CBL & ASSOCIATES PROPERTIES, INC. 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 theOperating Partnership collectively, as the text requires. Certain statements made in this section or elsewhere in this report may be deemed "forward-looking statements" within the meaning of the federal securities laws. All statements other than statements of historical fact should be considered to be forward-looking statements. In many cases, these forward-looking statements may be identified by the use of words such as "will," "may," "should," "could," "believes," "expects," "anticipates," "estimates," "intends," "projects," "goals," "objectives," "targets," "predicts," "plans," "seeks," and variations of these words and similar expressions. Any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this report. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained. It is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties. Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the potential adverse effect of the COVID-19 pandemic, and federal, state, and/or local regulatory guidelines to control it, on our financial condition, operating results and cash flows, our tenants and their customers, the real estate market in which we operate, the global economy and the financial markets. The extent to which the COVID-19 pandemic impacts us and our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the direct and indirect economic effects of the pandemic and containment measures, and potential changes in consumer behavior, among others. In addition to the risk factors described in Part I, Item 1A of our Annual Report on Form 10-K, as amended, for the year endedDecember 31, 2019 , and in Part II, Item 1A of this report, such known risks and uncertainties, many of which may be influenced by the COVID-19 pandemic, include, without limitation:
• general industry, economic and business conditions;
• the impact of the risks and uncertainties associated with the Chapter 11
process on our operations and ability to develop and execute the
Company's business plans, and to satisfy the conditions and milestones
applicable under the Restructuring Support Agreement, for the duration
of the Chapter 11 Cases;
• interest rate fluctuations;
• costs and availability of capital, including debt, and capital requirements;
• suspension of trading or delisting of our common stock and/or depositary
shares representing interests in our Series D Preferred Stock and Series
E Preferred Stock, from the NYSE;
• 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;
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• uncertainty and economic impact of pandemics, epidemics or other public
health emergencies or fear of such events, such as the recent COVID-19
pandemic;
• cyber-attacks or acts of cyber-terrorism;
• changes in, or withdrawal of, the credit ratings of the Operating
Partnership's senior unsecured long-term indebtedness;
• the ability to obtain suitable equity and/or debt financing and thecontinued availability of financing, in the amounts and on the terms
necessary to support our future refinancing requirements and business;
and
• other risks referenced from time to time in filings with the SEC and
those factors listed or incorporated by reference into this report.
This list of risks and uncertainties is only a summary and is not intended to be
exhaustive. We disclaim any obligation to update or revise any forward-looking
statements to reflect actual results or changes in the factors affecting the
forward-looking information.
EXECUTIVE OVERVIEW
We are a self-managed, self-administered, fully integrated REIT that is engaged
in the ownership, development, acquisition, leasing, management and operation of
regional shopping malls, open-air and mixed-use centers, outlet centers,
associated centers, community centers, office and other properties. See Note
1 to the condensed consolidated financial statements for information on our
property interests as of September 30, 2020 . We have elected to be taxed as a
REIT for federal income tax purposes.
On March 11, 2020 , the World Health Organization classified COVID-19 as a
pandemic. Due to the extraordinary governmental actions taken to contain
COVID-19, we are unable to predict the full extent of the pandemic's impact on
our results of operations for the remainder of 2020. As a result, we previously
withdrew our full-year 2020 same-center NOI and FFO per share, as adjusted,
guidance and underlying assumptions and do not plan to reinstate full-year 2020
guidance.
In response to local and state mandated closures, our entire portfolio, except
for a few properties, closed in March. Beginning in late April, government
agencies began allowing the re-opening of properties with specified health and
safety restrictions. By the close of the third quarter 2020, all of our mall
properties were able to reopen. As local mandates were lifted and properties
reopened, stores within the properties followed suit with the majority of stores
reopening by the close of the third quarter. We have implemented strict
procedures and guidelines for our employees, tenants and property visitors based
on CDC and other health agency recommendations. Our properties continue to
update these policies and procedures, following any new mandates and
regulations, as required. The safety and health of our customers, employees and
tenants remains a top priority.
Our financial and operating results for the third quarter reflect the ongoing
impact of the temporary closure of our portfolio for a significant period due to
government mandates and operating restrictions. While all properties were able
to reopen by the close of the third quarter, many state and local markets
continue to impose occupancy and other restrictions. These additional
restrictions may have the effect of restricting traffic and sales for our
tenants and may put additional pressure on our tenants' financial health. We
have worked with our tenants to enhance customer reach despite the restrictions,
including offering curbside, delivery and opening buy-online-pick-up-instore
locations. Revenues for the quarter were impacted by a substantial increase in
the estimate for uncollectible revenues related to rents due from tenants that
recently filed for bankruptcy or are struggling financially. The pandemic
accelerated a number of tenant bankruptcies, resulting in an expectation of
additional store closures and lost rent through the remainder of the year. Store
closures and rent loss from prior tenant bankruptcies, rent abatements granted
and lower percentage rent related to lower retail sales also impacted revenues.
We offset a portion of this decline through aggressive actions to reduce costs
both at the property and corporate levels, including company-wide salary
reductions, furloughs, reductions-in-force and other expense reduction
initiatives. However, as properties reopened during the third quarter, certain
expenses necessarily resumed.
The mandated closures resulted in nearly all of our tenants closing for a period
of time and/or shortening operating hours. As a result, we have experienced an
increased level of requests for rent deferrals and abatements, as well as
defaults on rent obligations. While, in general, we believe that tenants have a
clear contractual obligation to pay rent, we have been working with our tenants
to address rent deferral and abatement requests. Based on completed or in
process agreements with 25 of our top tenants, representing approximately 40% of
total revenues for the second and third quarters of 2020, we anticipate
collecting over 65% of related rent for the second quarter and over 81% for the
third quarter, with the majority of the remainder expected to be deferred or
abated. We remain in negotiations with tenants and are unable to predict the
outcome of those discussions. As we finalize negotiations, rent collections as a
percentage of billed cash-based rents have increased with certain past-due
amounts being paid. As of the end of the third quarter, the April 2020
collection rate had improved from 27% to over 76% and May improved from 33% to
68%. We expect this trend to continue as we move later in the year and into
2021, and certain deferred rents begin coming due. As of early November 2020 , we
estimate that we will
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defer$25.3 million , at our share, of rents that were billed for April throughSeptember 2020 . Substantially all of this amount is related to agreements that were executed as ofSeptember 30, 2020 with the remainder in active negotiation. Additionally, we granted rent abatements of approximately$13.1 million and$14.9 million for the three and nine months endedSeptember 30, 2020 , respectively. We continue to assess rent relief requests from our tenants but are unable to predict the resolution or impact of these discussions. We implemented a full financial COVID-19 response to improve liquidity and reduce costs. These significant actions included drawing$280 million on our secured line of credit, eliminating all non-essential expenditures, implementing a company-wide furlough and salary reduction program, implementing a permanent reduction in force and delaying and suspending capital expenditures, including redevelopment investments. See the "Liquidity and Capital Resources" section for more information. As discussed in " Note 1 - Organization and Basis of Presentation " and "Note 8 - Mortgage and Other Indebtedness, Net" to the condensed consolidated financial statements and in " Liquidity and Capital Resources " herein, we received notices of default and reservation of rights letters from the administrative agent under the secured credit facility asserting that certain defaults and events of default have occurred and continue to exist as of the date of this report by reason of the our failure to comply with certain restrictive covenants in the secured credit facility. As a result of these asserted defaults and events of default, the lenders under the secured credit facility declared all outstanding principal, accrued interest and letters of credit to be immediately due and payable. As of the date of this report, the lenders under the secured credit facility have not commenced foreclosure proceedings, but they may seek to exercise one or more remedies in the future. Additionally, we failed to meet the minimum debt yield covenant under the secured credit facility as ofSeptember 30, 2020 . We could remain in compliance with the debt yield covenant if we (i) added additional unencumbered assets to the collateral pool, subject to lender approval, which is not to be unreasonably withheld, (ii) paid down the amount of debt outstanding with projected available cash or (iii) negotiated a waiver of the covenant with the lenders. We currently do not intend to add additional unencumbered assets to the collateral pool or pay down the amount of debt outstanding. See Note 1 - Organization and Basis of Presentation and Liquidity and Capital Resources for additional information. We had a net loss for the three and nine months endedSeptember 30, 2020 of$44.4 million and$256.5 million respectively, compared to a net loss for the three and nine months endedSeptember 30, 2019 of$92.0 million and$168.5 million , respectively. We recorded a net loss attributable to common shareholders for the three and nine months endedSeptember 30, 2020 of$54.1 million and$269.4 million , respectively compared to a net loss for the three and nine months endedSeptember 30, 2019 of$90.1 million and$175.7 million , respectively. In addition to the impact of the government mandated closures and the ongoing impact of the COVID-19 pandemic, significant items that affected the comparability between the three-month periods include$13.0 million of costs related to the Company's restructuring efforts,$14.5 million of incremental interest expense related to the imposition of the base and post-default rates on the Company's credit facility borrowings, a loss on impairment that is$135.6 million lower in 2020 than in 2019 and a litigation settlement credit that is$20.2 million lower in 2020 than in 2019. For the nine-month periods, in addition to the impact of the government mandated closures and ongoing impact of the COVID-19 pandemic, significant items that affected the comparability between the nine-month periods include a loss on impairment that is$55.2 million lower in 2020, litigation settlement expense in 2020 that is$67.9 million lower, gain on extinguishment of debt that is$56.3 million lower and$11.2 million less of gain on investments/deconsolidation than were recognized in the nine months endedSeptember 30, 2019 . We also deconsolidated three outlet centers in the third and fourth quarters of 2019. 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 toOperating Partnership common unitholders, and an explanation of why we believe this is a useful performance measure, see "Non-GAAP Measure - Funds from Operations."
