Note 3 – Revenues
Revenues
The following table presents the Company's revenues disaggregated by revenue source for the three months ended March 31, 2023 and 2022:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Rental revenues |
|
$ |
130,324 |
|
|
$ |
135,332 |
|
Revenues from contracts with customers (Accounting Standards Codification ("ASC") 606): |
|
|
|
|
|
|
Operating expense reimbursements |
|
|
2,216 |
|
|
|
2,189 |
|
Management, development and leasing fees (1) |
|
|
2,434 |
|
|
|
1,769 |
|
Marketing revenues (2) |
|
|
645 |
|
|
|
(15 |
) |
|
|
|
5,295 |
|
|
|
3,943 |
|
|
|
|
|
|
|
|
Other revenues |
|
|
740 |
|
|
|
827 |
|
Total revenues (3) |
|
$ |
136,359 |
|
|
$ |
140,102 |
|
(1)Included in All Other segment.
(2)Marketing revenues solely relate to the Malls segment for all periods presented.
(3)Sales taxes are excluded from revenues.
See Note 9 for information on the Company's segments.
Revenues from Contracts with Customers
Outstanding Performance Obligations
The Company has outstanding performance obligations related to certain noncancellable contracts with customers for which it will receive fixed operating expense reimbursements for providing certain maintenance and other services as described above. As of March 31, 2023, the Company expects to recognize these amounts as revenue over the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance obligation |
|
Less than 5 years |
|
|
5-20 years |
|
|
Over 20 years |
|
|
Total |
|
Fixed operating expense reimbursements |
|
$ |
20,836 |
|
|
$ |
46,953 |
|
|
$ |
42,213 |
|
|
$ |
110,002 |
|
7
The Company evaluates its performance obligations each period and makes adjustments to reflect any known additions or cancellations. Performance obligations related to variable consideration, which is based on sales, are constrained.
Note 4 – Leases
The components of rental revenues for the three months ended March 31, 2023 and 2022 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Fixed lease payments |
|
$ |
98,981 |
|
|
$ |
95,648 |
|
Variable lease payments |
|
|
31,343 |
|
|
|
39,684 |
|
Total rental revenues |
|
$ |
130,324 |
|
|
$ |
135,332 |
|
The undiscounted future fixed lease payments to be received under the Company's operating leases as of March 31, 2023, are as follows:
|
|
|
|
|
Years Ending December 31, |
|
Operating Leases |
|
2023 (1) |
|
$ |
316,868 |
|
2024 |
|
|
310,620 |
|
2025 |
|
|
242,066 |
|
2026 |
|
|
182,356 |
|
2027 |
|
|
131,418 |
|
2028 |
|
|
85,426 |
|
Thereafter |
|
|
209,673 |
|
Total undiscounted lease payments |
|
$ |
1,478,427 |
|
(1)Reflects rental payments for the fiscal period April 1, 2023 to December 31, 2023.
Note 5 – Fair Value Measurements
The Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy in accordance with ASC 820, Fair Value Measurements and Disclosure, ("ASC 820") based on whether the inputs to valuation techniques are observable or unobservable. The fair value hierarchy contains three levels of inputs that may be used to measure fair value as follows:
|
|
Level 1 – |
Inputs represent quoted prices in active markets for identical assets and liabilities as of the measurement date. |
Level 2 – |
Inputs, other than those included in Level 1, represent observable measurements for similar instruments in active markets, or identical or similar instruments in markets that are not active, and observable measurements or market data for instruments with substantially the full term of the asset or liability. |
Level 3 – |
Inputs represent unobservable measurements, supported by little, if any, market activity, and require considerable assumptions that are significant to the fair value of the asset or liability. Market valuations must often be determined using discounted cash flow methodologies, pricing models or similar techniques based on the Company’s assumptions and best judgment. |
The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under ASC 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date and under current market conditions. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs and consider assumptions such as inherent risk, transfer restrictions and risk of nonperformance.
The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term nature of these financial instruments. The estimated fair value of mortgage and other indebtedness was $1,770,334 and $1,833,992 as of March 31, 2023 and December 31, 2022, respectively. The fair value of mortgage and other indebtedness was calculated using Level 2 inputs by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently.
8
Fair Value Measurements on a Recurring Basis
During the three months ended March 31, 2023, the Company has continued to reinvest the cash from maturing U.S. Treasury securities into new U.S. Treasury securities. The Company designated the U.S. Treasury securities as available-for-sale (“AFS”). The table below sets forth information regarding the Company’s AFS securities that were measured at fair value for the three months ended March 31, 2023. Subsequent to March 31, 2023, the Company redeemed and purchased additional U.S. Treasury securities. See Note 14 for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS Security |
|
Amortized Cost (1) |
|
|
Allowance for credit losses (2) |
|
|
Total unrealized loss |
|
|
Fair value as of March 31, 2023 (3) |
|
U.S. Treasury securities |
|
$ |
259,928 |
|
|
$ |
— |
|
|
$ |
(524 |
) |
|
$ |
259,404 |
|
(1)The U.S. Treasury securities have maturities through November 2023.
(2)U.S Treasury securities have a long history with no credit losses. Additionally, the Company notes that U.S Treasury securities are explicitly fully guaranteed by a sovereign entity that can print its own currency and that the sovereign entity’s currency is routinely held by central banks and other major financial institutions, is used in international commerce, and commonly viewed as a reserve currency, all of which qualitatively indicate that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. Therefore, the Company did not record expected credit losses for its U.S Treasury securities for the three months ended March 31, 2023.
(3)The fair value was calculated using Level 1 inputs.
The following table sets forth information regarding the Company’s AFS securities that were measured at fair value for the year ended December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS Security |
|
Amortized Cost |
|
|
Allowance for credit losses (1) |
|
|
Total unrealized loss |
|
|
Fair value as of December 31, 2022 (2) |
|
U.S. Treasury securities |
|
$ |
293,476 |
|
|
$ |
— |
|
|
$ |
(1,054 |
) |
|
$ |
292,422 |
|
(1)U.S Treasury securities have a long history with no credit losses. Additionally, the Company notes that U.S Treasury securities are explicitly fully guaranteed by a sovereign entity that can print its own currency and that the sovereign entity’s currency is routinely held by central banks and other major financial institutions, is used in international commerce, and commonly viewed as a reserve currency, all of which qualitatively indicate that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. Therefore, the Company did not record expected credit losses for its U.S Treasury securities for the year ended December 31, 2022.
(2)The fair value was calculated using Level 1 inputs.
Fair Value Measurements on a Nonrecurring Basis
The Company measures the fair value of certain long-lived assets on a nonrecurring basis, through quarterly impairment testing or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company’s evaluation of the recoverability of long-lived assets involves the comparison of undiscounted future cash flows expected to be generated by each property over the Company’s expected remaining holding period to the respective carrying amount. The determination of whether the carrying value is recoverable also requires management to make estimates related to probability weighted scenarios impacting undiscounted cash flow models. The Company considers both quantitative and qualitative factors in its impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each property such as net operating income, occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the property and tenant mix. The quantitative and qualitative factors impact the selection of the terminal capitalization rate which is used in both an undiscounted and discounted cash flow model and the discount rate used in a discounted cash flow model. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experience impairment, the Company classifies such long-lived assets under Level 3 in the fair value hierarchy. Level 3 inputs primarily consist of sales and market data, independent valuations and discounted cash flow models.
Long-lived Assets Measured at Fair Value in 2023
During the three months ended March 31, 2023, the Company adjusted the negative equity in Alamance Crossing East to zero upon deconsolidation, which represents the estimated fair value of the Company's investment in that property. See Note 7 for additional information.
9
Long-lived Assets Measured at Fair Value in 2022
During the three months ended March 31, 2022, the Company adjusted the negative equity in Greenbrier Mall to zero upon deconsolidation, which represented the estimated fair value of the Company's investment in that property.
