CBL & ASSOCIATES PROPERTIES INC - FORM 10-Q

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - CBL & ASSOCIATES PROPERTIES INC	exhibit321.htm
EX-32.2 - EXHIBIT 32.2 - CBL & ASSOCIATES PROPERTIES INC	exhibit322.htm
EX-31.1 - EXHIBIT 31.1 - CBL & ASSOCIATES PROPERTIES INC	exhibit311.htm
EX-31.2 - EXHIBIT 31.2 - CBL & ASSOCIATES PROPERTIES INC	exhibit312.htm
EX-12.1 - EXHIBIT 12.1 - CBL & ASSOCIATES PROPERTIES INC	exhibit121.htm
EX-10.5.9 - EXHIBIT 10.5.9 - CBL & ASSOCIATES PROPERTIES INC	exhibit1059.htm
EX-10.15.3 - EXHIBIT 10.15.3 - CBL & ASSOCIATES PROPERTIES INC	exhibit10153.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________

FORM 10-Q

______________

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

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 o 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 4, 2010, there were 138,076,295 shares of common stock, par value $0.01 per share, outstanding.

CBL & Associates Properties, Inc.

Table of Contents

PART I	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009	3

	Condensed Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30, 2010 and 2009	4

	Condensed Consolidated Statements of Equity for the Six Months Ended June 30, 2010 and 2009	6

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009	8

	Notes to Unaudited Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	50

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66

Item 3.	Defaults Upon Senior Securities	66

Item 4.	(Removed and Reserved)	66

Item 5.	Other Information	66

Item 6.	Exhibits	66

	SIGNATURE	67

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, 2010			December 31, 2009
Real estate assets:
Land	$	943,492		$	946,750
Buildings and improvements		7,557,570			7,569,015
		8,501,062			8,515,765
Less accumulated depreciation		(1,612,950	)		(1,505,840	)
		6,888,112			7,009,925
Developments in progress		99,748			85,110
Net investment in real estate assets		6,987,860			7,095,035
Cash and cash equivalents		60,649			48,062
Receivables:
Tenant, net of allowance for doubtful accounts of $3,241 in 2010 and $3,101 in 2009		69,268			73,170
Other		13,240			8,162
Mortgage and other notes receivable		38,025			38,208
Investments in unconsolidated affiliates		214,682			186,523
Intangible lease assets and other assets		273,253			279,950
	$	7,656,977		$	7,729,110

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Mortgage and other indebtedness	$	5,455,867		$	5,616,139
Accounts payable and accrued liabilities		290,347			248,333
Total liabilities		5,746,214			5,864,472
Commitments and contingencies (Notes 4 and 9)
Redeemable noncontrolling interests:
Redeemable noncontrolling partnership interests		25,933			22,689
Redeemable noncontrolling preferred joint venture interest		421,562			421,570
Total redeemable noncontrolling interests		447,495			444,259
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, 1,330,000 and 700,000 shares outstanding in 2010 and 2009, respectively		13			7
Common stock, $.01 par value, 350,000,000 shares authorized, 138,075,609 and 137,888,408 issued and outstanding in 2010 and 2009, respectively		1,381			1,379
Additional paid-in capital		1,508,116			1,399,654
Accumulated other comprehensive income		4,310			491
Accumulated deficit		(335,173	)		(283,640	)
Total shareholders’ equity		1,178,652			1,117,896
Noncontrolling interests		284,616			302,483
Total equity		1,463,268			1,420,379
	$	7,656,977		$	7,729,110

The accompanying notes are an integral part of these balance sheets.

