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. Unless stated otherwise or the context otherwise requires, references to the "Company," "we," "us" and "our" meanCBL & Associates Properties, Inc. and its subsidiaries. Certain statements made in this section or elsewhere in this report may be deemed "forward-looking statements" within the meaning of the federal securities laws. All statements other than statements of historical fact should be considered to be forward-looking statements. In many cases, these forward-looking statements may be identified by the use of words such as "will," "may," "should," "could," "believes," "expects," "anticipates," "estimates," "intends," "projects," "goals," "objectives," "targets," "predicts," "plans," "seeks," and variations of these words and similar expressions. Any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this report. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained. It is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties. Currently, a significant factor that could cause actual outcomes to differ materially from our forward-looking statements is the adverse effect of the COVID-19 pandemic, and state and/or local regulatory responses to control it, on our financial condition, operating results and cash flows, our tenants and their customers, the real estate market in which we operate, the global economy and the financial markets. Although we have operated in the COVID-19 environment for over two years, the extent to which the COVID-19 pandemic impacts us and our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the direct and indirect economic effects of the pandemic and containment measures, and potential changes in consumer behavior, among others. In addition to the risk factors described in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , such known risks and uncertainties include, without limitation:
•
general industry, economic and business conditions;
•
interest rate fluctuations;
•
costs and availability of capital, including debt, and capital requirements;
•
costs and availability of real estate;
•
inability to consummate acquisition opportunities and other risks associated with acquisitions;
•
competition from other companies and retail formats;
•
changes in retail demand and rental rates in our markets;
•
shifts in customer demands including the impact of online shopping;
•
tenant bankruptcies or store closings;
•
changes in vacancy rates at our properties;
•
changes in operating expenses;
•
changes in applicable laws, rules and regulations;
•
disposition of real property;
•
uncertainty and economic impact of pandemics, epidemics or other public health emergencies or fear of such events, such as the COVID-19 pandemic and related governmental responses;
•
cyber-attacks or acts of cyber-terrorism;
•
the ability to obtain suitable equity and/or debt financing and the continued availability of financing, in the amounts and on the terms necessary to support our future refinancing requirements and business; and
•
other risks referenced from time to time in filings with the
27
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This list of risks and uncertainties is only a summary and is not intended to be
exhaustive. We disclaim any obligation to update or revise any forward-looking
statements to reflect actual results or changes in the factors affecting the
forward-looking information.
Fresh Start Accounting
Upon emergence from bankruptcy, we qualified for and adopted fresh start
accounting in accordance with Accounting Standards Codification Topic 852 -
Reorganizations ("ASC 852"), which resulted in our becoming a new entity for
financial reporting purposes. Our financial results for the three and nine
months ended September 30, 2022 are referred to as those of the "Successor." The
financial results for the three and nine months ended September 30, 2021 are
referred to as those of the "Predecessor." Our results of operations as reported
in our condensed consolidated financial statements for these periods are
prepared in accordance with GAAP. See Note 3 in the annual report on Form 10-K
for the year ended December 31, 2021 for additional information.
Executive Overview
We are a self-managed, self-administered, fully integrated REIT that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, outlet centers, lifestyle centers, open-air centers and other properties. See Note 1 to the condensed consolidated financial statements for information on our property interests as ofSeptember 30, 2022 . We have elected to be taxed as a REIT for federal income tax purposes. As ofSeptember 30, 2022 , portfolio occupancy of the Successor was 90.5%. As ofSeptember 30, 2021 , portfolio occupancy of the Predecessor was 88.4%. The third quarter of 2022 was our first quarter of overall positive lease spreads in several years. As anticipated, NOI growth decelerated in the third quarter of 2022. Sales and percentage rents moderated, and operating expenses increased slightly, primarily due to wage inflation. Year-to-date, we completed over$1.1 billion in financing activity, reducing interest costs and increasing cash flow. As a result, we are benefiting from a capital structure comprised of primarily non-recourse loans, a strong cash position, a pool of unencumbered assets and significant free cash flow. We are focused on maximizing shareholder returns and delivering capital to our shareholders through our dividend program. We are committed to a disciplined approach to capital allocation as we evaluate opportunities to deploy capital at our properties as well as externally. We recently celebrated the grand opening of the new Von Maur premier fashion department store atWest Towne Mall inMadison, Wisconsin . The community's embrace of this opening is further evidence of the attraction of new and exciting stores and their ability to drive traffic and sales. We are working on a number of value-enhancing projects across our portfolio, further demonstrating our expertise in delivering financially successful projects that create substantial value. The Successor had a net loss for the three and nine months endedSeptember 30, 2022 of$17.4 million and$104.4 million , respectively. The Predecessor had a net loss for the three and nine months endedSeptember 30, 2021 of$42.9 million and$80.7 million , respectively. The Successor recorded a net loss attributable to common shareholders for the three and nine months endedSeptember 30, 2022 of$14.5 million and$96.8 million , respectively. The Predecessor had a net loss attributable to common shareholders for the three and nine months endedSeptember 30, 2021 of$41.7 million and$77.4 million , respectively. 28 -------------------------------------------------------------------------------- Our focus is on continuing to execute our strategy to transform our properties into dominant centers that offer a mix of retail, service, dining, entertainment and other non-retail uses, primarily through the re-tenanting of former anchor locations as well as diversification of in-line tenancy. This operational strategy is also supported by our balance sheet strategy focused on reducing overall debt, extending our debt maturity schedule and lowering our overall cost of borrowings to limit maturity risk, improve net cash flow and enhance enterprise value. While the industry and our Company continue to face challenges, some of which may not be under our control, we believe that the strategies in place to redevelop our properties and diversify our tenant mix will contribute to stabilization of our portfolio and revenues in future years. Same-center NOI and FFO are non-GAAP measures. For a description of same-center NOI, a reconciliation from net income (loss) to same-center NOI, and an explanation of why we believe this is a useful performance measure, see Non-GAAP Measure - Same-center Net Operating Income in Results of Operations . For a description of FFO, a reconciliation from net income (loss) attributable to common shareholders to FFO allocable toOperating Partnership common unitholders, and an explanation of why we believe this is a useful performance measure, see Non-GAAP Measure - Funds from Operations . COVID-19 OnMarch 11, 2020 , theWorld Health Organization classified COVID-19 as a pandemic. In response to COVID-19, we initially implemented strict procedures and guidelines for our employees, tenants and property visitors based on CDC and other health agency recommendations. Our properties continue to update these policies and procedures, following any new mandates and regulations, as required. As of the date of this report, government-imposed capacity restrictions are no longer in place in our markets. The safety and health of our customers, employees and tenants remains a top priority.
Results of Operations
The tables below summarize deconsolidations and dispositions of properties that impact the results of operations of the Successor and Predecessor periods.
Successor Deconsolidations
Property Location Date of Deconsolidation EastGate Mall (1)(2) Cincinnati, OH December 2021 Greenbrier Mall (1)(3) Chesapeake, VA March 2022 (1) We deconsolidated the property due to a loss of control when the property was placed into receivership in connection with the foreclosure process. (2) The foreclosure process was completed inSeptember 2022 . (3) The foreclosure process was completed subsequent toSeptember 30, 2022 . See
Note 16 .
Predecessor Deconsolidations
Property Location Date of Deconsolidation Asheville Mall (1)(2) Asheville, NC January 2021 Park Plaza (1)(3) Little Rock, AR March 2021 (1) We deconsolidated the property due to a loss of control when the property was placed into receivership in connection with the foreclosure process. (2) The foreclosure process was completed inAugust 2022 . (3) The foreclosure process was completed inOctober 2021 .
Successor Dispositions
Property Location Date of Sale
EastGate Mall Self Storage (1)
(1)
The property was owned by a joint venture that was accounted for using the equity method of accounting.