Note 6 – Dispositions
Dispositions
Based on its analysis, the Company determined that the dispositions described below do not meet the criteria for classification as discontinued operations and are not considered to be significant disposals based on its quantitative and qualitative evaluation. Thus, the results of operations of the properties described below, as well as any related gains or losses, are included in net income (loss) for all periods presented, as applicable.
2023 Dispositions
During the three months ended March 31, 2023, the Company deconsolidated Alamance Crossing East, which resulted in $28,151 of gain on deconsolidation. Alamance Crossing East was included in Malls for purposes of segment reporting. See Note 7 for additional information.
During the three months ended March 31, 2023, the Company realized a gain of $1,596, primarily related to the sale of four land parcels. Gross proceeds from sales of real estate assets were $4,949 for the three months ended March 31, 2023.
2022 Dispositions
The Company had no significant dispositions during the three months ended March 31, 2022.
Note 7 – Unconsolidated Affiliates and Noncontrolling Interests
Unconsolidated Affiliates
Although the Company had majority ownership of certain joint ventures during 2023 and 2022, it evaluated the investments and concluded that the other partners or owners in these joint ventures had substantive participating rights, such as approvals of:
•the pro forma for the development and construction of the project and any material deviations or modifications thereto;
•the site plan and any material deviations or modifications thereto;
•the conceptual design of the project and the initial plans and specifications for the project and any material deviations or modifications thereto;
•any acquisition/construction loans or any permanent financings/refinancings;
•the annual operating budgets and any material deviations or modifications thereto;
•the initial leasing plan and leasing parameters and any material deviations or modifications thereto; and
•any material acquisitions or dispositions with respect to the project.
As a result of the joint control over these joint ventures, the Company accounts for these investments using the equity method of accounting.
At March 31, 2023, the Company had investments in 24 entities, which are accounted for using the equity method of accounting. The Company's ownership interest in these unconsolidated affiliates ranges from 33% to 100%. Of these entities, 16 are owned in 50/50 joint ventures.
10
2023 Activity - Unconsolidated Affiliates
Alamance Crossing CMBS, LLC
In February 2023, the Company deconsolidated Alamance Crossing East as a result of the Company losing control when the property was placed in receivership. As of March 31, 2023, the loan secured by Alamance Crossing East had an outstanding balance of $41,122. For the three months ended March 31, 2023, the Company recognized gain on deconsolidation of $28,151.
CBL-TRS Friendly Center 2023, LLC
Subsequent to March 31, 2023, the Company and its joint venture partner entered into a new $148,000 loan secured by Friendly Center and The Shops at Friendly Center. See Note 14 for additional information.
Louisville Outlet Shoppes, LLC
Subsequent to March 31, 2023, the $7,247 loan secured by The Outlet Shoppes of the Bluegrass - Phase II was paid off. See Note 14.
West County Mall CMBS, LLC
In March 2023, the loan secured by West County Mall was extended through December 2024, with one two-year conditional extension available upon meeting certain requirements.
Condensed Combined Financial Statements - Unconsolidated Affiliates
Condensed combined financial statement information of the unconsolidated affiliates is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
ASSETS: |
|
|
|
|
|
|
Investment in real estate assets |
|
$ |
1,987,033 |
|
|
$ |
1,971,348 |
|
Accumulated depreciation |
|
|
(846,305 |
) |
|
|
(829,574 |
) |
|
|
|
1,140,728 |
|
|
|
1,141,774 |
|
Developments in progress |
|
|
10,870 |
|
|
|
10,914 |
|
Net investment in real estate assets |
|
|
1,151,598 |
|
|
|
1,152,688 |
|
Other assets |
|
|
187,818 |
|
|
|
170,756 |
|
Total assets |
|
$ |
1,339,416 |
|
|
$ |
1,323,444 |
|
LIABILITIES: |
|
|
|
|
|
|
Mortgage and other indebtedness, net |
|
$ |
1,359,475 |
|
|
$ |
1,333,152 |
|
Other liabilities |
|
|
37,938 |
|
|
|
33,419 |
|
Total liabilities |
|
|
1,397,413 |
|
|
|
1,366,571 |
|
OWNERS' EQUITY (DEFICIT): |
|
|
|
|
|
|
The Company |
|
|
8,483 |
|
|
|
3,123 |
|
Other investors |
|
|
(66,480 |
) |
|
|
(46,250 |
) |
Total owners' deficit |
|
|
(57,997 |
) |
|
|
(43,127 |
) |
Total liabilities and owners’ deficit |
|
$ |
1,339,416 |
|
|
$ |
1,323,444 |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Total revenues |
|
$ |
60,533 |
|
|
$ |
63,737 |
|
Net income (1) |
|
$ |
9,181 |
|
|
$ |
20,678 |
|
(1)The Company's pro rata share of net income (loss) was $(1,256) and $8,566 for the three months ended March 31, 2023, and 2022, respectively.
Variable Interest Entities
The Operating Partnership and certain of its subsidiaries are deemed to have the characteristics of a VIE primarily because the limited partners of these entities do not collectively possess substantive kick-out or participating rights.
11
The Company consolidates the Operating Partnership, which is a VIE, for which the Company is the primary beneficiary. The Company, through the Operating Partnership, consolidates all VIEs for which it is the primary beneficiary. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership is considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether the Company is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of the Company's investment; the obligation or likelihood for the Company or other investors to provide financial support; and the similarity with and significance to the Company's business activities and the business activities of the other investors.
Consolidated VIEs
As of March 31, 2023, the Company had investments in 11 consolidated VIEs with ownership interests ranging from 50% to 92%.
Unconsolidated VIEs
The table below lists the Company's unconsolidated VIEs as of March 31, 2023:
|
|
|
|
|
|
|
|
|
Unconsolidated VIEs: |
|
Investment in Real Estate Joint Ventures and Partnerships |
|
|
Maximum Risk of Loss |
|
Alamance Crossing CMBS, LLC (1) |
|
$ |
— |
|
|
$ |
— |
|
Ambassador Infrastructure, LLC (2) |
|
|
— |
|
|
|
5,749 |
|
Atlanta Outlet JV, LLC (2) |
|
|
— |
|
|
|
4,375 |
|
BI Development, LLC |
|
|
129 |
|
|
|
129 |
|
BI Development II, LLC |
|
|
36 |
|
|
|
36 |
|
CBL-T/C, LLC |
|
|
— |
|
|
|
— |
|
El Paso Outlet Center Holding, LLC |
|
|
— |
|
|
|
— |
|
Fremaux Town Center JV, LLC |
|
|
— |
|
|
|
— |
|
Louisville Outlet Shoppes, LLC (2) |
|
|
— |
|
|
|
7,247 |
|
Mall of South Carolina L.P. |
|
|
— |
|
|
|
— |
|
Vision - CBL Hamilton Place, LLC |
|
|
2,164 |
|
|
|
2,164 |
|
Vision - CBL Mayfaire TC Hotel, LLC |
|
|
1,800 |
|
|
|
1,800 |
|
|
|
$ |
4,129 |
|
|
$ |
21,500 |
|
(1)During the three months ended March 31, 2023, the property was placed into receivership.
(2)The Operating Partnership has guaranteed all or a portion of the debt of each of these VIEs. See Note 11 for more information.
Note 8 – Mortgage and Other Indebtedness, Net
CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries that it has a direct or indirect ownership interest in are the borrowers on all the Company's debt.
CBL is a limited guarantor of the secured term loan for losses suffered solely by reason of fraud or willful misrepresentation by the Operating Partnership or its affiliates.