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,
	2010			2009			2010			2009
REVENUES:
Minimum rents	$	170,239		$	170,491		$	339,060		$	342,428
Percentage rents		2,127			1,604			6,140			6,408
Other rents		4,598			4,142			9,174			8,422
Tenant reimbursements		76,347			81,695			156,170			163,179
Management, development and leasing fees		1,601			1,615			3,307			4,080
Other		7,234			6,977			14,471			13,067
Total revenues		262,146			266,524			528,322			537,584
EXPENSES:
Property operating		37,514			39,355			76,411			83,372
Depreciation and amortization		70,652			75,793			142,664			154,104
Real estate taxes		24,866			24,449			49,858			48,603
Maintenance and repairs		13,561			13,416			29,745			29,410
General and administrative		10,321			10,893			21,395			22,372
Loss on impairment of real estate		25,435			-			25,435			-
Other		6,415			5,914			13,116			11,071
Total expenses		188,764			169,820			358,624			348,932
Income from operations		73,382			96,704			169,698			188,652
Interest and other income		948			1,362			1,999			2,943
Interest expense		(73,341	)		(72,842	)		(146,801	)		(144,727	)
Loss on impairment of investment		-			-			-			(7,706	)
Gain (loss) on sales of real estate assets		1,149			72			2,015			(67	)
Equity in earnings of unconsolidated affiliates		409			62			948			1,596
Income tax benefit (provision)		1,911			(152	)		3,788			(755	)
Income from continuing operations		4,458			25,206			31,647			39,936
Operating income of discontinued operations		59			86			73			20
Loss on discontinued operations		-			(12	)		-			(72	)
Net income		4,517			25,280			31,720			39,884
Net (income) loss attributable to noncontrolling interests in:
Operating partnership		2,723			(5,109	)		(1,387	)		(6,415	)
Other consolidated subsidiaries		(6,124	)		(6,580	)		(12,261	)		(12,711	)
Net income attributable to the Company		1,116			13,591			18,072			20,758
Preferred dividends		(8,358	)		(5,454	)		(14,386	)		(10,909	)
Net income (loss) attributable to common shareholders	$	(7,242	)	$	8,137		$	3,686		$	9,849

The accompanying notes are an integral part of these statements.

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,
	2010			2009		2010		2009
Basic per share data:
Income (loss) from continuing operations, net of preferred dividends	$	(0.05	)	$	0.10	$	0.03	$	0.13
Discontinued operations		-			-		-		-
Net income (loss) attributable to common shareholders	$	(0.05	)	$	0.10	$	0.03	$	0.13
Weighted average common shares outstanding		138,068			82,187		138,018		74,341
Diluted per share data:
Income (loss) from continuing operations, net of preferred dividends	$	(0.05	)	$	0.10	$	0.03	$	0.13
Discontinued operations		-			-		-		-
Net income (loss) attributable to common shareholders	$	(0.05	)	$	0.10	$	0.03	$	0.13
Weighted average common and potential dilutive common shares outstanding		138,112			82,226		138,059		74,378
Amounts attributable to common shareholders:
Income (loss) from continuing operations, net of preferred dividends	$	(7,285	)	$	8,092	$	3,633	$	9,880
Discontinued operations		43			45		53		(31	)
Net income (loss) attributable to common shareholders	$	(7,242	)	$	8,137	$	3,686	$	9,849


Dividends declared per common share	$	0.20		$	0.11	$	0.40	$	0.48

The accompanying notes are an integral part of these statements.

CBL & Associates Properties, Inc.

Condensed Consolidated Statements of Equity

(In thousands, except per share data)

				Equity
				Shareholders' Equity
	Redeemable Noncontrolling Partnership Interests			Preferred Stock		Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Shareholders' Equity			Noncontrolling Interests			Total Equity