Voluntary Reorganization under Chapter 11
Beginning onNovember 1, 2020 (the "Commencement Date"), the Company and certain of its domestic subsidiaries (collectively with the Company, the "Debtors"), commenced voluntary chapter 11 cases (the "Chapter 11 Cases") by filing voluntary petitions for reorganization under chapter 11 of title 11 ("Chapter 11") of the United States Code (the "Bankruptcy Code") with theUnited States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy Court "). The Debtors are authorized to continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. Pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, the Debtors' Chapter 11 Cases are being jointly administered for procedural purposes only under the caption In reCBL & Associates Properties, Inc. , et al., Case No. 20-35226. Documents filed on the docket of and other information related to the Chapter 11 Cases are available free of charge online at https://dm.epiq11.com/case/cbj/dockets. 46
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We are currently operating our business as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code and orders of theBankruptcy Court . After we filed our Chapter 11 petitions, theBankruptcy Court granted certain relief requested by the Debtors enabling us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to pay employee wages and benefits, to pay taxes and certain governmental fees and charges, to continue to operate our cash management system in the ordinary course, and to pay the prepetition claims of certain of our service providers. For goods and services provided following the Commencement Date, we intend to pay service providers in the ordinary course. Subject to certain exceptions, under the Bankruptcy Code, the filing of the Chapter 11 Cases automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Commencement Date. Accordingly, although the filing of the Chapter 11 Cases triggered defaults under the Debtors' funded debt obligations, creditors are stayed from taking any actions against the Debtors as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code. Absent an order of theBankruptcy Court , substantially all of the Debtors' prepetition liabilities are subject to settlement under the Bankruptcy Code. For the duration of the Company's Chapter 11 proceedings, the Company's operations and ability to develop and execute its business plan are subject to the risks and uncertainties associated with the Chapter 11 process. As a result of these risks and uncertainties, the amount and composition of the Company's assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 proceedings, and the description of the Company's operations, properties and liquidity and capital resources included in this quarterly report may not accurately reflect its operations, properties and liquidity and capital resources following the Chapter 11 process. In particular, subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, assume and assign or reject executory contracts and unexpired leases subject to the approval of theBankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a prepetition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors of performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a prepetition general unsecured claim for damages caused by such deemed breach subject, in the case of the rejection of unexpired leases of real property, to certain caps on damages. Counterparties to such rejected contracts or leases may assert unsecured claims in theBankruptcy Court against the applicable Debtor's estate for such damages. Generally, the assumption or assumption and assignment of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance thereunder. Accordingly, any description of an executory contract or unexpired lease with the Debtors in this quarterly report, including where applicable a quantification of the Company's obligations under any such executory contract or unexpired lease with the Debtors is qualified by any overriding rights the Company has under the Bankruptcy Code. Further, nothing herein is or shall be deemed an admission with respect to any claim amounts or calculations arising from the assumption, assumption and assignment or rejection of any executory contract or unexpired lease and the Debtors expressly preserve all of their rights with respect thereto. Given the impact of the COVID-19 pandemic on the retail and broader markets, the ongoing weakness of the credit markets, theOperating Partnership's default of certain restrictive covenants, the acceleration of the senior secured credit facility and the filing of the Chapter 11 Cases, we believe that there is substantial doubt that we will continue to operate as a going concern within one year after the date our condensed consolidated financial statements for the quarter endedSeptember 30, 2020 are issued. See " Note 1 - Organization and Basis of Presentation " to the condensed consolidated financial statements for additional information. RESULTS OF OPERATIONS Properties that were in operation for the entire year during 2019 and the nine months endedSeptember 30, 2020 are referred to as the "Comparable Properties ." SinceJanuary 1, 2019 , we have opened one self-storage facility, deconsolidated three outlet centers and disposed of eleven properties:
Properties Opened
Property Location Date Opened
Mid
(1) This property is owned by a 50/50 joint venture that is accounted for using
the equity method of accounting and is included in equity in earnings of
unconsolidated affiliates in the accompanying condensed consolidated
statements of operations.
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Table of Contents Deconsolidations Property Location Date of Deconsolidation
The Outlet Shoppes at
(1) This property is owned by a 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 from the date of deconsolidation.
Dispositions
Property Location Sales Date
850 Greenbrier Circle Chesapeake, VA July 2019
Acadiana Mall Lafayette, LA January 2019
Barnes & Noble parcel High Point, NC July 2019
Cary Towne Center Cary, NC January 2019
Courtyard by Marriott at Pearland Town Center
Winston-Salem, NC September 2019
The Forum at Grandview Madison, MS July 2019
Honey Creek Mall Terre Haute, IN April 2019
Kroger at Foothills Plaza Maryville, TN July 2019
The Shoppes at Hickory Point Forsyth, IL April 2019
Hickory Point Mall Forsyth, IL August 2020
Non-core properties are defined as Excluded Malls - see definition that follows under "Operational Review."
Comparison of the Three Months EndedSeptember 30, 2020 to the Three Months EndedSeptember 30, 2019 Revenues Total for the Three Months Comparable Ended September 30, Properties 2020 2019 Change Core Non-core Deconsolidation Dispositions Total Change Rental revenues$ 124,081 $ 180,616 $ (56,535 ) $ (42,009 ) $ (3,946 ) $ (9,387 )$ (1,193 ) $ (56,535 ) Management, development and 2,104 2,216 (112 ) (112 ) - - - (112 ) leasing fees Other 3,712 4,419 (707 ) (547 ) (25 ) (46 ) (89 ) (707 ) Total revenues$ 129,897 $ 187,251 $ (57,354 ) $ (42,668 ) $ (3,971 ) $ (9,433 )$ (1,282 ) $ (57,354 ) Rental revenues from theComparable Properties declined due to (i) store closures and rent concessions that were in effect prior to the COVID-19 pandemic for tenants with high occupancy cost levels and tenants that closed in 2019 due to bankruptcy and (ii) rent concessions to tenants that are in bankruptcy or are struggling financially due to the impacts of the COVID-19 pandemic, including$12.5 million of rent abatements on past due rents and$12.3 million in uncollectible revenues for past due rents. Percentage rent declined$1.1 million as a result of store closures and lower retail sales due to the impacts of the COVID-19 pandemic on traffic and sales. 48
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Operating Expenses
Total for the
Three Months Comparable
Ended September 30, Properties
2020 2019 Change Core Non-core Deconsolidation Dispositions Total Change
Property operating $ (20,396 ) $ (27,344 ) $ (6,948 ) $ (4,009 ) $ (225 ) $ (2,437 ) $ (277 ) $ (6,948 )
Real estate taxes (17,215 ) (18,699 ) (1,484 ) (859 ) (92 ) (377 ) (156 ) (1,484 )
Maintenance and repairs (8,425 ) (10,253 ) (1,828 ) (1,182 ) (167 ) (386 ) (93 ) (1,828 )
Property operating expenses (46,036 ) (56,296 ) (10,260 ) (6,050 ) (484 ) (3,200 ) (526 ) (10,260 )
Depreciation and amortization (53,477 ) (64,168 ) (10,691 ) (6,026 ) (1,534 ) (2,918 ) (213 ) (10,691 )
General and administrative (25,497 ) (12,467 ) 13,030 13,134 (104 ) - - 13,030
Loss on impairment (46 ) (135,688 ) (135,642 ) (135,642 ) - - - (135,642 )
Litigation settlement 2,480 22,688 20,208 20,208 - - - 20,208
Other - (7 ) (7 ) (7 ) - - - (7 )
Total operating expenses $ (122,576 ) $ (245,938 ) $ (123,362 ) $ (114,383 ) $ (2,122 ) $ (6,118 ) $ (739 ) $ (123,362 )
Property operating expenses at the Comparable Properties decreased primarily due
to the implementation of comprehensive programs to reduce operating expenses to
mitigate the impact of mandated property closures and the effects of the
COVID-19 pandemic, including salary reductions, furloughs, a reduction-in-force
and other operating expense initiatives.
The decrease in depreciation and amortization expense related to the Comparable
Properties primarily relates to a lower basis in depreciable assets resulting
from impairments recorded since the prior year period and a greater amount of
tenant improvement write-offs in the prior year period related to tenants that
closed as a result of bankruptcy.
General and administrative expenses increased primarily due to $13.0 million of
costs related to the Company's negotiations to restructure its corporate-level
debt, which was partially offset by the implementation of comprehensive programs
to reduce expenses, including salary reductions, furloughs, a reduction-in-force
and other general and administrative expenses.
In the third quarter of 2019, we recognized $135.6 million of loss on impairment
of real estate to write down the book value of two malls. See Note 5 to the
condensed consolidated financial statements for more information.