12
The Company’s mortgage and other indebtedness, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|
|
Amount |
|
|
Weighted- Average Interest Rate (1) |
|
|
Amount |
|
|
Weighted- Average Interest Rate (1) |
|
Fixed-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
Open-air centers and outparcels loan |
|
$ |
180,000 |
|
|
|
6.95 |
% |
|
$ |
180,000 |
|
|
|
6.95 |
% |
Non-recourse loans on operating properties |
|
|
792,999 |
|
|
|
4.85 |
% |
|
|
843,634 |
|
|
|
4.90 |
% |
Total fixed-rate debt |
|
|
972,999 |
|
|
|
5.24 |
% |
|
|
1,023,634 |
|
|
|
5.26 |
% |
Variable-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
Secured term loan (2) |
|
|
816,739 |
|
|
|
7.41 |
% |
|
|
829,452 |
|
|
|
6.87 |
% |
Open-air centers and outparcels loan |
|
|
180,000 |
|
|
|
8.77 |
% |
|
|
180,000 |
|
|
|
8.22 |
% |
Non-recourse loans on operating properties |
|
|
55,965 |
|
|
|
7.80 |
% |
|
|
56,490 |
|
|
|
7.26 |
% |
Total variable-rate debt |
|
|
1,052,704 |
|
|
|
7.66 |
% |
|
|
1,065,942 |
|
|
|
7.12 |
% |
Total fixed-rate and variable-rate debt |
|
|
2,025,703 |
|
|
|
6.50 |
% |
|
|
2,089,576 |
|
|
|
6.21 |
% |
Unamortized deferred financing costs |
|
|
(15,903 |
) |
|
|
|
|
|
(17,101 |
) |
|
|
|
Debt discounts (3) |
|
|
(63,371 |
) |
|
|
|
|
|
(72,289 |
) |
|
|
|
Total mortgage and other indebtedness, net |
|
$ |
1,946,429 |
|
|
|
|
|
$ |
2,000,186 |
|
|
|
|
(1)Weighted-average interest rate excludes amortization of deferred financing costs.
(2)The Operating Partnership provided a limited guaranty up to a maximum of $175,000 (the “Principal Liability Cap”). The Principal Liability Cap will be reduced by an amount equal to 100% of the first $2,500 in principal amortization made by HoldCo I each calendar year and will be reduced further by 50% of the principal amortization payments made by HoldCo I each calendar year in excess of the first $2,500 in principal amortization for such calendar year. As of March 31, 2023, the Principal Liability Cap had been reduced to $129,241. The Principal Liability Cap is eliminated when the loan balance is reduced below $650,000.
(3)In conjunction with fresh start accounting, the Company estimated the fair value of its mortgage notes with the assistance of a third-party valuation advisor. This resulted in recognizing a debt discount upon emerging from bankruptcy. The debt discount is accreted over the term of the respective debt using the effective interest method. The remaining debt discounts at March 31, 2023 will be accreted over a weighted average period of 2.7 years.
Non-recourse loans on operating properties, the open-air centers and outparcels loan and the secured term loan include loans that are secured by properties owned by the Company that have a carrying value of $1,572,974 at March 31, 2023.
2023 Loan Activity
In February 2023, the loan secured by Fayette Mall was extended through May 2024. The interest rate remains fixed at 4.25%. The outstanding balance of the loan secured by Fayette Mall was $125,534 as of March 31, 2023.
In March 2023, the secured term loan was amended to replace LIBOR with the secured overnight financing rate ("SOFR") for purposes of calculating interest. The transition to SOFR is effective as of June 30, 2023. The interest rate on the conversion date will be SOFR plus the applicable margin (2.75%) plus the SOFR adjustment (0.11448%).
Subsequent to March 31, 2023, the Operating Partnership entered into an interest rate swap. See Note 14 for additional information.
13
Scheduled Principal Payments
As of March 31, 2023, the scheduled principal amortization and balloon payments of the Company’s consolidated debt, excluding extensions available at the Company’s option, on all mortgage and other indebtedness, are as follows:
|
|
|
|
|
2023 (1) |
|
$ |
180,237 |
|
2024 |
|
|
188,860 |
|
2025 |
|
|
828,607 |
|
2026 |
|
|
375,588 |
|
2027 |
|
|
360,895 |
|
2028 |
|
|
950 |
|
Thereafter |
|
|
61,905 |
|
Total |
|
|
1,997,042 |
|
Principal balance of loans with maturity date prior to March 31, 2023 (2) |
|
|
28,661 |
|
Total mortgage and other indebtedness |
|
$ |
2,025,703 |
|
(1)Reflects scheduled principal amortization and balloon payments for the fiscal period April 1, 2023 through December 31, 2023.
(2)Represents the principal balance as of March 31, 2023 of the loan secured by WestGate Mall, which is in maturity default. The Company is in discussions with the lender. The loan matured in July 2022 and had a balance of $28,661 as of March 31, 2023.
Of the $180,237 of scheduled principal payments for the remainder of 2023, $152,153 relates to the maturing principal balance of three operating property loans. Subsequent to March 31, 2023, the loan secured by Cross Creek Mall was extended through May 20, 2023. The Company remains in discussions with the lender regarding a long-term extension. See Note 14.
Note 9 – Segment Information
The Company measures performance and allocates resources according to property type, which is determined based on certain criteria such as type of tenants, capital requirements, economic risks, leasing terms, and short and long-term returns on capital. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments.
14
Information on the Company’s segments is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2023 |
|
Malls (1) |
|
|
All Other (2) |
|
|
Total |
|
Revenues (3) |
|
$ |
115,883 |
|
|
$ |
20,476 |
|
|
$ |
136,359 |
|
Property operating expenses (4) |
|
|
(46,871 |
) |
|
|
(4,055 |
) |
|
|
(50,926 |
) |
Interest expense |
|
|
(20,483 |
) |
|
|
(23,041 |
) |
|
|
(43,524 |
) |
Gain on sales of real estate assets |
|
|
— |
|
|
|
1,596 |
|
|
|
1,596 |
|
Other expense |
|
|
— |
|
|
|
(198 |
) |
|
|
(198 |
) |
Segment profit (loss) |
|
$ |
48,529 |
|
|
$ |
(5,222 |
) |
|
|
43,307 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
(53,269 |
) |
General and administrative |
|
|
|
|
|
|
|
|
(19,229 |
) |
Litigation settlement |
|
|
|
|
|
|
|
|
44 |
|
Interest and other income |
|
|
|
|
|
|
|
|
2,665 |
|
Gain on deconsolidation |
|
|
|
|
|
|
|
|
28,151 |
|
Income tax benefit |
|
|
|
|
|
|
|
|
101 |
|
Equity in losses of unconsolidated affiliates |
|
|
|
|
|
|
|
|
(1,256 |
) |
Net income |
|
|
|
|
|
|
|
$ |
514 |
|
Capital expenditures (5) |
|
$ |
4,433 |
|
|
$ |
3,102 |
|
|
$ |
7,535 |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2022 |
|
Malls (1) |
|
|
All Other (2) |
|
|
Total |
|
Revenues (3) |
|
$ |
121,428 |
|
|
$ |
18,674 |
|
|
$ |
140,102 |
|
Property operating expenses (4) |
|
|
(44,684 |
) |
|
|
(3,661 |
) |
|
|
(48,345 |
) |
Interest expense |
|
|
(71,159 |
) |
|
|
(19,500 |
) |
|
|
(90,659 |
) |
Gain on sales of real estate assets |
|
|
— |
|
|
|
16 |
|
|
|
16 |
|
Segment profit (loss) |
|
$ |
5,585 |
|
|
$ |
(4,471 |
) |
|
|
1,114 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
(68,943 |
) |
General and administrative expense |
|
|
|
|
|
|
|
|
(18,074 |
) |
Litigation settlement |
|
|
|
|
|
|
|
|
81 |
|
Interest and other income |
|
|
|
|
|
|
|
|
155 |
|
Gain on deconsolidation |
|
|
|
|
|
|
|
|
36,250 |
|
Reorganization items, net |
|
|
|
|
|
|
|
|
(1,571 |
) |
Income tax provision |
|
|
|
|
|
|
|
|
(801 |
) |
Equity in earnings of unconsolidated affiliates |
|
|
|
|
|
|
|
|
8,566 |
|
Net loss |
|
|
|
|
|
|
|
$ |
(43,223 |
) |
Capital expenditures (5) |
|
$ |
3,960 |
|
|
$ |
1,870 |
|
|
$ |
5,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
Malls (1) |
|
|
All Other (2) |
|
|
Total |
|
March 31, 2023 |
|
$ |
1,628,645 |
|
|
$ |
887,146 |
|
|
$ |
2,515,791 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
$ |
1,695,813 |
|
|
$ |
982,430 |
|
|
$ |
2,678,243 |
|
(1)The Malls category includes malls, lifestyle centers and outlet centers.