Balance, January 1, 2009	$	18,393		$	12	$	664	$	993,941		$	(12,786	)	$	(193,307	)	$	788,524		$	380,472		$	1,168,996
Net income		2,688			-		-		-			-			20,758			20,758			6,095			26,853
Other comprehensive income:
Net unrealized gain (loss) on available-for-sale securities		193			-		-		-			192			-			192			(249	)		(57	)
Net unrealized gain on hedging instruments		342			-		-		-			3,053			-			3,053			1,728			4,781
Realized loss on foreign currency translation adjustment		3			-		-		-			44			-			44			28			72
Net unrealized gain on foreign currency translation adjustment		350			-		-		-			2,529			-			2,529			1,300			3,829
Total other comprehensive income		888																5,818			2,807			8,625
Dividends declared - common stock		-			-		-		-			-			(39,744	)		(39,744	)		-			(39,744	)
Dividends declared - preferred stock		-			-		-		-			-			(10,909	)		(10,909	)		-			(10,909	)
Issuance of common stock and restricted common stock		-			-		-		414			-			-			414			-			414
Issuance of common stock for dividend		-			-		48		14,691			-			-			14,739			-			14,739
Issuance of common stock in equity offering		-			-		666		380,936			-			-			381,602			-			381,602
Cancellation of restricted common stock		-			-		-		(117	)		-			-			(117	)		-			(117	)
Accrual under deferred compensation arrangements		-			-		-		39			-			-			39			-			39
Amortization of deferred compensation		-			-		-		1,515			-			-			1,515			-			1,515
Additions to deferred financing costs		-			-		-		-			-			-			-			23			23
Transfer from noncontrolling interests to redeemable noncontrolling interests		82,970			-		-		-			-			-			-			(82,970	)		(82,970	)
Issuance of noncontrolling interests for distribution		-			-		-		-			-			-			-			4,140			4,140
Distributions to noncontrolling interests		(6,262	)		-		-		-			-			-			-			(29,062	)		(29,062	)
Purchase of noncontrolling interest in other consolidated subsidiaries		-			-		-		217			-			-			217			(717	)		(500	)
Adjustment for noncontrolling interests		(6,238	)		-		-		27,931			-			-			27,931			(21,693	)		6,238
Adjustment to record redeemable noncontrolling interests at redemption value		(647	)		-		-		647			-			-			647			-			647
Balance, June 30, 2009	$	91,792		$	12	$	1,378	$	1,420,214		$	(6,968	)	$	(223,202	)	$	1,191,434		$	259,095		$	1,450,529

The accompanying notes are an integral part of these statements.

CBL & Associates Properties, Inc.

Condensed Consolidated Statements of Equity

(In thousands, except per share data)

				Equity
				Shareholders' Equity
	Redeemable Noncontrolling Partnership Interests			Preferred Stock		Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Shareholders' Equity			Noncontrolling Interests			Total Equity

Balance, January 1, 2010	$	22,689		$	12	$	1,379	$	1,399,654		$	491		$	(283,640	)	$	1,117,896		$	302,483		$	1,420,379
Net income		1,874			-		-		-			-			18,072			18,072			1,550			19,622
Other comprehensive income (loss):
Net unrealized gain on available-for-sale securities		40			-		-		-			3,557			-			3,557			1,299			4,856
Net unrealized gain on hedging instruments		12			-		-		-			1,101			-			1,101			402			1,503
Realized loss on foreign currency translation adjustment		1			-		-		-			123			-			123			45			168
Net unrealized gain (loss) on foreign currency translation adjustment		(397	)		-		-		-			(962	)		-			(962	)		1,203			241
Total other comprehensive income (loss)		(344	)															3,819			2,949			6,768
Dividends declared - common stock		-			-		-		-			-			(55,219	)		(55,219	)		-			(55,219	)
Dividends declared - preferred stock		-			-		-		-			-			(14,386	)		(14,386	)		-			(14,386	)
Issuance of preferred stock for equity offering		-			6		-		121,262			-			-			121,268			-			121,268
Issuance of common stock and restricted common stock		-			-		1		121			-			-			122			-			122
Cancellation of restricted common stock		-			-		-		(175	)		-			-			(175	)		-			(175	)
Exercise of stock options		-			-		1		941			-			-			942			-			942
Accrual under deferred compensation arrangements		-			-		-		16			-			-			16			-			16
Amortization of deferred compensation		-			-		-		1,485			-			-			1,485			-			1,485
Income tax effect of share-based compensation		(10	)		-		-		(1,468	)		-			-			(1,468	)		(337	)		(1,805	)
Distributions to noncontrolling interests		(4,536	)		-		-		-			-			-			-			(29,489	)		(29,489	)
Adjustment for noncontrolling interests		837			-		-		(8,297	)		-			-			(8,297	)		7,460			(837	)
Adjustment to record redeemable noncontrolling interests at redemption value		5,423			-		-		(5,423	)		-			-			(5,423	)		-			(5,423	)
Balance, June 30, 2010	$	25,933		$	18	$	1,381	$	1,508,116		$	4,310		$	(335,173	)	$	1,178,652		$	284,616		$	1,463,268

The accompanying notes are an integral part of these statements.