29
--------------------------------------------------------------------------------Predecessor Dispositions
Property Location Date of Sale
The Residences at Pearland Town Center
Discussion of the Results of Operation for the Three Month Successor Period EndedSeptember 30, 2022 and the Three Month Predecessor Period EndedSeptember 30, 2021 Revenues Successor Predecessor Three Months Ended September Three Months Ended 30, September 30, 2022 2021 Rental revenues$ 131,642 $ 145,539 Management, development and leasing fees 1,783 1,780 Other 2,855 3,056 Total revenues$ 136,280 $ 150,375 Rental revenues of the Successor were$131.6 million for the three months endedSeptember 30, 2022 . Rental revenues of the Predecessor were$145.5 million for the three months endedSeptember 30, 2021 . Rental revenues of the Successor were lower primarily due to higher amortization of net above market leases due to the adoption of fresh start accounting upon our emergence from bankruptcy, as well as lower collections of receivables for which we had previously reserved. Additionally, rental revenues for the three months endedSeptember 30, 2022 were lower as a result of the properties that were deconsolidated during the Successor period. Operating Expenses Successor Predecessor Three Months Ended September Three Months Ended 30, September 30, 2022 2021 Property operating $ (24,390 ) $ (23,818 ) Real estate taxes (13,880 ) (13,957 ) Maintenance and repairs (10,272 ) (9,482 ) Property operating expenses (48,542 ) (47,257 ) Depreciation and amortization (61,050 ) (46,479 ) General and administrative (14,625 ) (13,502 ) Loss on impairment - (63,160 ) Litigation settlement 36 89 Other - (104 ) Total operating expenses$ (124,181 ) $ (170,413 ) Total property operating expenses of the Successor were$48.5 million for the three months endedSeptember 30, 2022 . Total property operating expenses of the Predecessor were$47.3 million for the three months endedSeptember 30, 2021 . Total property operating expenses of the Successor reflect growth in costs due to returning to more normal operations following the impacts of COVID-19, as well as increases in utility rates across our properties and the impact of wage inflation on third party contracts and services. Depreciation and amortization expense of the Successor was$61.1 million for the three months endedSeptember 30, 2022 . Depreciation and amortization expense of the Predecessor was$46.5 million for the three months endedSeptember 30, 2021 . Depreciation and amortization expense of the Successor was higher primarily due to a new basis in depreciable assets and intangible in-place lease assets that have shorter useful lives resulting from the adoption of fresh start accounting upon our emergence from bankruptcy. General and administrative expenses of the Successor were$14.6 million for the three months endedSeptember 30, 2022 . General and administrative expenses of the Predecessor were$13.5 million for the three months endedSeptember 30, 2021 . General and administrative expenses of the Successor included higher compensation and share-based compensation expenses as we returned to normal operations and compensation practices following the early impacts of COVID-19, as well as our emergence from bankruptcy. 30 --------------------------------------------------------------------------------
Other Income and Expenses
Interest expense of the Successor was$37.7 million for the three months endedSeptember 30, 2022 . Interest expense of the Predecessor was$19.0 million for the three months endedSeptember 30, 2021 . Interest expense of the Successor included accretion of debt discounts of$10.1 million on property-level debt that is approaching maturity. The property-level debt discounts were recognized in conjunction with recording our property-level debt at fair value upon the adoption of fresh start accounting. The Successor period also included interest expense related to the secured term loan and the new loans entered into this year that are secured by certain of our open-air centers and outparcels. Also, the Successor had a reversal of previously recognized default interest expense of$1.4 million when forbearance/waiver agreements were obtained. During the Predecessor period we did not recognize interest expense on corporate debt while we were in bankruptcy. Reorganizations items, net, of the Successor were an addition to income of$1.2 million for the three months endedSeptember 30, 2022 , which mostly related to the true up of estimated accrued expenses to actual amounts, partially offset by professional fees andU.S. Trustee fees directly related to the bankruptcy filing. Reorganizations items, net, of the Predecessor were a reduction to income of$12.0 million for the three months endedSeptember 30, 2021 , which consisted of professional, legal fees, retention bonuses andU.S. Trustee fees directly related to the bankruptcy filing. Equity in earnings of unconsolidated affiliates of the Successor was$5.7 million for the three months endedSeptember 30, 2022 . Equity in losses of unconsolidated affiliates of the Predecessor was$2.2 million for the three months endedSeptember 30, 2021 . Equity in earnings of unconsolidated affiliates of the Successor does not include equity in losses of certain unconsolidated affiliates where the Successor's investment in those unconsolidated affiliates was reduced to zero in connection with the application of fresh start accounting. The Predecessor period includes recognition of equity in losses of certain unconsolidated affiliates. The income tax provision of the Successor was$2.4 million for the three months endedSeptember 30, 2022 . Income tax benefit of the Predecessor was$1.2 million for the three months endedSeptember 30, 2021 . During the three months endedSeptember 30, 2022 , the Successor recognized$3.5 million of gain on sales of real estate assets primarily related to the sale of three outparcels. During the three months endedSeptember 30, 2021 , the Predecessor recognized$8.7 million of gain on sales of real estate assets primarily related to the sale of two anchors and three outparcels. Discussion of the Results of Operation for the Nine Month Successor Period EndedSeptember 30, 2022 and the Nine Month Predecessor Period EndedSeptember 30, 2021 Revenues Successor Predecessor Nine Months Ended Nine Months Ended September 30, September 30, 2022 2021 Rental revenues $ 398,806 $ 405,030 Management, development and leasing fees 5,338 4,888 Other 9,256 10,202 Total revenues $ 413,400 $ 420,120 Rental revenues of the Successor were$398.8 million for the nine months endedSeptember 30, 2022 . Rental revenues of the Predecessor were$405.0 million for the nine months endedSeptember 30, 2021 . Rental revenues of the Successor were lower primarily due to higher amortization of net above market leases due to the adoption of fresh start accounting upon our emergence from bankruptcy. Percentage rent of the Successor was higher due to increased tenant sales as tenant sales and traffic have improved. Additionally, rental revenues for the nine months endedSeptember 30, 2022 were lower as a result of the properties that were deconsolidated during the Successor period. 31 --------------------------------------------------------------------------------
Operating Expenses
Successor Predecessor
Nine Months Ended Nine Months Ended
September 30, September 30,
2022 2021
Property operating $ (69,046 ) $ (65,243 )
Real estate taxes (42,569 ) (45,618 )
Maintenance and repairs (31,068 ) (29,047 )
Property operating expenses (142,683 ) (139,908 )
Depreciation and amortization (194,469 ) (142,090 )
General and administrative (51,149 ) (37,383 )
Loss on impairment (252 ) (120,342 )
Litigation settlement 182 890
Other (834 ) (391 )
Total operating expenses $ (389,205 ) $ (439,224 )
Total property operating expenses of the Successor was $142.7 million for the
nine months ended September 30, 2022 . Total property operating expenses of the
Predecessor was $139.9 million for the nine months ended September 30, 2021 .
Total property operating expenses of the Successor reflect growth in costs due
to returning to more normal operations following the impacts of COVID-19, as
well as increases in utility rates across our properties and the impact of wage
inflation on third party contracts and services.
Depreciation and amortization expense of the Successor was $194.5 million for
the nine months ended September 30, 2022 . Depreciation and amortization expense
of the Predecessor was $142.1 million for the nine months ended September 30,
2021 . Depreciation and amortization expense of the Successor was higher
primarily due to a new basis in depreciable assets and intangible in-place lease
assets that have shorter useful lives resulting from the adoption of fresh start
accounting upon our emergence from bankruptcy.
General and administrative expenses of the Successor were $51.1 million for the
nine months ended September 30, 2022 . General and administrative expenses of the
Predecessor were $37.4 million for the nine months ended September 30, 2021 .
