XNYS:CBLPRD CBL & Associates Properties, Inc. Pref Share Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
______________

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012
Or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 
FOR THE TRANSITION PERIOD FROM ____________ TO _______________
 
COMMISSION FILE NO. 1-12494
______________
CBL & ASSOCIATES PROPERTIES, INC.
(Exact Name of registrant as specified in its charter)
______________
DELAWARE  
 
   62-1545718
(State or other jurisdiction of incorporation or organization)     
 
 (I.R.S. Employer Identification Number)
                       
 
2030 Hamilton Place Blvd., Suite 500, Chattanooga,  TN  37421-6000
(Address of principal executive office, including zip code)
423.855.0001
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
 Yes x   
  No o
                               
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 Yes x   
  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
 Large accelerated filer x
Accelerated filer o
 Non-accelerated filer o (Do not check if smaller reporting company)
Smaller Reporting Company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 Yes o  
  No x
As of August 3, 2012, there were 158,562,211 shares of common stock, par value $0.01 per share, outstanding.



CBL & Associates Properties, Inc.

Table of Contents

PART I
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I – FINANCIAL INFORMATION

ITEM 1:   Financial Statements

CBL & Associates Properties, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
ASSETS
June 30,
2012
 
December 31,
2011
Real estate assets:
 
 
 
Land
$
888,084

 
$
851,303

Buildings and improvements
7,020,394

 
6,777,776

 
7,908,478

 
7,629,079

Accumulated depreciation
(1,873,310
)
 
(1,762,149
)
 
6,035,168

 
5,866,930

Held for sale

 
14,033

Developments in progress
139,500

 
124,707

Net investment in real estate assets
6,174,668

 
6,005,670

Cash and cash equivalents
71,537

 
56,092

Receivables:
 

 
 

 Tenant, net of allowance for doubtful accounts of $2,051
     and $1,760 in 2012 and 2011, respectively
71,520

 
74,160

 Other, net of allowance for doubtful accounts of $1,248
      and $1,400 in 2012 and 2011, respectively
8,156

 
11,592

Mortgage and other notes receivable
25,442

 
34,239

Investments in unconsolidated affiliates
304,663

 
304,710

Intangible lease assets and other assets
257,625

 
232,965

 
$
6,913,611

 
$
6,719,428

 
 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 

 
 

Mortgage and other indebtedness
$
4,693,208

 
$
4,489,355

Accounts payable and accrued liabilities
323,470

 
303,577

Total liabilities
5,016,678

 
4,792,932

Commitments and contingencies (Notes 5 and 11)


 


Redeemable noncontrolling interests:  
 

 
 

Redeemable noncontrolling partnership interests  
38,218

 
32,271

Redeemable noncontrolling preferred joint venture interest
423,777

 
423,834

Total redeemable noncontrolling interests
461,995

 
456,105

Shareholders' equity:
 

 
 

Preferred stock, $.01 par value, 15,000,000 shares authorized:
 

 
 

 7.75% Series C Cumulative Redeemable Preferred
     Stock, 460,000 shares outstanding
5

 
5

 7.375% Series D Cumulative Redeemable Preferred
     Stock, 1,815,000 shares outstanding
18

 
18

 Common stock, $.01 par value, 350,000,000 shares
     authorized, 158,560,145 and 148,364,037 issued and
     outstanding in 2012 and 2011, respectively
1,586

 
1,484

Additional paid-in capital
1,697,943

 
1,657,927

Accumulated other comprehensive income
4,146

 
3,425

Dividends in excess of cumulative earnings
(432,908
)
 
(399,581
)
Total shareholders' equity
1,270,790

 
1,263,278

Noncontrolling interests
164,148

 
207,113

Total equity
1,434,938

 
1,470,391

 
$
6,913,611

 
$
6,719,428

The accompanying notes are an integral part of these condensed consolidated statements.
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
 
Three Months
Ended June 30,
 
Six Months
Ended June 30,
 
2012
 
2011
 
2012
 
2011
REVENUES:
 
 
 
 
 
 
 
Minimum rents
$
167,609

 
$
168,288

 
$
328,397

 
$
339,202

Percentage rents
1,756

 
2,062

 
5,222

 
5,802

Other rents
4,683

 
4,582

 
9,996

 
9,590

Tenant reimbursements
71,732

 
77,022

 
142,219

 
153,832

Management, development and leasing fees
1,966

 
1,568

 
4,435

 
2,905

Other
7,852

 
8,597

 
16,001

 
17,957

Total revenues
255,598

 
262,119

 
506,270

 
529,288

 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 

 
 

 
 
 
 
Property operating
36,562

 
35,984

 
74,923

 
76,143

Depreciation and amortization
68,126

 
71,839

 
131,283

 
139,538

Real estate taxes
23,756

 
25,124

 
46,602

 
49,450

Maintenance and repairs
13,419

 
14,044

 
26,575

 
30,052

General and administrative
11,993

 
11,241

 
25,793

 
23,041

Other
6,559

 
7,046

 
13,317

 
15,349

Total operating expenses
160,415

 
165,278

 
318,493

 
333,573

Income from operations
95,183

 
96,841

 
187,777

 
195,715

Interest and other income
1,298

 
612

 
2,373

 
1,157

Interest expense
(61,400
)
 
(70,914
)
 
(121,460
)
 
(139,127
)
Gain on extinguishment of debt

 

 

 
581

Gain (loss) on sales of real estate assets
2,543

 
(97
)
 
3,130

 
712

Equity in earnings of unconsolidated affiliates
2,073

 
1,455

 
3,339

 
3,233

Income tax (provision) benefit
(267
)
 
4,653

 
(39
)
 
6,423

Income from continuing operations
39,430

 
32,550

 
75,120

 
68,694

Operating income (loss) from discontinued operations
(21
)
 
(3,156
)
 
(71
)
 
24,594

Gain (loss) on discontinued operations
(16
)
 
138

 
895

 
152

Net income
39,393

 
29,532

 
75,944

 
93,440

Net income attributable to noncontrolling interests in:
 

 
 

 
 
 
 
Operating partnership
(5,197
)
 
(2,752
)
 
(9,559
)
 
(13,203
)
Other consolidated subsidiaries
(4,805
)
 
(6,404
)
 
(10,945
)
 
(12,542
)
Net income attributable to the Company
29,391

 
20,376

 
55,440

 
67,695

Preferred dividends
(10,594
)
 
(10,594
)
 
(21,188
)
 
(21,188
)
Net income attributable to common shareholders
$
18,797

 
$
9,782

 
$
34,252

 
$
46,507


CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
(Continued)
 
 
Three Months
Ended June 30,
 
Six Months
Ended June 30,
 
2012
 
2011
 
2012
 
2011
Basic per share data attributable to common shareholders:
 

 
 

 
 
 
 
Income from continuing operations, net of preferred dividends
$
0.12

 
$
0.08

 
$
0.22

 
$
0.18

Discontinued operations

 
(0.01
)
 
0.01

 
0.13

Net income attributable to common shareholders
$
0.12

 
$
0.07

 
$
0.23

 
$
0.31

Weighted average common shares outstanding
150,913

 
148,356

 
149,704

 
148,214

 
 
 
 
 
 
 
 
Diluted earnings per share data attributable to common shareholders:
 
 

 
 
 
 
Income from continuing operations, net of preferred dividends
$
0.12

 
$
0.08

 
$
0.22

 
$
0.18

Discontinued operations

 
(0.01
)
 
0.01

 
0.13

Net income attributable to common shareholders
$
0.12

 
$
0.07

 
$
0.23

 
$
0.31

Weighted average common and potential dilutive common shares outstanding
150,954

 
148,398

 
149,746

 
148,262

 
 
 
 
 
 
 
 
Amounts attributable to common shareholders:
 