Other Income and Expenses
Interest and other income increased$0.6 million compared to the prior-year period primarily due to interest income related to theU.S. Treasury securities that we invested in using a portion of the$280 million we drew on our secured line of credit inMarch 2020 to increase liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic. This was partially offset by a decrease in interest income due to several mortgage and other notes receivable being retired since the prior year period. Interest expense increased$10.6 million due to an increase of$12.1 million primarily related to (i) a higher outstanding balance on the secured line of credit as a result of the$280 million we drew inMarch 2020 to increase liquidity and preserve financial flexibility and (ii) the accrual of additional interest on the secured credit facility at a higher interest rate imposed as a result of notices of default received from the administrative agent. Additionally, we accrued$2.5 million of default interest expense related to property-level nonrecourse loans that are in default. These increases were mostly offset by a$4.8 million decrease in property-level interest expense related to the deconsolidation of three encumbered properties since the prior-year period and the impact of the continued amortization of the secured term loan and non-recourse property-level loans. During the nine months endedSeptember 30, 2020 , we recorded a$15.4 million gain on extinguishment of debt related to one mall. We transferredHickory Point Mall to the lender in satisfaction of the non-recourse debt secured by that property. During the three months endedSeptember 30, 2019 , we recognized$8.1 million of gain on sales of real estate assets primarily related to the sale of a community center, an office building and five outparcels. Equity in losses of unconsolidated affiliates increased by$5.6 million during the three months endedSeptember 30, 2020 compared to the prior-year period. The increase is primarily due to the additional amortization of our inside/outside 49
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basis difference related to the three properties that were deconsolidated since the end of the prior year period as well as lower earnings of our unconsolidated affiliates due to the mandated property closures and an increase in estimates of uncollectible rental revenues and abatements of rent. Comparison of the Nine Months EndedSeptember 30, 2020 to the Nine Months EndedSeptember 30, 2019 Revenues Total for the Nine Months Comparable Ended September 30, Properties 2020 2019 Change Core Non-core Deconsolidation Dispositions Total Change Rental revenues$ 405,476 $ 556,989 $ (151,513 ) $ (98,761 ) $ (11,585 ) $ (30,619 )$ (10,548 ) $ (151,513 ) Management, development and 5,251 7,325 (2,074 ) (2,074 ) - - - (2,074 ) leasing fees Other 10,955 14,344 (3,389 ) (2,504 ) (176 ) (348 ) (361 ) (3,389 ) Total revenues$ 421,682 $ 578,658 $ (156,976 ) $ (103,339 ) $ (11,761 ) $ (30,967 )$ (10,909 ) $ (156,976 ) Rental revenues from theComparable Properties declined due to (i) store closures and rent concessions that were in effect prior to the COVID-19 pandemic for tenants with high occupancy cost levels and tenants that closed in 2019 due to bankruptcy and (ii) rent concessions to tenants that are in bankruptcy or are struggling financially due to the impacts of the COVID-19 pandemic, including$14.1 million of rent abatements and$47.7 million in uncollectible revenues for past due rents. Percentage rent declined$2.9 million as a result of store closures and lower retail sales due to mandated property closures. Operating Expenses Total for the Nine Months Comparable Ended September 30, Properties 2020 2019 Change Core Non-core Deconsolidation Dispositions Total Change Property operating$ (63,011 ) $ (82,856 ) $ (19,845 ) $ (8,368 ) $ (1,378 ) $ (7,473 )$ (2,626 ) $ (19,845 ) Real estate taxes (53,500 ) (57,766 ) (4,266 ) (941 ) (93 ) (2,265 ) (967 ) (4,266 ) Maintenance and repairs (25,675 ) (34,327 ) (8,652 ) (5,644 ) (987 ) (892 ) (1,129 ) (8,652 ) Property operating expenses (142,186 ) (174,949 ) (32,763 ) (14,953 ) (2,458 ) (10,630 ) (4,722 ) (32,763 ) Depreciation and amortization (162,042 ) (198,438 ) (36,396 ) (19,006 ) (4,958 ) (10,113 ) (2,319 ) (36,396 ) General and administrative (62,060 ) (48,901 ) 13,159 13,264 (105 ) - -
13,159
Loss on impairment (146,964 ) (202,121 ) (55,157 ) (29,023 ) (16,200 ) - (9,934 )
(55,157 ) Litigation settlement 2,480 (65,462 ) (67,942 ) (67,942 ) - - - (67,942 ) Other (400 ) (41 ) 359 359 - - - 359
Total operating expenses
$ (117,301 ) $ (23,721 ) $ (20,743 )$ (16,975 ) $ (178,740 ) Property operating expenses at theComparable Properties decreased primarily due to the implementation of comprehensive programs to reduce operating expenses to mitigate the impact of the COVID-19 pandemic, including salary reductions, furloughs, reductions-in-force and other operating expense initiatives. 50
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The decrease in depreciation and amortization expense related to theComparable Properties primarily relates to a lower basis in depreciable assets resulting from impairments recorded since the prior year period, as well as a higher amount of write-offs of tenant improvements and intangible lease assets related to store closings in the prior year period. General and administrative expenses increased due to$13.0 million of costs related to the Company's negotiations to restructure its corporate-level debt, partially offset by the implementation of comprehensive programs to reduce expenses, including salary reductions, furloughs and a reduction-in-force, as well higher legal expenses in the prior year period related to the litigation settlement and the new secured credit facility. For the nine months endedSeptember 30, 2020 , we recognized$147.0 million of loss on impairment of real estate to write down the book value of three malls. For the nine months endedSeptember 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. See Note 5 to the condensed consolidated financial statements for more information. During the nine months endedSeptember 30, 2019 , we recognized$65.5 million of litigation settlement expense related to the settlement of a class action lawsuit. During the nine months endedSeptember 30, 2020 , we recognized a reduction of the litigation settlement expense of$2.5 million related to amounts we were released from pursuant to the terms of the settlement agreement. See Note 12 to the condensed consolidated financial statements for more information.
Other Income and Expenses
Interest and other income increased$3.0 million during the nine months endedSeptember 30, 2020 compared to the prior-year period primarily due to additional interest income received related to theU.S. Treasury securities that we invested in using a portion of the$280 million we drew on our secured line of credit inMarch 2020 to increase liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic. Interest expense increased$3.8 million compared to the prior-year period. The increase was primarily from an increase of$12.4 million due to (i) a higher outstanding balance on the secured line of credit as a result of the$280 million we drew inMarch 2020 to increase liquidity and preserve financial flexibility and (ii) the accrual of additional interest on the secured credit facility at a higher interest rate imposed as a result of notices of default received from the administrative agent. Additionally, we accrued$5.4 million of default interest expense related to property-level nonrecourse loans that are in default. This increase was partially offset by a$15.7 million decrease in property-level interest expense from the deconsolidation of three encumbered properties since the prior-year period, the continued amortization of the corporate term loan and non-recourse property-level loans and the retirement of three property-level loans. During the nine months endedSeptember 30, 2020 , we recorded a$15.4 million gain on extinguishment of debt related to one mall. We transferredHickory Point Mall to the lender in satisfaction of the non-recourse debt secured by that property. During the nine months endedSeptember 30, 2019 , we recorded$71.7 million of gain on extinguishment of debt related to two malls. We transferredAcadiana 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. The remaining principal balance was forgiven. Equity in earnings of unconsolidated affiliates decreased by$15.9 million during the nine months endedSeptember 30, 2020 compared to the prior-year period. The decrease was primarily due to an increase in the amortization of our inside/outside basis difference related to the three properties that were deconsolidated since the end of the prior year period as well as lower earnings of our unconsolidated affiliates due to the mandated property closures and an increase in estimates of uncollectible rental revenues and abatements of rent.
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 theOperating Partnership's pro rata share of both consolidated and unconsolidated properties. We believe that presenting NOI and same-center NOI (described below) based on ourOperating Partnership's pro rata share of both consolidated and unconsolidated properties is useful since we conduct substantially all of our business through ourOperating 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 theOperating 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. 51
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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 sinceJanuary 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 and where we intend to renegotiate the terms of the debt secured by the related property or return the property to the lender.Asheville Mall , Burnsville Center,EastGate Mall ,Greenbrier Mall andPark Plaza were classified as Lender Malls atSeptember 30, 2020 .
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
Three Months Ended
September 30, Nine Months Ended September 30,
2020 2019 2020 2019Net loss$ (44,424 ) $ (92,034 ) $ (256,511 ) $ (168,531 ) Adjustments: (1) Depreciation and amortization 66,796 76,608 201,180 228,201 Interest expense 69,213 55,640 183,035 171,793 Abandoned projects expense - 7 400 41 (Gain) loss on sales of real estate 55 (8,056 ) (2,708 ) (14,438 )
assets
Gain on investment/deconsolidation - (11,174 ) - (11,174 ) Gain on extinguishment of debt (15,407 ) - (15,407 ) (71,722 ) Loss on impairment 46 135,688 146,964 202,121 Litigation settlement (2,480 ) (22,688 ) (2,480 ) 65,462 Income tax provision 546 1,670 17,189 2,622 Lease termination fees (1,722 ) (848 ) (3,375 ) (2,938 ) Straight-line rent and above- and 2,662 (1,881 ) 631 (4,334 ) below-market rent Net (income) loss attributable to noncontrolling interests 937 (763 ) 1,631 (631 ) in other consolidated subsidiaries General and administrative expenses 25,497 12,467 62,060 48,901
Management fees and non-property level (4,415 ) (2,293 )
(9,746 ) (9,077 )
revenues
Operating Partnership's share of 97,304 142,343 322,863 436,296 property NOI Non-comparable NOI (5,909 ) (10,845 ) (19,120 ) (38,137 ) Total same-center NOI$ 91,395 $ 131,498 $ 303,743 $ 398,159
(1) Adjustments are based on our
share, including our share of unconsolidated affiliates and excluding
noncontrolling interests' share of consolidated properties.
Same-center NOI decreased 30.5% for the three months ended September 30, 2020 as
compared to the prior-year period. The $40.1 million decrease for the three
months ended September 30, 2020 compared to the same period in 2019 primarily
consisted of a $46.8 million decrease in revenues offset by a $6.9 million
decline in operating expenses. Rental revenues declined $46.1 million during the
quarter primarily related to (i) store closures and rent concessions that were
in effect prior to the COVID-19 pandemic for tenants with high occupancy cost
levels and tenants that closed in 2019 due to bankruptcy and (ii) rent
concessions to tenants that are in bankruptcy or are struggling financially due
to the impacts of the COVID-19 pandemic, including $14.6 million of rent
abatements on past due rents and $12.4 million in uncollectible revenues for
past due rents.
Same-center NOI decreased 23.7% for the nine months ended September 30, 2020 as
compared to the prior-year period. The $94.4 million decrease for the nine
months ended September 30, 2020 compared to the same period in 2019 primarily
consisted of a $112.4 million decrease in revenues offset by a $17.9 million
decline in operating expenses. Rental revenues declined $110.1 million during
the quarter primarily related to (i) store closures and rent concessions that
were in effect prior to the COVID-19 pandemic for tenants with high occupancy
cost levels and tenants that closed in 2019 due to bankruptcy and (ii) rent
concessions to tenants that are in bankruptcy or are struggling financially due
to the impacts of the
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COVID-19 pandemic, including
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. In response to local and state mandated closures due to the COVID-19 pandemic, our entire portfolio, except for a few properties, closed. All of our mall properties have re-opened and we have implemented strict procedures and guidelines for our employees, tenants and property visitors based on CDC and other health agency recommendations. The mandated closures resulted in nearly all of our tenants closing for a period of time and/or shortening operating hours. As a result, we have experienced an increased level of requests for rent deferrals, and abatements, as well as defaults on rent obligations. While, in general, we believe that the tenants have a clear contractual obligation to pay rent, we have been working with our tenants to address rent deferral and abatement requests. Based on completed or in process agreements with 25 of our top tenants, representing approximately 40% of total revenues for the second and third quarters of 2020, we anticipate collecting over 65% of related rent for the second quarter and over 81% for the third quarter, with the majority of the remainder expected to be deferred or abated. We remain in negotiations with tenants and are unable to predict the outcome of those discussions. As we finalize negotiations, rent collections as a percentage of billed cash-based rents have increased with certain past-due amounts being paid. As of the end of the third quarter, theApril 2020 collection rate had improved from 27% to over 76% and May improved from 33% to 68%. We expect this trend to continue as we move later in the year and into 2021, and certain deferred rents begin coming due. As of earlyNovember 2020 , we estimate that we will defer$25.3 million , at our share, of rents that were billed for April throughSeptember 2020 . Substantially all of this amount is related to agreements that were executed as ofSeptember 30, 2020 with the remainder in active negotiation. Additionally, we granted rent abatements of approximately$13.1 million and$14.9 million for the three and nine months endedSeptember 30, 2020 , respectively. We continue to assess rent relief requests from our tenants but are unable to predict the resolution or impact of these discussions. Year-to-date, more than twelve national tenants have declared bankruptcy, including major tenants such as J.C. Penney, Ascena Retail Group, Stage Stores and GNC. As ofSeptember 30, 2020 , J.C. Penney and Ascena Retail Group, Inc. represented$18.5 million in gross annual revenue and comprised 6.1 million square feet. The remaining ten tenants in bankruptcy represented approximately$22.3 million in gross annual revenue and comprised 1.1 million square feet. The majority of these have announced some store closures and some have liquidated, but several are expected to reorganize and continue to operate.