CBL & Associates Properties, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2010			2009

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	31,720		$	39,884
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		97,420			96,393
Amortization		47,058			62,142
Amortization of deferred finance costs and debt premiums (discounts)		3,440			(938	)
Net amortization of above- and below-market leases		(1,735	)		(3,112	)
(Gain) loss on sales of real estate assets		(2,015	)		67
Realized foreign currency loss		169			75
Loss on discontinued operations		-			72
Write-off of development projects		359			143
Share-based compensation expense		1,561			1,875
Income tax effect of share-based compensation		(1,815	)		-
Loss on impairment of investment		-			7,706
Loss on impairment of real estate		25,435			-
Equity in earnings of unconsolidated affiliates		(948	)		(1,596	)
Distributions of earnings from unconsolidated affiliates		2,730			6,020
Provision for doubtful accounts		1,745			3,797
Change in deferred tax accounts		349			712
Changes in:
Tenant and other receivables		(2,995	)		639
Other assets		739			(2,787	)
Accounts payable and accrued liabilities		(21,297	)		(11,947	)
Net cash provided by operating activities		181,920			199,145

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate assets		(45,417	)		(115,718	)
Distributions from restricted cash		688			2,699
Proceeds from sales of real estate assets		2,607			4,722
Additions to mortgage notes receivable		-			(4,437	)
Payments received on mortgage notes receivable		1,278			7,437
Additional investments in and advances to unconsolidated affiliates		(24,750	)		(42,012	)
Distributions in excess of equity in earnings of unconsolidated affiliates		24,861			45,464
Changes in other assets		(2,366	)		15,439
Net cash used in investing activities		(43,099	)		(86,406	)

The accompanying notes are an integral part of these statements.

CBL & Associates Properties, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

(Continued)

	Six Months Ended June 30,
	2010			2009


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage and other indebtedness	$	371,323		$	347,017
Principal payments on mortgage and other indebtedness		(528,867	)		(750,349	)
Additions to deferred financing costs		(2,343	)		(4,075	)
Proceeds from issuances of common stock		62			381,686
Proceeds from issuances of preferred stock		121,268			-
Proceeds from exercises of stock options		942			-
Income tax effect of share-based compensation		1,815			-
Purchase of noncontrolling interests in other consolidated subsidiary		-			(500	)
Distributions to noncontrolling interests		(41,550	)		(41,349	)
Dividends paid to holders of preferred stock		(14,386	)		(10,909	)
Dividends paid to common shareholders		(34,498	)		(34,405	)
Net cash used in financing activities		(126,234	)		(112,884	)

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH		-			(293	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		12,587			(438	)
CASH AND CASH EQUIVALENTS, beginning of period		48,062			51,227
CASH AND CASH EQUIVALENTS, end of period	$	60,649		$	50,789

SUPPLEMENTAL INFORMATION:
Cash paid for interest, net of amounts capitalized	$	142,088		$	148,309

The accompanying notes are an integral part of these statements.

CBL & Associates Properties, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except per 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, community centers and office properties. Its shopping center 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”).At June 30, 2010, the Operating Partnership owned controlling interests in 76 regional malls/open-air centers (including one mixed-use center), 30 associated centers (each located adjacent to a regional mall), ten 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, 2010, the Operating Partnership owned non-controlling interests in eight regional malls, four associated centers, four 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 a controlling interest in one community center, owned in a 75/25 joint venture that was under construction at June 30, 2010. 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, 2010, 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 a 71.6% limited partner interest for a combined interest held by CBL of 72.7%.