 
 

 
 
 
 
Income from continuing operations, net of preferred dividends
$
18,826

 
$
12,134

 
$
33,603

 
$
27,233

Discontinued operations
(29
)
 
(2,352
)
 
649

 
19,274

Net income attributable to common shareholders
$
18,797

 
$
9,782

 
$
34,252

 
$
46,507

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.22

 
$
0.21

 
$
0.44

 
$
0.42


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

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

 
Three Months
Ended June 30,
 
Six Months
Ended June 30,
 
2012
 
2011
 
2012
 
2011
Net income
$
39,393

 
$
29,532

 
$
75,944

 
$
93,440

 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
   Unrealized holding gain on available-for-sale securities
61

 
474

 
1,579

 
1,807

Reclassification to net income of realized (gain) loss on available-for-sale securities
(160
)
 

 
(160
)
 
22

   Unrealized loss on hedging instruments
(765
)
 
(2,634
)
 
(481
)
 
(2,072
)
Total other comprehensive income (loss)
(864
)
 
(2,160
)
 
938

 
(243
)
 
 
 
 
 
 
 
 
Comprehensive income
38,529

 
27,372

 
76,882

 
93,197

  Comprehensive income attributable to noncontrolling interests in:
 
 
 
 
 
 
 
     Operating partnership
(5,019
)
 
(2,275
)
 
(9,776
)
 
(13,150
)
     Other consolidated subsidiaries
(4,805
)
 
(6,404
)
 
(10,945
)
 
(12,542
)
Comprehensive income attributable to the Company
$
28,705

 
$
18,693

 
$
56,161

 
$
67,505


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

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands)
 (Unaudited)
 
 
 
Equity
 
 
 
Shareholders' Equity
 
 
 
 
 
Redeemable Noncontrolling Partnership Interests
 
Preferred
 Stock
 
Common
 Stock
 
Additional
 Paid-in
 Capital
 
Accumulated Other Comprehensive Income
 
Dividends in Excess of Cumulative Earnings
 
Total Shareholders' Equity
 
Noncontrolling Interests
 
Total
 Equity
Balance, January 1, 2011
$
34,379

 
$
23

 
$
1,479

 
$
1,657,507

 
$
7,855

 
$
(366,526
)
 
$
1,300,338

 
$
223,605

 
$
1,523,943

Net income
2,634

 

 

 

 

 
67,695

 
67,695

 
12,875

 
80,570

Other comprehensive loss
(2
)
 

 

 

 
(190
)
 

 
(190
)
 
(51
)
 
(241
)
Conversion of operating partnership special
     common units to shares of common stock

 

 
1

 
728

 

 

 
729

 
(729
)
 

Dividends declared - common stock

 

 

 

 

 
(62,303
)
 
(62,303
)
 

 
(62,303
)
Dividends declared - preferred stock

 

 

 

 

 
(21,188
)
 
(21,188
)
 

 
(21,188
)
Issuance of common stock and restricted common stock

 

 
2

 
190

 

 

 
192

 

 
192

Cancellation of restricted common stock

 

 

 
(184
)
 

 

 
(184
)
 

 
(184
)
Exercise of stock options

 

 
2

 
1,952

 

 

 
1,954

 

 
1,954

Accrual under deferred compensation arrangements

 

 

 
27

 

 

 
27

 

 
27

Amortization of deferred compensation

 

 

 
1,376

 

 

 
1,376

 

 
1,376

Distributions to noncontrolling interests
(4,511
)
 

 

 

 

 

 

 
(22,086
)
 
(22,086
)
Adjustment for noncontrolling interests
1,620

 

 

 
(2,261
)
 

 

 
(2,261
)
 
641

 
(1,620
)
Adjustment to record redeemable
     noncontrolling interests at redemption value
1,186

 

 

 
(1,186
)
 

 

 
(1,186
)
 

 
(1,186
)
Balance, June 30, 2011
$
35,306

 
$
23

 
$
1,484

 
$
1,658,149

 
$
7,665

 
$
(382,322
)
 
$
1,284,999

 
$
214,255

 
$
1,499,254


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

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands)
(Unaudited)
(Continued)
 
 
 
Equity
 
 
 
Shareholders' Equity
 
 
 
 
 
Redeemable Noncontrolling Partnership Interests
 
Preferred
 Stock
 
Common
 Stock
 
Additional
 Paid-in
 Capital
 
Accumulated Other Comprehensive Income
 
Dividends in Excess of Cumulative Earnings
 
Total Shareholders' Equity
 
Noncontrolling Interests
 
Total
 Equity
Balance, January 1, 2012
$
32,271

 
$
23

 
$
1,484

 
$
1,657,927

 
$
3,425

 
$
(399,581
)
 
$
1,263,278

 
$
207,113

 
$
1,470,391

Net income
1,620

 

 

 

 

 
55,440

 
55,440

 
8,595

 
64,035

Other comprehensive income
8

 

 

 

 
721

 

 
721

 
209

 
930

Conversion of operating partnership
     common units to shares of common stock

 

 
98

 
45,599

 

 

 
45,697

 
(45,697
)
 

Redemption of operating partnership common units

 

 

 

 

 

 

 
(9,836
)
 
(9,836
)
Dividends declared - common stock

 

 

 

 

 
(67,579
)
 
(67,579
)
 

 
(67,579
)
Dividends declared - preferred stock

 

 

 

 

 
(21,188
)
 
(21,188
)
 

 
(21,188
)
Issuance of common stock and restricted common stock

 

 
2

 
327

 

 

 
329

 

 
329

Cancellation of restricted common stock

 

 

 
(255
)
 

 

 
(255
)
 

 
(255
)
Exercise of stock options

 

 
2

 
4,432

 

 

 
4,434

 

 
4,434

Accrual under deferred compensation arrangements

 

 

 
29

 

 

 
29

 

 
29

Amortization of deferred compensation

 

 

 
1,496

 

 

 
1,496

 

 
1,496

Contributions from noncontrolling interests

 

 

 

 

 

 

 
4,042

 
4,042

Distributions to noncontrolling interests
(4,536
)
 

 

 

 

 

 

 
(17,540
)
 
(17,540
)
Adjustment for noncontrolling interests
1,485

 

 

 
(4,242
)
 

 

 
(4,242
)
 
2,757

 
(1,485
)
Adjustment to record redeemable
     noncontrolling interests at redemption value
7,370

 

 

 
(7,370
)
 

 

 
(7,370
)
 

 
(7,370
)
Acquire controlling interest in shopping center property

 

 

 

 

 

 

 
14,505

 
14,505

Balance, June 30, 2012
$
38,218

 
$
23

 
$
1,586

 
$
1,697,943

 
$
4,146

 
$
(432,908
)
 
$
1,270,790

 
$
164,148

 
$
1,434,938


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

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
  
 
 
Six Months Ended
June 30,
 
 
2012
 
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 
 
Net income
$
75,944

 
$
93,440

 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 

 
Depreciation and amortization
131,399

 
140,178

 
Net amortization of deferred finance costs and debt premiums
3,787

 
6,088

 
Net amortization of intangible lease assets and liabilities
(147
)
 
(527
)
 
Gain on sales of real estate assets
(3,130
)
 
(712
)
 
Gain on sale of discontinued operations
(895
)
 
(152
)
 
Write-off of development projects
(123
)
 
51

 
Share-based compensation expense
1,739

 
1,502

 
Net realized (gain) loss on sale of available-for-sale securities
(160
)
 
22

 
Write-down of mortgage and other notes receivable

 
1,500

 
Loss on impairment of real estate from discontinued operations
293

 
6,696

 
Gain on extinguishment of debt

 
(581
)
 
Gain on extinguishment of debt from discontinued operations

 
(31,434
)
 