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
category. The Outlet Shoppes at
non-stabilized mall as of
Shoppes at
January 1, 2021 . (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.Asheville Mall , Burnsville Center,EastGate Mall ,Greenbrier Mall andPark Plaza were classified as Lender Malls as ofSeptember 30, 2020 , andGreenbrier Mall , andHickory Point Mall were classified as Lender Malls as ofSeptember 30, 2019 . 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. 53
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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, excludeRepositioning
Malls. There were no malls classified as Repositioning Malls as of
September 30, 2020 and September 30, 2019 .
We derive the majority of our total revenues from the mall properties. The sources of our total revenues by property type were as follows:
Nine Months Ended September 30,
2020 2019
Malls 90.4 % 91.6 %
Other Properties 9.6 % 8.4 %
Mall Store Sales
Mall store sales include reporting mall tenants of 10,000 square feet or less
for stabilized malls and exclude license agreements, which are retail contracts
that are temporary or short-term in nature and generally last more than three
months but less than twelve months. Due to temporary mall and store closures
that occurred, the majority of CBL's tenants did not report sales for the full
reporting period. As a result, CBL is not able to provide a complete measure of
sales per square foot for the trailing twelve months ended September 30, 2020 .
Stabilized mall same-center sales per square foot for the twelve months ended
September 30, 2019 were $386 .
Occupancy
Our portfolio occupancy is summarized in the following table (1):
As of September 30,
2020 2019
Total portfolio 86.8 % 90.5 %
Malls:
Total Mall portfolio 85.2 % 88.7 %
Same-center Malls 85.2 % 89.0 %
Stabilized Malls 85.4 % 88.8 %
Non-stabilized Malls (2) 74.4 % 83.8 %
Other Properties:
Associated centers 89.1 % 96.3 %
Community centers 94.4 % 96.3 %
(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
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Leasing
Leasing activity for the quarter was muted as we continued our focus on negotiating with existing tenants. To-date we have completed or are finalizing negotiations with retailers representing the majority of our top tenants. These agreements generally include flexible terms primarily on second quarter and, in certain cases, third quarter rent to certain retailers that require assistance, while at the same time preserving current and future income.
The following is a summary of the total square feet of leases signed in the three- and nine-month periods ended September, 2020 and 2019:
Three Months Ended
September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Operating portfolio:
New leases 43,654 239,645 463,771 768,106
Renewal leases 553,848 472,636 1,276,343 1,626,014
Development portfolio:
New leases - 1,175 7,929 205,614
Total leased 597,502 713,456 1,748,043 2,599,734
Average annual base rents per square foot are based on contractual rents in
effect as of September 30, 2020 and 2019, 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:
September 30,
2020 2019
Malls (1):
Same-center Stabilized Malls $ 30.42 $ 31.94
Stabilized Malls 30.49 32.05
Non-stabilized Malls (2) 24.89 24.12
Other Properties (3): 15.54 15.40
Associated centers 14.02 13.75
Community centers 16.78 16.99
Office buildings 19.14 18.87
(1) Excluded properties are not included.
(2) Represents average annual base rents for The Outlet Shoppes at
(3) Average base rents for associated centers, community centers and office
buildings include all leased space, regardless of size.
Results from new and renewal leasing of comparable small shop space of less than 10,000 square feet during the nine-month period endedSeptember 30, 2020 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: New Initial New Average Square Prior Gross Gross Rent % Change Gross Rent % Change Property Type Feet Rent PSF PSF Initial PSF (1) Average Quarter: All Property Types (2) 348,790$ 33.60 $ 27.88 (17.0 )%$ 28.29 (15.8 )% Stabilized Malls 297,079 34.81 29.06 (16.5 )% 29.47 (15.3 )% New leases 16,919 44.07 39.86 (9.6 )% 41.53 (5.8 )% Renewal leases 280,160 34.25 28.41 (17.1 )% 28.74 (16.1 )% Year-to-Date: All Property Types (2) 886,441$ 30.24 $ 26.59 (12.1 )%$ 27.03 (10.6 )% Stabilized Malls 793,168 30.68 27.10 (11.7 )% 27.55 (10.2 )% New leases 68,613 28.70 32.00 11.5 % 33.51 16.8 % Renewal leases 724,555 30.87 26.64 (13.7 )% 26.99 (12.6 )%
(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.
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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 Term Initial Average Expiring
of Square (in Rent Rent Rent Initial Rent Average Rent
Leases Feet years) PSF PSF PSF Spread Spread
Commencement 2020:
New 73 235,156 7.14 $ 28.48 $ 30.07 $ 25.63 $ 2.85 11.1 % $ 4.44 17.3 %
Renewal 355 1,156,701 2.58 25.33 26.24 30.37 (5.04 ) (16.6 )% (4.13 ) (13.6 )%
Commencement 2020 Total 428 1,391,857 3.36 25.86 26.88 29.57 (3.71 ) (12.5 )% (2.69 ) (9.1 )%
Commencement 2021:
New 8 23,594 9.22 36.82 38.89 32.09 4.73 14.7 % 6.80 21.2 %
Renewal 76 210,540 2.44 33.96 34.27 36.50 (2.54 ) (7.0 )% (2.23 ) (6.1 )%
Commencement 2021 Total 84 234,134 3.09 34.25 34.73 36.06 (1.81 ) (5.0 )% (1.33 ) (3.7 )%
Total 2020/2021 512 1,625,991 3.31 $ 27.07 $ 28.01 $ 30.50 $ (3.43 ) (11.2 )% $ (2.49 ) (8.2 )%
LIQUIDITY AND CAPITAL RESOURCES
As ofSeptember 30, 2020 , we had$258.6 million available in unrestricted cash andU.S. Treasury securities and we had$675.9 million outstanding on our secured credit facility. Our total pro rata share of debt atSeptember 30, 2020 was$4.4 billion . InFebruary 2020 , we utilized our secured credit facility to pay off two loans secured byParkway Place andValley View Mall totaling$84.5 million . Also, we closed on a new loan secured by The Outlet Shoppes atAtlanta - Phase II in the amount of$4.7 million , with an interest rate of LIBOR plus 2.5% and a maturity date ofNovember 2023 . Proceeds were used to retire the$4.4 million existing loan. InMarch 2020 , we drew$280.0 million on our secured line of credit to increase liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic. We purchased$154.2 million , including accrued interest, ofU.S. Treasury securities with a portion of the borrowings on our secured line of credit. In response to the COVID-19 pandemic, we implemented comprehensive programs to halt all non-essential expenditures, to reduce operating and overhead expenses and to reduce, defer or suspend capital expenditures, including redevelopment investments. These programs include a temporary reduction of up to 50% to the compensation of our Chairman of the Board, our CEO and our President as well as independent director fees, a temporary reduction of up to 20% to the compensation of our other named executive officers, salary reductions to all staff, a broad-based furlough program, a permanent reduction in workforce and 2020 capital expenditure reductions or deferrals estimated in the range of$60.0 million to$80.0 million . While we have paused several major projects, we are pursuing capital lite solutions for backfilling our remaining available anchors, including joint venture partnerships, favorable lease structures and third-party arrangements - all of which benefit our portfolio while preserving capital. Additionally, we were able to achieve debt service payment deferrals for a portion of our secured loans. Securitized lenders in general have shown minimal flexibility in amending loan payments. As discussed in "Note 15 - Subsequent Events" to the condensed consolidated financial statements, the Company elected to not make the$6.9 million interest payment due and payable onOctober 15, 2020 , with respect to theOperating Partnership's 4.60% senior unsecured notes due 2024 (the "2024 Notes") (the "2024 Notes Interest Payment"). Under the indenture governing the 2024 Notes, theOperating Partnership has a 30-day grace period to make the 2024 Notes Interest Payment before the nonpayment is considered an "event of default" with respect to the 2024 Notes. Any event of default under the 2024 Notes for nonpayment of the 2024 Notes Interest Payment would also be considered an event of default under theOperating Partnership's senior secured credit facility which could lead to an acceleration of amounts due under the facility; however, as discussed in Note 8 - Mortgage and Other Indebtedness, Net, obligations under the secured credit facility have been accelerated based on the events of default previously asserted by the administrative agent under the secured credit facility, which the Company continues to dispute. Further, if the trustee for the 2024 Notes should exercise its right to accelerate the maturity of the full balance owed on the 2024 Notes as a result of such an "event of default," that would also constitute an "event of default" under the 2023 Notes and the 2026 Notes, which could lead to the acceleration of all amounts due under those notes. See Liquidity and Going Concern Considerations in Note 1 - Organization and Basis ofPresentation and Significant Bankruptcy Court Actions in Note 15 - Subsequent Events to the condensed consolidated financial statements and the section below titled Financial Covenants and Restrictions for information on the ongoing alleged defaults and events of defaults asserted by the administrative agent with respect to the secured credit facility and the Company's adversarial 56
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proceeding in response to the notices from the administrative agent asserting rights and remedies and for information on the Company's commencement of the Chapter 11 Cases. We have addressed nearly all our major debt maturities for 2020 and are in discussions with existing lenders for certain 2021 secured loan maturities. We anticipate restructuring our unsecured debt maturities through the recent Chapter 11 bankruptcy filing. The filing of the Chapter 11 Cases also constituted an event of default with respect to certain property-level debt of theOperating Partnership's subsidiaries, which may result in automatic acceleration of the outstanding principal and accrued interest or may give the applicable lender the right to accelerate such amounts. See Note 7 - Unconsolidated Affiliates and Noncontrolling Interests and Note 8 - Mortgage and Other Indebtedness, Net for more information. We derive the majority of our revenues from leases with retail tenants, which have historically been the primary source for funding short-term liquidity and capital needs such as operating expenses, debt service, tenant construction allowances, recurring capital expenditures, dividends and distributions. We believe that the combination of cash flows generated from our operations, combined with cash on hand and our investment inU.S. Treasury securities will, for the foreseeable future, provide adequate liquidity to meet our cash needs assuming we continue to operate as a going concern within twelve months of the date our condensed consolidated financial statements are issued. In addition to these factors, we have options available to us to generate additional liquidity, including but not limited to, joint venture investments and decreasing expenditures related to tenant construction allowances and other capital expenditures. We also generate revenues from sales of peripheral land at our properties and from sales of real estate assets when it is determined that we can realize an optimal value for the assets.
