CBL & Associates Properties(CBL) - 2019 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION ITEM 1: Financial Statements This section presents the unaudited condensed consolidated financial statements for the company and its operating partnership for the quarter ended June 30, 2019 CBL & Associates Properties, Inc. Condensed Consolidated Balance Sheets CBL & Associates Properties, Inc. Condensed Consolidated Balance Sheets (in thousands) | ASSETS (in thousands) | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Net investment in real estate assets | $4,525,078 | $4,785,526 | | Cash and cash equivalents | $20,483 | $25,138 | | Total assets | $5,048,140 | $5,340,853 | | LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | | Mortgage and other indebtedness, net | $3,865,939 | $4,043,180 | | Total liabilities | $4,126,867 | $4,305,113 | | Total equity | $918,586 | $1,032,165 | - Total assets decreased by $292.7 million from December 31, 2018, to June 30, 2019, primarily driven by a reduction in net investment in real estate assets and cash[20] - Total liabilities decreased by $178.2 million, mainly due to a reduction in mortgage and other indebtedness[20] CBL & Associates Properties, Inc. Condensed Consolidated Statements of Operations CBL & Associates Properties, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $193,377 | $214,598 | $391,407 | $434,798 | | Total operating expenses | $(177,525) | $(201,326) | $(443,974) | $(377,388) | | Net loss | $(29,688) | $(29,976) | $(76,497) | $(30,637) | | Net loss attributable to common shareholders | $(35,400) | $(35,020) | $(85,599) | $(45,340) | | Basic and diluted EPS | $(0.20) | $(0.20) | $(0.49) | $(0.26) | - Total revenues decreased by $21.2 million (9.9%) for the three months ended June 30, 2019, and by $43.4 million (10.0%) for the six months ended June 30, 2019, compared to the prior-year periods[25] - Net loss attributable to common shareholders increased for the six months ended June 30, 2019, to $(85.6) million from $(45.3) million in the prior year, primarily due to a litigation settlement expense of $88.2 million, partially offset by gains on extinguishment of debt of $71.7 million[25] CBL & Associates Properties, Inc. Condensed Consolidated Statements of Equity CBL & Associates Properties, Inc. Condensed Consolidated Statements of Equity (in thousands) | Equity Item (in thousands) | Balance, January 1, 2019 | Balance, June 30, 2019 | | :--- | :--- | :--- | | Total Shareholders' Equity | $964,137 | $863,805 | | Noncontrolling interests | $68,028 | $54,781 | | Total Equity | $1,032,165 | $918,586 | - Total equity decreased by $113.6 million from January 1, 2019, to June 30, 2019, primarily due to net loss and dividends declared[33] CBL & Associates Properties, Inc. Condensed Consolidated Statements of Cash Flows CBL & Associates Properties, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $126,032 | $179,882 | | Net cash provided by (used in) investing activities | $27,104 | $(22,837) | | Net cash used in financing activities | $(165,132) | $(164,706) | | Net change in cash, cash equivalents and restricted cash | $(11,996) | $(7,661) | | Cash, cash equivalents and restricted cash, end of period | $45,516 | $60,511 | - Net cash provided by operating activities decreased by $53.9 million for the six months ended June 30, 2019, compared to the prior-year period[36][40] - Net cash provided by investing activities increased significantly by $49.9 million, shifting from a net outflow in 2018 to a net inflow in 2019[36][40] CBL & Associates Limited Partnership Condensed Consolidated Balance Sheets CBL & Associates Limited Partnership Condensed Consolidated Balance Sheets (in thousands) | ASSETS (in thousands) | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Net investment in real estate assets | $4,525,078 | $4,785,526 | | Cash and cash equivalents | $20,482 | $25,138 | | Total assets | $5,048,503 | $5,341,217 | | LIABILITIES, REDEEMABLE INTERESTS AND CAPITAL | | Mortgage and other indebtedness, net | $3,865,939 | $4,043,180 | | Total liabilities | $4,126,937 | $4,305,184 | | Total capital | $918,879 | $1,032,458 | - Total assets for the Operating Partnership decreased by $292.7 million from December 31, 2018, to June 30, 2019, mirroring the parent company's trend[43] CBL & Associates Limited Partnership Condensed Consolidated Statements of Operations CBL & Associates Limited Partnership