Equity in earnings of unconsolidated affiliates
(3,339
)
 
(3,233
)
 
Distributions of earnings from unconsolidated affiliates
7,314

 
3,922

 
Provision for doubtful accounts
1,331

 
1,542

 
Change in deferred tax accounts
2,316

 
(4,926
)
 
Changes in:
 

 
 

 
Tenant and other receivables
5,745

 
3,438

 
Other assets
2,923

 
758

 
Accounts payable and accrued liabilities
(5,207
)
 
(19,977
)
 
Net cash provided by operating activities
219,790

 
197,595

 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
Additions to real estate assets
(88,890
)
 
(79,282
)
 
Acquisition of real estate assets
(61,419
)
 

 
Additions to restricted cash
(1,270
)
 
(10,203
)
 
Proceeds from sales of real estate assets
38,161

 
10,854

 
Additions to mortgage and other notes receivable
(2,965
)
 

 
Payments received on mortgage and other notes receivable
2,160

 
2,708

 
Additional investments in and advances to unconsolidated affiliates
(3,969
)
 
(19,626
)
 
Distributions in excess of equity in earnings of unconsolidated affiliates
7,316

 
9,283

 
Changes in other assets
2,066

 
(7,664
)
 
Net cash used in investing activities
(108,810
)
 
(93,930
)
 
 


 


 
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
(Continued)
 
 
 
 
 
 
Six Months Ended
June 30,
 
 
2012
 
2011
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from mortgage and other indebtedness
$
1,136,081

 
$
1,074,808

 
Principal payments on mortgage and other indebtedness
(1,108,292
)
 
(1,057,087
)
 
Additions to deferred financing costs
(2,688
)
 
(5,980
)
 
Proceeds from issuances of common stock
87

 
93

 
Proceeds from exercises of stock options
4,434

 
1,954

 
Purchase of noncontrolling interest in the Operating Partnership
(9,836
)
 

 
Contributions from noncontrolling interests
4,042

 
40

 
Distributions to noncontrolling interests
(34,323
)
 
(38,579
)
 
Dividends paid to holders of preferred stock
(21,188
)
 
(21,188
)
 
Dividends paid to common shareholders
(63,852
)
 
(60,731
)
 
Net cash used in financing activities
(95,535
)
 
(106,670
)
 
 
 
 
 
 
NET CHANGE IN CASH AND CASH EQUIVALENTS
15,445

 
(3,005
)
 
CASH AND CASH EQUIVALENTS, beginning of period
56,092

 
50,896

 
CASH AND CASH EQUIVALENTS, end of period
$
71,537

 
$
47,891

 
 
 
 
 
 
SUPPLEMENTAL INFORMATION:
 

 
 

 
Cash paid for interest, net of amounts capitalized
$
115,507

 
$
134,081


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


3


CBL & Associates Properties, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except share data)
Note 1 – Organization and Basis of Presentation
CBL & Associates Properties, Inc. (“CBL”), a Delaware corporation, is a self-managed, self-administered, fully-integrated real estate investment trust (“REIT”) that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air centers, associated centers, community centers and office properties.  Its properties are located in 27 states, but are primarily in the southeastern and midwestern United States.
CBL conducts substantially all of its business through CBL & Associates Limited Partnership (the “Operating Partnership”). As of June 30, 2012, the Operating Partnership owned controlling interests in 77 regional malls/open-air centers (including our mixed-use center), 29 associated centers (each located adjacent to a regional mall), six community centers and 13 office buildings, including CBL’s corporate office building. The Operating Partnership consolidates the financial statements of all entities in which it has a controlling financial interest or where it is the primary beneficiary of a variable interest entity.  At June 30, 2012, the Operating Partnership owned non-controlling interests in ten regional malls/open-air centers, three associated centers, five community centers and six office buildings. Because one or more of the other partners have substantive participating rights, the Operating Partnership does not control these partnerships and joint ventures and, accordingly, accounts for these investments using the equity method. The Operating Partnership had controlling interests in the development of one outlet center and expansion of one outlet center, both of which are owned in 75% /25% joint ventures at June 30, 2012. The Operating Partnership also had controlling interests in one mall expansion, one community center development and one mall redevelopment under construction at June 30, 2012.  The Operating Partnership also holds options to acquire certain development properties owned by third parties.
CBL is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At June 30, 2012, CBL Holdings I, Inc., the sole general partner of the Operating Partnership, owned a 1.1% general partner interest in the Operating Partnership and CBL Holdings II, Inc. owned an 82.3% limited partner interest for a combined interest held by CBL of 83.4%.
The noncontrolling interest in the Operating Partnership is held primarily by CBL & Associates, Inc. and its affiliates (collectively “CBL’s Predecessor”). CBL’s Predecessor contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for a limited partner interest when the Operating Partnership was formed in November 1993. At June 30, 2012, CBL’s Predecessor owned a 9.8% limited partner interest and third parties owned a 6.8% limited partner interest in the Operating Partnership.  CBL’s Predecessor also owned 7.6 million shares of CBL’s common stock at June 30, 2012, for a total combined effective interest of 13.8% in the Operating Partnership. The Richard E. Jacobs Group ("Jacobs"), which owned a significant noncontrolling interest in the Operating Partnership, exercised its right to convert its limited partner interest in the Operating Partnership into shares of common stock of CBL during the three months ended June 30, 2012. See Note 5 and Note 15 for more detailed information related to the Jacobs' conversion.
The Operating Partnership conducts CBL’s property management and development activities through CBL & Associates Management, Inc. (the “Management Company”) to comply with certain requirements of the Internal Revenue Code of 1986, as amended (the “Code”). The Operating Partnership owns 100% of both of the Management Company’s preferred stock and common stock.
CBL, the Operating Partnership and the Management Company are collectively referred to herein as “the Company”.
The accompanying condensed consolidated financial statements are unaudited; however, they have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. All intercompany transactions have been eliminated. The results for the interim period ended June 30, 2012 are not necessarily indicative of the results to be obtained for the full fiscal year.
Certain historical amounts have been reclassified to conform to the current year's presentation. The financial results of certain properties that had been classified in continuing operations have been reclassified to discontinued operations in the condensed consolidated financial statements for all periods presented herein. Except where noted, the information presented in the Notes to Unaudited Condensed Consolidated Financial Statements excludes discontinued operations.

These condensed consolidated financial statements should be read in conjunction with CBL’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2011, as amended.

Note 2 – Recent Accounting Pronouncements
 
Accounting Guidance Adopted
 
In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The objective of ASU 2011-04 is to align fair value measurements and related disclosure requirements under GAAP and International Financial Reporting Standards (“IFRSs”), thus improving the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. For public entities, this guidance was effective for interim and annual periods beginning after December 15, 2011 and should be applied prospectively. The adoption of ASU 2011-04 did not have a material impact on the Company's condensed consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). The objective of this accounting update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. ASU 2011-05 requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but continuous statements of net income and other comprehensive income. For public entities, this guidance was effective for interim and annual periods beginning after December 15, 2011 and should be applied retrospectively. In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”). This guidance defers the changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. Other requirements of ASU 2011-05 are not affected by ASU 2011-12. The guidance in ASU 2011-12 was effective at the same time as ASU 2011-05 so that entities would not be required to comply with the presentation requirements in ASU 2011-05 that ASU 2011-12 deferred. The adoption of this guidance changed the presentation format of the Company's condensed consolidated financial statements but did not have an impact on the amounts reported in those statements.