Cash Flows - Operating, Investing and Financing Activities
There was$141.2 million of cash, cash equivalents and restricted cash as ofSeptember 30, 2020 , an increase of$82.1 million fromDecember 31, 2019 . Of this amount,$116.6 million was unrestricted cash and cash equivalents as ofSeptember 30, 2020 . Also, atSeptember 30, 2020 , we had$151.8 million inU.S. Treasuries that are scheduled to mature betweenApril 2021 andJune 2021 .
Our net cash flows are summarized as follows (in thousands):
Nine Months Ended September 30,
2020 2019 ChangeNet cash provided by operating activities $ 59,192 $
225,243 $ (166,051 )
Net cash provided by (used in) investing
activities (201,504 ) 55,870 (257,374 )
Net cash provided by (used in) financing
activities 224,486 (275,369 ) 499,855
Net cash flows $ 82,174 $ 5,744 $ 76,430 Cash Provided by Operating Activities
Cash provided by operating activities decreased$166.0 million primarily due to a decline in cash payments of rental revenues from tenants due to the closure of most of our malls for a period of time in response to government mandates that began in March. Operating cash flows have also been impacted by rent deferrals and abatements that have been granted to tenants experiencing financial difficulties due to the COVID-19 pandemic. Rental revenues also decreased due to store closures and rent concessions for tenants with high occupancy cost levels, including tenants that closed in 2019 and 2020 due to bankruptcy prior to the COVID-19 pandemic, as well as a decline in rental revenues related to dispositions. 57
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Cash Provided by (Used in) Investing Activities
Net cash used in investing activities for 2020 was primarily related to the purchase ofU.S. Treasury securities for$153.2 million using a portion of the$280.0 million that we drew on our secured line of credit. We also expended$47.8 million on additions to real estate assets, primarily related to redevelopment projects. Net cash provided by investing activities in the prior year period related to$128.4 million of proceeds from dispositions of properties, which was partially offset by$90.4 million of additions to real estate assets.
Cash Provided by (Used in) Financing Activities
The net cash inflow for 2020 is primarily due to the$280.0 million draw on our secured credit facility in order to increase liquidity and preserve financial flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic. Additionally, there were no common or preferred stock dividends paid for the nine months endedSeptember 30, 2020 , as compared to$26.0 million in dividends paid to holders of common stock and$33.7 million in dividends paid to holders of preferred stock during the nine months endedSeptember 30, 2019 .
Debt
Debt of the Company
CBL has no indebtedness. Either theOperating 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 theOperating Partnership or its affiliates. We also provide a similar limited guarantee of theOperating Partnership's obligations with respect to our secured credit facility as ofSeptember 30, 2020 .
Debt of the
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):
Weighted-
Average
Noncontrolling Unconsolidated Interest
September 30, 2020: Consolidated Interests Affiliates Total Rate (1)
Fixed-rate debt:
Non-recourse loans on operating
Properties (2) $ 1,193,997 $ (30,275 ) $ 616,446 $ 1,780,168 4.79 %
Recourse loans on operating Properties
(3) - - 9,360 9,360 3.74 %
Senior unsecured notes due 2023 (4) 448,265 - - 448,265 5.25 %
Senior unsecured notes due 2024 (5) 299,966 - - 299,966 4.60 %
Senior unsecured notes due 2026 (6) 618,136 - - 618,136 5.95 %
Total fixed-rate debt 2,560,364 (30,275 ) 625,806 3,155,895 5.06 %
Variable-rate debt:
Recourse loans on operating Properties 68,511 - 104,622 173,133 2.82 %
Construction loans - - 17,864 17,864 2.52 %
Secured line of credit (7) 675,925 - - 675,925 9.50 %
Secured term loan (7) 438,750 - - 438,750 9.50 %
Total variable-rate debt 1,183,186 - 122,486 1,305,672 8.52 %
Total fixed-rate and variable-rate
debt 3,743,550 (30,275 ) 748,292 4,461,567 6.07 %
Unamortized deferred financing costs (13,864 ) 288 (2,594 ) (16,170 )
Total mortgage and other indebtedness,
net $ 3,729,686 $ (29,987 ) $ 745,698 $ 4,445,397
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Weighted-
Average
Noncontrolling Unconsolidated Interest
December 31, 2019: Consolidated Interests Affiliates Total Rate (1)
Fixed-rate debt:
Non-recourse loans on operating
Properties (2) $ 1,330,561 $ (30,658 ) $ 623,193 $ 1,923,096 4.88 %
Recourse loans on operating Properties
(3) - - 10,050 10,050 3.74 %
Senior unsecured notes due 2023 (4) 447,894 - - 447,894 5.25 %
Senior unsecured notes due 2024 (5) 299,960 - - 299,960 4.60 %
Senior unsecured notes due 2026 (6) 617,473 - - 617,473 5.95 %
Total fixed-rate debt 2,695,888 (30,658 ) 633,243 3,298,473 5.10 %
Variable-rate debt:
Recourse loans on operating Properties 41,950 - 69,046 110,996 4.13 %
Construction loans 29,400 - 35,362 64,762 4.45 %
Secured line of credit 310,925 - - 310,925 3.94 %
Secured term loan 465,000 - - 465,000 3.94 %
Total variable-rate debt 847,275 - 104,408 951,683 4.00 %
Total fixed-rate and variable-rate
debt 3,543,163 (30,658 ) 737,651 4,250,156 4.86 %
Unamortized deferred financing costs (16,148 ) 318 (2,851 ) (18,681 )
Total mortgage and other indebtedness,
net $ 3,527,015 $ (30,340 ) $ 734,800 $ 4,231,475 (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
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
2019 related to a variable-rate loan on
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
(5) The balance is net of an unamortized discount of
30, 2020 and
(6) The balance is net of an unamortized discount of
(7) The administrative agent informed the Company that interest will accrue on
all outstanding obligations at the post-default rate, which is equal to the
rate that otherwise would be in effect plus 5.0%. The post-default interest
rate at
based on original terms of senior secured facility is 2.41% as of September
30, 2020.
The weighted-average remaining term of our total share of consolidated and unconsolidated debt was 3.3 years and 3.9 years atSeptember 30, 2020 andDecember 31, 2019 , respectively. The weighted-average remaining term of our pro rata share of fixed-rate debt was 3.5 and 4.1 years atSeptember 30, 2020 andDecember 31, 2019 , respectively.
As of
See Note 7 to the condensed consolidated financial statements for information concerning activity related to unconsolidated affiliates.
Credit Ratings
During the quarter endedJune 30, 2020 , Fitch Ratings, Moody's Investors Service andS&P Global Ratings terminated their coverage of theOperating Partnership's unsecured long-term indebtedness.
Senior Unsecured Notes
The following presents the Company's compliance with key covenant ratios, as defined, of the Notes and the senior secured credit facility as ofSeptember 30, 2020 : Debt Covenant Compliance Ratios (1) Required Actual Total debt to total assets < 60% 56 % Secured debt to total assets < 40% 36 % Total unencumbered assets to unsecured debt > 150% 190 %
Consolidated income available for debt service to > 1.5x 1.8 x
annual debt service charge
Minimum debt yield on outstanding balance (2) > 10% 9.7 %
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(1) The debt covenant compliance ratios for the secured line of credit, the
secured term loan and the senior unsecured notes are defined and computed on
the same basis.
(2) The minimum debt yield on outstanding balance debt covenant compliance ratio only applies to the secured credit facility. As ofSeptember 30, 2020 , the lenders under the secured credit facility had declared all outstanding obligations to be immediately due and payable due to asserted defaults and events of default under the secured credit facility. Additionally, onNovember 1, 2020 , we commenced the Chapter 11 Cases by filing voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code, which is an event of default under the secured credit facility.
