September 26, 2019, the Merelles complaint was voluntarily dismissed.

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The complaints filed in the Securities Class Action Litigation allege violations of the securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions regarding the Company’s contingent liabilities, business, operations, and prospects during the periods of time specified above.  The plaintiffs seek compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the amount of damages sought.  The outcome of these legal proceedings cannot be predicted with certainty.
Certain of the Company’s current and former directors and officers have been named as defendants in five shareholder derivative lawsuits (collectively, the “Derivative Litigation”).  On June 4, 2019, a shareholder filed a putative derivative complaint captioned Robert Garfield v. Stephen D. Lebovitz et al., 1:19-cv-01038-LPS, in the United States District Court for the District of Delaware (the “Garfield Derivative Action”), purportedly on behalf of the Company against certain of its officers and directors.  On June 24, 2019, September 5, 2019 and September 25, 2019, respectively, other shareholders filed three additional putative derivative complaints, each in the United States District Court for the District of Delaware, captioned as follows: Robert Cohen v. Stephen D. Lebovitz et al., 1:19-cv-01185-LPS (the “Cohen Derivative Action”); Travis Lore v. Stephen D. Lebovitz et al., 1:19-cv-01665-LPS (the “Lore Derivative Action”), and City of Gainesville Cons. Police Officers’ and Firefighters Retirement Plan v. Stephen D. Lebovitz et al., 1:19-cv-01800 (the “Gainesville Derivative Action”), each asserting substantially similar claims purportedly on behalf of the Company against similar defendants.  The Court consolidated the Garfield Derivative Action and the Cohen Derivative Action on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Derivative Litigation, 1:19-cv-01038-LPS (the "Consolidated Derivative Action"). On July 25, 2019, the Court stayed proceedings in the Consolidated Derivative Action pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation.  On October 14, 2019, the parties to the Gainesville Derivative Action and the Lore Derivative Action filed a joint stipulation and proposed order confirming that each of those cases is subject to the consolidation order previously entered by the Court in the Consolidated Derivative Action and that further proceedings in those cases are stayed pending resolution of an eventual motion to dismiss in the Securities Class Action Litigation. On July 22, 2019, another shareholder filed a putative derivative complaint captioned Shebitz v. Lebovitz et al., 1:19-cv-00213, in the United States District Court for the Eastern District of Tennessee (the “Shebitz Derivative Action”), asserting substantially similar claims purportedly on behalf of the Company against similar defendants. On October 7, 2019, the Court stayed the Shebitz Derivative Action pending resolution of an eventual motion to dismiss in the related Securities Class Action Litigation.
The complaints filed in the Derivative Litigation allege, among other things, breaches of fiduciary duties, unjust enrichment, waste of corporate assets, and violations of the federal securities laws.  The factual allegations upon which these claims are based are similar to the factual allegations made in the Securities Class Action Litigation, described above.  The complaints filed in the Derivative Litigation seek, among other things, unspecified damages and restitution for the Company from the individual defendants, the payment of costs and attorneys’ fees, and that the Company be directed to reform certain governance and internal procedures.  The outcome of these legal proceedings cannot be predicted with certainty.
The Company's insurance carriers have been placed on notice of these matters.
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, Item1A of our Annual Report on Form 10-K for the year ended December 31, 2018. 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 
None.
ITEM 3:    Defaults Upon Senior Securities
None. 
ITEM 4:    Mine Safety Disclosures
Not applicable. 
ITEM 5:    Other Information
None.

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ITEM 6:    Exhibits

INDEX TO EXHIBITS
 Exhibit
 Number
 
Description
 
 
 
 
 
 
 
 
 
101.INS
 
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. (Filed herewith.)
101.SCH
 
Inline XBRL Taxonomy Extension Schema Document. (Filed herewith.)
101.CAL
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
101.LAB
 
Inline XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
101.PRE
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
101.DEF
 
Inline XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
104
 
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*). (Filed herewith.)
* Commission File No. 1-12494 and 333-182515-01.


69

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SIGNATURES



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.


CBL & ASSOCIATES PROPERTIES, INC.

/s/ Farzana Khaleel
_____________________________________
Farzana Khaleel
Executive Vice President -
Chief Financial Officer and Treasurer
(Authorized Officer and Principal Financial Officer)



CBL & ASSOCIATES LIMITED PARTNERSHIP

By: CBL HOLDINGS I, INC., its general partner

/s/ Farzana Khaleel
_____________________________________
Farzana Khaleel
Executive Vice President -
Chief Financial Officer and Treasurer
(Authorized Officer and Principal Financial Officer)










Date: November 12, 2019

70


Exhibit 31.1
CERTIFICATION
I, Stephen D. Lebovitz, certify that:

(1)
I have reviewed this quarterly report on Form 10-Q of CBL & Associates Properties, Inc.;
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 12, 2019
/s/ Stephen D. Lebovitz
____________________________________
Stephen D. Lebovitz, Director and
Chief Executive Officer




Exhibit 31.2
CERTIFICATION
I, Farzana Khaleel, certify that:

(1)
I have reviewed this quarterly report on Form 10-Q of CBL & Associates Properties, Inc.;
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 12, 2019
/s/ Farzana Khaleel
_______________________________________
Farzana Khaleel, Executive Vice President -
Chief Financial Officer and Treasurer





Exhibit 31.3
CERTIFICATION
I, Stephen D. Lebovitz, certify that:

(1)
I have reviewed this quarterly report on Form 10-Q of CBL & Associates Limited Partnership;
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 12, 2019
/s/ Stephen D. Lebovitz
____________________________________
Stephen D. Lebovitz, Director and
Chief Executive Officer of
CBL Holdings I, Inc.,
the sole general partner of
CBL & Associates Limited Partnership





Exhibit 31.4
CERTIFICATION
I, Farzana Khaleel, certify that:

(1)
I have reviewed this quarterly report on Form 10-Q of CBL & Associates Limited Partnership;
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 12, 2019
/s/ Farzana Khaleel
_______________________________________
Farzana Khaleel, Executive Vice President -
Chief Financial Officer and Treasurer of
CBL Holdings I, Inc.,
the sole general partner of
CBL & Associates Limited Partnership





Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of CBL & ASSOCIATES PROPERTIES, INC. (the “Company”) on Form 10‑Q for the nine months ending September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen D. Lebovitz, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350 (as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002), that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Stephen D. Lebovitz
____________________________________
Stephen D. Lebovitz, Director and
Chief Executive Officer

November 12, 2019
____________________________________
Date




Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of CBL & ASSOCIATES PROPERTIES, INC. (the “Company”) on Form 10‑Q for the nine months ending September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Farzana Khaleel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350 (as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002), that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.




/s/ Farzana Khaleel
_______________________________________
Farzana Khaleel, Executive Vice President -
Chief Financial Officer and Treasurer

November 12, 2019
____________________________________
Date





Exhibit 32.3

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of CBL & ASSOCIATES LIMITED PARTNERSHIP (the “Operating Partnership”) on Form 10-Q for the nine months ending September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen D. Lebovitz, Chief Executive Officer of CBL Holdings I, Inc., the sole general partner of the Operating Partnership, certify, pursuant to 18 U.S.C. § 1350 (as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002), that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.


/s/ Stephen D. Lebovitz
____________________________________
Stephen D. Lebovitz, Director and
Chief Executive Officer of
CBL Holdings I, Inc.,
the sole general partner of
CBL & Associates Limited Partnership


November 12, 2019
____________________________________
Date





Exhibit 32.4



CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of CBL & ASSOCIATES LIMITED PARTNERSHIP (the “Operating Partnership”) on Form 10-Q for the nine months ending September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Farzana Khaleel, Chief Financial Officer of CBL Holdings I, Inc., the sole general partner of the Operating Partnership, certify, pursuant to 18 U.S.C. § 1350 (as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002), that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.