In December 2011, the FASB issued ASU No. 2011-10, Derecognition of in Substance Real Estate - a Scope Clarification (“ASU 2011-10”). This guidance applies to the derecognition of in substance real estate when the parent ceases to have a controlling financial interest in a subsidiary that is in substance real estate because of a default by the subsidiary on its nonrecourse debt. Under ASU 2011-10, the reporting entity should apply the guidance in Accounting Standards Codification ("ASC") 360-20, Property, Plant and Equipment - Real Estate Sales, to determine whether it should derecognize the in substance real estate. Generally, the requirements to derecognize in substance real estate would not be met before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. Thus, even if the reporting entity ceases to have a controlling financial interest under ASC 810-10, Consolidation - Overall, it would continue to include the real estate, debt, and the results of the subsidiary's operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. ASU 2011-10 should be applied on a prospective basis to deconsolidation events occurring after the effective date. For public companies, this guidance is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. Early adoption is permitted. The Company elected to adopt ASU 2011-10 effective January 1, 2012. The adoption of this guidance did not have an impact on the Company's condensed consolidated financial statements.
Note 3 – 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. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs and consider assumptions such as inherent risk, transfer restrictions, and risk of nonperformance.
Fair Value Measurements on a Recurring Basis
The following tables set forth information regarding the Company’s financial instruments that are measured at fair value on a recurring basis in the accompanying condensed consolidated balance sheets as of June 30, 2012 and December 31, 2011:
 
 
 
Fair Value Measurements at Reporting Date Using
 
Fair Value at
June 30, 2012
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
27,092

 
$
15,263

 
$

 
$
11,829

Privately held debt and equity securities
2,475

 

 

 
2,475

Interest rate cap

 

 

 

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Interest rate swaps
$
6,078

 
$

 
$
6,078

 
$


 
 

 
Fair Value Measurements at Reporting Date Using
 
Fair Value at
December 31, 2011
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
Assets:
 

 
 

 
 

 
 

Available-for-sale securities
$
30,613

 
$
18,784

 
$

 
$
11,829

Privately held debt and equity securities
2,475

 

 

 
2,475

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Interest rate swaps
$
5,617

 
$

 
$
5,617

 
$

The Company recognizes transfers in and out of every level at the end of each reporting period. There were no transfers between Levels 1, 2, or 3 for all periods presented.
Intangible lease assets and other assets in the condensed consolidated balance sheets include marketable securities consisting of corporate equity securities, mortgage/asset-backed securities, mutual funds and bonds that are classified as available for sale.  Net unrealized gains and losses on available-for-sale securities that are deemed to be temporary in nature are recorded as a component of accumulated other comprehensive income in redeemable noncontrolling interests, shareholders’ equity and noncontrolling interests.  If a decline in the value of an investment is deemed to be other than temporary, the investment is written down to fair value and an impairment loss is recognized in the current period to the extent of the decline in value. During the three and six months ended June 30, 2012 and 2011, the Company did not record any write-downs related to other-than-temporary impairments.  During the three and six month periods ended June 30, 2012, the Company recognized realized gains of $160 related to sales of marketable securities. During the six months ended June 30, 2011, the Company recognized realized losses of $22 related to sales of marketable securities.  The fair value of the Company’s available-for-sale securities that are based on quoted market prices, are classified under Level 1.  Tax increment financing bonds ("TIF bonds") are classified as Level 3. The following is a summary of the available-for-sale securities held by the Company as of June 30, 2012 and December 31, 2011:
 
 
 
Gross Unrealized
 
 
 
Adjusted Cost
 
Gains
 
Losses
 
Fair Value
June 30, 2012:
 
 
 
 
 
 
 
Common stocks
$
4,207

 
$
11,061

 
$
(5
)
 
$
15,263

Government and government sponsored entities
13,371

 

 
(1,542
)
 
11,829

 
$
17,578

 
$
11,061

 
$
(1,547
)
 
$
27,092


 
 

 
Gross Unrealized
 
 

 
Adjusted Cost
 
Gains
 
Losses
 
Fair Value
December 31, 2011:
 

 
 

 
 

 
 

Common stocks
$
4,207

 
$
9,480

 
$
(5
)
 
$
13,682

Mutual funds
928

 
23

 

 
951

Mortgage/asset-backed securities
1,717

 
10

 
(4
)
 
1,723

Government and government sponsored entities
15,058

 
45

 
(1,542
)
 
13,561

Corporate bonds
636

 
26

 

 
662

International bonds
33

 
1

 

 
34

 
$
22,579

 
$
9,585

 
$
(1,551
)
 
$
30,613

The Company uses interest rate swaps and caps to mitigate the effect of interest rate movements on its variable-rate debt.  The Company had four interest rate swaps and one interest rate cap as of June 30, 2012 and December 31, 2011, that qualify as hedging instruments and are designated as cash flow hedges.  The interest rate cap is included in intangible lease assets and other assets and the interest rate swaps are reflected in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets.  The swaps and cap have predominantly met the effectiveness test criteria since inception and changes in their fair values are, thus, primarily reported in other comprehensive income (loss) and are reclassified into earnings in the same period or periods during which the hedged items affect earnings.  The fair values of the Company’s interest rate hedges, classified under Level 2, are determined based on prevailing market data for contracts with matching durations, current and anticipated London Interbank Offered Rate (“LIBOR”) information, consideration of the Company’s credit standing, credit risk of the counterparties and reasonable estimates about relevant future market conditions.  See Note 6 for further information regarding the Company’s interest rate hedging instruments.
The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term nature of these financial instruments.  Based on the interest rates for similar financial instruments, the carrying value of mortgage and other notes receivable is a reasonable estimate of fair value.  The estimated fair value of mortgage and other indebtedness was $5,089,981 and $4,836,028 at June 30, 2012 and December 31, 2011, respectively.  The fair value was calculated by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently.
The Company holds TIF bonds, which mature in 2028, received in a private placement as consideration for infrastructure improvements made by the Company related to the development of a community center. The Company has the intent and ability to hold the TIF bonds through the recovery period. To value the TIF bonds at June 30, 2012, the Company performed a probability-weighted discounted cash flow analysis using various bond redemption scenarios and a net present value based on a discount rate of 7% and a lack of marketability discount of 5%. The valuation assumes a 5% long-term revenue growth rate. Due to the significant unobservable estimates and assumptions used in the valuation of the TIF bonds, the Company has classified the TIF bonds under Level 3 in the fair value hierarchy. There were no changes in the $11,829 classified as available-for-sale securities (Level 3) for the period from December 31, 2011 through June 30, 2012.
The Company holds a secured convertible promissory note from Jinsheng Group (“Jinsheng”), in which the Company also holds a cost-method investment.  The secured convertible note is non-interest bearing and is secured by shares of Jinsheng.  Since the secured convertible note is non-interest bearing and there is no active market for Jinsheng’s debt, the Company performed a probability-weighted discounted cash flow analysis using various sale, redemption and initial public offering ("IPO") exit strategies. The fair value analysis as of June 30, 2012 forecasts a 0% to 10% reduction in estimated cash flows. Sale and IPO scenarios employ capitalization rates ranging from 10% to 12% which are discounted 20% for lack of marketability. Due to the significant unobservable estimates and assumptions used in the valuation of the note, the Company has classified it under Level 3 in the fair value hierarchy.  Based on the valuation as of June 30, 2012, the Company determined that the current balance of the secured convertible note of $2,475 is not impaired.  There were no changes in the $2,475 classified as privately held debt and equity securities (Level 3) for the period from December 31, 2011 through June 30, 2012. See Note 5 for further discussion.
The significant unobservable inputs used in the fair value measurement of the TIF bonds are the forecasted growth in sales and marketability discount. The significant unobservable inputs used in the fair value measurement of the Jinsheng note include revenue estimates and marketability discount. Significant increases (decreases) in revenues could result in a significantly higher (lower) fair value measurement whereas significant increases (decreases) in the marketability discount could result in a significantly lower (higher) fair value measurement.
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. As of June 30, 2012, the Company did not have any assets or liabilities measured at fair value on a nonrecurring basis for which the carrying value exceeded fair value.