(2)The All Other category includes open-air centers, outparcels, office buildings, corporate-level debt and the Management Company.
(3)Management, development and leasing fees are included in All Other category. See Note 3 for information on the Company’s revenues disaggregated by revenue source for each of the above segments.
(4)Property operating expenses include property operating, real estate taxes and maintenance and repairs.
(5)Includes additions to and acquisitions of real estate assets and investments in unconsolidated affiliates. Developments in progress are included in the All Other category.
Note 10 – Earnings per Share
Earnings per share ("EPS") is calculated under the two-class method. Under the two-class method, all earnings (distributed and undistributed) are allocated to common stock and participating securities. The Company grants restricted stock awards to certain employees under its share-based compensation program, which entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested restricted stock awards meet the definition of participating securities based on their respective rights to receive nonforfeitable dividends.
15
Diluted EPS incorporates the potential impact of contingently issuable shares. Diluted EPS is calculated under both the two-class and treasury stock methods, and the more dilutive amount is reported. Performance stock units ("PSUs") and unvested restricted stock awards are contingently issuable common shares and are included in diluted EPS if the effect is dilutive.
The following table presents the calculation of basic and diluted EPS (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Basic earnings per share |
|
|
|
|
|
|
Net income (loss) attributable to the Company |
|
$ |
2,259 |
|
|
$ |
(40,722 |
) |
Less: Dividends allocable to unvested restricted stock |
|
|
(280 |
) |
|
|
— |
|
Net income (loss) attributable to common shareholders |
|
|
1,979 |
|
|
|
(40,722 |
) |
Weighted-average basic shares outstanding |
|
|
31,304 |
|
|
|
27,998 |
|
Net income (loss) per share attributable to common shareholders |
|
$ |
0.06 |
|
|
$ |
(1.45 |
) |
|
|
|
|
|
|
|
Diluted earnings per share (1) |
|
|
|
|
|
|
Net income (loss) attributable to common shareholders |
|
$ |
1,979 |
|
|
$ |
(40,722 |
) |
Weighted-average basic shares outstanding |
|
|
31,369 |
|
|
|
27,998 |
|
Net income (loss) per share attributable to common shareholders |
|
$ |
0.06 |
|
|
$ |
(1.45 |
) |
(1)For the three months ended March 31, 2023, the computation of diluted EPS includes contingently issuable shares related to PSUs calculated under the two-class method. Additionally, for the three months ended March 31, 2023, the computation of diluted EPS does not include contingently issuable shares related to unvested restricted stock awards due to their anti-dilutive nature. Had the contingently issuable shares been dilutive, the denominator for diluted EPS would have been 31,378, including 10 contingently issuable shares related to unvested restricted stock awards. There were no potential dilutive common shares and there were no anti-dilutive shares for the three months ended March 31, 2022.
Note 11 – Contingencies
Securities Litigation
The Company and certain of its officers and directors were named as defendants in three putative securities class action lawsuits (collectively, the “Securities Class Action Litigation”), each filed in the United States District Court for the Eastern District of Tennessee, on behalf of all persons who purchased or otherwise acquired the Company’s securities during a specified period of time. Those cases were consolidated on July 17, 2019, under the caption In re CBL & Associates Properties, Inc. Securities Litigation, 1:19-cv-00149-JRG-CHS, and a consolidated amended complaint was filed on November 5, 2019, seeking to represent a class of purchasers from July 29, 2014 through March 26, 2019.
The operative complaint filed in the Securities Class Action Litigation alleges violations of the securities laws, including, among other things, that the defendants made certain materially false and misleading statements and omissions regarding the Company’s contingent liabilities, business, operations, and prospects during the period of time specified above. The plaintiffs seek compensatory damages and attorneys’ fees and costs, among other relief, but have not specified the amount of damages sought. On May 3, 2022, the court dismissed the Company from the Securities Class Action Litigation but declined to dismiss the individual defendants. The court also lifted the stay of the proceedings and, on June 9, 2022, entered a scheduling order. Plaintiffs’ motion for class certification, which was opposed, was fully briefed and pending as of December 31, 2022. Following mediation on January 31, 2023, before a private mediator, the parties reached an agreement in principle to resolve the Securities Class Action Litigation, subject to documentation and court approval. On April 19, 2023, plaintiffs submitted the settlement to the court as part of an Unopposed Motion for Preliminary Approval of Class Action Settlement. On April 24, 2023, the court entered an order preliminarily approving the proposed settlement, subject to a final fairness hearing in August 2023. The settlement is expected to be fully funded by directors and officers liability insurance, subject to the terms and conditions thereof, with no contribution expected from the Company or the individual defendants. By agreeing to resolve the matter, neither the Company nor any of the individual defendants are admitting any liability or wrongdoing, and they have expressly denied both. Rather, defendants entered into the settlement to eliminate the risks, costs, and distractions associated with further litigation of this matter.
The outcome of these legal proceedings cannot be predicted with certainty.
On January 12, 2023, a purported shareholder filed a putative class action lawsuit captioned John Haynes v. Charles B. Lebovitz, et al., C.A. No. 2023-0033-NAC, in the Delaware Court of Chancery (the “Delaware Action”), naming the Company and certain directors as defendants. The Delaware Action alleged a claim against the Company for violation of Delaware General Corporation Law § 213(a) due to an improper record date for the 2022 annual meeting, and a claim for breach of fiduciary duty against the director defendants. The Delaware Action sought, among other things, a declaration that the directors breached their fiduciary duties, an equitable accounting, unspecified monetary relief, and attorneys’ fees. Defendants denied that any such relief was warranted, and on February 15, 2023, the Delaware Action was voluntarily dismissed.
16
The Company is currently involved in certain other litigation that arises in the ordinary course of business, most of which is expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.
Environmental Contingencies
The Company evaluates potential loss contingencies related to environmental matters using the same criteria described above related to litigation matters. Based on current information, an unfavorable outcome concerning such environmental matters, both individually and in the aggregate, is considered to be reasonably possible. However, the Company believes its maximum potential exposure to loss would not be material to its results of operations or financial condition. The Company has a master insurance policy that provides coverage through 2027 for certain environmental claims up to $40,000 per occurrence and up to $40,000 in the aggregate, subject to deductibles and certain exclusions. At certain locations, individual policies are in place.
Guarantees
The Operating Partnership may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on the Operating Partnership's investment in the joint venture. The Operating Partnership may receive a fee from the joint venture for providing the guaranty. Additionally, when the Operating Partnership issues a guaranty, the terms of the joint venture agreement typically provide that the Operating Partnership may receive indemnification from the joint venture partner or have the ability to increase its ownership interest. The guarantees expire upon repayment of the debt, unless noted otherwise.