General and administrative expenses of the Successor included higher
compensation and share-based compensation expenses as we returned to normal
operations and compensation practices following the early impacts of COVID-19,
as well as our emergence from bankruptcy. Also, general and administrative
expenses of the Successor include incremental professional fees associated with
loan modifications and extensions, and fees incurred to obtain credit ratings on
our secured term loan in accordance with the term loan agreement.
For the nine months ended September 30, 2021 , the Predecessor recognized $120.3
million of loss on impairment of real estate, which was primarily related to
five malls, a redeveloped anchor parcel, an associated center and an outparcel.
See Note 5 to the condensed consolidated financial statements for more
information.
Other Income and Expenses
Interest expense of the Successor was$183.4 million for the nine months endedSeptember 30, 2022 . Interest expense of the Predecessor was$65.5 million for the nine months endedSeptember 30, 2021 . Interest expense of the Successor included accretion of debt discounts of$108.3 million on property-level debt that is approaching maturity. The property-level debt discounts were recognized in conjunction with recording our property-level debt at fair value upon the adoption of fresh start accounting. The Successor period also included interest expense related to the secured term loan, the exchangeable notes, the secured notes and the new loans entered into this year that are secured by certain of our open-air centers and outparcels. The Successor also recognized a reversal of previously recognized default interest expense of$12.0 million when forbearance/waiver agreements were obtained. The Predecessor did not recognize interest expense on corporate debt during bankruptcy. For the nine months endedSeptember 30, 2022 , the Successor recorded a$36.3 million gain on deconsolidation related to a mall that was deconsolidated due to a loss of control when the mall was placed into receivership in connection with the foreclosure process. For the nine months endedSeptember 30, 2021 , the Predecessor recorded a$55.1 million gain on deconsolidation related to two malls that were deconsolidated due to a loss of control when each mall was placed into receivership in connection with the foreclosure process. Reorganization items, net, of the Successor were an addition to income of$0.3 million for the nine months endedSeptember 30, 2022 , which related to the true up of estimated accrued expenses to actual amounts, partially offset by professional fees andU.S. Trustee fees directly related to the bankruptcy filing. Reorganization items, net, of the Predecessor were a reduction to income of$52.0 million for the nine months endedSeptember 30, 2021 , which consisted of professional fees, legal fees, retention bonuses andU.S. Trustee fees directly related to the bankruptcy filing. 32 -------------------------------------------------------------------------------- Equity in earnings of unconsolidated affiliates of the Successor was$16.3 million for the nine months endedSeptember 30, 2022 . Equity in losses of unconsolidated affiliates of the Predecessor was$9.6 million for the nine months endedSeptember 30, 2021 . Equity in earnings of the Successor does not include equity in losses of certain unconsolidated affiliates where the Successor's investment in those unconsolidated affiliates was reduced to zero in connection with the application of fresh start accounting. The Predecessor period includes recognition of equity in losses of certain unconsolidated affiliates. The income tax provision of the Successor was$2.8 million for the nine months endedSeptember 30, 2022 . The income tax provision of the Predecessor was$0.2 million for the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2022 , the Successor recognized$3.5 million of gain on sales of real estate assets primarily related to the sale of three outparcels. During the nine months endedSeptember 30, 2021 , the Predecessor recognized$8.5 million of gain on sales of real estate assets primarily related to the sale of three anchors and three outparcels.
Non-GAAP Measure
Same-center Net Operating Income
NOI is a supplemental non-GAAP measure of the operating performance of our shopping centers and other properties. We define NOI as property operating revenues (rental revenues and other income) less property operating expenses (property operating, real estate taxes and maintenance and repairs).
We compute NOI based on 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 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. Since NOI includes only those revenues and expenses related to the operations of our shopping center properties, we believe that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates, sales at our properties and operating costs and the impact of those trends on our results of operations. Our calculation of same-center NOI excludes lease termination income, straight-line rent adjustments, amortization of above and below market lease intangibles and write-offs of landlord inducement assets in order to enhance the comparability of results from one period to another. We include a property in our same-center pool when we have owned all or a portion of the property 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 categorized as excluded properties. We exclude properties for which we are working or intend to work with the lender on a restructure of the terms of the loan secured by the property or convey the secured property to the lender ("Excluded Properties ").
Due to the exclusions noted above, same-center NOI should only be used as a supplemental measure of our performance and not as an alternative to GAAP operating income (loss) or net income (loss).
33
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A reconciliation of our same-center NOI to net loss for the three-month
Successor period ended
Successor Predecessor
Three Months Three Months
Ended Ended September
September 30, 30,
2022 2021
Net loss $ (17,412 ) $ (42,881 )
Adjustments: (1)
Depreciation and amortization 63,886 59,388
Interest expense 60,261 29,023
Abandoned projects expense - 104
Gain on sales of real estate assets (3,528 ) (8,684 )
Gain on sales of real estate assets of (33 ) (70 )
unconsolidated affiliates
Adjustment for unconsolidated affiliates with (13,116 ) -
negative investment
Loss on available-for-sale securities 39 -
Loss on impairment - 63,160
Litigation settlement (36 ) (89 )
Reorganization items, net (1,220 ) 12,008
Income tax provision (benefit) 2,422 (1,234 )
Lease termination fees (1,572 ) (2,051 )
Straight-line rent and above- and below-market lease 3,380 (2,771 )
amortization
Net loss attributable to noncontrolling interests in 3,143 76
other consolidated subsidiaries
General and administrative expenses 14,625 13,502
Management fees and non-property level revenues (683 ) (1,344 ) Operating Partnership's share of property NOI 110,156 118,137 Non-comparable NOI (4,609 ) (4,603 ) Total same-center NOI$ 105,547 $ 113,534 (1) Adjustments are based on ourOperating Partnership's pro rata ownership share, including our share of unconsolidated affiliates and excluding noncontrolling interests' share of consolidated properties. Same-center NOI of the Successor was$105.5 million for the three months endedSeptember 30, 2022 . Same-center NOI of the Predecessor was$113.5 million for the three months endedSeptember 30, 2021 . Same-center NOI of the Successor was 7.0% lower primarily due to$3.7 million of lower revenues and$4.3 million of higher operating expenses. Rental revenues of the Successor were$3.2 million lower primarily due to lower collections of receivables for which we had previously reserved. Property operating expenses of the Successor were higher partially due to the cost of returning to more normal operations following the impacts of COVID-19, as well as increases in utility rates across our properties and the impact of wage inflation on third party contracts and services. 34 --------------------------------------------------------------------------------
A reconciliation of our same-center NOI to net loss for the nine-month Successor
period ended
Successor Predecessor
Nine Months
Ended September Nine Months Ended
30, September 30,
2022 2021
Net loss $ (104,440 ) $ (80,722 )
Adjustments: (1)
Depreciation and amortization 212,807 180,846