Note 4 – Acquisitions and Discontinued Operations
Acquisitions
Dakota Square Mall
On May 16, 2012, the Company acquired Dakota Square Mall, located in Minot, ND. The purchase price of $91,475 consisted of $32,474 in cash and the assumption of $59,001 of non-recourse debt that bears interest at a fixed rate of 6.23% and matures in November 2016. The Company recorded a debt premium of $3,040, computed using an estimated market interest rate of 4.75%, since the debt assumed was at an above-market interest rate compared to similar debt instruments at the date of acquisition. The results of operations of Dakota Square Mall are included in the condensed consolidated financial statements beginning on the date of acquisition. The Company incurred $272 of transaction related charges, which were recorded as general and administrative costs. The pro forma effect of this acquisition was not material. The following table summarizes the preliminary allocation of the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:
Land
 
$
4,749

Buildings and improvements
 
84,086

Tenant improvements
 
2,426

Above-market leases
 
2,233

In-place leases
 
12,489

Total assets
 
105,983

Below-market leases
 
(11,468
)
Mortgage note payable assumed
 
(59,001
)
Debt premium
 
(3,040
)
Net assets acquired
 
$
32,474


The Outlet Shoppes at Gettysburg
On April 17, 2012, the Company and its noncontrolling interest partner exercised their rights under the terms of a mezzanine loan agreement with the borrower, which owned The Outlet Shoppes at Gettysburg in Gettysburg, PA, to convert the mezzanine loan into a member interest in the outlet shopping center. After conversion, the Company owns a 50.0% interest in the outlet center. The investment of $24,837 consisted of a $4,522 converted mezzanine loan and the assumption of $20,315 of debt. The $40,631 of debt, of which our share is 50.0%, bears interest at a fixed rate of 5.87% and matures in February 2016. The results of operations of The Outlet Shoppes at Gettysburg are included in the condensed consolidated financial statements beginning on the date of acquisition. The following table summarizes the preliminary allocation of the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:
Land
 
$
20,915

Buildings and improvements
 
19,750

Tenant improvements
 
2,134

Above-market leases
 
1,097

In-place leases
 
9,282

Total assets
 
53,178

Mortgage note payable assumed
 
(40,631
)
Below-market leases
 
(3,503
)
Noncontrolling interest
 
(4,522
)
Net assets acquired
 
$
4,522

The Outlet Shoppes at El Paso
On April 13, 2012, the Company acquired a 75.0% joint venture interest in The Outlet Shoppes at El Paso, an outlet shopping center located in El Paso, TX for $35,456. The amount paid for the Company's 75.0% share was based on a total value of $114,199 less non-recourse mortgage debt of $66,924, which bears interest at a fixed rate of 7.06% and matures in December 2017. The debt assumed was at an above-market rate compared to similar debt instruments at the date of acquisition, so the Company recorded a debt premium of $7,700 (of which $5,775 represents the Company's 75.0% share), computed using an estimated market interest rate of 4.75%. The entity that owned The Outlet Shoppes at El Paso used a portion of the proceeds to repay a $9,150 mezzanine loan from the Company. After considering the repayment of the mezzanine loan to the Company, the net consideration paid by the Company in connection with this transaction was $28,594. The Outlet Shoppes at El Paso's results of operations are included in the condensed consolidated financial statements beginning on the date of acquisition. The following table summarizes the preliminary allocation of the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:
Land
 
$
12,579

Buildings and improvements
 
90,396

Tenant improvements
 
3,766

Above-market leases
 
2,852

In-place leases
 
15,305

Investments in unconsolidated affiliates
 
3,784

Total assets
 
128,682

Mortgage note payable assumed
 
(66,924
)
Debt premium
 
(7,700
)
Below-market leases
 
(6,783
)
Noncontrolling interest
 
(11,819
)
Net assets acquired
 
$
35,456

Discontinued Operations
In March 2012, the Company completed the sale of the second phase of Settlers Ridge, a community center located in Robinson Township, PA, for a gross sales price of $19,144 less commissions and customary closing costs for a net sales price of $18,951. Proceeds from the sale of the second phase of Settlers Ridge were used to reduce the outstanding borrowings on the Company's secured credit facilities. The Company recorded a gain of $883 attributable to the sale in the first quarter of 2012. The Company recorded a loss on impairment of real estate of $4,457 in the second quarter of 2011 to write down the book value of this property to its then estimated fair value. The results of operations of this property and the related gain on the sale are included in discontinued operations for the six months ended June 30, 2012. There were no results of operations for this property for the three month and six month periods ended June 30, 2011 as it was under development during that period. The loss on impairment of real estate is included in discontinued operations for the three and six month periods ended June 30, 2011.
In January 2012, the Company sold Oak Hollow Square, a community center located in High Point, NC, for a gross sales price of $14,247. Net proceeds of $13,796 were used to reduce the outstanding balance on the Company's unsecured term loan. The Company recorded a loss on impairment of real estate of $729 in the fourth quarter of 2011 to write down the book value of this property to the estimated net sales price. The Company recorded a loss on impairment of real estate of $255 in the first quarter of 2012 related to the true-up of certain estimated amounts to actual amounts. The results of operations of this property, including the loss on impairment of real estate, are included in discontinued operations for the six months ended June 30, 2012 and for the three and six month periods ended June 30, 2011, as applicable.
In November 2011, the Company completed the sale of Westridge Square, a community center located in Greensboro, NC, for a sales price of $26,125 less commissions and customary closing costs for a net sales price of $25,768. The Company recorded a loss of $160 attributable to the sale in the fourth quarter of 2011. Proceeds from the sale of Westridge Square were used to reduce the outstanding borrowings on the unsecured term loan used to acquire the Starmount Properties. The results of operations of this property are included in discontinued operations for the three and six month periods ended June 30, 2011.
In February 2011, the Company completed the sale of Oak Hollow Mall in High Point, NC, for a gross sales price of $9,000.  Net proceeds were used to retire the outstanding principal balance and accrued interest of $40,281 on the non-recourse loan secured by the property in accordance with the lender’s agreement to modify the outstanding principal balance and accrued interest to equal the net sales price for the property and, as a result, the Company recorded a gain on the extinguishment of debt of $31,434 in the first quarter of 2011.  The Company also recorded a loss on impairment of real estate in the first quarter of 2011 of $2,746 to write down the book value of the property to the net sales price. The results of operations of this property, including the gain on extinguishment of debt and loss on impairment of real estate, are included in discontinued operations for the six months ended June 30, 2011.
Total revenues of the properties described above that are included in discontinued operations were $(51) and $967 for the three months ended June 30, 2012 and 2011, respectively, and $325 and $2,396 for the six months ended June 30, 2012 and 2011, respectively.  Discontinued operations for the three and six month periods ended June 30, 2012 and 2011 also include settlements of estimated expenses based on actual amounts for properties sold during previous periods.
See Note 15 regarding the sale of Massard Crossing subsequent to June 30, 2012.
Note 5 – Unconsolidated Affiliates, Noncontrolling Interests and Cost Method Investments
 