The noncontrolling interest in the Operating Partnership is held primarily by CBL & Associates, Inc. and its affiliates (collectively “CBL’s Predecessor”) and by affiliates of The Richard E. Jacobs Group, Inc. (“Jacobs”). 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. Jacobs contributed their interests in certain real estate properties and joint ventures to the Operating Partnership in exchange for limited partner interests when the Operating Partnership acquired the majority of Jacobs’ interests in 23 properties in January 2001 and the balance of such interests in February 2002. At June 30, 2010, CBL’s Predecessor owned a 9.8% limited partner interest, Jacobs owned a 12.1% limited partner interest and third parties owned a 5.4% limited partner interest in the Operating Partnership. CBL’s Predecessor also owned 7.3 million shares of CBL’s common stock at June 30, 2010, for a total combined effective interest of 13.6% in the Operating Partnership.

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. 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. Material

intercompany transactions have been eliminated. The results for the interim period ended June 30, 2010 are not necessarily indicative of the results to be obtained for the full fiscal year.

In April 2009, the Company paid its first quarter dividend on its common stock of $0.37 per share in cash and shares of common stock. The Company issued 4,754,355 shares of its common stock in connection with the dividend, which resulted in an increase of approximately 7.2% in the number of shares outstanding. The Company elected to treat the issuance of its common stock as a stock dividend for earnings per share (“EPS”) purposes pursuant to accounting guidance that was in effect at that time. Therefore, all share and per share information related to EPS was adjusted proportionately to reflect the additional common stock issued on a retrospective basis. However, in January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-01, Accounting for Stock Dividends, Including Distributions to Shareholders with Components of Stock and Cash (“ASU 2010-01”) requiring that stock dividends such as the one the Company made in April 2009 be treated as a stock issuance that is reflected in share and per share information related to EPS on a prospective basis. Pursuant to the provisions of ASU 2010-01, the Company adopted this guidance on a retrospective basis. Thus, the share and per share information related to EPS for the three and six months ended June 30, 2009 as previously presented in the Company’s Form 10-Q for the quarterly period ended June 30, 2009, has been revised herein to reflect this adoption.

The Company has evaluated subsequent events through the date of issuance of these financial statements.

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, 2009, filed on February 22, 2010, as amended.

Note 2 – New Accounting Guidance

Effective January 1, 2010, the Company adopted ASU No. 2010-06, Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 provides that significant transfers in or out of measurements classified as Levels 1 or 2 should be disclosed separately along with reasons for the transfers. Information regarding purchases, sales, issuances and settlements related to measurements classified as Level 3 are also to be presented separately. Existing disclosures have been updated to include fair value measurement disclosures for each class of assets and liabilities and information regarding the valuation techniques and inputs used to measure fair value in measurements classified as either Levels 2 or 3. The guidance was effective for fiscal years beginning after December 15, 2009 excluding the provision relating to the rollforward of Level 3 activity which has been deferred until January 1, 2011. The adoption did not have an impact on the Company’s condensed consolidated financial statements.

Effective January 1, 2010, the Company adopted ASU No. 2009-16, Transfers and Servicing: Accounting for Transfers of Financial Assets (“ASU 2009-16”). The guidance eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets and requires additional related disclosures. The adoption did not have an impact on the Company’s condensed consolidated financial statements.

Effective January 1, 2010, the Company adopted ASU No. 2009-17, Consolidations: Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”). ASU 2009-17 modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting, or similar, rights should be consolidated. The guidance clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. This guidance requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. It also requires additional disclosure about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. The adoption did not have an impact on the Company’s condensed consolidated financial statements.

On February 24, 2010, the FASB issued ASU No. 2010-09, Subsequent Events: Amendments to Certain Recognition and Disclosure Requirements (“ASU 2010-09”). ASU 2010-09 amends the disclosure provision related to subsequent events by removing the requirement for an SEC filer to disclose a date through which

subsequent events have been evaluated. The new accounting guidance was effective immediately and was adopted by the Company upon the date of issuance.