/s/ Farzana Khaleel
_______________________________________
Farzana Khaleel, Executive Vice President -
Chief Financial Officer and Treasurer of
CBL Holdings I, Inc.,
the sole general partner of
CBL & Associates Limited Partnership


November 12, 2019
____________________________________
Date



The Combined Guarantor Subsidiaries of
CBL & Associates Limited Partnership
Table of Contents
Combined Guarantor Subsidiaries
 
2
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



The Combined Guarantor Subsidiaries of
CBL & Associates Limited Partnership
Combined Balance Sheets
(In thousands)
(Unaudited)
ASSETS
September 30,
2019
 
December 31,
2018
Real estate assets:
 
 
 
Land
$
220,971

 
$
232,813

Buildings and improvements
2,257,597

 
2,361,707

 
2,478,568

 
2,594,520

Accumulated depreciation
(942,870
)
 
(921,562
)
 
1,535,698

 
1,672,958

Developments in progress
11,758

 
6,582

Net investment in real estate assets
1,547,456

 
1,679,540

Cash and cash equivalents
9,796

 
5,880

Receivables:
 
 
 
Tenant, net of allowance for doubtful accounts of $260 in 2018
28,896

 
30,553

Other
1,134

 
1,007

Mortgage and other notes receivable
64,002

 
76,747

Intangible lease assets and other assets
41,419

 
48,133

 
$
1,692,703

 
$
1,841,860

 
 
 
 
LIABILITIES AND OWNERS EQUITY
 

 
 

Mortgage notes payable, net
$
251,773

 
$
377,996

Accounts payable and accrued liabilities
47,063

 
59,241

Total liabilities
298,836

 
437,237

Commitments and contingencies (Note 7 and Note 11)


 


Owners' equity
1,393,867

 
1,404,623

 
$
1,692,703

 
$
1,841,860


The accompanying notes are an integral part of these combined statements.

2


 The Combined Guarantor Subsidiaries of
CBL & Associates Limited Partnership
Combined Statements of Operations
(In thousands)
(Unaudited)

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
REVENUES:
 
 
 
 
 
 
 
Rental revenues
$
67,495

 
$
77,067

 
$
206,083

 
$
232,749

Other
1,833

 
1,588

 
5,104

 
4,935

Total revenues
69,328

 
78,655

 
211,187

 
237,684

 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 
 
 
 
 
 
 
Property operating
(10,713
)
 
(11,875
)
 
(32,263
)
 
(35,629
)
Depreciation and amortization
(24,681
)
 
(24,481
)
 
(71,499
)
 
(73,587
)
Real estate taxes
(6,523
)
 
(7,338
)
 
(19,318
)
 
(21,451
)
Maintenance and repairs
(4,005
)
 
(4,288
)
 
(12,846
)
 
(13,364
)
Loss on impairment

 

 
(22,770
)
 

Other
(12
)
 
(5
)
 
(639
)
 
(40
)
Total operating expenses
(45,934
)
 
(47,987
)
 
(159,335
)
 
(144,071
)
 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSES):
 
 
 
 
 
 
 
Interest and other income
1,022

 
1,857

 
3,049

 
6,077

Interest expense
(3,400
)
 
(6,129
)
 
(10,797
)
 
(18,270
)
Gain on extinguishment of debt

 

 
61,796

 

Gain on sales of real estate assets
20

 
698

 
20

 
2,406

Total other income (expenses)
(2,358
)
 
(3,574
)
 
54,068

 
(9,787
)
Net income
$
21,036

 
$
27,094

 
$
105,920

 
$
83,826



The accompanying notes are an integral part of these combined statements.

3


The Combined Guarantor Subsidiaries of
CBL & Associates Limited Partnership
Combined Statements of Owners' Equity
(In thousands)
 (Unaudited)
Balance, January 1, 2018
 
$
1,486,164

Net income
 
29,615

Contributions
 
50,514

Distributions
 
(56,447
)
Balance, March 31, 2018
 
1,509,846

Net income
 
27,117

Contributions
 
14,677

Distributions
 
(52,411
)
Balance, June 30, 2018
 
1,499,229

Net income
 
27,094

Contributions
 
14,164

Distributions
 
(114,838
)
Balance, September 30, 2018
 
$
1,425,649


Balance, January 1, 2019
 
$
1,404,623

Net income
 
62,109

Contributions
 
17,363

Distributions
 
(41,658
)
Noncash distributions
 
(8,835
)
Balance, March 31, 2019
 
1,433,602

Net income
 
22,775

Contributions
 
16,558

Distributions
 
(54,312
)
Noncash distributions
 
(2,620
)
Balance, June 30, 2019
 
1,416,003

Net income
 
21,036

Contributions
 
23,971

Distributions
 
(67,143
)
Balance, September 30, 2019
 
$
1,393,867



The accompanying notes are an integral part of these combined statements.


4


The Combined Guarantor Subsidiaries of
CBL & Associates Limited Partnership
Combined Statements of Cash Flows
(In thousands)
(Unaudited)
 
Nine Months Ended
September 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 
Net income
$
105,920

 
$
83,826

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
71,499

 
73,587

Net amortization of deferred financing costs, debt premiums and discounts
186

 
3

Net amortization of intangible lease assets and liabilities
(1,224
)
 
(2,539
)
Gain on sales of real estate assets
(20
)
 
(2,406
)
Gain on insurance proceeds
(9
)
 

Write-off of development projects

 
228

Loss on impairment
22,770

 

Gain on extinguishment of debt
(61,796
)
 

Change in estimate of uncollectable rental revenues
1,262

 
1,154

Changes in:
 
 
 
Tenant and other receivables
(1,923
)
 
395

Other assets
(1,924
)
 
(1,830
)
Accounts payable and accrued liabilities
(3,160
)
 
(582
)
Net cash provided by operating activities
131,581

 
151,836

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Additions to real estate assets
(26,475
)
 
(33,302
)
Acquisitions of real estate assets

 
(3,301
)
Proceeds from sales of real estate assets
22

 
3,453

Proceeds from insurance
653

 

Payments received on mortgage and other notes receivable
12,744

 
65,412

Changes in other assets
(1,263
)
 
(1,031
)
Net cash provided by (used in) investing activities
(14,319
)
 
31,231

 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Principal payments on mortgage and other indebtedness
(11,138
)
 
(43,361
)
Distributions to owners
(163,113
)
 
(223,696
)
Contributions from owners
57,892

 
79,355

Net cash used in financing activities
(116,359
)
 
(187,702
)
 
 
 
 
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
903

 
(4,635
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
13,020

 
14,544

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
13,923

 
$
9,909

 
 
 
 
Reconciliation from combined statements of cash flows to combined balance sheets:
Cash and cash equivalents
$
9,796

 
$
2,954

Restricted cash (1):
 
 
 
Restricted cash

 
3,773

Mortgage escrows
4,127

 
3,182

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
13,923

 
$
9,909

 
 
 
 
SUPPLEMENTAL INFORMATION:
 

 
 

Cash paid for interest, net of amounts capitalized
$
10,099

 
$
15,167

(1)
Included in intangible lease assets and other assets in the combined balance sheets.
 The accompanying notes are an integral part of these combined statements.