Interest expense 241,099 93,968
Abandoned projects expense 834 391
Gain on sales of real estate assets (3,547 ) (8,492 )
Gain on sales of real estate assets of (662 ) (70 )
unconsolidated affiliates
Adjustment for unconsolidated affiliates with (36,123 ) -
negative investment
Gain on deconsolidation (36,250 ) (55,131 )
Loss on available-for-sale securities 39 -
Loss on impairment 252 120,342
Litigation settlement (182 ) (890 )
Reorganization items, net (262 ) 52,014
Income tax provision 2,751 222
Lease termination fees (4,020 ) (3,329 )
Straight-line rent and above- and below-market lease 7,087 961
amortization
Net loss attributable to noncontrolling interests in 8,002 1,344 other consolidated subsidiaries General and administrative expenses 51,149 37,383 Management fees and non-property level revenues (1,798 ) (7,135 ) Operating Partnership's share of property NOI 336,736 331,702 Non-comparable NOI (13,803 ) (14,341 ) Total same-center NOI$ 322,933 $ 317,361 (1) Adjustments are based on ourOperating Partnership's pro rata ownership share, including our share of unconsolidated affiliates and excluding noncontrolling interests' share of consolidated properties. Same-center NOI of the Successor was$322.9 million for the nine months endedSeptember 30, 2022 . Same-center NOI of the Predecessor was$317.4 million for the nine months endedSeptember 30, 2021 . Same-center NOI of the Successor was 1.8% higher primarily due to$14.1 million of higher revenues partially offset by$8.5 million of higher operating expenses. Rental revenues of the Successor were$13.6 million higher primarily due to increases in occupancy and an increase in percentage rent due to higher trailing twelve-month tenant sales, which was partially offset by lower tenant reimbursements. Property operating expenses of the Successor were higher partially due to the cost of returning to more normal operations following the impacts of COVID-19, as well as increases in utility rates across our properties and the impact of wage inflation on third party contracts and services. Operational Review The shopping center business is, to some extent, seasonal in nature with tenants typically achieving the highest levels of sales during the fourth quarter due to the holiday season, which generally results in higher percentage rents in the fourth quarter. Additionally, malls, lifestyle centers and outlet centers earn a large portion of their rents from short-term tenants during the holiday period. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of the fiscal year. We derive the majority of our revenues from the malls, lifestyle centers and outlet centers. The sources of our revenues by property type were as follows: Successor Predecessor Nine Months Ended Nine Months Ended September 30, September 30, 2022 2021 Malls, Lifestyle Centers and Outlet Centers 85.9 % 89.9 % All Other 14.1 % 10.1 % 35
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Inline and Adjacent Freestanding Tenant Store Sales
Inline and adjacent freestanding tenant store sales include reporting mall, lifestyle center and outlet center tenants of 10,000 square feet or less and exclude license agreements, which are retail leases that are temporary or short-term in nature and generally last more than three months but less than twelve months. The following is a comparison of our same-center tenant sales per square foot for mall, lifestyle center and outlet center tenants of 10,000 square feet or less (Excluded Properties are not included in sales metrics): Successor Predecessor Sales Per Square Sales Per Square Foot for the Foot for the Trailing Twelve Trailing Twelve Months Ended Months Ended September 30, September 30, 2022 2021 (1) Mall, Lifestyle Center and Outlet Center $ 440 $ 431
same-center sales per square foot
(1)
Due to the temporary property and store closures that occurred during 2020 related to COVID-19, the majority of our tenants did not report sales for the full reporting period. As a result, we are not able to provide a complete measure of sales per square foot for periods in the year endedDecember 31, 2020 . Sales per square foot for the trailing twelve months endedSeptember 30, 2021 is comprised of sales reported for the periods October throughDecember 2019 and January throughSeptember 2021 .
Occupancy
Our portfolio occupancy is summarized in the following table (
Successor Predecessor
As of As of
September September
30, 30,
2022 2021
Total portfolio 90.5% 88.4%
Malls, Lifestyle Centers and Outlet Centers:
Total malls 88.7% 85.9%
Total lifestyle centers 90.6% 86.8%
Total outlet centers 90.9% 90.1%
Total same-center malls, lifestyle centers and
outlet centers 89.1% 86.7%
All Other:
Total open-air centers 94.7% 94.7%
Total other 93.0% 98.7%
Leasing
The following is a summary of the total square feet of leases signed in the
three-month periods ended
Successor Predecessor
Three Months Three Months
Ended Ended September
September 30, 30,
2022 2021
Operating portfolio:
New leases 272,462 118,683
Renewal leases 608,551 379,096
Development portfolio:
New leases 15,703 -
Total leased 896,716 497,779
36--------------------------------------------------------------------------------
The following is a summary of the total square feet of leases signed in the
nine-month periods ended
Successor Predecessor
Nine Months
Ended September Nine Months Ended
30, September 30,
2022 2021
Operating portfolio:
New leases 903,104 473,105
Renewal leases 2,058,920 1,671,201
Development portfolio:
New leases 15,703 60,059
Total leased 2,977,727 2,204,365
Average annual base rents per square foot are based on contractual rents in
effect as of September 30, 2022 and 2021, including the impact of any rent
concessions. Average annual base rents per square foot for comparable small shop
space of less than 10,000 square feet were as follows for each property type:
Successor Predecessor
Nine Months Ended Nine Months Ended
September 30, September 30,
2022 2021
Total portfolio $ 25.10 $ 25.17
Malls, Lifestyle Centers and Outlet Centers (1):
Total same-center malls, lifestyle centers and
outlet centers 29.57 30.03
Total malls 30.14 30.55
Total lifestyle centers 28.53 27.00
Total outlet centers 26.45 27.32
All Other:
Total open-air centers 15.14 14.97
Total other 19.18 19.35
(1)Results from new and renewal leasing of comparable small shop space of less than 10,000 square feet during the three- and nine-month periods endedSeptember 30, 2022 for spaces that were previously occupied, based on the contractual terms of the related leases inclusive of the impact of any rent concessions, are as follows: New Initial New Average Square Prior Gross Gross Rent % Change Gross Rent % Change Property Type Feet Rent PSF PSF Initial PSF (1) Average
Quarter-to-Date:
All Property Types (2) 371,178
5.2 %$ 37.48 6.5 % Malls, Lifestyle Centers & Outlet Centers 321,756 37.76 39.28 4.0 % 39.72 5.2 % New leases 28,278 36.47 64.08 75.7 % 67.56 85.3 % Renewal leases 293,478 37.89 36.89 (2.6 )% 37.03 (2.3 )% Year-to-Date: All Property Types (2) 1,465,986$ 34.44 $ 31.97 (7.2 )%$ 32.54 (5.5 )% Malls, Lifestyle Centers & Outlet Centers 1,341,160 35.90 33.06 (7.9 )% 33.64 (6.3 )% New leases 135,827 42.42 45.47 7.2 % 48.49 14.3 % Renewal leases 1,205,333 35.16 31.66 (9.9 )% 31.97 (9.1 )% (1) Average gross rent does not incorporate allowable future increases for recoverable common area expenses. (2) Includes malls, lifestyle centers, outlet centers, open-air centers and other. 37 --------------------------------------------------------------------------------
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 2022:
New 81 222,588 6.38 $ 41.03 $ 42.97 $ 38.17 $ 2.86 7.5 % $ 4.80 12.6 %
Renewal 471 1,490,972 2.55 30.29 30.58 33.32 (3.03 ) (9.1 )% (2.74 ) (8.2 )%
Commencement 2022 Total 552 1,713,560 3.11 31.69 32.19 33.95 (2.26 ) (6.7 )% (1.76 ) (5.2 )%
Commencement 2023:
New 6 18,617 8.36 29.84 42.36 31.57 (1.73 ) (5.5 )% 10.79 34.2 %
Renewal 99 258,840 2.75 45.72 46.10 46.02 (0.30 ) (0.7 )% 0.08 0.2 %
Commencement 2023 Total 105 277,457 3.07 44.66 45.85 45.05 (0.39 ) (0.9 )% 0.80 1.8 %
Total 2022/2023 657 1,991,017 3.10 $ 33.50 $ 34.09 $ 35.50 $ (2.00 ) (5.6 )% $ (1.41 ) (4.0 )%
Liquidity and Capital Resources