Note 3 – Fair Value Measurements

The Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy 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 following tables set forth information regarding the Company’s financial instruments that are measured at fair value in the condensed consolidated balance sheets as of June 30, 2010 and December 31, 2009:

			Fair Value Measurements at Reporting Date Using
	Fair Value at June 30, 2010		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	$	8,935	$	8,935	$	-	$	-
Privately held debt and equity securities		2,475		-		-		2,475
Interest rate caps		21		-		21		-

Liabilities:
Interest rate swaps	$	1,197	$	-	$	1,197	$	-

			Fair Value Measurements at Reporting Date Using
	Fair Value at December 31, 2009		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	$	4,039	$	4,039	$	-	$	-
Privately held debt and equity securities		2,475		-		-		2,475
Interest rate cap		2		-		2		-

Liabilities:
Interest rate swaps	$	2,907	$	-	$	2,907	$	-

Intangible lease assets and other assets in the condensed consolidated balance sheets include marketable securities consisting of corporate equity securities 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 month periods ended June 30, 2010 and 2009, the Company did not recognize any realized gains and losses or write-downs related to sales or disposals of marketable securities or other-than-temporary impairments. The fair value of the Company’s available-for-sale securities is based on quoted market prices and, thus, is classified under Level 1. The following is a summary of the equity securities held by the Company as of June 30, 2010 and December 31, 2009:

			Gross Unrealized
	Adjusted Cost		Gains		Losses		Fair Value

June 30, 2010	$	4,207	$	4,732	$	4	$	8,935
December 31, 2009	$	4,207	$	-	$	168	$	4,039

The Company holds a secured convertible promissory note from, and a warrant to acquire shares of, 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 an analysis on the note considering credit risk and discounting factors to determine the fair value. The warrant was initially valued using estimated share price and volatility variables in a Black Scholes model. Due to the significant estimates and assumptions used in the valuation of the note and warrant, the Company has classified these under Level 3. As part of its investment review as of March 31, 2009, the Company determined that its investment in Jinsheng was impaired on an other than temporary basis due to a decline in expected future cash flows as a result of declining occupancy and sales related to the then downturn of the real estate market in China. An impairment charge of $2,400 was recorded in the Company’s condensed consolidated statement of operations for the six month period ended June 30, 2009, to reduce the carrying values of the secured convertible note and warrant to their estimated fair values. The Company performed qualitative and quantitative analyses of its investment as of June 30, 2010 and determined that the current balance of the secured convertible note and warrant of $2,475 is not impaired. See Note 4 for further discussion.

The Company uses interest rate swaps to mitigate the effect of interest rate movements on its variable-rate debt. The Company currently has two interest rate swaps included in accounts payable and accrued liabilities and two interest rate caps included in intangible lease assets and other assets in the accompanying condensed consolidated balance sheets that qualify as hedging instruments and are designated as cash flow hedges. The swaps and caps have predominantly met the effectiveness test criteria since inception and changes in their fair values are, thus, primarily reported in other comprehensive income 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 hedge instruments, classified under Level 2, are determined using a proprietary model which is 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 5 for further information regarding the Company’s interest rate hedging activity.

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 notes receivable is a reasonable estimate of fair value. The estimated fair value of mortgage and other indebtedness was $5,823,793 and $5,830,722 at June 30, 2010 and December 31, 2009, respectively. The estimated fair value was calculated by discounting future cash flows for the notes payable using estimated market rates at which similar loans would be made currently.

The following table sets forth information regarding the Company’s assets that are measured at fair value on a nonrecurring basis:

			Fair Value Measurements at Reporting Date Using
	Fair Value at June 30, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Loss
Assets:
Long-lived assets	$	11,969	$	-	$	-	$	11,969	$	25,435

The Company evaluates the carrying value of long-lived assets to be held and used when events or changes in circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when its estimated future undiscounted cash flows are less than its carrying value. If it is determined that impairment has occurred, the amount of the impairment charge is equal to the excess of the asset’s carrying value over its estimated fair value. The Company’s estimates of undiscounted cash flows expected to be generated by each property are based on a number of assumptions such as leasing expectations, operating budgets, estimated useful lives, future maintenance expenditures, intent to hold for use and capitalization rates. These assumptions are subject to economic and market uncertainties including, but not limited to, demand for space, competition for tenants, changes in market rental rates and costs to operate each property. As these factors are difficult to predict and are subject to future events that may alter the assumptions used, the future cash flows estimated in the Company’s impairment analyses may not be achieved.