5


The Combined Guarantor Subsidiaries of
CBL & Associates Limited Partnership
Notes to Unaudited Combined Financial Statements
(Dollars in thousands)
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, open-air and mixed-use centers, outlet centers, associated centers, community centers and office properties.  Its properties are located in 26 states, but are primarily in the southeastern and midwestern United States.
CBL conducts substantially all of its business through CBL & Associates Limited Partnership (the “Operating Partnership”), 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.
In January 2019, the Operating Partnership entered into a new $1,185,000 senior secured credit facility which replaced all of the Operating Partnership’s prior unsecured bank facilities. The secured credit facility is secured by 17 malls and 3 associated centers that are owned by 36 wholly owned subsidiaries of the Operating Partnership (collectively the “Combined Guarantor Subsidiaries”). The Combined Guarantor Subsidiaries own an additional five malls, two associated centers and four mortgage notes receivable that are not collateral for the secured credit facility. The properties that are collateral for the secured credit facility and the properties and mortgage notes receivable that are not collateral are collectively referred to as the “Guarantor Properties”. In addition to the secured credit facility, the Operating Partnership’s debt includes three separate series of senior unsecured notes (the “Notes”). Based on the terms of the Notes, to the extent that any subsidiary of the Operating Partnership executes and delivers a guarantee to another debt facility, the Operating Partnership shall also cause the subsidiary to guarantee the Operating Partnership’s obligations under the Notes on a senior basis. In January 2019, the Combined Guarantor Subsidiaries entered a guarantee agreement with the issuer of the Notes to satisfy the guaranty requirement. The guarantees related to the secured credit facility and the Notes expire upon maturity of the secured credit facility and repayment of the debt under the secured credit facility. The Combined Guarantor Subsidiaries maximum guarantee related to the secured credit facility is $1,185,000 as of September 30, 2019, and the maximum guarantee related to the Notes is $1,375,000 as of September 30, 2019.
The Combined Guarantor Subsidiaries and Guarantor Properties consisted of the following:
Combined Guarantor Subsidiaries
Guarantor Properties
Location
CW Joint Venture, LLC (1)
  Arbor Place Limited Partnership
  Multi-GP Holdings, LLC
Acadiana Mall (2) (3)
Arbor Place (2)
Greenbrier Mall (2)
Park Plaza (2)
Shoppes at St. Claire Square (2)
St. Claire Square (2)
Lafayette, LA
Douglasville, GA
Chesapeake, VA
Little Rock, AR
Fairview Heights, IL
Fairview Heights, IL
CBL/Westmoreland, L.P.
  CBL/Westmoreland I, LLC
  CBL/Westmoreland II, LLC
    CW Joint Venture, LLC
      Arbor Place Limited Partnership
      Multi-GP Holdings, LLC
Westmoreland Mall
Westmoreland Crossing
Greensburg, PA
Greensburg, PA
Cherryvale Mall, LLC
CherryVale Mall
Rockford, IL
Madison/East Towne, LLC
  Madison Joint Venture, LLC
    CBL/Madison I, LLC
East Towne Mall
Madison, WI
Frontier Mall Associates Limited Partnership
Mortgage Holdings LLC
Frontier Mall
Cheyenne, WY
JG Winston-Salem, LLC
Hanes Mall
Winston-Salem, NC
Imperial Valley Mall II, L.P.
  Imperial Valley Mall GP, LLC
    Imperial Valley Mall, L.P.
      CBL/Imperial Valley, GP, LLC
Imperial Valley Mall
El Centro, CA

6

Table of Contents

Combined Guarantor Subsidiaries
Guarantor Properties
Location
Kirkwood Mall Acquisition LLC
  Kirkwood Mall Mezz LLC
    CBL/Kirkwood Mall, LLC
Kirkwood Mall
Bismarck, ND
Layton Hills Mall CMBS, LLC
Layton Hills Mall and Cinema
Layton Hills Plaza
Layton Hills Convenience Center
Layton, UT
Layton, UT
Layton, UT
Mall del Norte, LLC
  MDN/Laredo GP, LLC
Mall del Norte and Cinema
Laredo, TX
Mayfaire Town Center, LP
  Mayfaire GP, LLC
Mayfaire Town Center
Wilmington, NC
Mortgage Holdings, LLC (4)
Four mortgage notes receivable (2)
Chattanooga, TN
Hixson Mall, LLC
Northgate Mall
Chattanooga, TN
Pearland Town Center Limited Partnership
Pearl Ground, LLC
  Pearland Town Center GP, LLC
Pearland Town Center - Retail
Pearland Town Center - Office
Pearland, TX
POM-College Station, LLC
Post Oak Mall
College Station, TX
CBL RM-Waco, LLC
  CBL/Richland G.P., LLC
Richland Mall
Waco, TX
CBL SM - Brownsville, LLC
  CBL/Sunrise GP, LLC
Sunrise Mall
Brownsville, TX
Turtle Creek Limited Partnership
Mortgage Holdings, LLC
Turtle Creek Mall
Hattiesburg, MS
Madison/West Towne, LLC
  Madison Joint Venture, LLC
    CBL/Madison I, LLC
West Towne Mall
Madison, WI
Madison Joint Venture, LLC (5)
  CBL/Madison I, LLC
West Town Crossing (2)
Madison, WI
(1)
CW Joint Venture, LLC is a Guarantor Subsidiary because it is an entity in the ownership chain of Westmoreland Mall and Westmoreland Crossing, as noted below.
(2)
Property/asset is not collateral on the secured credit facility.
(3)
In January 2019, the Combined Guarantor Subsidiaries transferred title to the mall to the mortgage holder in satisfaction of the non-recourse debt secured by the property. See Note 6 for additional information.
(4)
Mortgage Holdings, LLC is a Guarantor Subsidiary because it is an entity in the ownership chain of Turtle Creek Mall, as noted below.
(5)
Madison Joint Venture, LLC is a Guarantor Subsidiary because it is an entity in the ownership chain of East Towne Mall and West Towne Mall, as noted below.
Each of the Combined Guarantor Subsidiaries meet the criteria in Rule 3-10(f) of SEC Regulation S-X to provide condensed consolidating financial information as additional disclosure in the notes to the Operating Partnership’s condensed consolidated financial statements because each Combined Guarantor Subsidiary is 100% owned by the Operating Partnership, the guaranty issued by each Combined Guarantor Subsidiary is full and unconditional and the guaranty issued by each Combined Guarantor Subsidiary is joint and several. However, the Operating Partnership has elected to provide these combined financial statements and accompanying notes for the Combined Guarantor Subsidiaries in lieu of including the condensed consolidating financial information in the notes to its condensed consolidated financial statements. These combined financial statements and notes are presented as an exhibit to the Operating Partnership's quarterly report on Form 10-Q for ease of reference.
The accompanying combined financial statements are unaudited. The results for the interim period ended September 30, 2019 are not necessarily indicative of the results to be obtained for the full fiscal year.

7


Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements represent the combined financial statements of the Combined Guarantor Subsidiaries on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. All intercompany transactions have been eliminated. 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.


Accounting Guidance Adopted    
Description
 
Date Adopted &
Application
Method
 
Financial Statement Effect and Other Information
ASU 2016-02, Leases, and related subsequent amendments
 
January 1, 2019 -
Modified Retrospective (elected optional transition method to apply at adoption date and record cumulative-effect adjustment as of January 1, 2019)
 
The objective of the leasing guidance is to increase transparency and comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Putting nearly all leases on the balance sheet is the biggest change for lessees, as lessees will now be required to recognize a right-of-use (“ROU”) asset and corresponding lease liability for assets with terms greater than 12 months. Under the FASB model, lessees will classify a lease as either a finance lease or an operating lease, while a lessor will classify a lease as either a sales-type, direct financing, or operating lease. A lessee should classify a lease based on whether the arrangement is effectively a purchase of the underlying asset. Leases that transfer control of the underlying asset to a lessee are classified as finance leases for lessees and sales-type leases for lessors, whereas leases where the lessee obtains control of only the use of the underlying asset, but not the underlying asset itself, will be classified as operating leases for both lessees and lessors. A lease may meet the lessee finance lease criteria even when control of the underlying asset is not transferred to the lessee, and in these cases the lease would be classified as an operating lease for the lessee and a direct finance lease by the lessor. The guidance to be applied by lessors is substantially similar to existing GAAP. In order to align lessor accounting with the principles in the revenue recognition guidance in ASC 606, a lessor is precluded from recognizing selling profit or sales revenue at lease commencement for a lease that does not transfer control of the underlying asset to the lessee. As a lessee, the guidance impacted the Combined Guarantor Subsidiaries' combined financial statements through the recognition of right-of-use ("ROU") assets and corresponding lease liabilities for operating leases as of January 1, 2019. As a lessor, the guidance impacted the Combined Guarantor Subsidiaries' combined financial statements in regard to the narrowed definition of initial direct costs that can be capitalized, the change in the presentation of rental revenues as one line item and the change in reporting uncollectable operating lease receivables as a reduction of rental revenues instead of property operating expense. The adoption did not result in a cumulative catch-up adjustment to opening equity. See Note 4 for further details.