Unconsolidated Affiliates
 
At June 30, 2012, the Company had investments in the following 18 entities, which are accounted for using the equity method of accounting:
Joint Venture
Property Name
Company's
Interest
CBL/T-C, LLC
CoolSprings Galleria, Oak Park Mall, West County Center
   and Pearland Town Center
60.3
%
CBL-TRS Joint Venture, LLC
Friendly Center, The Shops at Friendly Center and a portfolio
   of six office buildings
50.0
%
CBL-TRS Joint Venture II, LLC
Renaissance Center
50.0
%
El Paso Outlet Outparcels, LLC
The Outlet Shoppes at El Paso (vacant land)
50.0
%
Governor’s Square IB
Governor’s Plaza
50.0
%
Governor’s Square Company
Governor’s Square
47.5
%
High Pointe Commons, LP
High Pointe Commons
50.0
%
High Pointe Commons II-HAP, LP
High Pointe Commons - Christmas Tree Shop
50.0
%
Imperial Valley Mall L.P.
Imperial Valley Mall
60.0
%
Imperial Valley Peripheral L.P.
Imperial Valley Mall (vacant land)
60.0
%
JG Gulf Coast Town Center LLC
Gulf Coast Town Center
50.0
%
Kentucky Oaks Mall Company
Kentucky Oaks Mall
50.0
%
Mall of South Carolina L.P.
Coastal Grand—Myrtle Beach
50.0
%
Mall of South Carolina Outparcel L.P.
Coastal Grand—Myrtle Beach (Coastal Grand Crossing
   and vacant land)
50.0
%
Port Orange I, LLC
The Pavilion at Port Orange Phase I
50.0
%
Triangle Town Member LLC
Triangle Town Center, Triangle Town Commons
   and Triangle Town Place
50.0
%
West Melbourne I, LLC
Hammock Landing Phases I and II
50.0
%
York Town Center, LP
York Town Center
50.0
%
Although the Company has majority ownership of certain of these joint ventures, it has evaluated these investments and concluded that the other partners or owners in these joint ventures have 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.
Condensed combined financial statement information of these unconsolidated affiliates is as follows:
 
As of
ASSETS
June 30,
2012
 
December 31,
2011
Investment in real estate assets
$
2,220,979

 
$
2,239,160

Accumulated depreciation
(480,465
)
 
(447,121
)
 
1,740,514

 
1,792,039

Construction in progress
20,966

 
19,640

Net investment in real estate assets
1,761,480

 
1,811,679

Other assets
180,056

 
190,465

    Total assets
$
1,941,536

 
$
2,002,144

 
 
 
 
LIABILITIES
 
 
 
Mortgage and other indebtedness
$
1,465,123

 
$
1,478,601

Other liabilities
43,114

 
51,818

    Total liabilities
1,508,237

 
1,530,419

 
 
 
 
OWNERS' EQUITY
 
 
 
The Company
263,547

 
267,136

Other investors
169,752

 
204,589

Total owners' equity
433,299

 
471,725

    Total liabilities and owners' equity
$
1,941,536

 
$
2,002,144


 
Total for the Three Months
Ended June 30,
 
Company's Share for the Three
Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
Revenues
$
62,205

 
$
36,851

 
$
32,976

 
$
20,430

Depreciation and amortization expense
(20,718
)
 
(12,662
)
 
(11,008
)
 
(7,097
)
Interest expense
(21,086
)
 
(13,080
)
 
(11,093
)
 
(7,201
)
Other operating expenses
(18,076
)
 
(10,539
)
 
(9,022
)
 
(5,923
)
Gain on sales of real estate assets
430

 
1,665

 
220

 
1,246

Net income
$
2,755

 
$
2,235

 
$
2,073

 
$
1,455


 
Total for the Six Months
Ended June 30,
 
Company's Share for the Six
Months Ended June 30,
 
2012
 
2011
 
2012
 
2011
Revenues
$
124,499

 
$
76,947

 
$
66,387

 
$
42,984

Depreciation and amortization expense
(41,484
)
 
(25,100
)
 
(22,119
)
 
(14,112
)
Interest expense
(42,197
)
 
(26,237
)
 
(22,296
)
 
(14,460
)
Other operating expenses
(37,023
)
 
(22,805
)
 
(18,853
)
 
(12,425
)
Gain on sales of real estate assets
430

 
$
1,665

 
220

 
$
1,246

Net income
$
4,225

 
$
4,470

 
$
3,339

 
$
3,233

    

In April 2012, the Company acquired a 50.0% interest in a joint venture, El Paso Outlet Outparcels, LLC, simultaneously with the acquisition of a 75.0% interest in The Outlet Shoppes at El Paso (see Note 4). The Company's investment was $3,784. The remaining 50.0% interest is owned by affiliates of Horizon Group Properties. El Paso Outlet Outparcels, LLC owns land adjacent to The Outlet Shoppes at El Paso. The terms of the joint venture agreement provide that voting rights, capital contributions and distributions of cash flows will be on a pari passu basis in accordance with the ownership percentages.
During the first quarter of 2012, York Town Center, LP ("YTC") closed on a $38,000 ten-year non-recourse loan, secured by York Town Center in York, PA, which bears interest at a fixed rate of 4.90%. Proceeds from the new loan, plus cash on hand, were used to retire an existing loan of $39,379 that was scheduled to mature in March 2012.
Also during the first quarter of 2012, Port Orange I, LLC ("Port Orange") closed on the extension and modification of a construction loan, secured by The Pavilion at Port Orange in Port Orange, FL, to extend the maturity date to March 2014, remove a 1% LIBOR floor, and reduce the capacity from $98,883 to $64,950. Port Orange paid $3,332 to reduce the outstanding balance on the loan to the new capacity amount. There is a one-year extension option remaining on the loan, which is at the joint venture's election, for an outside maturity date of March 2015. Interest on the loan is at a current rate of LIBOR plus a margin of 3.5%. The Company has guaranteed 100% of the construction loan.
All of the debt on the properties owned by the unconsolidated affiliates is non-recourse, except for West Melbourne, Port Orange, and High Pointe Commons. See Note 11 for a description of guarantees the Company has issued related to certain unconsolidated affiliates.
See Note 15 regarding a subsequent event related to JG Gulf Coast Town Center LLC ("Gulf Coast").
Noncontrolling Interests
Noncontrolling interests include the aggregate noncontrolling partnership interest in the Operating Partnership that is not owned by the Company and for which each of the noncontrolling limited partners has the right to exchange all or a portion of its partnership interests for shares of the Company’s common stock, or at the Company’s election, their cash equivalent.  Noncontrolling interests also includes the aggregate noncontrolling ownership interest in the Company’s other consolidated subsidiaries that is held by third parties and for which the related partnership agreements either do not include redemption provisions or are subject to redemption provisions that do not require classification outside of permanent equity.  As of June 30, 2012, the total noncontrolling interests of $164,148 consisted of noncontrolling interests in the Operating Partnership and in other consolidated subsidiaries of $142,222 and $21,926 respectively.  The total noncontrolling interests at December 31, 2011 of $207,113 consisted of noncontrolling interests in the Operating Partnership and in other consolidated subsidiaries of $202,833 and $4,280, respectively.