As ofSeptember 30, 2022 , we had$335.7 million available in unrestricted cash andU.S. Treasury securities. Our total pro rata share of debt, excluding unamortized deferred financing costs and debt discounts, atSeptember 30, 2022 was$2,837.7 million , which includes$61.6 million of a deconsolidated property loan that was in receivership. We had$83.0 million in restricted cash atSeptember 30, 2022 related to cash held in escrow accounts for insurance, real estate taxes, capital expenditures and tenant allowances as required by the terms of certain mortgage notes payable, as well as amounts related to cash management agreements with lenders of certain property-level mortgage indebtedness, which are designated for debt service and operating expense obligations. During the three and nine months endedSeptember 30, 2022 , we continued to reinvest the cash from maturingU.S. Treasury securities into newU.S. Treasury securities. We designated ourU.S. Treasury securities as available-for-sale. As ofSeptember 30, 2022 , ourU.S. Treasury securities have maturities throughJuly 2023 . Subsequent toSeptember 30, 2022 , we redeemed and purchased additional U.S. Treasury securities. See Note 16 for additional information. InFebruary 2022 , we issued 10,982,795 shares of common stock to holders of the exchangeable notes in satisfaction of principal, accrued interest and the make-whole payment, and all the exchangeable notes were cancelled in accordance with the terms of the indenture. InFebruary 2022 , the loan secured byFayette Mall was modified to reduce the fixed interest rate to 4.25% and extend the maturity date throughMay 2023 , with three one-year extension options, subject to certain requirements. As part of the modification, two ground leased outparcels were released from the collateral in exchange for the addition of the redeveloped former middle anchor location. As ofSeptember 30, 2022 , the loan had an outstanding balance of$129.6 million . InFebruary 2022 , we entered into a forbearance agreement with the lender regarding the default triggered by the bankruptcy filing related to the loan secured by The Outlet Shoppes atAtlanta . As ofSeptember 30, 2022 , the loan had an outstanding balance of$4.4 million . InMarch 2022 , we deconsolidatedGreenbrier Mall as a result of losing control when the property was placed in receivership. As ofSeptember 30, 2022 , the loan secured byGreenbrier Mall had an outstanding balance of$61.6 million . Subsequent toSeptember 30, 2022 , the lender foreclosed on the loan secured by Greenbrier Mall. See Note 16 . InMarch 2022 , we entered into a new$30.0 million non-recourse mortgage note payable, secured byYork Town Center , that provides for a three-year term and a fixed interest rate of 4.75%. The monthly debt service is interest only for the first eighteen months. As ofSeptember 30, 2022 , the loan had an outstanding balance of$30.0 million ($15.0 million at our share). InMarch 2022 , we entered into a forbearance agreement with the respective lenders regarding the default triggered by the bankruptcy filing related to the loans secured by Coastal Grand andFremaux Town Center . As ofSeptember 30, 2022 , the loans secured by Coastal Grand had an outstanding balance of$105.5 million ($52.8 million at our share). As ofSeptember 30, 2022 , the loan secured byFremaux Town Center had an outstanding balance of$60.8 million ($39.5 million at our share). InApril 2022 , we closed on a new$40.0 million , ten-year, non-recourse loan secured by The Shoppes atEagle Point . The new loan bears a fixed interest rate of 5.4%. Proceeds from the new loan were utilized to retire the previous$33.6 million partial recourse loan, which was set to mature inOctober 2022 . As ofSeptember 30, 2022 , the loan had an outstanding balance of$39.8 million ($19.9 million at our share). 38 -------------------------------------------------------------------------------- InMay 2022 , the loan secured byArbor Place was extended for an additional four years, with a new maturity date ofMay 2026 . The interest rate will remain at the current fixed rate of 5.1%. As ofSeptember 30, 2022 , the loan had an outstanding balance of$99.0 million . InMay 2022 , we entered into a forbearance agreement with the lender regarding the default triggered by the bankruptcy filing related to the loan secured by The Outlet Shoppes of the Bluegrass. As ofSeptember 30, 2022 , the loan had an outstanding balance of$65.4 million ($32.7 million at our share).
In
InMay 2022 , we entered into a new$65.0 million non-recourse loan. The loan has a ten-year term with a fixed interest rate of 5.85%. It is interest only for the first three years. The loan is secured by open-air centers, which includeHamilton Crossing ,Hamilton Corner , The Terrace and The Shoppes atHamilton Place . Proceeds from the loan were used to redeem$60.0 million aggregate principal amount of the senior secured notes. Also, the previous$7.1 million Hamilton Crossing loan was paid off in conjunction with the closing of the new loan. As ofSeptember 30, 2022 , the loan had an outstanding balance of$65.0 million . InJune 2022 , we entered into a new$360.0 million loan. The interest rate is a fixed 6.95% for$180.0 million of the$360.0 million loan, with the other half of the loan bearing a floating interest rate based on the 30-day SOFR plus 4.10%. The loan has an initial term of five years with one two-year extension, subject to certain conditions. The loan is secured by a pool of 90 outparcels and 13 open-air centers. The open-air centers include Alamance Crossing West,CoolSprings Crossing , Courtyard at Hickory Hollow,Frontier Square , Gunbarrel Pointe, Harford Annex,The Plaza at Fayette ,Sunrise Commons , The Shoppes atSt. Clair Square , The Landing atArbor Place ,West Towne Crossing ,West Towne District andWestGate Crossing . Proceeds from the loan were used to redeem all$335.0 million outstanding on the senior secured notes, which eliminated the recourse guaranty. Also, proceeds were used to paydown$8.3 million on the Brookfield Square Anchor Redevelopment loan, which had an outstanding balance of$18.5 million as ofSeptember 30, 2022 .
In
InJune 2022 , we entered into a new$42.5 million loan secured byAmbassador Town Center . The loan matures inJune 2029 and bears a fixed interest rate of 4.35%. The previous$40.7 million loan was paid off in conjunction with the closing of the new loan. Our share of the new loan was$27.5 million as ofSeptember 30, 2022 .
In
InAugust 2022 , the loan secured byParkdale Mall and Crossing was extended toMarch 2026 . As ofSeptember 30, 2022 , the loan had an outstanding balance of$64.2 million .
In
As ofSeptember 30, 2022 , the loan secured byCross Creek Mall had an outstanding balance of$98.7 million . Subsequent toSeptember 30, 2022 , the loan was extended throughJanuary 5, 2023 . The Company remains in discussions with the lender regarding a long term extension. See Note 16 .
Subsequent to
Subsequent toSeptember 30, 2022 , we reached an agreement with the lender to extend the loan secured bySouthpark Mall throughJune 2026 , as well as waive the default triggered by our bankruptcy filing. As ofSeptember 30, 2022 , the loan had an outstanding balance of$54.4 million . See Note 16 .
Subsequent to
Note 16 .
Our total share of consolidated, unconsolidated and other outstanding debt, excluding debt discounts and deferred financing costs, maturing during 2022, assuming all extension options are elected, is$265.6 million , and our total share of consolidated, unconsolidated and other outstanding debt, excluding debt discounts and deferred financing costs, that matured prior to 2022, which remains outstanding atSeptember 30, 2022 , is$103.4 million . We are in discussions with the existing lenders to modify and extend or otherwise refinance the loans. 39 --------------------------------------------------------------------------------
As of
Note 16 for additional information. We intend to refinance and/or extend the maturity dates for the remaining$548.6 million of such mortgage notes payable. In instances where a refinancing and/or extension of maturity dates is unsuccessful we will repay certain of the mortgage notes based on the availability of liquidity and convey certain properties to the lender to satisfy the debt obligation.
Cash Flows - Operating, Investing and Financing Activities
There was$168.7 million of cash, cash equivalents and restricted cash as ofSeptember 30, 2022 , a decrease of$67.5 million fromDecember 31, 2021 . Of this amount,$85.8 million was unrestricted cash and cash equivalents as ofSeptember 30, 2022 . Also, atSeptember 30, 2022 , we had$249.9 million inU.S. Treasuries with maturities throughJuly 2023 .