Accounting Guidance Not Yet Effective
Description
 
Expected
Adoption Date &
Application
Method
 
Financial Statement Effect and Other Information


8


ASU 2016-13, Measurement of Credit Losses on Financial Instruments
 
January 1, 2020 -
Modified Retrospective
 
The guidance replaces the current incurred loss impairment model, which reflects credit events, with a current expected credit loss model, which recognizes an allowance for credit losses based on an entity's estimate of contractual cash flows not expected to be collected.
The Combined Guarantor Subsidiaries have determined that the guarantees, mortgage and other notes receivable and receivables within the scope of ASC 606 fall under the scope of this standard. After evaluating the impact that this update will have on the combined financial statements and related disclosures, the Combined Guarantor Subsidiaries do not believe it will have material impact upon adoption.
 
 
 
 
 
ASU 2018-13, Fair Value Measurement
 
January 1, 2020 - Prospective
 
The guidance eliminates, adds and modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.
The Combined Guarantor Subsidiaries do not expect the adoption of this guidance will have a material impact on the combined financial statements or disclosures.
 
 
 
 
 
ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
 
January 1, 2020 -
Prospective
 
The guidance addresses diversity in practice in accounting for the costs of implementation activities in a cloud computing arrangement that is a service contract. Under the guidance, the Combined Guarantor Subsidiaries are to follow Subtopic 350-40 on internal-use software to determine which implementation costs to capitalize and which to expense.
The guidance also requires an entity to expense capitalized implementation costs over the term of the hosting arrangement and include that expense in the same line item as the fees associated with the service element of the arrangement.
The Combined Guarantor Subsidiaries do not expect the adoption of this guidance will have a material impact on the combined financial statements or disclosures.

Real Estate Assets
The Combined Guarantor Subsidiaries capitalize predevelopment project costs paid to third parties. All previously capitalized predevelopment costs are expensed when it is no longer probable that the project will be completed. Once development of a project commences, all direct costs incurred to construct the project, including interest and real estate taxes, are capitalized. Additionally, certain general and administrative expenses are allocated to the projects and capitalized based on the amount of time applicable personnel work on the development project. Ordinary repairs and maintenance are expensed as incurred. Major replacements and improvements are capitalized and depreciated over their estimated useful lives.
All acquired real estate assets have been accounted for using the acquisition method of accounting and accordingly, the results of operations are included in the combined statements of operations from the respective dates of acquisition. The Combined Guarantor Subsidiaries allocate the purchase price to (i) tangible assets, consisting of land, buildings and improvements, as if vacant, and tenant improvements, and (ii) identifiable intangible assets and liabilities, generally consisting of above-market leases, in-place leases and tenant relationships, which are included in intangible lease assets and other assets, and below-market leases, which are included in accounts payable and accrued liabilities. The Combined Guarantor Subsidiaries use estimates of fair value based on estimated cash flows, using appropriate discount rates, and other valuation techniques to allocate the purchase price to the acquired tangible and intangible assets. Liabilities assumed generally consist of mortgage debt on the real estate assets acquired. Assumed debt is recorded at its fair value based on estimated market interest rates at the date of acquisition. The Combined Guarantor Subsidiaries expect future acquisitions will be accounted for as acquisitions of assets in which related transaction costs will be capitalized.
Depreciation is computed on a straight-line basis over estimated lives of 40 years for buildings, 10 to 20 years for certain improvements and 7 to 10 years for equipment and fixtures. Tenant improvements are capitalized and depreciated on a straight-line basis over the term of the related lease. Lease-related intangibles from acquisitions of real estate assets are generally amortized over the remaining terms of the related leases. The amortization of above- and below-market leases is recorded as an adjustment to rental revenues, while the amortization of all other lease-related

9


intangibles is recorded as amortization expense. Any difference between the face value of the debt assumed and its fair value is amortized to interest expense over the remaining term of the debt using the effective interest method.
The Combined Guarantor Subsidiaries' intangibles and their balance sheet classifications as of September 30, 2019 and December 31, 2018, are summarized as follows:
 
September 30, 2019
 
December 31, 2018
 
Cost
 
Accumulated
Amortization
 
Cost
 
Accumulated
Amortization
Intangible lease assets and other assets:
 
 
 
 
 
 
 
Above-market leases
$
11,522

 
$
(10,813
)
 
$
12,307

 
$
(11,198
)
In-place leases
42,905

 
(36,724
)
 
46,229

 
(37,381
)
Tenant relationships
26,068

 
(4,492
)
 
27,866

 
(4,880
)
Accounts payable and accrued liabilities:
 
 
 
 
 
 
 
Below-market leases
27,831

 
(22,729
)
 
28,942

 
(21,805
)

These intangibles are related to specific tenant leases.  Should a termination occur earlier than the date indicated in the lease, the related unamortized intangible assets or liabilities, if any, related to the lease are recorded as expense or income, as applicable. The total net amortization expense of the above intangibles was $505 and $391 for the three months ended September 30, 2019 and 2018, respectively, and $1,796 and $1,653 for the nine months ended September 30, 2019 and 2018, respectively. The estimated total net amortization expense for the three remaining months of 2019 and the following five succeeding years is $517 for the remainder of 2019, $1,603 in 2020, $1,212 in 2021, $991 in 2022, $680 in 2023 and $614 in 2024.
Total interest expense capitalized was $157 and $155 for the three months ended September 30, 2019 and 2018, respectively, and $353 and $553 for the nine months ended September 30, 2019 and 2018, respectively.
Carrying Value of Long-Lived Assets
The Combined Guarantor Subsidiaries monitor events or changes in circumstances that could indicate the carrying value of a long-lived asset may not be recoverable.  When indicators of potential impairment are present that suggest that the carrying amounts of a long-lived asset may not be recoverable, the Combined Guarantor Subsidiaries assess the recoverability of the asset by determining whether the asset’s carrying value will be recovered through the estimated undiscounted future cash flows expected from the Combined Guarantor Subsidiaries' probability weighted use of the asset and its eventual disposition. In the event that such undiscounted future cash flows do not exceed the carrying value, the Combined Guarantor Subsidiaries adjust the carrying value of the long-lived asset to its estimated fair value and recognize an impairment loss.  The estimated fair value is calculated based on the following information, in order of preference, depending upon availability:  (Level 1) recently quoted market prices, (Level 2) market prices for comparable properties, or (Level 3) the present value of future cash flows, including estimated salvage value.  Certain of the Combined Guarantor Subsidiaries' long-lived assets may be carried at more than an amount that could be realized in a current disposition transaction.  Projections of expected future operating cash flows require that the Combined Guarantor Subsidiaries estimate future market rental income amounts subsequent to expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. As these assumptions are subject to economic and market uncertainties, they are difficult to predict and are subject to future events that may alter the assumptions used or management’s estimates of future possible outcomes. Therefore, the future cash flows estimated in the Combined Guarantor Subsidiaries' impairment analyses may not be achieved. See Note 5 for information related to the impairment of long-lived assets for 2019 and 2018.
Cash and Cash Equivalents
The Combined Guarantor Subsidiaries consider all highly liquid investments with original maturities of three months or less as cash equivalents.
Restricted Cash
Restricted cash of $4,127 and $7,139 was included in intangible lease assets and other assets at September 30, 2019 and December 31, 2018, respectively.  Restricted cash consists primarily of cash held in escrow accounts for