Condensed Consolidated Statements of Operations (in thousands, except per unit data) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $193,377 | $214,598 | $391,407 | $434,798 | | Total operating expenses | $(177,525) | $(201,326) | $(443,974) | $(377,388) | | Net loss | $(29,688) | $(29,976) | $(76,497) | $(30,637) | | Net loss attributable to common unitholders | $(40,854) | $(40,705) | $(98,811) | $(52,690) | | Basic and diluted EPU | $(0.20) | $(0.20) | $(0.49) | $(0.26) | - The Operating Partnership's total revenues and net loss trends are consistent with those of CBL & Associates Properties, Inc, reflecting the combined business operations[49] CBL & Associates Limited Partnership Condensed Consolidated Statements of Capital CBL & Associates Limited Partnership Condensed Consolidated Statements of Capital (in thousands) | Capital Item (in thousands) | Balance, January 1, 2019 | Balance, June 30, 2019 | | :--- | :--- | :--- | | Total Partners' Capital | $1,020,347 | $905,657 | | Noncontrolling Interests | $12,111 | $13,222 | | Total Capital | $1,032,458 | $918,879 | - Total capital for the Operating Partnership decreased by $113.6 million from January 1, 2019, to June 30, 2019, primarily due to net loss and distributions[57] CBL & Associates Limited Partnership Condensed Consolidated Statements of Cash Flows CBL & Associates Limited Partnership Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $126,031 | $179,881 | | Net cash provided by (used in) investing activities | $27,104 | $(22,837) | | Net cash used in financing activities | $(165,132) | $(164,706) | | Net change in cash, cash equivalents and restricted cash | $(11,997) | $(7,662) | | Cash, cash equivalents and restricted cash, end of period | $45,515 | $60,510 | - The Operating Partnership's cash flow trends from operating, investing, and financing activities are consistent with those of CBL & Associates Properties, Inc, reflecting the consolidated business operations[60][64] Notes to Unaudited Condensed Consolidated Financial Statements Note 1 – Organization and Basis of Presentation - CBL & Associates Properties, Inc (CBL) is a self-managed REIT engaged in ownership, development, acquisition, leasing, management, and operation of various retail and office properties across 26 states, primarily in the southeastern and midwestern US[69] - CBL conducts substantially all business through CBL & Associates Limited Partnership (Operating Partnership), which is a variable interest entity (VIE)[70] Properties Owned by Operating Partnership (as of June 30, 2019) | Property Type | Consolidated Properties | Unconsolidated Properties | Total | | :--- | :--- | :--- | :--- | | Malls | 56 | 8 | 64 | | Associated Centers | 20 | 3 | 23 | | Community Centers | 2 | 5 | 7 | | Office Buildings/Other | 5 | 2 | 7 | | Total | 83 | 18 | 101 | Note 2 – Recent Accounting Pronouncements - The Company adopted ASC 842, Leases, on January 1, 2019, impacting financial statements by recognizing Right-of-Use (ROU) assets and corresponding lease liabilities for operating leases as a lessee, and narrowing the definition of initial direct costs, changing rental revenue presentation, and reporting uncollectable operating lease receivables as a reduction of rental revenues as a lessor[79] - ASU 2016-13, Measurement of Credit Losses on Financial Instruments, effective January 1, 2020, will replace the incurred loss model with a current expected credit loss model[80] - ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, effective January 1, 2020, is not expected to have a material impact[80] Note 3 – Revenues Company's Revenues Disaggregated by Source (in thousands) | Revenue Source (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Rental revenues | $185,393 | $207,568 | $376,373 | $420,297 | | Operating expense reimbursements | $2,061 | $2,168 | $4,204 | $4,511 | | Management, development and leasing fees | $2,586 | $2,643 | $5,109 | $5,364 | | Marketing revenues | $1,218 | $928 | $2,092 | $2,223 | | Other revenues | $2,119 | $1,291 | $3,629 | $2,403 | | Total revenues | $193,377 | $214,598 | $391,407 | $434,798 | - Rental revenues, the largest component, decreased by $22.2 million (10.7%) for the three months and $43.9 million (10.4%) for the six months ended June 30, 2019, compared to the prior year[84] - Management, development, and leasing fees are recognized over time for management and development, and upon lease execution