Issuer and Guarantor Subsidiaries of
InMarch 2020 , theSEC issued Rule Release No. 33-10762, Financial Disclosures About Guarantors and Issuers ofGuaranteed Securities and Affiliates Whose Securities Collateralize a Registrant's Securities ("Release 33-10762"). Release 33-10762 simplifies the disclosure requirements related to certain registered securities under Rules 3-10 and 3-16 of SEC Regulation S-X, permitting registrants to provide certain alternative financial disclosures and non-financial disclosures in lieu of separate consolidating financial statements for subsidiary issuers and guarantors of registered debt securities if certain conditions are met. The amendments in Release 33-10762 are generally effective for filings on or afterJanuary 4, 2021 , with early application permitted. We adopted the new disclosure requirements permitted under Release 33-10762 effective for the period as of and for the nine months endedSeptember 30, 2020 .The Operating Partnership's senior secured credit facility is secured by 17 malls and 3 associated centers that are directly or indirectly owned by 36 wholly owned subsidiaries of theOperating Partnership (the "Guarantor Subsidiaries"). The Guarantor Subsidiaries own an additional four malls, two associated centers and four mortgage notes receivable that are not collateral for the secured credit facility. The Guarantor Subsidiaries also entered into agreements to guarantee theOperating Partnership's obligations under the senior secured credit facility. Based on the terms of the Notes, to the extent that any subsidiary of theOperating Partnership executes and delivers a guarantee to another debt facility, theOperating Partnership shall also cause the subsidiary to guarantee theOperating Partnership's obligations under the Notes on a senior basis. In connection with entering the guarantee agreements related to the senior secured credit facility, the Guarantor Subsidiaries entered a guarantee agreement with the issuer of the Notes to satisfy the guaranty requirement. The guarantees of the Guarantor Subsidiaries are joint and several and full and unconditional. The guarantees are unsecured and effectively subordinated to any existing and future secured debt that a Guarantor Subsidiary may have to the extent of the value of the assets securing such debt. Each Guarantor Property's obligation will remain until the earlier of such time as (i) all guaranteed obligations have been paid in full in cash and each guaranteed obligation has been terminated or cancelled in accordance with its terms or (ii) any such Guarantor Subsidiary ceases to be a guarantor under the senior secured credit facility. The Guarantor Subsidiaries' maximum guarantee related to the secured credit facility is$1,114.7 million as ofSeptember 30, 2020 , and the maximum guarantee related to the Notes is$1,375.0 million as ofSeptember 30, 2020 . The following tables present summarized financial information for theOperating Partnership and the Guarantor Subsidiaries on a combined basis. The summarized financial information does not include theOperating Partnership's investments in non-guarantor subsidiaries nor the earnings from non-guarantor subsidiaries. Intercompany transactions between theOperating Partnership and the Guarantor Subsidiaries have been eliminated. The summarized balance sheet information is as ofSeptember 30, 2020 andDecember 31, 2019 and the summarized statement of operations information is for the nine months endedSeptember 30, 2020 and the year endedDecember 31, 2019 . Amounts are presented in thousands. September 30, December 31, 2020 2019 Net investment in real estate assets$ 1,456,142 $ 1,505,668 Total assets (1) 1,651,465 1,696,190 Total liabilities (2) 2,846,991 2,503,005 Nine Months Year Ended Ended September December 31, 30, 2020 2019 Total revenues (3)$ 167,917 $ 292,540 Total expenses (4) 288,842 476,202 Net loss (119,132 ) (117,325 ) 60
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(1) Total assets include an intercompany note receivable with a non-guarantor
subsidiary of
2019, respectively
(2) Total liabilities include intercompany liabilities of $2,781 as of
September 30, 2020 (3) Total revenues include revenues derived from non-guarantor subsidiaries of
$160 and$1,255 for the nine months endedSeptember 30, 2020 and the year endedDecember 31, 2019 , respectively.
(4) Total expenses include expenses incurred with non-guarantor subsidiaries of
$24,468 and$16,749 for the nine months endedSeptember 30, 2020 and the year endedDecember 31, 2019 , respectively.
Financial Covenants and Restrictions
As discussed in "Note 8 - Mortgage and Other Indebtedness, Net" to the condensed consolidated financial statements, we elected not to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment.The Operating Partnership did not make either the 2023 Notes Interest Payment or the 2026 Notes Interest Payment by the last day of the respective 30-day grace periods provided for in the indenture governing the 2023 Notes and the 2026 Notes.The Operating Partnership's failure to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment during the applicable grace periods constituted an "event of default" with respect to each of the 2023 Notes and the 2026 Notes. OnAugust 5, 2020 , we made the 2023 Notes Interest Payment to the holders of the 2023 Notes and the 2026 Notes Interest Payment to the holders of the 2026 Notes. Accordingly, from and after such payment, the nonpayment of each of the 2023 Notes Interest Payment and the 2026 Notes Interest Payment no longer constitutes (i) an "event of default" under the indenture governing the 2023 Notes and the 2026 Notes that occurred and is continuing or (ii) to the extent provided in the Bank Forbearance Agreement, an "event of default" under the secured credit facility. On each ofMay 26, 2020 ,June 2, 2020 ,June 16, 2020 ,August 6, 2020 andAugust 19, 2020 , theOperating Partnership received notices of default and reservation of rights letters from the administrative agent under the secured credit facility, which asserted that certain defaults and events of default occurred and continue to exist by reason of theOperating Partnership's failure to comply with certain restrictive covenants under the secured credit facility and resulting from the failure to make the 2023 Notes Interest Payment and the 2026 Notes Interest Payment prior to the expiration of the applicable grace periods. OnAugust 6, 2020 , theOperating Partnership received a notice of imposition of base rate and post-default rate letter from the Agent, which (i) informed theOperating Partnership that following an asserted event of default onMarch 19, 2020 , all outstanding loans were converted to base loans at the expiration of the applicable interest periods and (ii) sought payment of approximately$4.8 million related thereto for April throughJune 2020 (the "Demand Interest"). The base rate is defined as the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) the LIBOR Market Index Rate plus 1.0%, plus 1.25%. The base rate onSeptember 30, 2020 was 4.50% based on the prime rate plus 1.25%. The administrative agent also informed theOperating Partnership that from and afterAugust 6, 2020 , interest will accrue on all outstanding obligations at the post-default rate, which is equal to the rate that otherwise would be in effect plus 5.0%. The post-default interest rate at the time of notification and atSeptember 30, 2020 was 9.50%. OnAugust 19, 2020 , theOperating Partnership received from the administrative agent (i) a notice of default and reservation of rights letter, which asserted that each of the failure to pay the Demand Interest and the entry into the RSA constituted events of default under the terms of the secured credit facility and (ii) a notice of acceleration of obligations under the secured credit facility based on the events of default previously asserted by the administrative agent, pursuant to which, the administrative agent declared all outstanding principal, interest accruing at the base rate and the post-default rate, which as previously disclosed are rates being disputed by the Company, and letters of credit to be immediately due and payable. The administrative agent also terminated the revolving and swingline commitments and the obligation to issue letters of credit under the secured credit facility and instructed theOperating Partnership to deliver approximately$1.3 million in cash to collateralize outstanding letters of credit. OnAugust 25, 2020 ,The Operating Partnership received a notice of imposition of base rate letter from the administrative agent under the secured credit facility, which informed theOperating Partnership that following an asserted event of default, that all outstanding loans converted to base rate loans beginningJuly 1, 2019 and (ii) sought payment of approximately$12.0 million related thereto forJuly 1, 2019 throughMarch 30, 2020 . Additionally, theOperating Partnership failed to meet the minimum debt yield covenant under the secured credit facility as ofSeptember 30, 2020 . As of the date of this report, the lenders under the secured credit facility have not commenced foreclosure proceedings, but they may seek to exercise such remedies in the future. In addition, as a result of the events of default asserted by the administrative agent in such letters, the administrative agent may deny theOperating Partnership's request for future LIBOR interest periods, which would result in an increase in annual interest expense of approximately$19.3 million based on the base rate and$74.4 million based on the post-default rate. OnOctober 16, 2020 , the Company received an additional notice of default and reservation of rights letter from the Agent which asserted that certain defaults exist and continue to exist by reason of theOperating Partnership's failure to comply with certain restrictive covenants in the Credit Agreement and resulting from the failure to make the$6.9 million interest payment that was due and payable onOctober 15, 2020 , to holders of the 2024 Notes and that such default will constitute an event of default under the Credit Agreement if such interest is not paid within the 30-day grace period. On 61
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October 28, 2020 , theOperating Partnership was notified by the administrative agent and lenders that they elected to exercise their rights pursuant to the terms of the secured credit facility to (i) require that rents payable by tenants at the properties that are collateral to the secured credit facility be paid directly to the administrative agent and (ii) exercise all voting rights and other ownership rights in respect of all the equity interests in the subsidiaries of theOperating Partnership that are guarantors of the secured credit facility. Notwithstanding these actions by the administrative agent, the Company intends to continue to operate its business, retain legal ownership of the entities pledged under the collateral agreement and the pledge agreement and manage its properties. The Company contends that the actions taken by the administrative agent are unauthorized and unlawful and the Company continues to disagree with the assertions made by the administrative agent as to the basis for the notice of acceleration and the notice of exercise and, accordingly, the validity of the notice of acceleration and the notice of exercise. The Company is vigorously defending against the claims made by the administrative agent and the lenders. Among other things, the Company, in good faith, disputes that any breaches of the agreement to the secured credit facility or any events of default thereunder that were the subject of the prior notices have occurred and are continuing. OnNovember 2, 2020 , the Company filed an adversary proceeding in theBankruptcy Court seeking among other things, a Temporary Restraining Order (the "Order") and for a Preliminary Injunction to enjoin, pending a determination of the parties' rights, the administrative agent or any of its officers, agents, servants, attorneys and successors from taking any action to exercise any and all remedies under the agreement to the secured credit facility or other agreements as a result of the events of default asserted by the administrative agent, or any other right or remedy that would otherwise accompany the occurrence of an event of default, including without limitation, any rights of acceleration under the agreement to the secured credit facility, rights flowing from the notice of acceleration, rights exercised pursuant to the notice of exercise or any other rights or remedies properly exercisable solely upon an actual or determined event of default. On theNovember 2, 2020 , theBankruptcy Court granted the Order and the Company and the administrative agent are negotiating the terms of a standstill pending further determination by the Bankruptcy Court. See Note 1 - Organization and Basis of Presentation to the condensed consolidated financial statements for additional information.
Unencumbered Consolidated Portfolio Statistics
(Dollars in thousands, except sales per square foot data)
% of
Consolidated
Unencumbered
Sales Per Square NOI for
Foot for the Twelve Months the Nine Months
Ended (1) (2) Occupancy (2) Ended
9/30/20 (3) 9/30/19 9/30/20 9/30/19 9/30/20 (4 )
Unencumbered consolidated
Properties:
Tier 1 Malls $ 382 86.9 % 85.9 % 19.8 % (5 )
Tier 2 Malls 338 82.0 % 85.7 % 33.7 %
Tier 3 Malls 279 80.0 % 87.0 % 23.3 %
Total Malls N/A 309 81.9 % 86.3 % 76.8 %
Total Associated Centers N/A N/A 85.8 % 95.7 % 16.8 %
Total Community Centers N/A N/A 98.4 % 97.3 % 5.7 %
Total Office Buildings & Other N/A N/A 100.0 % 86.7 % 0.7 %
Total Unencumbered Consolidated
Portfolio N/A $ 309 83.5 % 88.9 % 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) Due to temporary mall and store closures that occurred, the majority of CBL's
tenants did not report sales for the full reporting period. As a result, CBL
is not able to provide a complete measure of sales per square foot for the
quarter or trailing twelve months.