10


insurance, real estate taxes, capital expenditures and tenant allowances as required by the terms of certain mortgage notes payable.
Deferred Financing Costs
Net deferred financing costs related to the Combined Guarantor Subsidiaries' indebtedness of $174 and $361 were included in mortgage notes payable at September 30, 2019 and December 31, 2018, respectively. Deferred financing costs include fees and costs incurred to obtain financing and are amortized on a straight-line basis to interest expense over the terms of the related indebtedness. Amortization expense related to deferred financing costs was $62 for each of the three months ended September 30, 2019 and 2018, respectively, and $186 and $201 for the nine months ended September 30, 2019 and 2018, respectively. Accumulated amortization of deferred financing costs was $1,278 and $1,092 as of September 30, 2019 and December 31, 2018, respectively.
Gain on Sales of Real Estate Assets
Gains on the sale of real estate assets, like all non-lease related revenue, are subject to a five-step model requiring that the Combined Guarantor Subsidiaries identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue upon satisfaction of the performance obligations. In circumstances where the Combined Guarantor Subsidiaries contract to sell a property with material post-sale involvement, such involvement must be accounted for as a separate performance obligation in the contract and a portion of the sales price allocated to each performance obligation. When the post-sale involvement performance obligation is satisfied, the portion of the sales price allocated to it will be recognized as gain on sale of real estate assets. Property dispositions with no continuing involvement will continue to be recognized upon closing of the sale.
Income Taxes
No provision has been made for federal and state income taxes since these taxes are the responsibility of the owners. As of September 30, 2019, tax years that generally remain subject to examination by the Combined Guarantor Subsidiaries' major tax jurisdictions include 2018, 2017, 2016 and 2015.
 Concentration of Credit Risk
The Combined Guarantor Subsidiaries tenants include national, regional and local retailers. Financial instruments that subject the Combined Guarantor Subsidiaries to concentrations of credit risk consist primarily of tenant receivables. The Combined Guarantor Subsidiaries generally do not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of tenants. The Combined Guarantor Subsidiaries derive a substantial portion of rental income from various national and regional retail companies; however, no single tenant collectively accounted for more than 10.0% of the Combined Guarantor Subsidiaries' total combined revenues for the three and nine months ended September 30, 2019.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Note 3 – Revenues
Contract Balances
A summary of the Combined Guarantor Subsidiaries' contract liability activity during the nine months ended September 30, 2019 is presented below:
 
 
Contract Liability
Balance as of December 31, 2018
 
$
79

Completed performance obligation
 

Contract obligation
 


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Balance as of March 31, 2019
 
79

Completed performance obligation
 

Contract obligation
 

Balance as of June 30, 2019
 
79

Completed performance obligation
 

Contract obligation
 

Balance as of September 30, 2019
 
$
79


The Combined Guarantor Subsidiaries have the following contract balances as of September 30, 2019:
 
 
 
As of
September 30, 2019
 
Expected Settlement Period
Description
Financial Statement Line Item
 
 
2019 (1)
 
2020
 
2021
 
2022
Contract liability (2)
Other rents
 
79

 
(19
)
 
(20
)
 
(20
)
 
(20
)
(1)
Reflects fiscal period October 1, 2019 through December 31, 2019.
(2)
Relates to a contract in which the Combined Guarantor Subsidiaries received advance payments in the initial year of the multi-year contract.
Revenues
The following table presents the Combined Guarantor Subsidiaries' revenues disaggregated by revenue source:
 
 
Three Months
Ended
September 30, 2019
 
Three Months
Ended
September 30, 2018
 
Nine Months
Ended
September 30, 2019
 
Nine Months
Ended
September 30, 2018
Rental revenues (1)
 
$
67,495

 
$
77,067

 
$
206,083

 
$
232,749

Revenues from contracts with customers (ASC 606):
 
 
 
 
 
 
 
 
  Operating expense reimbursements (2)
 
1,217

 
910

 
3,061

 
3,044

  Marketing revenues (3)
 
562

 
559

 
1,548

 
1,476

 
 
1,779

 
1,469

 
4,609

 
4,520

 
 
 
 
 
 
 
 
 
Other revenues
 
54

 
119

 
495

 
415

Total revenues (4)
 
$
69,328

 
$
78,655

 
$
211,187

 
$
237,684

(1)
Revenues from leases that commenced subsequent to December 31, 2018 are accounted for in accordance with ASC 842, Leases, whereas all leases existing prior to that date are accounted for in accordance with ASC 840, Leases. See Note 4.
(2)
Includes $1,232 in the Malls segment and $(15) in the All Other segment for the three months ended September 30, 2019, and includes $903 in the Malls segment and $7 in the All Other segment for the three months ended September 30, 2018. Includes $3,072 in the Malls segment and $(11) in the All Other segment for the nine months ended September 30, 2019, and includes $3,020 in the Malls segment and $24 in the All Other segment for the nine months ended September 30, 2018.
(3)
Marketing revenues solely relate to the Malls segment for all periods presented. See description below.
(4)
Sales taxes are excluded from revenues.
See Note 10 for information on the Combined Guarantor Subsidiaries' segments.
Revenue from Contracts with Customers
Operating expense reimbursements
Under operating and other agreements with third parties that own anchor or outparcel buildings at the Combined Guarantor Subsidiaries' properties and pay no rent, the Combined Guarantor Subsidiaries receive reimbursements for certain operating expenses such as ring road and parking lot maintenance, landscaping and other fees. These arrangements are primarily either set at a fixed rate with rate increases typically every five years or are on a variable (pro rata) basis, typically as a percentage of costs allocated based on square footage or sales. The majority of these contracts have an initial term and one or more extension options, which cumulatively approximate 50 or more years as historically the initial term and any extension options are reasonably certain of being executed by the third party. The standalone selling price of each performance obligation is determined based on the terms of the contract, which typically assign a price to each performance obligation that directly relates to the value the customer receives for the services being

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provided. Revenue is recognized as services are transferred to the customer. Variable consideration is based on historical experience and is generally recognized over time using the cost-to-cost method of measurement because it most accurately depicts the Combined Guarantor Subsidiaries' performance in satisfying the performance obligation. The cumulative catch-up method is used to recognize any adjustments in variable consideration estimates. Under this method, any adjustment is recognized in the period it is identified.
Marketing revenues
The Combined Guarantor Subsidiaries earn marketing revenues from advertising and sponsorship agreements. These fees may be for tangible items in which the Combined Guarantor Subsidiaries provide advertising services and create signs and other promotional materials for the tenant or may be arrangements in which the customer sponsors a play area or event and receives specified brand recognition and other benefits over a set period of time. Revenue related to advertising services is recognized as goods and services are provided to the customer. Sponsorship revenue is recognized on a straight-line basis over the time period specified in the contract.
Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. If the contract does not specify the revenue by performance obligation, the Combined Guarantor Subsidiaries allocate the transaction price to each performance obligation based on its relative standalone selling price. Such prices are generally determined using prices charged to customers or using the Combined Guarantor Subsidiaries' expected cost plus margin. Revenue is recognized as the Combined Guarantor Subsidiaries' performance obligations are satisfied over time, as services are provided, or at a point in time, such as leasing a space to earn a commission. Open performance obligations are those in which the Combined Guarantor Subsidiaries have not fully or have partially provided the applicable good or services to the customer as specified in the contract. If consideration is received in advance of the Combined Guarantor Subsidiaries' performance, including amounts which are refundable, recognition of revenue is deferred until the performance obligation is satisfied or amounts are no longer refundable.
Practical Expedients
The Combined Guarantor Subsidiaries do not disclose the value of open performance obligations for (1) contracts with an original expected duration of one year or less and (2) contracts for which the Combined Guarantor Subsidiaries recognize revenue at the amount to which they have the right to invoice, which primarily relate to services performed for certain operating expense reimbursements, as described above. Performance obligations related to fixed operating expense reimbursements for certain noncancellable contracts are disclosed below.
Outstanding Performance Obligations
The Combined Guarantor Subsidiaries have outstanding performance obligations related to certain noncancellable contracts with customers for which they will receive fixed operating expense reimbursements for providing certain maintenance and other services as described above. As of September 30, 2019, the Combined Guarantor Subsidiaries expect to recognize these amounts as revenue over the following periods:
Performance obligation
 
Less than 5 years
 
5-20 years
 
Over 20 years
 
Total
Fixed operating expense reimbursements
 
$
12,849

 
$
23,819

 
$
33,465

 
$
70,133


The Combined Guarantor Subsidiaries evaluate performance obligations each period and make adjustments to reflect any known additions or cancellations. Performance obligations related to variable consideration, which is based on sales, are constrained.