for leasing fees[90] Note 4 – Leases - The Company adopted ASC 842 on January 1, 2019, applying it to new leases and continuing ASC 840 for prior leases[97][100] Components of Rental Revenues (in thousands) | Rental Revenue Component (in thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Fixed lease payments | $151,730 | $311,002 | | Variable lease payments | $33,663 | $65,371 | | Total rental revenues | $185,393 | $376,373 | - As a lessee, the Company has eight ground leases and one office lease, with a weighted-average remaining lease term of 39.3 years and a weighted-average discount rate of 8.0% as of June 30, 2019[107] Lessee Lease Expense (in thousands) | Lease Expense (in thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Operating lease expense | $207 | $425 | | Variable lease expense | $(2) | $30 | | Rent Expense | $205 | $455 | Note 5 – Fair Value Measurements - The Company categorizes financial assets and liabilities into a three-level fair value hierarchy based on input observability[113][114][115] - The estimated fair value of mortgage and other indebtedness was $3,479,729 thousand at June 30, 2019, calculated using Level 2 inputs by discounting future cash flows[118] Long-lived Assets Measured at Fair Value and Impairment Charges (in thousands) | Item (in thousands) | Total Fair Value (Level 3) | Loss on Impairment (Six Months Ended June 30, 2019) | | :--- | :--- | :--- | | Long-lived assets | $127,319 | $66,433 | - During the six months ended June 30, 2019, the Company recognized a real estate impairment loss of $66,662 thousand related to three malls and one community center[120][121] Note 6 – Dispositions and Held for Sale - The Company's 2019 dispositions generated net proceeds used to reduce outstanding credit facility balances[125][126] 2019 Dispositions (in thousands) | Property | Sales Price Gross | Sales Price Net | Gain | | :--- | :--- | :--- | :--- | | Honey Creek Mall | $14,600 | $14,360 | $0 | | The Shoppes at Hickory Point | $2,508 | $2,407 | $1,326 | | Courtyard by Marriott at Pearland Town Center | $15,100 | $14,795 | $1,910 | - The Company recognized a $71.7 million gain on extinguishment of debt in 2019 from transferring Acadiana Mall and selling Cary Towne Center[127] Properties Classified as Held for Sale (as of June 30, 2019, in thousands) | Property | Total Assets | Total Liabilities | | :--- | :--- | :--- | | 850 Greenbrier Circle | $10,233 | $35 | | Foothills Plaza - Kroger | $1,091 | $0 | | The Forum at Grandview | $32,195 | $569 | | High Point - Barnes & Noble | $1,055 | $59 | Note 7 – Unconsolidated Affiliates and Noncontrolling Interests - The Company accounts for investments in 22 unconsolidated affiliates using the equity method, with ownership interests ranging from 10.0% to 65.0%[131][132] - In 2019, the Company entered new joint ventures for land and self-storage development[133][134] Condensed Combined Financial Statements - Unconsolidated Affiliates (in thousands) | Metric (in thousands) | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total assets | $1,597,660 | $1,623,903 | | Total liabilities | $1,353,037 | $1,359,726 | | Total owners' equity | $244,623 | $264,177 | | Total revenues (Six Months Ended June 30) | $110,097 | $112,264 | | Net income (Six Months Ended June 30) | $9,003 | $12,551 | - Noncontrolling interests in the Operating Partnership decreased from $55,917 thousand at December 31, 2018, to $41,559 thousand at June 30, 2019[140] Note 8 – Mortgage and Other Indebtedness, Net - CBL & Associates Properties, Inc has no direct indebtedness but provides limited guarantees for the Operating Partnership's debt[145][146] Debt of the Operating Partnership (in thousands) | Debt Type (in thousands) | June 30, 2019 | Weighted-Average Interest Rate (June 30, 2019) | | :--- | :--- | :--- | | Total fixed-rate debt | $2,946,440 | 5.31% | | Total variable-rate debt | $938,989 | 4.72% | | Total mortgage and other indebtedness, net | $3,865,939 | 5.17% | - In January 2019, the Company replaced prior unsecured bank facilities with a new $1.185 billion senior secured credit facility, maturing in July 2023[151] Compliance with Key Financial Covenants (as of June 30, 2019) | Ratio | Required | Actual | | :--- | :--- | :--- | | Total debt to total assets | < 60% | 52% | | Secured debt to total assets | < 40% | 34% | | Total unencumbered assets to unsecured debt | > 150% | 191% | | Consolidated income