Redeemable noncontrolling interests include a noncontrolling partnership interest in the Operating Partnership that is not owned by the Company and for which the partnership agreement includes redemption provisions that may require the Company to redeem the partnership interest for real property.  Redeemable noncontrolling interests also includes the aggregate noncontrolling ownership interest in other consolidated subsidiaries that is held by third parties and for which the related partnership agreements contain redemption provisions at the holder’s election that allow for redemption through cash and/or properties.  The total redeemable noncontrolling partnership interests of $38,218 as of June 30, 2012 consisted of noncontrolling interests in the Operating Partnership and in the Company’s consolidated subsidiary that provides security and maintenance services to third parties of $32,063 and $6,155, respectively.  At December 31, 2011, the total redeemable noncontrolling partnership interests of $32,271 consisted of noncontrolling interests in the Operating Partnership and in the Company’s consolidated security and maintenance services subsidiary of $26,036 and $6,235, respectively.
The redeemable noncontrolling preferred joint venture interest includes the preferred joint venture units (“PJV units”) issued to the Westfield Group (“Westfield”) for the acquisition of certain properties during 2007.  See Note 11 for additional information related to the PJV units.  Activity related to the redeemable noncontrolling preferred joint venture interest represented by the PJV units is as follows:
 
Six Months Ended
June 30,
 
2012
 
2011
Beginning Balance
$
423,834

 
$
423,834

Net income attributable to redeemable noncontrolling
     preferred joint venture interest
10,286

 
10,228

Distributions to redeemable noncontrolling
     preferred joint venture interest
(10,343
)
 
(10,286
)
Ending Balance
$
423,777

 
$
423,776


Jacobs, holder of 9,757,100 common units of limited partnership interest in the Operating Partnership, exercised its conversion rights in May 2012. The Company elected to issue 9,757,100 shares of common stock in exchange for the common units in June 2012. See Note 15 for additional information related to this conversion.
In the second quarter of 2012, the Company elected to pay cash of $3,475 to a holder of 194,572 common units of limited partnership interest in the Operating Partnership upon exercise of its conversion rights in the first quarter of 2012.
In the first quarter of 2012, the Company elected to pay cash of $6,359 to three holders of 431,380 common units of limited partnership interest in the Operation Partnership upon exercise of their conversion rights.
Cost Method Investments
The Company owns a 6.2% noncontrolling interest in subsidiaries of Jinsheng, an established mall operating and real estate development company located in Nanjing, China. As of June 30, 2012, Jinsheng owns controlling interests in 12 home furnishing shopping malls.
The Company also holds a secured convertible promissory note secured by 16,565,534 Series 2 Ordinary Shares of Jinsheng (which equates to a 2.275% ownership interest). The secured note is non-interest bearing and was amended by the Company and Jinsheng in January 2012 to extend to July 2012 the Company's right to convert the outstanding amount of the secured note into 16,565,534 Series A-2 Preferred Shares of Jinsheng, with an option to extend an additional six months to January 2013. The amendment also provides that if Jinsheng should complete an IPO, the secured note will be converted into common shares of Jinsheng immediately prior to the IPO. The Company can demand payment of the secured note at any time. See Note 15 for information related to the extension of the secured note subsequent to June 30, 2012.
The Company accounts for its noncontrolling interest in Jinsheng using the cost method because the Company does not exercise significant influence over Jinsheng and there is no readily determinable market value of Jinsheng’s shares since they are not publicly traded.  See Note 3 for information regarding the fair value of the secured note. The noncontrolling interest and the secured note are reflected as investment in unconsolidated affiliates in the accompanying condensed consolidated balance sheets. 
Variable Interest Entities
In May 2012, the Company entered into a joint venture, Atlanta Outlet Shoppes, LLC, with a third party to develop, own, and operate The Outlet Shoppes at Atlanta, an outlet center development located in Woodstock, GA. The Company holds a 75% ownership interest in the joint venture. The Company determined that its investment in this joint venture represents a variable interest in a variable interest entity ("VIE") and that the Company is the primary beneficiary. As a result, the joint venture is presented in the accompanying condensed consolidated financial statements as of June 30, 2012 on a consolidated basis, with the interests of the third party reflected as a noncontrolling interest.
In April 2012, the Company entered into a joint venture, Gettysburg Outlet Center Holding LLC, with a third party to develop, own, and operate The Outlet Shoppes at Gettysburg. The Company holds a 50% ownership interest in this joint venture. The Company determined that its investment in this joint venture represents a variable interest in a VIE and that the Company is the primary beneficiary. As a result, the joint venture is presented in the accompanying condensed consolidated financial statements as of June 30, 2012 on a consolidated basis, with the interests of the third party reflected as a noncontrolling interest.
In April 2012, the Company entered into a joint venture, El Paso Outlet Center Holding, LLC, with a third party to develop, own, and operate The Outlet Shoppes at El Paso. The Company holds a 75% ownership interest in the joint venture. The Company determined that its investment in this joint venture represents a variable interest in a VIE and that the Company is the primary beneficiary. As a result, the joint venture is presented in the accompanying condensed consolidated financial statements as of June 30, 2012 on a consolidated basis, with the interests of the third party reflected as a noncontrolling interest.

Note 6 – Mortgage and Other Indebtedness
 
Mortgage and other indebtedness consisted of the following:
 
June 30, 2012
 
December 31, 2011
 
Amount
 
Weighted
Average
Interest
Rate (1)
 
Amount
 
Weighted
Average
Interest
Rate (1)
Fixed-rate debt:
 
 
 
 
 
 
 
Non-recourse loans on operating properties (2)
$
3,835,797

 
5.42
%
 
$
3,656,243

 
5.55
%
Recourse term loans on operating properties
50,308

 
5.83
%
 
77,112

 
5.89
%
Total fixed-rate debt
3,886,105

 
5.43
%
 
3,733,355

 
5.54
%
Variable-rate debt:
 

 
 

 
 

 
 

Non-recourse term loans on operating properties
163,375

 
3.47
%
 
168,750

 
3.03
%
Recourse term loans on operating properties
110,296

 
2.39
%
 
124,439

 
2.29
%
Construction loans
28,223

 
3.28
%
 
25,921

 
3.25
%
Secured lines of credit
110,000

 
2.75
%
 
27,300

 
3.03
%
Unsecured term loans
395,209

 
1.88
%
 
409,590

 
1.67
%
Total variable-rate debt
807,103

 
2.32
%
 
756,000

 
2.18
%
Total
$
4,693,208

 
4.89
%
 
$
4,489,355

 
4.99
%
 
(1)
Weighted-average interest rate includes the effect of debt premiums (discounts), but excludes amortization of deferred financing costs.
(2)
The Company has four interest rate swaps on notional amounts totaling $115,800 as of June 30, 2012 and $117,700 as of December 31, 2011 related to four variable-rate loans on operating properties to effectively fix the interest rate on the respective loans.  Therefore, these amounts are reflected in fixed-rate debt at June 30, 2012 and December 31, 2011.

See Note 4 for a description of debt assumed in connection with acquisitions completed during the six months ended June 30, 2012.
Secured Lines of Credit
The Company has three secured lines of credit that are used for mortgage retirement, working capital, construction and acquisition purposes, as well as issuances of letters of credit. Each of these lines is secured by mortgages on certain of the Company’s operating properties. Borrowings under the secured lines of credit bear interest at LIBOR plus an applicable spread, ranging from 2.00% to 3.00%, based on the Company’s leverage ratio and had a weighted average interest rate of 2.75% at June 30, 2012. The Company also pays fees based on the amount of unused availability under its secured lines of credit at rates ranging from 0.15% to 0.35% of unused availability. The following summarizes certain information about the secured lines of credit as of June 30, 2012:     
 
Total
Capacity
 
 
Total
Outstanding
 
 
Maturity
Date
 
Extended
Maturity
Date
$
525,000

 
$

(1) 
 
February 2014
 
February 2015
520,000

 
110,000

 
 
April 2014
 
N/A
105,000

 

 
 
June 2015
 
June 2016
$
1,150,000

 
$
110,000

 
 
 
 
 
 
(1)
There was an additional $351 outstanding on this secured line of credit as of June 30, 2012 for
letters of credit.  Up to $50,000 of the capacity on this line can be used for letters of credit.  
In June 2012, the Company closed on the extension and modification of its secured credit facility with total capacity of $105,000. The facility's maturity date was extended to June 2015 with a one-year extension option, which is at the Company's election, for an outside maturity date of June 2016. The loan bears interest at LIBOR plus a margin ranging from 1.75% to 2.75%, based on the Company's leverage ratio.