The following table represents the Operating Partnership's guarantees of unconsolidated affiliates' debt as reflected in the accompanying condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2023 |
|
Obligation recorded to reflect guaranty |
|
Unconsolidated Affiliate |
|
Company's Ownership Interest |
|
Outstanding Balance |
|
|
Percentage Guaranteed by the Operating Partnership |
|
Maximum Guaranteed Amount |
|
|
Debt Maturity Date (1) |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
West Melbourne I, LLC - Phase I |
|
50% |
|
$ |
36,570 |
|
|
50% |
|
$ |
18,285 |
|
|
Feb-2025 |
(2) |
$ |
183 |
|
|
$ |
185 |
|
West Melbourne I, LLC - Phase II |
|
50% |
|
|
11,673 |
|
|
50% |
|
|
5,837 |
|
|
Feb-2025 |
(2) |
|
58 |
|
|
|
59 |
|
Port Orange I, LLC |
|
50% |
|
|
48,948 |
|
|
50% |
|
|
24,474 |
|
|
Feb-2025 |
(2) |
|
245 |
|
|
|
247 |
|
Ambassador Infrastructure, LLC |
|
65% |
|
|
5,749 |
|
|
100% |
|
|
5,749 |
|
|
Mar-2025 |
|
|
70 |
|
|
|
70 |
|
Atlanta Outlet JV, LLC |
|
50% |
|
|
4,375 |
|
|
100% |
|
|
4,375 |
|
|
Nov-2023 |
|
|
— |
|
|
|
— |
|
Louisville Outlet Shoppes, LLC (3) |
|
50% |
|
|
7,247 |
|
|
100% |
|
|
7,247 |
|
|
Apr-2023 |
|
|
— |
|
|
|
— |
|
Total guaranty liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
556 |
|
|
$ |
561 |
|
(1)Excludes any extension options.
(2)These loans have a one-year extension option at the joint venture’s election.
(3)Subsequent to March 31, 2023, the loan was paid off. See Note 14.
For the three months ended March 31, 2023 and 2022, the Company evaluated each guaranty, listed in the table above, individually by evaluating the debt service ratio, cash flow forecasts and the performance of each loan, where applicable. The result of the analysis was that each loan is current and performing. The Company did not record a credit loss related to the guarantees listed in the table above for the three months ended March 31, 2023 and 2022.
17
Note 12 – Share-Based Compensation
Restricted Stock Awards
Compensation expense is recognized on a straight-line basis over the requisite service period. The share-based compensation expense related to restricted stock awards granted under the CBL & Associates Properties, Inc. 2021 Equity Incentive Plan ("EIP") was $1,843 and $1,622 for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there was $18,507 of total unrecognized compensation cost related to nonvested restricted stock awards, which is expected to be recognized over a weighted-average period of 2.7 years. Share-based compensation cost resulting from share-based awards is recorded at the Management Company, which is a taxable entity.
A summary of the status of the Company’s nonvested restricted stock awards as of March 31, 2023, and changes during the three months ended March 31, 2023, are presented below:
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Weighted- Average Grant-Date Fair Value Per Share |
|
Nonvested at January 1, 2023 |
|
|
662,875 |
|
|
$ |
27.42 |
|
Granted |
|
|
355,278 |
|
|
$ |
26.21 |
|
Vested |
|
|
(265,341 |
) |
|
$ |
26.25 |
|
Forfeited |
|
|
(5,279 |
) |
|
$ |
24.86 |
|
Nonvested at March 31, 2023 |
|
|
747,533 |
|
|
$ |
27.28 |
|
The total grant-date fair value of restricted stock awards granted during the three months ended March 31, 2023 was $9,313. The total fair value of restricted stock awards that vested during the three months ended March 31, 2023 was $6,755.
Performance Stock Awards
In February 2023, the compensation committee of the board of directors established a long-term incentive program (“LTIP”) under the EIP and approved 2023 LTIP awards consisting of both a PSU component (55% - 60% of the LTIP award) and a restricted stock award component (40% - 45% of the LTIP award). The amount of common stock that may be issued for the PSU component upon the conclusion of the applicable three-year performance period will be determined by two measures: (i) a portion (40%) of the number of shares issued will be determined based on the Company’s achievement of specified levels of long-term relative Total Stockholder Return (“TSR”) performance (stock price appreciation plus aggregate dividends) versus the Retail Sector Component (excluding companies comprising the Free-Standing Subsector) of the Financial Times Stock Exchange ("FTSE") National Association of Real Estate Investment Trusts ("NAREIT") All Equity REIT Index, provided that at least a “Threshold” level must be attained for any shares to be received, and (ii) a portion (60%) of such number of shares issued will be determined based on the Company’s absolute TSR performance over such period, provided again that at least a “Threshold” level must be attained for any shares to be received. The restricted stock award component consists of time-vesting restricted stock, of which a third of the award vests equally over the three-year performance period.
Compensation cost for the PSUs granted in February 2023 is recognized on a straight-line basis over the service period since it is longer than the performance period. The resulting expense is recorded regardless of whether any PSU awards are earned as long as the required service period is met. For the PSUs granted in February 2022, each quarter, management assesses the probability that the measures associated with the Company's outstanding PSU awards will be attained. The Company begins recognizing compensation expense on a straight-line basis over the remaining service period once the PSU award measures are deemed probable of achievement. See Note 16 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 for a description of the PSUs granted in February 2022. Share-based compensation expense related to the 2022 and 2023 PSUs granted under the EIP was $1,409 and $1,121 for the three months ended March 31, 2023 and 2022, respectively. The unrecognized compensation expense related to the 2022 and 2023 PSUs was $17,036 as of March 31, 2023, which is expected to be recognized over a weighted-average period of 3.1 years.
18
A summary of the status of the Company’s outstanding 2022 and 2023 PSU awards as of March 31, 2023, and changes during the three months ended March 31, 2023, are presented below:
|
|
|
|
|
|
|
|
|
|
|
PSUs |
|
|
Weighted- Average Grant-Date Fair Value Per Share |
|
Outstanding at January 1, 2023 |
|
|
607,128 |
|
|
$ |
24.69 |
|
2023 PSUs granted |
|
|
157,789 |
|
|
$ |
38.79 |
|
Incremental PSUs granted (1) |
|
|
10,909 |
|
|
$ |
24.54 |
|
Forfeited |
|
|
(51,019 |
) |
|
$ |
24.87 |
|
Outstanding at March 31, 2023 |
|
|
724,807 |
|
|
$ |
27.90 |
|
(1)PSUs granted shall be adjusted as if the shares of common stock represented by such PSUs had received any applicable stock or cash dividends declared. As for stock dividends, a number of PSUs shall be added to the target amount corresponding to the number of shares of common stock that would have been payable per such stock dividend on the then outstanding number of PSUs under the agreement as if common stock had been issued for such PSUs. As to cash dividends, a number of PSUs shall be added to the target amount corresponding to the number of shares of common stock that could have been acquired by the cash dividend payable on the then outstanding number of PSUs under the agreement as if common stock had been issued for such PSUs, and the calculation of the number of shares of common stock that could have been acquired shall be based on the closing price of the common stock on the record date for the cash dividend at issue.
The total grant-date fair value of PSU awards granted during the three months ended March 31, 2023 was $6,120.
The following table summarizes the assumptions used in the Monte Carlo simulation pricing model related to the PSUs granted in 2023:
|
|
|
|
|
|
|
2023 PSUs |
|
Grant date |
|
February 17, 2023 |
|
Fair value per share on valuation date (1) |
|
$ |
38.79 |
|
Risk-free interest rate (2) |
|
|
4.37 |
% |
Expected share price volatility (3) |
|
|
62.50 |
% |
(1)The value of the PSU awards is estimated on the date of grant using a Monte Carlo simulation model. The valuation consists of computing the fair value using CBL's simulated stock price as well as TSR over a three-year performance period. The award is modeled as a contingent claim in that the expected return on the underlying shares is risk-free and the rate of discounting the payoff of the award is also risk-free. The weighted-average fair value per share related to the 2023 PSUs consists of 63,114 shares at a fair value of $40.64 per share (which relates to the relative TSR) and 94,675 shares at a fair value of $37.55 per share (which relates to absolute TSR).
(2)The risk-free interest rate was based on the yield curve on zero-coupon U.S. Treasury securities in effect as of the valuation date, which is the grant date listed above.