available for debt service to annual debt service charge | > 1.5x | 2.3x | Note 9 – Mortgage and Other Notes Receivable Mortgage and Other Notes Receivable (in thousands) | Type (in thousands) | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Mortgages | $3,913 | $4,884 | | Other Notes Receivable | $2,413 | $2,788 | | Total | $6,326 | $7,672 | - Mortgage and other notes receivable decreased by $1,346 thousand from December 31, 2018, to June 30, 2019[166] Note 10 – Segment Information - The Company measures performance and allocates resources based on property type, including Malls and All Other[168][171] Segment Revenues (in thousands) | Segment (in thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Malls | $170,976 | $354,840 | | All Other | $22,401 | $36,567 | | Total Revenues | $193,377 | $391,407 | Segment Profit (Loss) (in thousands) | Segment (in thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Malls | $98,299 | $201,792 | | All Other | $(8,889) | $(29,797) | | Total Segment Profit (Loss) | $89,410 | $171,995 | Note 11 – Earnings per Share and Earnings per Unit - Basic and diluted EPS for CBL & Associates Properties, Inc was $(0.20) for the three months and $(0.49) for the six months ended June 30, 2019, reflecting net losses[25][172] - Basic and diluted EPU for the Operating Partnership was $(0.20) for the three months and $(0.49) for the six months ended June 30, 2019, also reflecting net losses[49][174] - Due to net losses, contingently issuable shares/units were anti-dilutive and excluded from diluted EPS/EPU calculations for both periods[173][175] Note 12 – Contingencies - In April 2019, the Company entered a settlement agreement for a class action lawsuit, establishing a common fund of $90.0 million and resulting in an $88.2 million litigation settlement expense in Q1 2019[176] - The settlement agreement prohibits common share dividends in Q3 and Q4 2019 but does not restrict future dividends[176] - The Company and its officers/directors are defendants in multiple securities class action and shareholder derivative lawsuits[179][340] Operating Partnership's Guarantees of Unconsolidated Affiliates' Debt (in thousands) | Unconsolidated Affiliate | Company's Ownership Interest | Outstanding Balance | Percentage Guaranteed by Operating Partnership | Maximum Guaranteed Amount | | :--- | :--- | :--- | :--- | :--- | | West Melbourne I, LLC (Phase I) | 50% | $40,197 | 50% | $20,099 | | West Melbourne I, LLC (Phase II) | 50% | $15,827 | 50% | $7,914 | | Port Orange I, LLC | 50% | $54,629 | 50% | $27,315 | | Ambassador Infrastructure, LLC | 65% | $10,050 | 100% | $10,050 | | Shoppes at Eagle Point, LLC | 50% | $35,189 | 35% | $12,740 | | EastGate Storage, LLC | 50% | $6,000 | 50% | $3,000 | | Self-Storage at Mid Rivers, LLC | 50% | $5,434 | 50% | $2,717 | | Parkdale Self Storage, LLC | 50% | $0 | 100% | $6,500 | Note 13 – Share-Based Compensation - The Company has outstanding awards under the 2012 Stock Incentive Plan, issuing restricted stock awards and Performance Stock Unit (PSU) awards[194] Share-Based Compensation Expense (in thousands) | Award Type (in thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Restricted Stock Awards | $546 | $2,259 | | Performance Stock Units | $443 | $869 | - As of June 30, 2019, there was $4,142 thousand of unrecognized compensation cost for nonvested restricted stock awards and $3,304 thousand for PSUs[198][206] Note 14 – Noncash Investing and Financing Activities Noncash Investing and Financing Activities (Six Months Ended June 30, in thousands) | Activity (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Accrued dividends and distributions payable | $2,420 | $41,656 | | Additions to real estate assets accrued but not yet paid | $26,572 | $23,318 | | Lease liabilities arising from obtaining right-of-use assets | $4,042 | $0 | | Transfer of real estate assets in settlement of mortgage debt obligation | $(60,059) | $0 | | Decrease in mortgage and other indebtedness | $124,111 | $0 | - Significant noncash activities in 2019 included a $60.1 million transfer of real estate assets in mortgage debt settlement and a $124.1 million decrease in mortgage and other indebtedness[209] Note 15 – Subsequent Events - In July 2019, the Company completed sales of four properties for total proceeds of $46.6 million[210][211] - In July 2019, the lender foreclosed on the loan secured by Triangle Town Center[212] - In August 