Our net cash flows are summarized as follows (in thousands):
Successor Predecessor
Nine Months
Ended September Nine Months Ended
30, September 30,
2022 2021
Net cash provided by operating activities $ 153,820 $ 202,170
Net cash (used in) provided by investing activities (107,832 ) 139,180
Net cash used in financing activities (113,463 ) (32,168 )
Net cash flows $ (67,475 ) $ 309,182
Cash Provided By Operating Activities
Cash provided by operating activities of the Successor was$153.8 million for the nine months endedSeptember 30, 2022 . Cash provided by operating activities of the Predecessor was$202.2 million for the nine months endedSeptember 30, 2021 . Cash provided by operating activities of the Successor reflects a significant increase in interest expense because we incurred interest expense on our new corporate and property-level debt during the nine months endedSeptember 30, 2022 . The Predecessor did not pay interest in the prior-year period on the secured credit facility and senior unsecured notes during bankruptcy. The Successor also had higher general and administrative expenses as we returned to normal operations and compensation practices following the early impacts of COVID-19, as well as our emergence from bankruptcy, and because we incurred professional fees associated with loan modifications/extensions and obtained credit ratings on our secured term loan. Conversely, the Successor had higher same-center net operating income and a lower amount of reorganization items, net.
Cash (Used In) Provided By Investing Activities
During the nine months endedSeptember 30, 2022 , the Successor had net cash used in investing activities of$107.8 million . During the nine months endedSeptember 30, 2021 , the Predecessor had net cash provided by investing activities of$139.2 million . Net cash used in investing activities of the Successor was higher primarily due to the timing of the reinvestment of cash inU.S. Treasury securities. During the Predecessor period there were certain redemptions ofU.S. Treasury securities where the subsequent reinvestment in additionalU.S. Treasury securities did not occur until afterSeptember 30, 2021 . Also, the Successor had lower proceeds from sales of real estate assets during the nine months endedSeptember 30, 2022 . Conversely, the Successor had higher distributions from unconsolidated affiliates during the nine months endedSeptember 30, 2022 .
Cash Used In Financing Activities
During the nine months endedSeptember 30, 2022 , the Successor had net cash used in financing activities of$113.5 million . During the nine months endedSeptember 30, 2021 , the Predecessor had net cash used in financing activities of$32.2 million . Net cash used in financing activities of the Successor was higher primarily due to principal payments on the secured term loan and costs incurred to obtain new mortgage loans. Proceeds received from the new mortgage loans were used to redeem all the senior secured notes and retire two mortgage notes payable. 40 --------------------------------------------------------------------------------
Debt
The following tables summarize debt based on our pro rata ownership share, including our pro rata share of unconsolidated affiliates and excluding noncontrolling investors' share of consolidated properties. Prior to consideration of unamortized deferred financing costs or debt discounts, of our$2,837.7 million outstanding debt atSeptember 30, 2022 ,$1,969.1 million constituted non-recourse debt obligations and$868.6 million constituted recourse debt obligations. We believe the tables below provide investors and lenders a clearer understanding of our total debt obligations and liquidity (in thousands): Weighted- Average Noncontrolling Other Unconsolidated Interest September 30, 2022: Consolidated Interests Debt (1) Affiliates Total Rate (2) Fixed-rate debt: Non-recourse loans on operating properties$ 869,307 $ (32,594 )
180,000 - - - 180,000 6.95% (3)
Recourse loans on operating
properties - - - 10,439 10,439 3.68%
Total fixed-rate debt 1,049,307 (32,594 ) 61,647 624,670 1,703,030 4.85%
Variable-rate debt:
Non-recourse loans on operating 57,015 (13,493 ) - 53,011
properties 96,533 5.38%
Recourse loans on operating
properties - - - 20,345 20,345 5.80%
Open-air centers and outparcels
loan 180,000 - - - 180,000 6.61% (3)
Secured term loan 837,824 - - - 837,824 5.31%
Total variable-rate debt 1,074,839 (13,493 ) - 73,356 1,134,702 5.53%
Total fixed-rate and variable-rate
debt 2,124,146 (46,087 ) 61,647 698,026 2,837,732 5.12%
Unamortized deferred financing
costs (16,621 ) 85 - (2,294 ) (18,830 )
Debt discounts (4) (90,821 ) 13,548 - - (77,273 )
Total mortgage and other
indebtedness, net $ 2,016,704 $ (32,454 ) $ 61,647 $ 695,732 $ 2,741,629
(1)
Represents the outstanding loan balance for properties that were deconsolidated
due to a loss of control when the properties were placed into receivership in
connection with the foreclosure process.
(2)
Weighted-average interest rate excludes amortization of deferred financing
costs.
(3)
The interest rate is a fixed 6.95% for $180,000 of the $360,000 loan, with the
other half of the loan bearing a variable interest rate based on the 30-day SOFR
plus 4.10%.
(4)
In conjunction with fresh start accounting, the Company estimated the fair value
of its mortgage notes and recognized debt discounts upon emergence from
bankruptcy on November 1, 2021 . The debt discounts are accreted over the term of
the respective debt using the effective interest method.
41
--------------------------------------------------------------------------------
Weighted-
Average
Noncontrolling Unconsolidated Interest
December 31, 2021: Consolidated Interests Other Debt (1) Affiliates Total Rate (2)
Fixed-rate debt:
Non-recourse loans on
operating properties (3) $ 916,927 $ (29,381 ) $ 92,072 $ 600,598 $ 1,580,216 4.37%
Senior secured notes -
at carrying value (fair 395,000 - - - 395,000 10.00%
value of $395,395 as of
December 31, 2021)
Exchangeable senior
secured notes 150,000 - - - 150,000 7.00%
Recourse loans on
operating properties - - - 11,724 11,724 3.61%
Total fixed-rate debt 1,461,927 (29,381 ) 92,072 612,322 2,136,940 5.84%
Variable-rate debt:
Recourse loans on
operating properties 66,911 - - 90,691 157,602 2.97%
Secured term loan 880,091 - - - 880,091 3.75%
Total variable-rate debt 947,002 - - 90,691 1,037,693 3.63%
Total fixed-rate and
variable-rate debt 2,408,929 (29,381 ) 92,072 703,013 3,174,633 5.12%
Unamortized deferred
financing costs (1,567 ) - - (1,971 ) (3,538 )
Debt discounts (4) (199,153 ) 13,519 - - (185,634 )
Total mortgage and other
indebtedness, net $ 2,208,209 $ (15,862 ) $ 92,072 $ 701,042 $ 2,985,461
(1)
Represents the outstanding loan balance for properties that were deconsolidated
due to a loss of control when the properties were placed into receivership in
connection with the foreclosure process.
(2)
Weighted-average interest rate excludes amortization of deferred financing
costs.
(3)
An unconsolidated affiliate had an interest rate swap on a notional amount
outstanding of $41,310 as of December 31, 2021 related to a variable-rate loan
on Ambassador Town Center to effectively fix the interest rate on this loan to a
fixed-rate of 3.22%.
(4)
In conjunction with fresh start accounting, the Company estimated the fair value
of its mortgage notes and recognized debt discounts upon emergence from
bankruptcy on November 1, 2021 . The debt discounts are accreted over the term of
the respective debt using the effective interest method.
The weighted-average remaining term of our total share of consolidated,
unconsolidated and other debt, excluding debt discounts and deferred financing
costs, was 2.4 years and 3.3 years at September 30, 2022 and December 31, 2021 ,
respectively. The weighted-average remaining term of our pro rata share of
consolidated, unconsolidated and other fixed-rate debt, excluding debt discounts
and deferred financing costs, was 2.2 years and 3.2 years at September 30, 2022
and December 31, 2021 , respectively.