During the course of the Company’s normal quarterly impairment review process for the second quarter of 2010, it was determined that a write-down of the depreciated book value of Oak Hollow Mall in High Point, NC, to its estimated fair value was necessary, resulting in a non-cash loss on impairment of real estate assets of $25,435 for the three and six months ended June 30, 2010. Subsequent to June 30, 2010, the Company entered into a contract to sell this property, subject to due diligence and customary closing conditions, for a sales price that is significantly less than the property’s carrying value. The impending sale was considered in the quarterly impairment review process, which resulted in a fair value of $11,578. If the sale of this property closes in accordance with the terms of the current contract, the lender of the non-recourse loan secured by this property with a principal balance of $39,559 as of June 30, 2010 has agreed to modify the outstanding principal balance of the loan to equal the net sales price of the property. See Note 9 for additional information.

The revenues of Oak Hollow Mall accounted for approximately 0.4% of total consolidated revenues for the trailing twelve months ended June 30, 2010. A reconciliation of the property’s carrying values for the six months ended June 30, 2010 is as follows:

	Oak Hollow Mall
Beginning carrying value, January 1, 2010	$	37,287
Capital expenditures		512
Depreciation expense		(786	)
Loss on impairment of real estate		(25,435	)
Ending carrying value, June 30, 2010	$	11,578

Note 4 – Unconsolidated Affiliates, Noncontrolling Interests and Cost Method Investments

Unconsolidated Affiliates

At June 30, 2010, the Company had investments in the following 20 entities, which are accounted for using the equity method of accounting:

Joint Venture	Property Name	Company's Interest

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	%
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 (vacant land)		50.0	%
Mall Shopping Center Company	Plaza del Sol (1)		50.6	%
Parkway Place L.P.	Parkway Place		50.0	%
Port Orange I, LLC	The Pavilion at Port Orange Phase I		50.0	%
Port Orange II, LLC	The Pavilion at Port Orange Phase II		50.0	%
Triangle Town Member LLC	Triangle Town Center, Triangle Town Commons and Triangle Town Place		50.0	%
West Melbourne I, LLC	Hammock Landing Phase I		50.0	%
West Melbourne II, LLC	Hammock Landing Phase II		50.0	%
York Town Center, LP	York Town Center		50.0	%

(1)	Plaza del Sol was sold in June 2010.

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 for the unconsolidated affiliates is as follows:

	Total for the Three Months Ended June 30,						Company's Share for the Three Months Ended June 30,
	2010			2009			2010			2009

Revenues	$	38,331		$	39,940		$	21,686		$	22,817
Depreciation and amortization expense		(14,286	)		(13,071	)		(8,403	)		(7,471	)
Interest expense		(13,858	)		(12,691	)		(8,449	)		(7,426	)
Other operating expenses		(11,295	)		(13,490	)		(4,647	)		(7,942	)
Gain on sales of real estate assets		1,412			701			170			82
Operating income of discontinued operations		103			4			52			2
Net income	$	407		$	1,393		$	409		$	62

	Total for the Six Months Ended June 30,						Company's Share for the Six Months Ended June 30,
	2010			2009			2010			2009

Revenues	$	77,373		$	81,096		$	42,311		$	47,343
Depreciation and amortization expense		(27,244	)		(25,539	)		(15,205	)		(14,895	)
Interest expense		(27,701	)		(25,234	)		(15,612	)		(15,218	)
Other operating expenses		(23,627	)		(27,045	)		(10,753	)		(16,303	)
Gain on sales of real estate assets		1,290			1,689			121			646
Operating income of discontinued operations		170			46			86			23
Net income	$	261		$	5,013		$	948		$	1,596

Mall Shopping Center Company

In June 2010, the Company’s 50.6% owned unconsolidated joint venture, Mall Shopping Center Company, sold Plaza del Sol in Del Rio, TX. The joint venture recognized a gain of $1,244 from the sale, of which the Company’s share was $75, net of the excess of its basis over its underlying equity in the amount of $554. The results of operations of Mall Shopping Center Company have been reclassified to discontinued operations in the tables above for all periods presented.