2019, the Village Square note receivable's maturity date was extended to September 30, 2019[213] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial performance, highlighting a net loss increase, balance sheet strengthening efforts, and the impact of a litigation settlement Executive Overview Net Loss and Net Loss Attributable to Common Shareholders (in millions) | Metric (in millions) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net loss | $(29.7) | $(76.5) | | Net loss attributable to common shareholders | $(35.4) | $(85.6) | - The six-month net loss was primarily due to lower earnings from Comparable Properties and an $88.2 million litigation settlement expense, partially offset by $71.7 million in gains on debt extinguishment[221] - The Company replaced all unsecured lines of credit and term loans with a new $1.185 billion secured credit facility in January 2019, addressing significant debt maturities until 2023[224] - The Company completed $120.0 million in gross asset sales year-to-date and expects over $200.0 million in free cash flow to fund its redevelopment program[226] Results of Operations Comparison of the Three Months Ended June 30, 2019 to the Three Months Ended June 30, 2018 Revenues and Operating Expenses (Three Months Ended June 30, in thousands) | Metric (in thousands) | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $193,377 | $214,598 | $(21,221) | | Total operating expenses | $(177,525) | $(201,326) | $23,801 | - Rental revenues from Comparable Properties declined primarily due to store closures and rent concessions[229] - Property operating expenses at Comparable Properties decreased due to a reclassification of bad debt expense under ASC 842 and lower utilities, security, and payroll expenses[230] - Interest expense decreased by $1.7 million, mainly from lower property-level interest due to dispositions[236] Comparison of the Six Months Ended June 30, 2019 to the Six Months Ended June 30, 2018 Revenues and Operating Expenses (Six Months Ended June 30, in thousands) | Metric (in thousands) | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Total revenues | $391,407 | $434,798 | $(43,391) | | Total operating expenses | $(443,974) | $(377,388) | $(66,586) | | Litigation settlement | $(88,150) | $0 | $(88,150) | | Gain on extinguishment of debt | $71,722 | $0 | $71,722 | - Rental revenues from Comparable Properties declined by $28.5 million, primarily due to store closures and rent concessions[241] - General and administrative expenses increased due to higher legal expenses and no longer capitalizing leasing personnel costs[243] - The Company recognized a $71.7 million gain on extinguishment of debt from Acadiana Mall and Cary Towne Center dispositions[247] Non-GAAP Measure - Same-center Net Operating Income - NOI is a non-GAAP measure defined as property operating revenues less property operating expenses[251][252] - Same-center NOI excludes certain items like lease termination income and straight-line rent adjustments to enhance comparability[253] Total Same-center NOI (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Total same-center NOI | $142,972 | $285,370 | - Same-center NOI decreased by 5.7% for the three months and 5.3% for the six months ended June 30, 2019, primarily due to decreased revenues[257][258] Operational Review - The Company classifies regional malls into Stabilized, Non-stabilized, and Excluded Malls for operational analysis[260][261][262] Mall Store Sales and Occupancy | Metric | Twelve Months Ended June 30, 2019 | Twelve Months Ended June 30, 2018 | % Change | | :--- | :--- | :--- | :--- | | Stabilized mall same-center sales per square foot | $381 | $378 | 0.8% | | Stabilized mall sales per square foot | $381 | $376 | 1.3% | | | As of June 30, 2019 | As of June 30, 2018 | | | Total portfolio occupancy | 90.2% | 91.1% | | | Same-center malls occupancy | 88.1% | 89.4% | | | Non-stabilized malls occupancy | 78.0% | 71.9% | | - Bankruptcy-related store closures impacted Q2 occupancy by approximately 322 basis points or 570,000 square feet[265] - New leases for stabilized malls saw a 1.4% decline in average gross rent PSF, while renewal leases were signed at an average of 4.2% lower than expiring rent for the quarter[268] - The Company is diversifying its tenant mix, with 86% of new mall leasing and 64% of total mall leasing signed with non-apparel tenants[269] Liquidity and Capital Resources - As of June 30, 2019, the Company had $301.9 million available on its secured credit facility and $20.5 million in unrestricted cash and cash equivalents[271] - The Company's total pro rata share of debt was $4.4 billion at June 30, 2019[271] - The Company believes operating cash flows, debt and equity sources, and disposition proceeds will provide adequate liquidity for future cash needs[275] Cash Flows - Operating, Investing and Financing Activities Net Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Activity (in thousands) | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $126,032 | $179,882 | $(53,850) | | Net cash provided by (used in) investing activities | $27,104 | $(22,837) | $49,941 | | Net cash used in financing activities | $(165,132) | $(164,706) | $(426) | | Net change in cash flows | $(11,996) | $(7,661) | $(4,335) | - Cash provided by operating activities decreased by $53.9 million due to lower rental revenues and property dispositions[279] - Cash provided by investing activities increased by $49.9 million, driven by higher proceeds from sales and reduced capital expenditures[280] - Cash used in financing activities remained relatively stable, with common stock dividend reductions offset by increased debt principal payments[281] Debt Pro Rata Share of Debt (as of June 30, 2019, in thousands) | Debt Type (in thousands) | Consolidated | Noncontrolling Interests | Unconsolidated Affiliates | Total | Weighted-Average Interest Rate | | :--- | :--- | :--- | :--- | :--- | :--- | | Total fixed-rate debt | $2,946,440 | $(93,450) | $544,829 | $3,397,819 | 5.10% | | Total variable-rate debt | $938,989 | $0 | $79,251 | $1,018,240 | 4.73% | | Total debt, net | $3,865,939 | $(92,703) | $621,720 | $4,394,956 | 5.01% | - The weighted-average remaining term of total debt was 4.5 years at June 30, 2019, up from 4.0 years at December 31, 2018[287] - Variable-rate debt constituted 23.2% of the total pro rata debt at June 30, 2019[288] Equity - During the six months ended June 30, 2019, the Company paid $48.4 million in dividends to common and preferred stockholders[292] - Common share dividends were suspended for Q3 and Q4 2019 due to a class action settlement, but future dividends are not restricted[293] Total Market Capitalization (as of June 30, 2019, in thousands) | Component (in thousands) | Value | | :--- | :--- | | Common stock and operating partnership units | $208,239 | | Preferred Stock | $626,250 | | Total market equity | $834,489 | | Company's share of total debt | $4,416,058 | | Total market capitalization | $5,250,547 | Capital Expenditures Total Capital Expenditures (Six Months Ended June 30, in thousands) | Expenditure Type (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Tenant allowances | $11,050 | $28,221 | | Deferred maintenance | $12,372 | $13,869 | | Capitalized overhead | $1,372 | $3,291 | | Capitalized interest | $1,182 | $1,538 | | Total capital expenditures | $25,976 | $47,482 | - Total capital expenditures decreased by $21.5 million for the six months ended June 30, 2019, compared to the prior-year period[298] Developments, Expansions and Redevelopments Properties Opened During Six Months Ended June 30, 2019 (in thousands) | Property (in thousands) | CBL Ownership Interest | Total Project Square Feet | Total Cost | CBL's Share of Cost to Date | 2019 YTD Cost | Opening Date | Initial Unleveraged Yield | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Mid Rivers Mall - CubeSmart Self-storage | 50% | 93,540 | $4,122 | $3,646 | $973 | Jan-19 | 9.0% | Redevelopments Completed During Six Months Ended June 30, 2019 (in thousands) | Property (in thousands) | CBL Ownership Interest | Total Project Square Feet | Total Cost | CBL's Share of Cost to Date | 2019 YTD Cost | Opening Date | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Dakota Square Mall - HomeGoods | 100% | 28,406 | $2,478 | $2,292 | $1,314 | Apr-19 | | Parkdale Mall - Macy's Redevelopment | 100% | 86,136 | $20,899 | $17,618 | $11,139 | May-19 | - The Company has several properties under redevelopment, including Sears redevelopments, diversifying offerings with dining, entertainment, and other non-retail uses[305][307] Off-Balance Sheet Arrangements - The Company holds ownership interests in 22 unconsolidated affiliates, accounted for using the equity method, which are off-balance sheet arrangements[309] - The Operating Partnership may guarantee joint venture