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Note 4 – Leases
Adoption of ASU 2016-02, and all related subsequent amendments
The Combined Guarantor Subsidiaries adopted ASC 842 (which includes ASU 2016-02 and all related subsequent amendments) on January 1, 2019 and applied the guidance to leases that commenced on or after January 1, 2019. Historical amounts for prior periods were not adjusted and will continue to be reported using the guidance in ASC 840, Leases.
To determine whether a contract contained a lease, the Combined Guarantor Subsidiaries evaluated contracts and verified that there was an identified asset and that the Combined Guarantor Subsidiaries, or the tenant, have the right to obtain substantially all the economic benefits from the use of the asset throughout the contract term. If a contract was determined to contain a lease and the Combined Guarantor Subsidiaries are the lessee, the lease was evaluated to determine whether it was an operating or financing lease. If a contract was determined to contain a lease and the Combined Guarantor Subsidiaries are the lessor, the lease was evaluated to determine whether it was an operating, direct financing or sales-type lease. After determining that the contract contained a lease, the Combined Guarantor Subsidiaries identified the lease component and any nonlease components associated with that lease component, and through the Combined Guarantor Subsidiaries' election to combine lease and nonlease components for all asset classes, combined the components into a single lease component within each applicable lease.
The discount rate to be used for each lease was determined by assessing the Company’s debt information, assessing the credit rating of the Company and the Company’s debt, estimating a synthetic “secured” credit rating for the Company and estimating an appropriate incremental borrowing rate. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.
See Note 2 for additional information about these accounting standards.
Lessor
Rental Revenues
The majority of the Combined Guarantor Subsidiaries' revenues are earned through the lease of space at their properties. All of the Combined Guarantor Subsidiaries' leases with tenants for the use of space at our properties are classified as operating leases. Rental revenues include minimum rent, percentage rent, other rents and reimbursements from tenants for real estate taxes, insurance, common area maintenance ("CAM") and other operating expenses as provided in the lease agreements. The option to extend or terminate our leases is specific to each underlying tenant lease agreement. Typically, the Combined Guarantor Subsidiaries' leases contain penalties for early termination. The Combined Guarantor Subsidiaries do not have any leases that convey the right for the lessee to purchase the leased asset.
Minimum rental revenue from operating leases is recognized on a straight-line basis over the initial terms of the related leases. Certain tenants are required to pay percentage rent if their sales volumes exceed thresholds specified in their lease agreements. Percentage rent is recognized as revenue when the thresholds are achieved and the amounts become determinable.
The Combined Guarantor Subsidiaries receive reimbursements from tenants for real estate taxes, insurance, CAM and other recoverable operating expenses as provided in the lease agreements. Any tenant reimbursements that require fixed payments are recognized on a straight-line basis over the initial terms of the related leases, whereas any variable payments are recognized when earned in accordance with the tenant lease agreements. Tenant reimbursements related to certain capital expenditures are billed to tenants over periods of 5 to 15 years.
Additionally, ASU 2018-19 clarifies that operating lease receivables are within the scope of ASC 842. Therefore, in conjunction with the Combined Guarantor Subsidiaries adoption of ASC 842 on January 1, 2019, the Combined Guarantor Subsidiaries began recognizing changes in the collectability assessment of their operating lease receivables as a reduction of rental revenues, rather than as a property operating expense. As a result, the Combined Guarantor Subsidiaries recognized $94 and $1,262 of uncollectable operating lease receivables as a reduction of rental revenues for the three months and nine months ended September 30, 2019, respectively, and recognized $388 and $1,154 of uncollectable operating lease receivables as a property operating expense for the three months and nine months ended September 30, 2018, respectively.
The components of rental revenues are as follows:

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Three Months Ended
September 30, 2019
 
Three Months Ended September 30, 2018
 
Nine Months Ended
September 30, 2019
 
Nine Months Ended September 30, 2018
Fixed lease payments
 
$
56,501

 
$
65,031

 
$
171,564

 
$
195,249

Variable lease payments
 
10,994

 
12,036

 
34,519

 
37,500

Total rental revenues
 
$
67,495

 
$
77,067

 
$
206,083

 
$
232,749


The undiscounted future fixed lease payments to be received under the Combined Guarantor Subsidiaries' operating leases as of September 30, 2019, are as follows:
Year Ending December 31,
 
Operating Leases
2019 (1)
 
$
50,760

2020
 
189,456

2021
 
167,335

2022
 
137,621

2023
 
116,639

2024
 
91,074

Thereafter
 
222,440

Total undiscounted lease payments
 
$
975,325

(1)
Reflects rental payments for the fiscal period October 1, 2019 through December 31, 2019.
As required by the Comparative Under ASC 840 Option, which is a transitional amendment that allows for the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), the Combined Guarantor Subsidiaries' future minimum rental income from lessees under non-cancellable operating leases where the Combined Guarantor Subsidiaries are the lessor as of December 31, 2018 is also presented below:
Years Ending December 31,
Operating Leases
2019
$
184,923

2020
154,944

2021
133,093

2022
107,092

2023
86,957

Thereafter
193,324

Total
$
860,333


Lessee
The Combined Guarantor Subsidiaries have one ground lease where they own the buildings and improvements, but lease the underlying land. The maturity of the lease is January 1, 2073 and provides for five year renewal options. The Combined Guarantor Subsidiaries included the renewal options in the lease term for purposes of calculating the lease liability and ROU asset because they have no plans to cease operating the asset associated with this ground lease. The lease payments on the ground lease are fixed.
The Combined Guarantor Subsidiaries' ROU asset and lease liability are presented in the combined balance sheets within intangible lease assets and other assets and accounts payable and accrued liabilities, respectively. A summary of the Combined Guarantor Subsidiaries' ROU asset and lease liability activity during the nine months ended September 30, 2019 is presented below:



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ROU Asset
 
Lease Liability
Balance as of January 1, 2019
 
$
493

 
$
490

Cash reduction
 
(30
)
 
(30
)
Noncash increase
 
26

 
29

Balance as of September 30, 2019
 
$
489

 
$
489


The Combined Guarantor Subsidiaries' incurred $10 and $30 of operating lease expense for the three and nine months ended September 30, 2019, respectively.
The undiscounted future lease payments to be paid under the Combined Guarantor Subsidiaries' operating lease as of September 30, 2019, are as follows:
Year Ending December 31,
 
Operating Lease
2019 (1)
 
$
10

2020
 
41

2021
 
41

2022
 
41

2023
 
41

2024
 
41

Thereafter
 
1,951

Total undiscounted lease payments
 
2,166

Less imputed interest
 
(1,677
)
Lease Liability
 
$
489

(1)
Reflects rental payments for the fiscal period October 1, 2019 through December 31, 2019.
As required by the Comparative Under ASC 840 Option, which is a transitional amendment that allows for the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), the Combined Guarantor Subsidiaries' future obligations to be paid under the Combined Guarantor Subsidiaries' operating leases where the Combined Guarantor Subsidiaries are the lessee as of December 31, 2018 are also presented below:
2019
 
$
41

2020
 
41

2021
 
41

2022
 
41

2023
 
41

Thereafter
 
1,990

 
 
$
2,195


Practical Expedients
In regard to leases that commenced before January 1, 2019, the Combined Guarantor Subsidiaries elected to use a package of practical expedients to not reassess whether any expired or existing contracts are or contain a lease, to not reassess lease classification for any expired or existing leases, and to not reassess initial direct costs for any existing leases. The Combined Guarantor Subsidiaries also elected a practical expedient to not assess whether existing or expired land easements that were not previously accounted for as leases under ASC 840 are or contain a lease under ASC 842. Additionally, the Combined Guarantor Subsidiaries elected a practical expedient by class of underlying asset applied to all leases to elect not to separate lease and nonlease components as long as the lease and at least one nonlease component have the same timing and pattern of transfer and the lease is classified as an operating lease. The combined component is being accounted for under ASC 842. The Combined Guarantor Subsidiaries made an accounting policy election to exclude sales and other similar taxes from revenues, and instead account for them as costs of the lessee. Lastly, the Combined Guarantor Subsidiaries have elected not to apply the recognition requirements of ASC 842 to short-term leases.
See Note 2 for additional information about these accounting standards.