CBL Macapa

In September 2008, the Company entered into a condominium partnership agreement with several individual investors to acquire a 60% interest in a new retail development in Macapa, Brazil. The Company provided total funding of $1,189 related to the development. In December 2009, the Company entered into an agreement to sell its 60% interest in this partnership with one of the condominium partnership’s investors for a gross sales price of $1,263, less closing costs for a net sales price of $1,201. The sale closed in March 2010. Upon closing, the buyer paid $200 and gave the Company two notes receivable totaling $1,001, both with an interest rate of 10%, for the remaining balance of the purchase price. There was no gain or loss on this sale. On April 22, 2010, the buyer paid the first note of $300, due on April 23, 2010, plus applicable interest. Upon maturity of the second note of $701, due on June 8, 2010, the buyer requested additional time for payment. The Company and buyer have agreed to revised terms regarding the second note of which the buyer will pay monthly installments of $45 from July 2010 to June 2011, with a final balloon installment of $161 due in July 2011. Interest on the revised note is payable at maturity.Noncontrolling Interests

Noncontrolling interests includes 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, 2010, the total noncontrolling interests of $284,616 consisted of third-party interests in the Operating Partnership and in other consolidated subsidiaries of $283,737 and $879, respectively. The total noncontrolling interests at December 31, 2009 of $302,483 consisted of third-party interests in the Operating Partnership and in other consolidated subsidiaries of $301,808 and $675, respectively.

Redeemable noncontrolling interests includes 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 $25,933 as of June 30, 2010 consisted of third-party interests in the Operating Partnership and in the Company’s consolidated subsidiary that provides security and maintenance services to third parties of $19,461 and $6,472, respectively. At December 31, 2009, the total redeemable noncontrolling partnership interests of $22,689 consisted of third-party interests in the Operating Partnership and in the Company’s consolidated security and maintenance services subsidiary of $16,194 and $6,495, 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 9 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,
	2010			2009
Beginning Balance	$	421,570		$	421,279
Net income attributable to redeemable noncontrolling preferred joint venture interest		10,217			10,343
Distributions to redeemable noncontrolling preferred joint venture interest		(10,225	)		(10,165	)
Ending Balance	$	421,562		$	421,457

Cost Method Investments

In February 2007, the Company acquired a 6.2% noncontrolling interest in subsidiaries of Jinsheng, an established mall operating and real estate development company located in Nanjing, China, for $10,125. As of June 30, 2010, Jinsheng owns controlling interests in four home decoration shopping centers, two general retail shopping centers and four development sites.

Jinsheng also issued to the Company a secured convertible promissory note in exchange for cash of $4,875. The note is secured by 16,565,534 Series 2 Ordinary Shares of Jinsheng. The secured note is non-interest bearing and matures upon the earlier to occur of (i) January 22, 2012, (ii) the closing of the sale, transfer or other disposition of substantially all of Jinsheng’s assets, (iii) the closing of a merger or consolidation of Jinsheng or (iv) an event of default, as defined in the secured note. In lieu of the Company’s right to demand payment on the maturity date, the Company may, at its sole option, convert the outstanding amount of the secured note into 16,565,534 Series A-2 Preferred Shares of Jinsheng (which equates to a 2.275% ownership interest).

Jinsheng also granted the Company a warrant to acquire 5,461,165 Series A-3 Preferred Shares for $1,875. The warrant expired on January 22, 2010.

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. The Company initially recorded the secured note at its estimated fair value of $4,513, which included a discount of $362 due to the fact that it is non-interest bearing. The discount is amortized to interest income over the term of the secured note using the effective interest meth

CBL & ASSOCIATES PROPERTIES INC - FORM 10-Q - August 9, 2010

Attached files