(4) Our consolidated unencumbered properties generated approximately 40.1% of
total consolidated NOI of
dispositions) for the nine months ended
(5) 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
In 2019, we suspended all future dividends on our common stock and preferred stock, as well as distributions to all noncontrolling interest investors in ourOperating Partnership . The dividend arrearage created by our board of directors' decision to suspend the dividends that continue to accrue on our outstanding preferred stock currently makes us ineligible to use the abbreviated, and less costly, SEC Form S-3 registration statement to register our securities for sale. This means 62
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we will be required to use a registration statement on Form S-1 to register additional securities for sale with theSEC , which we expect to hinder our ability to act quickly in relation to, and raise our costs incurred in, future capital raising activities. This preferred dividend arrearage (and theOperating Partnership's related arrearage in distributions to its preferred units of limited partnership underlying our outstanding preferred shares) also will require that we not resume any payment of dividends on our common stock unless full cumulative dividends accrued with respect to our preferred stock (and such underlying preferred units) for all past quarters and the then-current quarter are first declared and paid in cash, or declared with a sum sufficient for the payment thereof having been set apart for such payment in cash. In addition, for so long as this distribution suspension results in the existence of a distribution shortfall (as described in the Partnership Agreement of theOperating Partnership ) with respect to any of the S-SCUs, the L-SCUs or the K-SCUs (an "SCU Distribution Shortfall"), we (i) may not cause theOperating Partnership to resume distributions to holders of its outstanding common units of limited partnership until all holders of SCUs have received distributions sufficient to satisfy the SCU Distribution Shortfall for all prior quarters and the then-current quarter (which effectively also prevents the resumption of common stock dividends, since our common stock dividends are funded by distributions the Company receives on the underlying common units it holds in theOperating Partnership ) and (ii) may not elect to settle any exchange requested by a holder of common units of theOperating Partnership in cash, and may only settle any such exchange through the issuance of shares of common stock or other units of theOperating Partnership ranking junior to any such units as to which a distribution shortfall exists. Our board of directors has prospectively approved that, to the extent any partners exercise any or all of their exchange rights while the existence of the SCU Distribution Shortfall requires an exchange to be settled through the issuance of shares of common stock or other units of theOperating Partnership , the consideration paid shall be in the form of shares of common stock. We will review taxable income on a regular basis and take measures, if necessary, to ensure that we meet the minimum distribution requirements to maintain our status as a REIT. See Listing Criteria in Note 1 to the condensed consolidated financial statements for additional information regarding a notice we received from the NYSE regarding our non-compliance with the NYSE Listing Standards and our plans to address this non-compliance. 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 have a shelf registration statement on Form S-3 on file with theSEC that previously authorized 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 theOperating Partnership . This shelf registration statement also authorized theOperating Partnership to publicly issue unsubordinated debt securities. This shelf registration statement was due to expire inJuly 2021 . However, as a result of both (i) the fact that the Company no longer qualifies as a well-known seasoned issuer underSEC rules and (ii) our loss of eligibility to use Form S-3 to register offers and sales of securities as described above, we are unable to use this shelf registration statement. Additionally, while we had previously suspended quarterly dividend payments on our common stock during 2019, a very small amount of monthly "cash option" investments in shares continued intoMay 2020 , pursuant to the terms of the Company's dividend reinvestment plan ("DRIP"). Due in part to impacts on the Company's operations and staffing resulting from ongoing efforts to address the COVID-19 pandemic, we inadvertently failed to suspend the operation of these "cash option" investments during the months of March, April andMay 2020 , after we lost the ability to use the Form S-3 registration statement for the DRIP, effective with the filing of our Annual Report on Form 10-K in March, due to the dividend arrearage with respect to our preferred stock. We have now fully suspended the operation of our DRIP, including the cash option feature but, as a result of this oversight, we issued a total of 6,134 shares of common stock that were not registered under the Securities Act of 1933, as amended (the "Securities Act") for aggregate consideration of$1,346.94 prior to such suspension. The purchasers of these shares, issued pursuant to our DRIP when we were not eligible to issue shares on Form S-3, could bring claims against us for rescission and other damages under federal or state securities laws.
Market Capitalization
Our total-market capitalization as of
Shares Stock
Outstanding Price (1)
Common stock and operating partnership units 201,690 $ 0.16
7.375% Series D Cumulative Redeemable Preferred Stock 1,815
250.00
6.625% Series E Cumulative Redeemable Preferred Stock 690 250.00
(1) Stock price for common stock and
closing price of CBL's common stock on
for the preferred stock represent the liquidation preference of each
respective series of preferred stock.
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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 endedSeptember 30, 2020 compared to the same periods in 2019 (in thousands): Three Months Ended September
30, Nine Months Ended
2020 2019 2020 2019
Tenant allowances (1) $ 1,426 $ 10,781 $ 10,181 $ 21,831
Deferred maintenance:
Parking area and parking area lighting - 315 270 529
Roof repairs and replacements 230 2,083 2,234 4,757
Other capital expenditures 1,113 5,610 4,954 15,094
Total deferred maintenance 1,343 8,008 7,458 20,380
Capitalized overhead 245 423 980 1,795
Capitalized interest 438 787 1,530 1,969
Total capital expenditures $ 3,452 $ 19,999 $ 20,149 $ 45,975 (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. As noted above, in response to the impact from COVID-19 we have deferred or suspended capital expenditures, including redevelopment expenditures, in the range of$60.0 million to$80.0 million . We believe that property operating cash flows, which include reimbursements from tenants for certain expenses, and readily available cash on hand will provide the necessary funding for these expenditures.
Developments, Expansions and Redevelopments
The following tables summarize our development, expansion and redevelopment
projects as of
Properties Opened During the Nine Months Ended
(Dollars in thousands)
CBL's Share of
CBL Total Initial
Ownership Project Total Cost to 2020 Opening Unleveraged
Property Location Interest Square Feet
Cost (1) Date (2) Cost Date
90% 12,467 $ 1,918 $ 1,553 $ 100 May 2020 9.2 %
Old Navy
Hamilton Place - Self Chattanooga, TN 60% 68,875 5,824 4,419 3,300 July 2020 8.7 %
Storage (3) (4)
Parkdale Mall - Self Beaumont, TX 50% 69,341 4,435 3,543 1,039 April 2020 10.2 %
Storage (3) (4)
Total Properties Opened 150,683 $ 12,177 $ 9,515 $ 4,439 (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 upon stabilization.
(4) Total cost includes an allocated value for the Company's land contribution
and amounts funded by construction loans.
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Redevelopments Completed During the Nine Months Ended
(Dollars in thousands)
CBL's Share of
CBL Total Initial
Ownership Project Total Cost to 2020 Opening Unleveraged
Property Location Interest Square Feet Cost (1) Date (2) Cost Date Yield
Mall Redevelopments:
Cherryvale Sears Rockford, IL 100% 114,118 $ 3,508 $ 3,281 $ 378 June 2020 8.3 %
Redevelopment - Tilt
Coastal Grand Dick's
Redevelopment - DSG/Golf Myrtle Beach, SC 50% 132,727 $ 7,050 $ 4,486 $ 3,360 Sept 2020 11.6 %
Galaxy (3)
Dakota Square Herbergers
Redevelopment - Ross, Minot, ND 100% 30,096 6,410 4,537 188 Jan 2020 7.2 %
T-Mobile, Retail Shops
Hamilton Place Sears
Redevelopment - Dicks March
Sporting Goods, Dave & Chattanooga, TN 100% 195,166 38,715 29,923 4,067 2020 7.8 %
Busters, Hotel,
Cheesecake Factory (4)
Mall del Norte Forever 21 Sept
Redevelopment - Main Laredo, TX 100% 81,242 10,514 6,819 1,160 2019/Feb 9.3 %
Event 2020
The Promenade @ Feb
D'Iberville Redevelopment D'Iberville, MS 100% 14,007 2,832 2,457 446 2020/Apr 11.4 %
- Five Below, Carter's 2020
Total Redevelopments 567,356 $ 69,029 $ 51,503 $ 9,599
Completed
(1) Total Cost is presented net of reimbursements to be received.
(2) Cost to Date does not reflect reimbursements until they are received.
(3) Total cost includes amounts funded by a construction loan.
(4) The return reflected represents a pro forma incremental return as Total Cost
excludes the cost related to the acquisition of the Sears building in 2017.
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(Dollars in thousands)
CBL's Share of
CBL Total Expected Initial
Ownership Project Total Cost to 2020 Opening Unleveraged
Property Location Interest Square Feet Cost (1) Date (2) Cost Date (3) Yield
Outparcel Developments:
Hamilton Place
Development - Aloft Hotel Chattanooga, TN 50% 89,674 $ 12,000 $ 6,767 $ 6,125 Q1 '21 9.2 %
(4)(5)
Mayfaire Town Center - Wilmington, NC 100% Q4 '20 10.1 %
First Watch 6,300 2,267 1,491 1,125
Pearland Town Center - Pearland, TX 100% 48,416 14,186 4,700 3,843 Q1 '21 11.8 %
HCA Offices
144,390 $ 28,453 $ 12,958 $ 11,093
Mall Redevelopments:
Westmoreland Mall JCP pad Greensburg, PA 100% 2,300 $ 1,017 $ 1,125 $ 881 Q4 '20 9.4 %
Redevelopment - Chipotle
2,300 $ 1,017 $ 1,125 $ 881
Total Properties Under 146,690 $ 29,470 $ 14,083 $ 11,974
Development
(1) Total Cost is presented net of reimbursements to be received.
(2) Cost to Date does not reflect reimbursements until they are received.
(3) As a result of government mandated construction halts due to the COVID-19
pandemic, opening dates may change from what is currently reflected.
(4) Yield is based on expected yield once project stabilizes.
(5) Total cost includes an allocated value for the Company's land contribution
and amounts funded by a construction loan.
Off-Balance Sheet Arrangements
Unconsolidated Affiliates
We have ownership interests in 29 unconsolidated affiliates as of September 30, 2020 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 thedevelopment and leasing expertise to bring the project to fruition. We
enter into such arrangements when we determine such a project is viable
and we can achieve a satisfactory return on our investment. We typically
earn development fees from the joint venture and provide management and
leasing services to the property for a fee once the property is placed
in operation.