Unsecured Term Facilities
The Company has an unsecured term loan that bears interest at LIBOR plus a margin ranging from 0.95% to 1.40%, based on the Company’s leverage ratio.  At June 30, 2012, the outstanding borrowings of $167,209 under this loan had a weighted average interest rate of 1.35%.  The loan was obtained for the exclusive purpose of acquiring certain properties from the Starmount Company or its affiliates.  The Company completed its acquisition of the properties in February 2008 and, as a result, no further draws can be made against the loan.  The loan matures in November 2012.  Net proceeds from a sale, or the Company’s share of excess proceeds from any refinancings, of any of the properties originally purchased with borrowings from this unsecured term loan must be used to pay down any remaining outstanding balance. The Company expects to use excess proceeds realized from our mortgage financings to retire this loan in 2012.
The Company has an unsecured term loan with a total capacity of $228,000 that bears interest at LIBOR plus a margin ranging from 1.50% to 1.80% , based on the Company’s leverage ratio.  At June 30, 2012, the outstanding borrowings of $228,000 under the unsecured term loan had a weighted average interest rate of 1.84%. The Company exercised an option to extend the maturity date from April 2012 to April 2013.
Letters of Credit
At June 30, 2012, the Company had additional secured and unsecured lines of credit with a total commitment of $15,906 that can only be used for issuing letters of credit. The letters of credit outstanding under these lines of credit totaled $2,150 at June 30, 2012.
Covenants and Restrictions
The agreements to each of the secured lines of credit contain, among other restrictions, certain financial covenants including the maintenance of certain financial coverage ratios, minimum net worth requirements, and limitations on cash flow distributions.  The Company believes it was in compliance with all covenants and restrictions at June 30, 2012.
The agreements to the $525,000 and $520,000 secured credit facilities and the two unsecured term facilities described above, each with the same lead lender, contain default and cross-default provisions customary for transactions of this nature (with applicable customary grace periods) in the event (i) there is a default in the payment of any indebtedness owed by the Company to any institution which is a part of the lender groups for the credit facilities, or (ii) there is any other type of default with respect to any indebtedness owed by the Company to any institution which is a part of the lender groups for the credit facilities and such lender accelerates the payment of the indebtedness owed to it as a result of such default.  The credit facility agreements provide that, upon the occurrence and continuation of an event of default, payment of all amounts outstanding under these credit facilities and those facilities with which these agreements reference cross-default provisions may be accelerated and the lenders’ commitments may be terminated.  Additionally, any default in the payment of any recourse indebtedness greater than $50,000, or any non-recourse indebtedness greater than $100,000, of the Company, the Operating Partnership and/or significant subsidiaries, as defined in the credit facilities, regardless of whether the lending institution is a part of the lender groups for the credit facilities, will constitute an event of default under the agreements to the credit facilities.
Several of the Company’s malls/open-air centers, associated centers and community centers, in addition to the corporate office building are owned by special purpose entities that are included in the Company’s consolidated financial statements. The sole business purpose of the special purpose entities is to own and operate these properties. The real estate and other assets owned by these special purpose entities are restricted under the loan agreements in that they are not available to settle other debts of the Company. However, so long as the loans are not under an event of default, as defined in the loan agreements, the cash flows from these properties, after payments of debt service, operating expenses and reserves, are available for distribution to the Company.
Mortgages on Operating Properties
In June 2012, the Company closed on a $40,000 ten-year non-recourse commercial mortgage-backed securities ("CMBS") loan with a fixed rate of 4.99% secured by WestGate Mall in Spartanburg, SC. Proceeds were used to pay down the Company's secured credit facilities.
In May 2012, the Company closed on a $22,000 ten-year non-recourse loan with an insurance company at a fixed interest rate of 5.00% secured by CBL Centers I and II in Chattanooga, TN. The new loan was used to pay down our secured credit facilities, which had been used in April 2012 and February 2012 to retire the loan balances on the maturing loans on CBL Centers II and I which had principal outstanding balances of $9,078 and $12,818, respectively.
In May 2012, the Company closed on a $67,000 ten-year non-recourse CMBS loan secured by Southpark Mall in Colonial Heights, VA. The loan bears interest at a fixed rate of 4.845%. Proceeds were used to retire an existing loan secured by Southpark Mall with a balance of $30,763 that was scheduled to mature in May 2012 as well as to reduce outstanding borrowings on the Company's secured credit facilities.
In May 2012, the Company closed on two separate ten-year non-recourse CMBS loans, including a $71,190 loan secured by Jefferson Mall in Louisville, KY and a $42,000 loan secured by Fashion Square Mall in Saginaw, MI, which bear interest at fixed interest rates of 4.75% and 4.95%, respectively. Proceeds were used to pay down the Company's secured credit facilities.
In April 2012, the Company closed on a ten-year non-recourse $122,000 CMBS loan secured by Arbor Place in Douglasville, GA. The loan bears interest at a fixed rate of 5.099%. Proceeds were used primarily to reduce the balance on the Company's secured credit facilities.
In April 2012, the Company closed on the extension and modification of a recourse mortgage loan secured by Statesboro Crossing in Statesboro, GA to extend the maturity date to February 2013 and reduce the amount available under the loan from $20,911 to equal the outstanding balance of $13,568. The interest rate remained at one-month LIBOR plus a spread of 1%. During the first quarter of 2012, this loan had previously been extended to April 2012.
During the first quarter of 2012, the Company closed on a $73,000 ten-year non-recourse CMBS loan secured by Northwoods Mall in Charleston, SC, which bears a fixed interest rate of 5.075%. Proceeds were used to reduce outstanding balances on the Company's secured credit facilities.
Also during the first quarter of 2012, the Company retired 15 operating property loans with an aggregate principal balance of $394,386 that were secured by Arbor Place, The Landing at Arbor Place, CBL Center I, Fashion Square, Hickory Hollow Mall, The Courtyard at Hickory Hollow Mall, Jefferson Mall, Massard Crossing, Northwoods Mall, Old Hickory Mall, Pemberton Plaza, Randolph Mall, Regency Mall, WestGate Mall and Willowbrook Plaza with borrowings from its secured credit facilities. As noted above, six of these properties were refinanced in the second quarter of 2012. See Note 15 related to the sale of Massard Crossing subsequent to June 30, 2012.
In the first quarter of 2012, the lender of the non-recourse mortgage loan secured by Columbia Place in Columbia, SC notified the Company that the loan had been placed in default. Columbia Place generates insufficient income levels to cover the debt service on the mortgage, which had a balance of $27,265 at June 30, 2012, and a contractual maturity date of September 2013. The lender on the loan receives the net operating cash flows of the property each month in lieu of scheduled monthly mortgage payments.
Scheduled Principal Payments
As of June 30, 2012, the scheduled principal, amortization and balloon payments of the Company’s consolidated debt, excluding extensions available at the Company’s option, on all mortgage and other indebtedness, including construction loans and lines of credit, are as follows: 
2012
$
330,037

2013
624,781

2014
329,072

2015
482,436

2016
778,893

Thereafter
2,138,305

 
4,683,524

Net unamortized premiums (discounts)
9,684

 
$
4,693,208

The remaining scheduled principal payments in 2012 of $330,037 include the maturing principal balances of two operating property loans totaling $122,169, one unsecured term loan of $167,209, a land loan of $2,023 and principal amortization of $38,636. One maturing operating property loan with a principal balance of $77,500 and the land loan have one-year extensions available at the Company's option, leaving approximately $211,878 of loan maturities in 2012 which the Company intends to retire or refinance.
The Company’s mortgage and other indebtedness had a weighted average maturity of 5.09 years as of June 30, 2012 and 4.69 years as of December 31, 2011.
Interest Rate Hedge Instruments
The Company records its derivative instruments in its condensed consolidated balance sheets at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the derivative has been designated as a hedge and, if so, whether the hedge has met the criteria necessary to apply hedge accounting.
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.  To accomplish these objectives, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.  Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
The effective portion of changes in the fair value of de