(3)The computation of expected volatility was based on the historical volatility of CBL's shares of common stock based on annualized daily total continuous returns over a three-year period and implied volatility data based on the trailing month average of daily implied volatilities implied by stock call option contracts that were both closest to the terms shown and closest to the money.
Note 13 – Noncash Investing and Financing Activities
The Company’s noncash investing and financing activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Additions to real estate assets accrued but not yet paid |
|
$ |
9,632 |
|
|
$ |
11,177 |
|
Deconsolidation upon loss of control (1): |
|
|
|
|
|
|
Decrease in real estate assets |
|
|
(9,015 |
) |
|
|
(18,810 |
) |
Decrease in mortgage and other indebtedness |
|
|
37,693 |
|
|
|
56,226 |
|
Decrease in operating assets and liabilities |
|
|
3,352 |
|
|
|
5,686 |
|
Decrease in intangible lease and other assets |
|
|
(3,879 |
) |
|
|
(6,852 |
) |
(1)See Note 7 for additional information.
Note 14 – Subsequent Events
In April 2023, the Company and its joint venture partner entered into a new $148,000 loan secured by Friendly Center and The Shops at Friendly Center. Proceeds from the new loan were used to pay off two previous loans totaling $145,591. The new loan bears a fixed interest rate of 6.44% and matures in May 2028.
In April 2023, the loan secured by Cross Creek Mall was extended through May 20, 2023. The Company is in discussions with the lender regarding a long-term extension.
In April 2023, the $7,247 loan secured by The Outlet Shoppes of the Bluegrass - Phase II, an unconsolidated affiliate, was paid off.
19
In April 2023, the Company redeemed $46,994 in U.S. Treasury securities and purchased $40,774 in new U.S. Treasury securities with maturities through September 2023.
In May 2023, the Company redeemed $44,150 in U.S. Treasury securities and purchased $44,155 in new U.S. Treasury securities with maturities through April 2024.
In May 2023, the Operating Partnership entered into an interest rate swap with a notional amount of $32,000 to fix the interest rate at 7.3975% on $32,000 of the variable rate portion of the open-air centers and outparcels loan. The swap has a maturity date of June 7, 2027. The Company designated the swap as a cash flow hedge on its variable rate debt.
20
ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and accompanying notes that are included in this Form 10-Q. Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations have the same meanings as defined in the notes to the condensed consolidated financial statements. Unless stated otherwise or the context otherwise requires, references to the “Company,” “we,” “us” and “our” mean CBL & Associates Properties, Inc. and its subsidiaries.
Certain statements made in this section or elsewhere in this report may be deemed “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical fact should be considered to be forward-looking statements. In many cases, these forward-looking statements may be identified by the use of words such as “will,” “may,” “should,” “could,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “projects,” “goals,” “objectives,” “targets,” “predicts,” “plans,” “seeks,” and variations of these words and similar expressions. Any forward-looking statement speaks only as of the date on which it is made and is qualified in its entirety by reference to the factors discussed throughout this report.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance or results and we can give no assurance that these expectations will be attained. It is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of known and unknown risks and uncertainties. In addition to the risk factors described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, 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;
•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;
•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; and
•other risks referenced from time to time in filings with the Securities and Exchange Commission (“SEC”) and those factors listed or incorporated by reference into this report.
This list of risks and uncertainties is only a summary and is not intended to be exhaustive. We disclaim any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information.
21
Executive Overview
We are a self-managed, self-administered, fully integrated REIT that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, outlet centers, lifestyle centers, open-air centers and other properties. See Note 1 to the condensed consolidated financial statements for information on our property interests as of March 31, 2023. We have elected to be taxed as a REIT for federal income tax purposes.
As of March 31, 2023, portfolio occupancy was 89.8%, which represents a 150-basis-point increase compared to the prior-year period. We signed nearly 1.3 million square feet of leases during the quarter, including more than 285,000-square-feet of new leases. Improved occupancy levels translated into higher rents and improved lease spreads across the portfolio. While sales moderated during the first quarter, levels remain well above 2019.
Rental revenue growth during the first quarter of 2023 from new leasing was offset by lower percentage rents, an unfavorable variance in uncollectable revenues and higher expenses that were primarily related to completion of previously delayed maintenance projects and timing of certain third-party contract expenses.
We have closed on more than $312.0 million in financings year-to-date. We are currently in the process of addressing the remaining 2023 maturities, as well as looking ahead to 2024 and beyond. We benefit from a balance sheet comprised almost exclusively of non-recourse mortgage debt, with significant ongoing amortization reducing leverage and unlocking equity value. As 2023 progresses, we are focused on improving operating performance and enhancing free cash flow, as well as improving value through disciplined capital allocation.
We had net income for the three months ended March 31, 2023 of $0.5 million, as compared to a net loss for the three months ended March 31, 2022 of $43.2 million. We had net income attributable to common shareholders for the three months ended March 31, 2023 of $2.0 million, as compared to a net loss attributable to common shareholders for the three months ended March 31, 2022 of $40.7 million. Significant items that affected comparability between the three-month periods include:
•Items increasing net income for the three months ended March 31, 2023 compared to the prior-year period:
•Interest expense was $47.1 million lower;
•Depreciation and amortization expense was $15.7 million lower;
•Interest income was $2.5 million higher.
•Items decreasing net income for the three months ended March 31, 2023 compared to the prior-year period:
•Equity in losses was $1.3 million compared to equity in earnings of $8.6 million for the three months ended March 31, 2022;
•Gain on deconsolidation was $8.1 million lower;
•Revenues were $3.7 million lower.
Our focus is on continuing to execute our strategy to improve occupancy, drive rent growth and transform the offerings available at our diverse portfolio of dynamic properties to include a targeted 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 in our control, we believe that the strategies in place to redevelop our properties and diversify our tenant mix will contribute to stabilization of our portfolio and revenues in future years.
Same-center NOI and FFO are non-GAAP measures. For a description of same-center NOI, a reconciliation from net income (loss) to same-center NOI, and an explanation of why we believe this is a useful performance measure, see Non-GAAP Measure - Same-center Net Operating Income in Results of Operations. For a description of FFO, a reconciliation from net income (loss) attributable to common shareholders to FFO allocable to Operating Partnership common unitholders, and an explanation of why we believe this is a useful performance measure, see Non-GAAP Measure - Funds from Operations.
22
Results of Operations
Properties that were in operation for the entire year during 2022 and the three months ended March 31, 2023 are referred to as the "Comparable Properties." Since January 2022, we have deconsolidated:
Deconsolidations
|
|
|
|
|
Property |
|
Location |
|
Date of Deconsolidation |
Greenbrier Mall (1)(2) |
|
Chesapeake, VA |
|
March 2022 |
Alamance Crossing East (1) |
|
Burlington, NC |
|
February 2023 |
(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 in October 2022.
Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
Comparable Properties |
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Core |
|
|
Non-core |
|
|
Deconsolidation |
|
|
Dispositions |
|
Rental revenues |
|
$ |
130,324 |
|
|
$ |
135,332 |
|
|
$ |
(5,008 |
) |
|
$ |
(3,230 |
) |
|
$ |
315 |
|
|
$ |
(2,093 |
) |
|
$ |
— |
|
Management, development and leasing fees |
|
|
2,434 |
|
|
|
1,769 |
|
|
|
665 |
|
|
|
665 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other |
|
|
3,601 |
|
|
|
3,001 |
|
|
|
600 |
|
|
|
662 |
|
|
|
(20 |
) |
|
|
(37 |
) |
|
|
(5 |
) |
Total revenues |
|
$ |
136,359 |
|
|
$ |
140,102 |
|
|
$ |
(3,743 |
) |
|
$ |
(1,903 |
) |
|
$ |
295 |
|
|
$ |
(2,130 |
) |
|
$ |
(5 |
) |
Rental revenues from the Comparable Properties decreased primarily due to lower percentage rents and an unfavorable variance in the estimate for uncollectable revenues as compared to the prior-year period.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
Comparable Properties |
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Core |
|
|
Non-core |
|
|
Deconsolidation |
|
|
Dispositions |
|
Property operating |
|
$ |
(24,614 |
) |
|
$ |
(23,344 |
) |
|
$ |
(1,270 |
) |
|
$ |
(1,891 |
) |
|
$ |
137 |
|
|
$ |
434 |
|
|
$ |
50 |
|
Real estate taxes |
|
|
(14,788 |
) |
|
|
(14,435 |
) |
|
|
(353 |
) |
|
|
(483 |
) |
|
|
(39 |
) |
|
|
169 |
|
|
|
— |
|
Maintenance and repairs |
|
|
(11,524 |
) |
|
|
(10,566 |
) |
|
|
(958 |
) |
|
|
(1,223 |
) |
|
|
13 |
|
|
|
252 |
|
|
|
— |
|
Property operating expenses |
|
|
(50,926 |
) |
|
|
(48,345 |
) |
|
|
(2,581 |
) |
|
|
(3,597 |
) |
|
|
111 |
|
|
|
855 |
|
|
|
50 |
|
Depreciation and amortization |
|
|
(53,269 |
) |
|
|
(68,943 |
) |
|
|
15,674 |
|
|
|
14,813 |
|
|
|
(199 |
) |
|
|
1,073 |
|
|
|
(13 |
) |
General and administrative |
|
|
(19,229 |
) |
|
|
(18,074 |
) |
|
|
(1,155 |
) |
|
|
(1,155 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Litigation settlement |
|
|
44 |
|
|
|
81 |
|
|
|
(37 |
) |
|
|
(37 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other |
|
|
(198 |
) |
|
|
— |
|
|
|
(198 |
) |
|
|
(198 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total operating expenses |
|
$ |
(123,578 |
) |
|
$ |
(135,281 |
) |
|
$ |
11,703 |
|
|
$ |
9,826 |
|
|
$ |
(88 |
) |
|
$ |
1,928 |
|
|
$ |
37 |
|
Total property operating expenses at the Comparable Properties increased primarily due to the completion of previously delayed maintenance projects and the timing of certain third-party contracts.
Depreciation and amortization expense at the Comparable Properties decreased primarily due to assets becoming fully depreciated or amortized since the prior-year period related to the shorter useful lives that were implemented upon the adoption of fresh start accounting upon our emergence from bankruptcy.
General and administrative expenses increased due to higher compensation and share-based compensation expenses as compared to the prior-year period.
23
Other Income and Expenses
Interest and other income increased $2.5 million during the three months ended March 31, 2023 as compared to the prior-year period. The increase was primarily due to holding U.S. Treasury securities that carry higher interest rates in the current-year period.
Interest expense decreased $47.1 million during the three months ended March 31, 2023 as compared to the prior-year period. The decrease was primarily due to $54.4 million less accretion of property-level debt discounts as certain discounts became fully accreted since the prior-year period. 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. Also, the decrease includes $10.9 million of interest expense in the prior-year period on the secured notes that were fully redeemed in 2022. The decrease in interest expense was partially offset by an increase of $13.7 million in the current period related to the open-air centers and outparcels loan that was entered into during the second quarter of 2022 and higher interest expense on the term loan due to increased variable interest rates.
For the three months ended March 31, 2023, we recorded a $28.2 million gain on deconsolidation related to Alamance Crossing East that was deconsolidated due to a loss of control when the mall was placed into receivership in connection with the foreclosure process. For the three months ended March 31, 2022, we recorded a $36.3 million gain on deconsolidation related to Greenbrier Mall that was deconsolidated due to a loss of control when the mall was placed into receivership in connection with the foreclosure process.
Reorganizations items, net, were a reduction to income of $1.6 million for the three months ended March 31, 2022, which consisted of professional, legal fees and U.S. Trustee fees directly related to the bankruptcy filing in 2020.
Equity in losses of unconsolidated affiliates was $1.3 million for the three months ended March 31, 2023. Equity in earnings of unconsolidated affiliates was $8.6 million for the three months ended March 31, 2022. The decrease in the current-year period as compared to the prior-year period relates to recognizing equity in losses for the three months ended March 31, 2023 in an unconsolidated affiliate where our investment in that unconsolidated affiliate had previously been zero.
The income tax benefit for the three months ended March 31, 2023 was $0.1 million. The income tax provision for the three months ended March 31, 2022 was $0.8 million.
During the three months ended March 31, 2023, we recognized $1.6 million of gain on sales of real estate assets primarily related to the sale of four land parcels. There were no sales of real estate assets during the prior-year period.
Non-GAAP Measure
Same-center Net Operating Income
NOI is a supplemental non-GAAP measure of the operating performance of our shopping centers and other properties. We define NOI as property operating revenues (rental revenues and other income) less property operating expenses (property operating, real estate taxes and maintenance and repairs).
We compute NOI based on the Operating Partnership's pro rata share of both consolidated and unconsolidated properties. We believe that presenting NOI and same-center NOI (described below) based on our Operating Partnership’s pro rata share of both consolidated and unconsolidated properties is useful since we conduct substantially all our business through our Operating Partnership and, therefore, it reflects the performance of the properties in absolute terms regardless of the ratio of ownership interests of our common shareholders and the noncontrolling interest in the Operating Partnership. Our definition of NOI may be different than that used by other companies, and accordingly, our calculation of NOI may not be comparable to that of other companies.
Since NOI includes only those revenues and expenses related to the operations of our shopping center properties, we believe that same-center NOI provides a measure that reflects trends in occupancy rates, rental rates, sales at our properties and operating costs and the impact of those trends on our results of operations. Our calculation of same-center NOI excludes lease termination income, straight-line rent adjustments, amortization of above and below market lease intangibles and write-offs of landlord inducement assets in order to enhance the comparability of results from one period to another.
We include a property in our same-center pool when we have owned all or a portion of the property since January 1 of the preceding calendar year and it has been in operation for both the entire preceding calendar year and current year-to-date period. New properties are excluded from same-center NOI until they meet these criteria. Properties excluded from the same-center pool that would otherwise meet these criteria are categorized as excluded properties. We exclude properties for which we are working or intend to work with the lender on a restructure of the terms of the loan secured by the property or convey the secured property to the lender (“Excluded Properties”). As of March 31, 2023, Alamance Crossing East and WestGate Mall were classified as Excluded Properties.
24
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 income (loss) for the three-month periods ended March 31, 2023 and 2022 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Net income (loss) |
|
$ |
514 |
|
|
$ |
(43,223 |
) |
Adjustments: (1) |
|
|
|
|
|
|
Depreciation and amortization |
|
|
57,242 |
|
|
|
76,564 |
|
Interest expense |
|
|
59,006 |
|
|
|
106,586 |
|
Abandoned projects expense |
|
|
17 |
|
|
|
— |
|
Gain on sales of real estate assets |
|
|
(1,596 |
) |
|
|
(16 |
) |
Loss (gain) on sales of real estate assets of unconsolidated affiliates |
|
|
16 |
|
|
|
(629 |
) |
Adjustment for unconsolidated affiliates with negative investment |
|
|
1,591 |
|
|
|
(12,547 |
) |
Gain on deconsolidation |
|
|
(28,151 |
) |
|
|
(36,250 |
) |
Litigation settlement |
|
|
(44 |
) |
|
|
(81 |
) |
Reorganization items, net |
|
|
— |
|
|
|
1,571 |
|
Income tax (benefit) provision |
|
|
(101 |
) |
|
|
801 |
|
Lease termination fees |
|
|
(1,161 |
) |
|
|
(1,395 |
) |
Straight-line rent and above- and below-market lease amortization |
|
|
3,689 |
|
|
|
3,240 |
|
Net loss attributable to noncontrolling interests in other consolidated subsidiaries |
|
|
1,745 |
|
|
|
2,486 |
|
General and administrative expenses |
|
|
19,229 |
|
|
|
18,074 |
|
Management fees and non-property level revenues |
|
|
(4,980 |
) |
|
|
(1,086 |
) |
Operating Partnership's share of property NOI |
|
|
107,016 |
|
|
|
114,095 |
|
Non-comparable NOI |
|
|
(1,837 |
) |
|
|
(3,954 |
) |
Total same-center NOI |
|
$ |
105,179 |
|
|
$ |
110,141 |
|
(1)Adjustments are based on our Operating Partnership's pro rata ownership share, including our share of unconsolidated affiliates and excluding noncontrolling interests' share of consolidated properties.