• We determine that we may have the opportunity to capitalize on the value
we have created in a property by selling an interest in the property to
a third party. This provides us with an additional source of capital
that can be used to develop or acquire additional real estate assets
that we believe will provide greater potential for growth. When we
retain an interest in an asset rather than selling a 100% interest, it
is typically because this allows us to continue to manage the property,
which provides us the ability to earn fees for management, leasing,
development and financing services provided to the joint venture.
Guarantees
We may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on our investment in the joint venture. We may receive a fee from the joint venture for providing the guaranty. Additionally, when we issue a guaranty, the terms of the joint venture agreement typically provide that we may receive indemnification from the joint venture or have the ability to increase our ownership interest. See Note 12 to the condensed consolidated statements for information related to our guarantees of unconsolidated affiliates' debt as ofSeptember 30, 2020 andDecember 31, 2019 . 66
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CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements and disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex judgment about the effect of matters that are inherently uncertain and that may change in subsequent periods. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our Annual Report on Form 10-K, as amended, for the year endedDecember 31, 2019 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. Uncertainty in the current economic environment due to the effects of the COVID-19 pandemic has and may continue to significantly impact management's judgments regarding estimates and assumptions. In addition to the critical accounting policies and estimates discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K, as amended, we are adding the following due to significant changes in judgements related to the COVID-19 pandemic.
Revenue Recognition and Accounts Receivable
Receivables include amounts billed and currently due from tenants pursuant to lease agreements and receivables attributable to straight-line rents associated with those lease agreements. Individual leases where the collection of rents is in dispute are assessed for collectability based on management's best estimate of collection considering the anticipated outcome of the dispute. Individual leases that are not in dispute are assessed for collectability and upon the determination that the collection of rents over the remaining lease term is not probable, accounts receivable are reduced as an adjustment to rental revenues. Revenue from leases where collection is deemed to be less than probable is recorded on a cash basis until collectability is determined to be probable. Further, management assesses whether operating lease receivables, at a portfolio level, are appropriately valued based upon an analysis of balances outstanding, historical collection levels and current economic trends. An allowance for the uncollectible portion of the portfolio is recorded as an adjustment to rental revenues. Management's estimate of the collectability of accounts receivable from tenants is based on the best information available to management at the time of evaluation. We review current economic considerations each reporting period, including the effects of tenant bankruptcies. Additionally, with the uncertainties regarding COVID-19, our assessment also took into consideration the type of tenant and current discussions with the tenants regarding matters such as billing disputes, lease negotiations and executed deferrals or abatements, as well as recent rent payment and credit history. Evaluating and estimating uncollectible lease payments and related receivables requires a significant amount of judgment by management and is based on the best information available to management at the time of evaluation. For the three and nine months endedSeptember 30, 2020 , we reduced rental revenue by$13.7 million and$54.5 million , respectively, due to lease-related reserves and write-offs, which includes$2.6 million and$5.1 million , respectively, for straight-line rent receivables. Actual results could differ from these estimates and such differences could be material to our consolidated financial statements.
Lease Modifications
InApril 2020 , the FASB issued a question-and-answer document (the "Lease Modification Q&A") focused on the application of lease accounting guidance related to lease concessions provided as a result of COVID-19. Under existing lease guidance, we would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A clarifies that entities may elect to not evaluate whether lease-related relief that lessors provide to mitigate the economic effects of COVID-19 on lessees is a lease modification under Topic 842, Leases. Instead, an entity that elects not to evaluate whether a concession directly related to COVID-19 is a modification can then elect whether to apply the modification guidance (i.e. assume the relief was always contemplated by the contract or assume the relief was not contemplated by the contract). Both lessees and lessors may make this election. We have elected to apply the relief provided under the Lease Modification Q&A and will avail ourselves of the election to avoid performing a lease by lease analysis for the lease concessions that were (1) granted as relief due to the COVID-19 pandemic and (2) result in the cash flows remaining substantially the same or less than the original contract. The Lease Modification Q&A had a material impact on our consolidated financial statements as of and for the three and nine months endedSeptember 30, 2020 . However, its future impact to us is dependent upon the extent of lease concessions 67
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granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by us at the time of entering such concessions.
The Lease Modification Q&A allows us to determine accounting policy elections at a disaggregated level, and the elections should be applied consistently by either the type of concession, underlying asset class or on another reasonable basis. As a result, we have made the following policy elections based on the type of concession agreed to with the respective tenant.
Rent Deferrals
The Company will account for rental deferrals using the receivables model as described within the Lease Modification Q&A. Under the receivables model, the Company will continue to recognize lease revenue in a manner that is unchanged from the original lease agreement and continue to recognize lease receivables and rental revenue during deferral period.
Rent Abatements
The Company will account for rental abatements using the negative variable income model as described within the Lease Modification Q&A. Under the negative variable income model, the Company will recognize negative variable rent for the current period reduction of rental revenue associated with any lease concessions we provide. AtSeptember 30, 2020 , our receivables include$22.1 million related to receivables that have been deferred and are to be repaid over periods generally starting in late 2020 and extending for some portion of 2021. We granted abatements of$13.1 million and 14.9 million, respectively, for the three and nine months endedSeptember 30, 2020 . Additionally, we granted rent abatements of approximately$13.1 million and$14.9 million for the three and nine months endedSeptember 30, 2020 , respectively. We continue to assess rent relief requests from our tenants but are unable to predict the resolution or impact of these discussions. For agreements that are in currently under negotiation, we do not expect the impact to be material.
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.
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Table of Contents 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 theOperating 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 toOperating Partnership common unitholders and FFO allocable to common shareholders, as we believe that both are useful performance measures. We believe FFO allocable toOperating Partnership common unitholders is a useful performance measure since we conduct substantially all of our business through ourOperating 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 ourOperating 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 toOperating Partnership common unitholders that is presented below, we make an adjustment to add back noncontrolling interest in income (loss) of ourOperating Partnership in order to arrive at FFO of theOperating Partnership common unitholders. We then apply a percentage to FFO of theOperating 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 ofOperating 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 toOperating Partnership common unitholders below for a description of these adjustments. FFO of theOperating Partnership declined to$11.4 million for the three months endedSeptember 30, 2020 from$90.4 million for the prior-year period and declined to$57.2 million for the nine months endedSeptember 30, 2020 from$203.0 million for the prior-year period. Excluding the adjustments noted below, FFO of theOperating Partnership , as adjusted, declined to$9.0 million for the three months endedSeptember 30, 2020 from$67.8 million for the same period in 2019, and declined to$65.5 million for the nine months endedSeptember 30, 2020 from$196.8 million for the same period in 2019. The decreases in FFO, as adjusted, for the three- and nine- month periods were primarily driven by lower property-level NOI, which includes the estimate for uncollectable rental revenues and rent abatements due to the mandated property closures a result of the COVID-19 pandemic. The reduction in rental revenues was partially offset by lower operating expenses from the program we put in place to eliminate all non-essential expenditures and the company-wide furlough and salary reduction program. 69
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The reconciliation of net loss attributable to common shareholders to FFO
allocable to
Three Months Ended
September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Net loss attributable to common $ (54,101 ) $ (90,116 ) $ (269,449 ) $ (175,715 )
shareholders
Noncontrolling interest in income (loss) (609 ) (13,904 ) (19,100 ) (27,116 )
of Operating Partnership
Depreciation and amortization expense
of:
Consolidated Properties 53,477 64,168 162,042 198,438
Unconsolidated affiliates 14,437 14,471 41,967 36,599
Non-real estate assets (702 ) (920 ) (2,431 ) (2,719 )
Noncontrolling interests' share of (1,118 ) (2,031 ) (2,829 ) (6,836 )
depreciation and amortization
Loss on impairment 46 135,688 146,964 202,121
(Gain) loss on depreciable property - (16,914 ) 25 (21,755 )
FFO allocable to Operating Partnership 11,430 90,442 57,189 203,017
common unitholders
Debt restructuring expenses (1) 12,913 - 20,770 -
Litigation settlement, net of taxes (2) (2,480 ) (22,688 )
(2,480 ) 64,979
Non-cash default interest expense (3) 2,519 - 5,412 542
Gain on extinguishment of debt (4) (15,407 ) - (15,407 ) (71,722 )
FFO allocable to Operating Partnership
common $ 8,975 $ 67,754 $ 65,484 $ 196,816
unitholders, as adjusted
FFO per diluted share $ 0.06 $ 0.45 $ 0.28 $ 1.01
FFO, as adjusted, per diluted share
0.32 $ 0.98
(1) Represents professional fees related to the Company's negotiations with the
administrative agent and lenders under the secured credit facility and
certain holders of the Company's senior unsecured notes regarding a
restructure of such indebtedness.
(2) Represents the accrued expense related to settlement of a class action
lawsuit.
(3) The three and nine months ended
expense related to
and Cary Towne Center.
(4) The three and nine months ended
extinguishment on debt related to the non-recourse loan secured by Hickory
30, 2019 includes a gain on extinguishment of debt related to the
non-recourse loan secured by
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 Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Diluted EPS attributable to common shareholders $ (0.28 ) $ (0.52 ) $ (1.43 ) $ (1.01 )
Eliminate amounts per share excluded from FFO:
Depreciation and amortization expense, including
amounts from consolidated Properties,
unconsolidated affiliates, non-real estate 0.34 0.38 0.99 1.13
assets and excluding amounts allocated to
noncontrolling interests
Loss on impairment - 0.68 0.72 1.00
Gain on depreciable property - (0.09 ) - (0.11 )
FFO per diluted share $ 0.06 $ 0.45 $ 0.28 $ 1.01
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The reconciliations of FFO allocable toOperating 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, 2020 2019 2020 2019 FFO of the Operating Partnership$ 11,430 $ 90,442 $ 57,189 $ 203,017 Percentage allocable to common 95.93 % 86.64 % 93.38 % 86.63 %
shareholders (1)
FFO allocable to common shareholders
FFO allocable toOperating Partnership common $ 8,975 $
67,754
unitholders, as adjusted Percentage allocable to common 95.93 % 86.64 % 93.38 % 86.63 % shareholders (1) FFO allocable to common shareholders, as $ 8,610$ 58,702 $ 61,149 $ 170,502 adjusted
(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
the period.
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