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Note 5 – Fair Value Measurements
The Combined Guarantor Subsidiaries have categorized 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 Combined Guarantor Subsidiaries' assumptions and best judgment.
The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under ASC 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date and under current market conditions. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs and consider assumptions such as inherent risk, transfer restrictions and risk of nonperformance.
Fair Value Measurements on a Recurring Basis
The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term nature of these financial instruments.  Based on the interest rates for similar financial instruments, the carrying value of the note receivable is a reasonable estimate of fair value.  The estimated fair value of mortgage notes payable was $246,104 and $319,222 at September 30, 2019 and December 31, 2018, respectively.  The fair value was calculated using Level 2 inputs by discounting future cash flows for mortgage notes payable using estimated market rates at which similar loans would be made currently.
Fair Value Measurements on a Nonrecurring Basis
The Combined Guarantor Subsidiaries measure 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 Combined Guarantor Subsidiaries consider both quantitative and qualitative factors in their impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each property such as net operating income ("NOI"), occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the property and tenant mix. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experience impairment, the Combined Guarantor Subsidiaries classify 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.

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Long-lived Assets Measured at Fair Value in 2019
The following table sets forth information regarding the Combined Guarantor Subsidiaries' assets that are measured at fair value on a nonrecurring basis and related impairment charges for the nine months ended September 30, 2019:
 
 
 
Fair Value Measurements at Reporting Date Using
 
 
 
Total
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Loss on
Impairment
Long-lived assets
$
56,300

 
$

 
$

 
$
56,300

 
$
22,770


During the nine months ended September 30, 2019, the Combined Guarantor Subsidiaries recognized an impairment of $22,770 related to one mall.
Impairment Date
 
Property
 
Location
 
Segment
Classification
 
Loss on
Impairment
 
Fair
Value
March
 
Greenbrier Mall (1)
 
Chesapeake, VA
 
Malls
 
$
22,770

 
$
56,300

(1)
In accordance with the Combined Guarantor Subsidiaries' quarterly impairment process, the Combined Guarantor Subsidiaries wrote down the book value of the mall to its estimated fair value of $56,300. The mall has experienced a decline of NOI due to store closures and rent reductions. Additionally, one anchor was vacant as of the date of impairment. Management determined the fair value of Greenbrier Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 11.0% and a discount rate 11.5%.
Note 6 – Dispositions
The Combined Guarantor Subsidiaries evaluate disposals utilizing the guidance in ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Based on analysis, the Combined Guarantor Subsidiaries 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 income for all periods presented, as applicable.
2019 Dispositions
The Combined Guarantor Subsidiaries recognized a gain on extinguishment of debt for the property listed below, which represented the amount by which the outstanding debt balance exceeded the net book value of the property as of the transfer date. See Note 7 for more information. The following is a summary of the Combined Guarantor Subsidiaries' 2019 dispositions:

Transfer
Date
 
 
 
 
 
 
 
Balance of
Non-recourse
Debt
 
Gain on
Extinguishment
of Debt
 
Property
 
Property Type
 
Location
 
 
January
 
Acadiana Mall (1)
 
Mall
 
Lafayette, LA
 
$
119,760

 
$
61,796

(1)
The Combined Guarantor Subsidiaries transferred title to the mall to the mortgage holder in satisfaction of the non-recourse debt secured by the property. A loss on impairment of real estate of $43,007 was recorded in 2017 to write down the book value of the mall to its then estimated fair value. The Combined Guarantor Subsidiaries also recorded $305 of aggregate non-cash default interest expense during the first quarter of 2019.
2018 Dispositions
The Combined Guarantor Subsidiaries realized a gain of $698 related to the sale of one outparcel during the three months ended September 30, 2018. The Combined Guarantor Subsidiaries realized a gain of $2,406 related to the sale of five outparcels during the nine months ended September 30, 2018.

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Note 7 – Mortgage Notes Payable, Net
Mortgage notes payable, net, consisted of the following:
 
Interest
Rate (1)
 
Maturity
Date
 
September 30,
 2019
 
December 31, 2018
Property
 
 
 
 
 

 
 
Acadiana Mall (2)
5.67%
 
Apr-17
 
$

 
$
119,760

Greenbrier Mall
5.41%
 
Dec-19
 
65,401

 
68,101

Park Plaza Mall
5.28%
 
Apr-21
 
79,090

 
81,287

Arbor Place Mall
5.10%
 
May-22
 
107,456

 
109,209

Total mortgage notes payable
5.23%
 

 
251,947

 
378,357

Unamortized deferred financing costs
 
 
 
 
(174
)
 
(361
)
Total mortgage notes payable, net
 
 

 
$
251,773

 
$
377,996

 
(1)
Weighted-average interest rate includes the effect of debt premiums and discounts, but excludes amortization of deferred financing costs.
(2)
See Note 6 related to the retirement of this loan.
2018 Loan Repayments
In January 2018, the Combined Guarantor Subsidiaries repaid the outstanding balance of $37,295 on the fixed-rate loan secured by Kirkwood Mall with cash contributed by the Operating Partnership. The loan had a maturity date of April 2018 and bore interest at 5.75%.
Scheduled Principal Payments
As of September 30, 2019, the scheduled principal amortization and balloon payments of the Combined Guarantor Subsidiaries' mortgage notes payable, excluding extensions available at the Combined Guarantor Subsidiaries' option, are as follows: 
2019 (1)
 
$
66,757

2020
 
5,574

2021
 
77,843

2022
 
101,773

 
 
251,947

Unamortized deferred financing costs
 
(174
)
Total mortgage notes payable, net
 
$
251,773


(1)
Reflects payments for the fiscal period October 1, 2019 through December 31, 2019.
Of the $66,757 of scheduled principal payments in 2019, $65,401 relates to the principal balance of Greenbrier Mall and $1,356 relates to scheduled principal amortization.
The Combined Guarantor Subsidiaries' mortgage notes payable had a weighted-average maturity of 1.6 years as of September 30, 2019 and 1.1 years as of December 31, 2018.

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Note 8 – Mortgage and Other Notes Receivable
Each of the mortgage notes receivable is collateralized by a first mortgage. Other notes receivable include amounts due from a government sponsored district for reimbursable costs pursuant to an agreement with the district. The Combined Guarantor Subsidiaries review the mortgage and other notes receivable to determine if the balances are realizable based on factors affecting the collectability of those balances. Mortgage and other notes receivable consist of the following:
 
 
 
 
As of September 30, 2019
 
As of December 31, 2018
 
 
Maturity
Date
 
Interest
Rate
 
Balance
 
Interest
Rate
 
Balance
Mortgages:
 
 
 
 
 
 
 
 
 
 
The Promenade (1)
 
Dec 2019
 
5.00%
 
$
47,513

 
5.00%
 
$
47,514

Hamilton Corner
 
Feb 2020
 
5.67%
 
14,295

 
5.67%
 
14,295

Forum at Grandview (1) (3)
 
Sep 2023
 
5.25%
 

 
5.25%
 
12,400

Village Square (2)
 
Sept 2019
 
5.00%
 
964

 
4.00%
 
1,308

 
 
 
 
 
 
62,772

 
 
 
75,517

Other Notes Receivable:
 
 
 
 
 
 
 
 
 
 
Community improvement district
 
Aug 2028
 
7.50%
 
1,230

 
7.50%
 
1,230

 
 
 
 
 
 
1,230

 
 
 
1,230

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
64,002

 
 
 
$
76,747

(1)
The mortgaged property is owned by an entity that is controlled by the Operating Partnership and included in the Operating Partnership's condensed consolidated financial statements. The mortgage note receivable is interest only.
(2)
The note was retired subsequent to September 30, 2019. See Note 13 for additional information.
(3)
This property was sold in July 2019.
Note 9 – Related Party Transactions
The Combined Guarantor Subsidiaries are party to management agreements with CBL & Associates Management, Inc. (“CBL Management”), which is controlled by the Operating Partnership, to manage the Guarantor Properties. The agreements provide that the Guarantor Properties pay management fees equal to a percentage of gross revenues as defined by the respective management agreements. The management fee percentage ranges from 2.5% to 3.5% based on the agreements. Within property operating expenses, management fee expense was $1,397 and $1,459 for the three months ended September 30, 2019 and 2018, respectively, and $4,411 and $4,464 for the nine months ended September 30, 2019 and 2018, respectively.
Amounts payable to CBL Management for management fees were $313 and $176 as of September 30, 2019 and December 31, 2018.
Note 10 – Segment Information
The Combined Guarantor Subsidiaries measure performance and allocate 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.