Same-center NOI decreased 4.5% for the three months ended March 31, 2023 as compared to the prior-year period. The $5.0 million decrease for the three months ended March 31, 2023 compared to the same period in 2022 primarily consisted of a $1.4 million decrease in revenues and a $3.6 million increase in operating expenses. Rental revenues were $2.0 million lower primarily due to decreased percentage rents and an unfavorable variance in the estimate for uncollectable revenues in the current-year period as compared to the prior-year period. Property operating expenses were higher in the current-year period as compared to the prior-year period primarily due to the completion of previously delayed maintenance projects and timing of certain third-party contracts.
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:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Malls, Lifestyle Centers and Outlet Centers |
|
|
85.0 |
% |
|
|
86.7 |
% |
All Other |
|
|
15.0 |
% |
|
|
13.3 |
% |
25
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):
|
|
|
|
|
|
|
|
|
|
|
Sales Per Square Foot for the Trailing Twelve Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Mall, Lifestyle Center and Outlet Center same-center sales per square foot |
|
$ |
433 |
|
|
$ |
447 |
|
Occupancy
Our portfolio occupancy is summarized in the following table (Excluded Properties are not included in occupancy metrics):
|
|
|
|
|
|
|
As of March 31, |
|
|
2023 |
|
2022 |
Total portfolio |
|
89.8% |
|
88.3% |
Malls, Lifestyle Centers and Outlet Centers: |
|
|
|
|
Total malls |
|
87.8% |
|
86.4% |
Total lifestyle centers |
|
90.9% |
|
86.3% |
Total outlet centers |
|
87.3% |
|
87.0% |
Total same-center malls, lifestyle centers and outlet centers |
|
88.0% |
|
86.8% |
All Other: |
|
|
|
|
Total open-air centers |
|
96.0% |
|
94.4% |
Total other |
|
79.9% |
|
89.0% |
Leasing
The following is a summary of the total square feet of leases signed in the three-month periods ended March 31, 2023 and 2022:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Operating portfolio: |
|
|
|
|
|
|
New leases |
|
|
286,013 |
|
|
|
234,890 |
|
Renewal leases |
|
|
988,491 |
|
|
|
816,806 |
|
Development portfolio: |
|
|
|
|
|
|
New leases |
|
|
— |
|
|
|
— |
|
Total leased |
|
|
1,274,504 |
|
|
|
1,051,696 |
|
26
Average annual base rents per square foot are based on contractual rents in effect as of March 31, 2023 and 2022, 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:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Total portfolio |
|
$ |
25.42 |
|
|
$ |
24.98 |
|
Malls, Lifestyle Centers and Outlet Centers (1): |
|
|
|
|
|
|
Total same-center malls, lifestyle centers and outlet centers |
|
|
29.99 |
|
|
|
29.58 |
|
Total malls |
|
|
30.39 |
|
|
|
30.16 |
|
Total lifestyle centers |
|
|
29.19 |
|
|
|
27.25 |
|
Total outlet centers |
|
|
27.78 |
|
|
|
26.22 |
|
All Other: |
|
|
|
|
|
|
Total open-air centers |
|
|
15.31 |
|
|
|
15.03 |
|
Total other |
|
|
19.82 |
|
|
|
19.20 |
|
(1)Excluded Properties are not included.
Results from new and renewal leasing of comparable small shop space of less than 10,000 square feet during the three-month period ended March 31, 2023 for spaces that were previously occupied, based on the contractual terms of the related leases inclusive of the impact of any rent concessions, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Type |
|
Square Feet |
|
|
Prior Gross Rent PSF |
|
|
New Initial Gross Rent PSF |
|
|
% Change Initial |
|
|
New Average Gross Rent PSF (1) |
|
|
% Change Average |
|
Quarter-to-Date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Property Types (2) |
|
|
737,086 |
|
|
$ |
33.56 |
|
|
$ |
33.76 |
|
|
|
0.6 |
% |
|
$ |
34.40 |
|
|
|
2.5 |
% |
Malls, Lifestyle Centers & Outlet Centers |
|
|
688,518 |
|
|
|
34.40 |
|
|
|
34.19 |
|
|
|
(0.6 |
)% |
|
|
34.84 |
|
|
|
1.3 |
% |
New leases |
|
|
42,400 |
|
|
|
38.09 |
|
|
|
43.99 |
|
|
|
15.5 |
% |
|
|
46.01 |
|
|
|
20.8 |
% |
Renewal leases |
|
|
646,118 |
|
|
|
34.16 |
|
|
|
33.54 |
|
|
|
(1.8 |
)% |
|
|
34.11 |
|
|
|
(0.1 |
)% |
(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.
New and renewal leasing activity of comparable small shop space of less than 10,000 square feet based on the lease commencement date is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Leases |
|
|
Square Feet |
|
|
Term (in years) |
|
|
Initial Rent PSF |
|
|
Average Rent PSF |
|
|
Expiring Rent PSF |
|
|
Initial Rent Spread |
|
|
Average Rent Spread |
|
Commencement 2023: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New |
|
|
32 |
|
|
|
93,434 |
|
|
|
6.35 |
|
|
$ |
40.54 |
|
|
$ |
42.48 |
|
|
$ |
35.77 |
|
|
$ |
4.77 |
|
|
|
13.3 |
% |
|
$ |
6.71 |
|
|
|
18.8 |
% |
Renewal |
|
|
331 |
|
|
|
1,121,284 |
|
|
|
2.54 |
|
|
|
33.66 |
|
|
|
33.91 |
|
|
|
33.21 |
|
|
|
0.45 |
|
|
|
1.4 |
% |
|
|
0.70 |
|
|
|
2.1 |
% |
Commencement 2023 Total |
|
|
363 |
|
|
|
1,214,718 |
|
|
|
2.88 |
|
|
|
34.19 |
|
|
|
34.57 |
|
|
|
33.41 |
|
|
|
0.78 |
|
|
|
2.3 |
% |
|
|
1.16 |
|
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commencement 2024: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New |
|
|
1 |
|
|
|
548 |
|
|
|
3.00 |
|
|
|
68.32 |
|
|
|
71.08 |
|
|
|
65.69 |
|
|
|
2.63 |
|
|
|
4.0 |
% |
|
|
5.39 |
|
|
|
8.2 |
% |
Renewal |
|
|
44 |
|
|
|
90,891 |
|
|
|
2.34 |
|
|
|
49.50 |
|
|
|
49.63 |
|
|
|
47.84 |
|
|
|
1.66 |
|
|
|
3.5 |
% |
|
|
1.79 |
|
|
|
3.7 |
% |
Commencement 2024 Total |
|
|
45 |
|
|
|
91,439 |
|
|
|
2.36 |
|
|
|
49.61 |
|
|
|
49.76 |
|
|
|
47.95 |
|
|
|
1.66 |
|
|
|
3.5 |
% |
|
|
1.81 |
|
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2023/2024 |
|
|
408 |
|
|
|
1,306,157 |
|
|
|
2.82 |
|
|
$ |
35.27 |
|
|
$ |
35.63 |
|
|
$ |
34.43 |
|
|
$ |
0.84 |
|
|
|
2.4 |
% |
|
$ |
1.20 |
|
|
|
3.5 |
% |