As of September 30, 2022 and December 31, 2021 , our total share of consolidated
and unconsolidated variable-rate debt, excluding debt discounts and deferred
financing costs, represented 40.0% and 32.8%, respectively, of our total pro
rata share of debt, excluding debt discounts and deferred financing costs.
See Note 8 to the condensed consolidated financial statements for information concerning activity related to unconsolidated affiliates.
Equity
InFebruary 2022 , we issued 10,982,795 shares of common stock to holders of the exchangeable notes in satisfaction of principal, accrued interest and the make-whole payment, and all the exchangeable notes were cancelled in accordance with the terms of the indenture.
In
The decision to declare and pay dividends on any outstanding shares of our common stock, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our board of directors and will depend on our earnings, taxable income, cash flows, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our then-current indebtedness, the annual distribution requirements under the REIT provisions of the Internal Revenue Code,Delaware law and such other factors as our board of directors deems relevant. Any dividends payable will be determined by our board of directors based upon the circumstances at the time of declaration. Our actual results of operations will be affected by a number of factors, including the revenues received from our properties, our operating expenses, interest expense, unanticipated capital expenditures and the ability of our anchors and tenants at our properties to meet their obligations for payment of rents and tenant reimbursements. 42 -------------------------------------------------------------------------------- As a publicly traded company, we previously accessed capital through both the public equity and debt markets. We had a shelf registration statement on Form S-3 on file with theSecurities and Exchange Commission ("SEC") that expired inJuly 2021 . Until we regain Form S-3 eligibility, we will be required to use a registration statement on Form S-11 to register securities with theSEC . OnMay 6, 2022 , we filed a resale registration statement on Form S-11 covering the offer and sale, from time to time, of up to 12,380,260 shares of common stock by the selling shareholders named therein, pursuant to the requirements of the registration rights agreement. We will not receive any proceeds from resales of share of common stock by the selling shareholders pursuant to this registration statement. Capital Expenditures The following tables, which exclude expenditures for developments, redevelopments and expansions, summarize our capital expenditures, including our share of unconsolidated affiliates' capital expenditures, for the three- and nine-month Successor periods endedSeptember 30, 2022 and for the three- and nine-month Predecessor periods endedSeptember 30, 2021 (in thousands): Successor Predecessor Three Months Three Months Ended Ended September September 30, 30, 2022 2021 Tenant allowances (1) $ 5,639 $ 4,990 Deferred maintenance: Parking area and parking area lighting 1,702 802 Roof replacements 149 220 Other capital expenditures 2,761 1,873 Total deferred maintenance 4,612 2,895 Capitalized overhead 377 198 Capitalized interest 156 - Total capital expenditures $ 10,784 $ 8,083
(1)
Tenant allowances primarily relate to new leases. Tenant allowances related to renewal leases were not material for the periods presented.
Successor Predecessor
Nine Months Ended Nine Months Ended
September 30, September 30,
2022 2021
Tenant allowances (1) $ 12,679 $ 9,242
Deferred maintenance:
Parking area and parking area lighting 3,215 859
Roof replacements 275 538
Other capital expenditures 6,858 4,126
Total deferred maintenance 10,348 5,523
Capitalized overhead 1,200 665
Capitalized interest 531 32
Total capital expenditures $ 24,758 $ 15,462
(1)
Tenant allowances primarily relate to new leases. Tenant allowances related to renewal leases were not material for the periods presented.
Annual capital expenditures budgets are prepared for each of our properties that
are intended to provide for all necessary recurring and non-recurring capital
expenditures. We believe that property operating cash flows, which include
reimbursements from tenants for certain expenses, and readily available cash on
hand will provide the necessary funding for these expenditures.
43
--------------------------------------------------------------------------------Developments
Properties Opened During the Nine Months EndedSeptember 30, 2022 (Dollars in thousands) CBL's Share of CBL Total Initial Ownership Project Total Cost to 2022 Opening Unleveraged Property Location Interest Square Feet Cost (1) Date (2) Cost Date Yield Outparcel Developments: Kirkwood Mall - Five Guys, Blaze Pizza, Thrifty White, Bismarck, ND 100% 15,275$ 7,976 $ 6,738 $ 2,380 Q2 '22 8.9% Pancheros, Chick-fil-A (1) Total Cost is presented net of reimbursements to be received. Represents total cost incurred by the Predecessor and the Successor. (2) Cost to Date does not reflect reimbursements until they are received. Represents total cost to date incurred by the Predecessor and the Successor. Properties Under Redevelopment atSeptember 30, 2022 (Dollars in thousands) CBL's Share of CBL Total Expected Initial Ownership Project Total Cost to 2022 Opening Unleveraged Property Location Interest Square Feet Cost (1) Date (2) Cost Date YieldOutparcel Development : Mayfaire Town Center - Wilmington, NC 49% 83,021$ 15,435 $ - $ - Spring 11.0% hotel development '24 Redevelopments: Dakota Square Herberger's - Five Minot, ND 100% 9,502 1,834 1,891 1,891 Fall '22 8.7% Below The Terrace - Nordstrom Chattanooga, TN 92% 24,155 2,527 416 416 Spring 13.0% Rack (former Staples) '23 York Town Center - Spring Burlington (former Bed York, PA 50% 28,000 1,247 972 972 '23 18.5% Bath & Beyond) 61,657$ 5,608 $ 3,279 $ 3,279 Total Properties Under Development 144,678$ 21,043 $ 3,279 $ 3,279 (1) Total Cost is presented net of reimbursements to be received. Represents total cost incurred by the Predecessor and the Successor. (2) Cost to Date does not reflect reimbursements until they are received. Represents total cost to date incurred by the Predecessor and the Successor.
Off-Balance Sheet Arrangements
Unconsolidated Affiliates
We have ownership interests in 25 unconsolidated affiliates as of September 30, 2022 that are described in Note 8 to the condensed consolidated financial statements. The unconsolidated affiliates are accounted for using the equity method of accounting and are reflected in the condensed consolidated balance sheets as investments in unconsolidated affiliates.
The following are circumstances when we may consider entering into a joint venture with a third party:
•
Third parties may approach us with opportunities in which they have obtained
land and performed some pre-development activities, but they may not have
sufficient access to the capital resources or the development and leasing
expertise to bring the project to fruition. We enter into such arrangements when
we determine such a project is viable and we can achieve a satisfactory return
on our investment. We typically 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.
44
--------------------------------------------------------------------------------•
We determine that we may have the opportunity to capitalize on the value we have created in a property by selling an interest in the property to a third party. This provides us with an additional source of capital that can be used to develop or acquire additional real estate assets that we believe will provide greater potential for growth. When we retain an interest in an asset rather than selling a 100% interest, it is typically because this allows us to continue to manage the property, which provides us the ability to earn fees for management, leasing, development and financing services provided to the joint venture.
•
We also pursue opportunities to contribute available land at our properties into joint venture partnerships for development of primarily non-retail uses such as hotels, office, self-storage and multifamily. We typically partner with developerswho have expertise in the non-retail property types.