debt to secure lower funding costs[312] Critical Accounting Policies - The Company's financial statements are prepared in accordance with GAAP, requiring management to make estimates and assumptions[314] - No material changes to critical accounting policies and estimates occurred during the six months ended June 30, 2019[315] Impact of Inflation and Deflation - Deflation can lead to high unemployment and weakened consumer demand, potentially impacting the Company's financing and rental revenues[318] - During inflationary periods, most tenant leases include provisions like percentage rent and escalation clauses to mitigate inflation's impact[319] Non-GAAP Measure - Funds from Operations - FFO is a non-GAAP measure of operating performance, defined by NAREIT as net income (loss) excluding certain non-cash items and gains/losses on property sales[320] FFO Allocable to Operating Partnership Common Unitholders (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | FFO allocable to Operating Partnership common unitholders | $68,545 | $112,575 | | FFO allocable to Operating Partnership common unitholders, as adjusted | $68,545 | $129,062 | - FFO of the Operating Partnership decreased 25.6% for the three months and 35.7% for the six months ended June 30, 2019, compared to prior-year periods[327] - Adjusted FFO decreased 26.1% for the three months and 26.9% for the six months, primarily due to lower property-level NOI and asset sale dilution[327] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily quantifying the potential impact of interest rate fluctuations on cash flows and debt value - A 0.5% change in interest rates on variable-rate debt would impact annual cash flows by approximately $5.1 million and annual interest expense by approximately $5.0 million[332] - A 0.5% increase in interest rates would decrease the fair value of debt by approximately $51.1 million, while a 0.5% decrease would increase it by approximately $52.8 million[333] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and notes modifications to internal controls related to the adoption of ASC 842 (Leases) - The Chief Executive Officer and Chief Financial Officer concluded that the Company's and Operating Partnership's disclosure controls and procedures were effective as of June 30, 2019[335] - Modifications were made to lease accounting processes in conjunction with the adoption of ASC 842 (Leases) on January 1, 2019[336] PART II - OTHER INFORMATION ITEM 1: Legal Proceedings This section details a significant class action lawsuit settlement and discloses ongoing securities class action and shareholder derivative lawsuits - A class action lawsuit settlement in April 2019 resulted in an $88.2 million litigation settlement expense in Q1 2019 and a temporary suspension of common share dividends for Q3 and Q4 2019[337] - The Company and its officers/directors are facing three securities class action lawsuits and three shareholder derivative lawsuits[338][340] ITEM 1A. Risk Factors This section refers to the company's 2018 Annual Report for a comprehensive discussion of risk factors, noting no material changes - No material changes to the Company's risk factors have occurred since the filing of its Annual Report on Form 10-K for the year ended December 31, 2018[341] ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - There were no unregistered sales of equity securities or use of proceeds to report[342] ITEM 3: Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities to report for the period - There were no defaults upon senior securities to report[343] ITEM 4: Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[343] ITEM 5: Other Information This section indicates that there is no other information to report for the period - There is no other information to report[343] ITEM 6: Exhibits This section provides an index of exhibits filed with the Form 10-Q, including certifications and XBRL-related documents - The exhibits include certifications by the CEO and CFO, combined financial statements of the Combined Guarantor Subsidiaries, and various XBRL documents[349] SIGNATURES This section contains the signatures of the authorized officers certifying the filing of the report - The report is signed by Farzana Khaleel, Executive Vice President - Chief Financial Officer and Treasurer, for both CBL & Associates Properties, Inc and CBL & Associates Limited Partnership, on August 9, 2019[353][354]