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Information on the Combined Guarantor Subsidiaries' segments is presented as follows:
Three Months Ended September 30, 2019
 
Malls
 
All Other (1)
 
Total
Revenues
 
$
66,708

 
$
2,620

 
$
69,328

Property operating expenses (2)
 
(20,785
)
 
(456
)
 
(21,241
)
Interest expense
 
(3,400
)
 

 
(3,400
)
Other expense
 
(10
)
 
(2
)
 
(12
)
Gain on sales of real estate assets
 
20

 

 
20

Segment profit
 
$
42,533

 
$
2,162

 
44,695

Depreciation and amortization expense
 
 
 
 
 
(24,681
)
Interest and other income
 
 
 
 
 
1,022

Net income
 
 
 
 
 
$
21,036

Capital expenditures (3)
 
$
10,692

 
$
404

 
$
11,096

Three Months Ended September 30, 2018
 
Malls
 
All Other (1)
 
Total
Revenues
 
$
76,009

 
$
2,646

 
$
78,655

Property operating expenses (2)
 
(22,841
)
 
(660
)
 
(23,501
)
Interest expense
 
(6,129
)
 

 
(6,129
)
Other expense
 
(5
)
 

 
(5
)
Gain on sales of real estate assets
 
698

 

 
698

Segment profit
 
$
47,732

 
$
1,986

 
49,718

Depreciation and amortization expense
 
 

 
 

 
(24,481
)
Interest and other income
 
 

 
 

 
1,857

Net income
 
 

 
 

 
$
27,094

Capital expenditures (3)
 
$
10,391

 
$
3

 
$
10,394

Nine Months Ended September 30, 2019
 
Malls
 
All Other (1)
 
Total
Revenues
 
$
203,511

 
$
7,676

 
$
211,187

Property operating expenses (2)
 
(62,794
)
 
(1,633
)
 
(64,427
)
Interest expense
 
(10,797
)
 

 
(10,797
)
Other expense
 
(637
)
 
(2
)
 
(639
)
Gain on sales of real estate assets
 
20

 

 
20

Segment profit
 
$
129,303

 
$
6,041

 
135,344

Depreciation and amortization expense
 
 
 
 
 
(71,499
)
Interest and other income
 
 
 
 
 
3,049

Gain on extinguishment of debt
 
 
 
 
 
61,796

Loss on impairment
 
 
 
 
 
(22,770
)
Net income
 
 
 
 
 
$
105,920

Capital expenditures (3)
 
$
29,221

 
$
427

 
$
29,648

Nine Months Ended September 30, 2018
 
Malls
 
All Other (1)
 
Total
Revenues
 
$
229,576

 
$
8,108

 
$
237,684

Property operating expenses (2)
 
(68,513
)
 
(1,931
)
 
(70,444
)
Interest expense
 
(18,270
)
 

 
(18,270
)
Other expense
 
(40
)
 

 
(40
)
Gain on sales of real estate assets
 
2,406

 

 
2,406

Segment profit
 
$
145,159

 
$
6,177

 
151,336

Depreciation and amortization expense
 
 
 
 
 
(73,587
)
Interest and other income
 
 
 
 
 
6,077

Net income
 
 
 
 
 
$
83,826

Capital expenditures (3)
 
$
30,308

 
$
367

 
$
30,675


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Total Assets
 
Malls
 
All Other (1)
 
Total
September 30, 2019
 
$
1,566,677

 
$
126,026

 
$
1,692,703

 
 
 
 
 
 
 
December 31, 2018
 
$
1,697,211

 
$
144,649

 
$
1,841,860

(1)
The All Other category includes associated centers and notes receivable.
(2)
Property operating expenses include property operating, real estate taxes and maintenance and repairs.
(3)
Amounts include acquisitions of real estate assets. Developments in progress are included in the All Other category.
Note 11 – Contingencies
Litigation
On March 20, 2019, the board of directors of CBL, the parent of the Operating Partnership, approved the structure of a settlement of a class action lawsuit filed on March 16, 2016 in the United States District Court for the Middle District of Florida (the “Court”) by Wave Lengths Hair Salons of Florida, Inc. d/b/a Salon Adrian. The CBL entities that were the defendants in the action (and which are responsible for payments under the settlement) are CBL & Associates Properties, Inc., CBL & Associates Limited Partnership, CBL & Associates Management, Inc. and JG Gulf Coast Town Center, LLC (collectively, the “CBL Defendant Entities”). In its action, plaintiff sought unspecified monetary damages as well as costs and attorneys’ fees, based on allegations that the CBL Defendant Entities overcharged tenants at bulk metered malls for electricity. Under the terms of the proposed settlement, the CBL Defendant Entities have denied all allegations of wrongdoing and have asserted that their actions have at all times been lawful and proper. No Combined Guarantor Subsidiary is a CBL Defendant Entity and no Combined Guarantor Subsidiary is responsible for payment of amounts under the above-referenced settlement. The Court granted final approval to the proposed settlement terms on August 22, 2019.
Class members include past and current tenants of certain Guarantor Properties (the “Guarantor Class Subsidiaries”) during the class period, which extended from January 1, 2011 through the date of the Court's preliminary approval of the settlement. Under the terms of the settlement, class members who are past tenants and made a claim pursuant to the Court's order will receive payment of their claims in cash. Class members who are current tenants will receive monthly credits against rents and future charges for a five-year period that will begin at the time set forth in the settlement agreement (the “credit period”). Any amounts under the settlement allocated to tenants with outstanding amounts payable to the Guarantor Class Subsidiaries, the CBL Defendant Entities or any other affiliate of those entities, including tenants which have declared bankruptcy or declare bankruptcy over the credit period, will first be deducted from the amounts owed to the Guarantor Class Subsidiaries, the CBL Defendant Entities, or any other affiliate of those entities. CBL Defendant Entities will be responsible for directly paying all cash payments that are made to past tenants who have made a claim. CBL Defendant Entities will be responsible for directly funding to the Guarantor Class Subsidiaries an amount equal to any credits that are due to and taken by current tenants of the Guarantor Class Subsidiaries during the credit period. CBL Defendant Entities intend to fund all amounts due to past and current tenants under the settlement such that the Guarantor Class Subsidiaries' cash flows and results of operations are not impacted by the settlement.
The Combined Guarantor Subsidiaries are 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 Combined Guarantor Subsidiaries record 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 Combined Guarantor Subsidiaries accrue the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Combined Guarantor Subsidiaries accrue the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Combined Guarantor Subsidiaries disclose the nature of the litigation and indicate 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 Combined Guarantor Subsidiaries disclose 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 Combined Guarantor Subsidiaries.    

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Environmental Contingencies
The Combined Guarantor Subsidiaries evaluate 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 Combined Guarantor Subsidiaries believe the maximum potential exposure to loss would not be material to results of operations or financial condition.
The Combined Guarantor Subsidiaries have 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.
Note 12 – Noncash Investing and Financing Activities
The Combined Guarantor Subsidiaries' noncash investing and financing activities were as follows:
 
Nine Months Ended
September 30,
 
2019
 
2018
Additions to real estate assets accrued but not yet paid
$
9,296

 
$
6,885

Distribution of properties to owners
11,455

 

Lease liabilities arising from obtaining right-of-use assets
489

 

Transfer of real estate assets in settlement of mortgage debt obligation:
 
 
 
Decrease in real estate assets
(60,058
)
 

Decrease in mortgage and other indebtedness
115,271

 

Decrease in operating assets and liabilities
8,246

 

Decrease in intangible lease and other assets
(1,663
)
 


Note 13 – Subsequent Events
In October 2019, the Village Square note receivable was retired in the amount of $910.


23