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 financial statements for
information related to our guarantees of unconsolidated affiliates' debt as of
Critical Accounting Policies
Our discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements and disclosures. Some of these estimates and assumptions require application of difficult, subjective, and/or complex judgment about the effect of matters that are inherently uncertain and that may change in subsequent periods. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our Annual Report on Form 10-K for the year endedDecember 31, 2021 contains a discussion of our critical accounting policies and estimates in the Management's Discussion and Analysis of Financial Condition and Results of Operations section. There have been no material changes to these policies and estimates during the nine months endedSeptember 30, 2022 . Our significant accounting policies are disclosed in Note 4 to the consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . 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. 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. 45 -------------------------------------------------------------------------------- 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 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 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 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. We believe that it is important to identify the impact of certain significant items on our FFO measures for a reader to have a complete understanding of our results of operations. Therefore, we have also presented adjusted FFO measures excluding these significant items from the applicable periods. Please refer to the reconciliation of net loss attributable to common shareholders to FFO allocable toOperating Partnership common unitholders below for a description of these adjustments. FFO of theOperating Partnership for the three month Successor period endedSeptember 30, 2022 was$49.5 million . FFO of theOperating Partnership for the three month Predecessor period endedSeptember 30, 2021 was$74.5 million . Excluding the adjustments noted below, FFO of theOperating Partnership , as adjusted, for the three month Successor period endedSeptember 30, 2022 was$59.0 million . Excluding the adjustments noted below, FFO of theOperating Partnership , as adjusted, for the three month Predecessor period endedSeptember 30, 2021 was$95.3 million . For the three month Successor period endedSeptember 30, 2022 , FFO of theOperating Partnership and FFO of theOperating Partnership , as adjusted, include the recognition of interest expense of$17.8 million by the Successor on the secured term loan and the new loans entered into this year that are secured by certain of our open-air centers and outparcels, as well as lower rental revenues due to lower collections of receivables for which we had previously reserved. FFO of theOperating Partnership and FFO of theOperating Partnership , as adjusted, of the Predecessor does not reflect interest expense on the senior unsecured notes and the secured credit facility as interest expense was not recognized on this debt due to the bankruptcy filing. 46 --------------------------------------------------------------------------------
The reconciliation of net loss attributable to common shareholders to FFO
allocable to
Successor Predecessor
Three Months Three Months
Ended Ended September
September 30, 30,
2022 2021
Net loss attributable to common shareholders $ (14,510 ) $ (41,720 )
Noncontrolling interest in income (loss) of 25 (1,085 )
Operating Partnership
Depreciation and amortization expense of:
Consolidated properties 61,050 46,479
Unconsolidated affiliates 3,665 13,480
Non-real estate assets (123 ) (416 )
Dividends allocable to unvested restricted stock 216 -
Noncontrolling interests' share of depreciation and (829 ) (571 )
amortization in other consolidated subsidiaries
Loss on impairment - 63,160
Gain on depreciable property - (4,836 ) FFO allocable to Operating Partnership common 49,494
74,491
unitholders
Debt discount accretion, net of noncontrolling 25,425 - interests' share (1) Adjustment for unconsolidated affiliates with (13,116 ) - negative investment (2) Litigation settlement (3) (36 ) (89 ) Non-cash default interest expense (4) (1,585 ) 8,919 Loss on available-for-sale securities 39 - Reorganization items, net (5) (1,220 )
12,008
FFO allocable to
(1)
In conjunction with fresh start accounting upon emergence from bankruptcy, we recognized debt discounts equal to the difference between the outstanding balance of mortgage notes payable and the estimated fair value of such mortgage notes payable. The debt discounts are accreted over the terms of the respective mortgage notes payable using the effective interest method. (2) Represents our share of the earnings (losses) before depreciation and amortization expense of unconsolidated affiliates where we are not recognizing equity in earnings (losses) because our investment in the unconsolidated affiliate is below zero. (3) Represents a credit to litigation settlement expense in each of the three-month periods endedSeptember 30, 2022 and 2021 related to claim amounts that were released pursuant to the terms of the settlement agreement related to the settlement of a class action lawsuit. (4) The three months endedSeptember 30, 2022 includes the reversal of default interest expense when waivers or forbearance agreements were obtained. The three months endedSeptember 30, 2021 includes default interest expense related to loans secured by properties that were in default prior to the Company filing bankruptcy, as well as loans secured by properties that remain in default due to the Company filing bankruptcy. (5) Represents costs incurred subsequent to the bankruptcy filing, which consists of professional fees, legal fees, retention bonuses andU.S. Trustee fees expensed in accordance with ASC 852. 47 -------------------------------------------------------------------------------- FFO of theOperating Partnership for the nine month Successor period endedSeptember 30, 2022 was$115.4 million . FFO of theOperating Partnership for the nine month Predecessor period endedSeptember 30, 2021 was$215.5 million . Excluding the adjustments noted below, FFO of theOperating Partnership , as adjusted, for the nine month Successor period endedSeptember 30, 2022 was$176.3 million . Excluding the adjustments noted below, FFO of theOperating Partnership , as adjusted, for the nine month Predecessor period endedSeptember 30, 2021 was$243.5 million . For the nine months endedSeptember 30, 2022 , FFO of theOperating Partnership and FFO of theOperating Partnership , as adjusted, include the recognition of interest expense of$53.7 million on the secured term loan, the exchangeable notes, the secured notes and the new loans entered into this year that are secured by certain of our open-air centers and outparcels. The Predecessor did not recognize interest expense on the senior unsecured notes and the secured credit facility due to the bankruptcy filing.
The reconciliation of net loss attributable to common shareholders to FFO
allocable to
Successor Predecessor
Nine Months Ended Nine Months Ended
September 30, September 30,
2022 2021
Net loss attributable to common shareholders $ (96,830 ) $ (77,365 )
Noncontrolling interest in loss of Operating (34 ) (2,013 )
Partnership
Depreciation and amortization expense of: Consolidated properties 194,469 142,090 Unconsolidated affiliates 21,004 40,466 Non-real estate assets (524 ) (1,448 ) Dividends allocable to unvested restricted stock 426 - Noncontrolling interests' share of depreciation and (2,666 ) (1,710 ) amortization in other consolidated subsidiaries Loss on impairment, net of taxes 186 120,342 Gain on depreciable property (629 ) (4,836 ) FFO allocable to Operating Partnership common 115,402 215,526
unitholders
Debt discount accretion, net of noncontrolling 153,924 - interests' share (1) Adjustment for unconsolidated affiliates with (36,123 ) - negative investment (2) Senior secured notes fair value adjustment (3) (395 ) - Litigation settlement (4) (182 ) (890 ) Non-cash default interest expense (5) (19,805 ) 31,965 Gain on deconsolidation (6) (36,250 ) (55,131 ) Loss on available-for-sale securities 39 - Reorganization items, net (7) (262 ) 52,014
FFO allocable to
$ 243,484
unitholders, as adjusted
(1)
In conjunction with fresh start accounting upon emergence from bankruptcy, we
recognized debt discounts equal to the difference between the outstanding
balance of mortgage notes payable and the estimated fair value of such mortgage
notes payable. The debt discounts are accreted over the terms of the respective
mortgage notes payable using the effective interest method.
(2)
Represents our share of the earnings (losses) before depreciation and
amortization expense of unconsolidated affiliates where we are not recognizing
equity in earnings (losses) because our investment in the unconsolidated
affiliate is below zero.
(3)
Represents the fair value adjustment recorded on the secured notes as interest
expense.
(4)
Represents a credit to litigation settlement expense in each of the nine-month
periods ended September 30, 2022 and 2021 related to claim amounts that were
released pursuant to the terms of the settlement agreement related to the
settlement of a class action lawsuit.
(5)
The nine months ended September 30, 2022 includes the reversal of default
interest expense when waivers or forbearance agreements were obtained. The nine
months ended September 30, 2021 includes default interest expense related to
loans secured by properties that were in default prior to the Company filing
bankruptcy, as well as loans secured by properties that remain in default due to
the Company filing bankruptcy.
(6)
For the nine months ended September 30, 2022 , we deconsolidated Greenbrier Mall
due to a loss of control when the property was placed into receivership in
connection with the foreclosure process. For the nine months ended September 30,
2021 , we deconsolidated Asheville Mall and Park Plaza due to a loss of control
when the properties were placed into receivership in connection with the
foreclosure process.
(7)
Represents costs incurred subsequent to the bankruptcy filing, which consists of
professional fees, legal fees, retention bonuses and U.S. Trustee fees expensed
in accordance with ASC 852.
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