CBL-3.31.2013-10Q
Table of Contents

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 MARCH 31, 2013
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 May 2, 2013, there were 164,559,974 shares of common stock, par value $0.01 per share, outstanding.



Table of Contents

CBL & Associates Properties, Inc.

Table of Contents

PART I
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1:   Financial Statements

CBL & Associates Properties, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
ASSETS
March 31,
2013
 
December 31,
2012
Real estate assets:
 
 
 
Land
$
905,310

 
$
905,339

Buildings and improvements
7,215,147

 
7,228,293

 
8,120,457

 
8,133,632

Accumulated depreciation
(2,026,560
)
 
(1,972,031
)
 
6,093,897

 
6,161,601

Held for sale

 
29,425

Developments in progress
164,948

 
137,956

Net investment in real estate assets
6,258,845

 
6,328,982

Cash and cash equivalents
66,580

 
78,248

Receivables:
 

 
 

 Tenant, net of allowance for doubtful accounts of $2,054
     and $1,977 in 2013 and 2012, respectively
76,331

 
78,963

 Other, net of allowance for doubtful accounts of $1,283
      and $1,270 in 2013 and 2012, respectively
15,571

 
8,467

Mortgage and other notes receivable
22,337

 
25,967

Investments in unconsolidated affiliates
275,349

 
259,810

Intangible lease assets and other assets
275,064

 
309,299

 
$
6,990,077

 
$
7,089,736

 
 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 

 
 

Mortgage and other indebtedness
$
4,680,521

 
$
4,745,683

Accounts payable and accrued liabilities
302,946

 
358,874

Total liabilities
4,983,467

 
5,104,557

Commitments and contingencies (Notes 5 and 11)


 


Redeemable noncontrolling interests:  
 

 
 

Redeemable noncontrolling partnership interests  
43,615

 
40,248

Redeemable noncontrolling preferred joint venture interest
423,719

 
423,834

Total redeemable noncontrolling interests
467,334

 
464,082

Shareholders' equity:
 

 
 

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

 
 

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

 
18

 6.625% Series E Cumulative Redeemable Preferred
     Stock, 690,000 shares outstanding
7

 
7

 Common stock, $.01 par value, 350,000,000 shares
     authorized, 163,387,752 and 161,309,652 issued and
     outstanding in 2013 and 2012, respectively
1,634

 
1,613

Additional paid-in capital
1,804,108

 
1,773,630

Accumulated other comprehensive income
7,850

 
6,986

Dividends in excess of cumulative earnings
(472,184
)
 
(453,561
)
Total shareholders' equity
1,341,433

 
1,328,693

Noncontrolling interests
197,843

 
192,404

Total equity
1,539,276

 
1,521,097

 
$
6,990,077

 
$
7,089,736

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

3

Table of Contents

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
 
Three Months
Ended March 31,
 
2013
 
2012
REVENUES:
 
 
 
Minimum rents
$
170,478

 
$
157,510

Percentage rents
4,915

 
3,452

Other rents
5,297

 
5,286

Tenant reimbursements
74,359

 
69,692

Management, development and leasing fees
3,075

 
2,469

Other
7,853

 
8,060

Total revenues
265,977

 
246,469

 
 
 
 
OPERATING EXPENSES:
 

 
 

Property operating
41,078

 
36,865

Depreciation and amortization
71,555

 
62,258

Real estate taxes
23,042

 
22,329

Maintenance and repairs
14,691

 
12,757

General and administrative
13,424

 
13,800

Other
6,656

 
6,758

Total operating expenses
170,446

 
154,767

Income from operations
95,531

 
91,702

Interest and other income
727

 
1,075

Interest expense
(59,828
)
 
(59,831
)
Gain on sales of real estate assets
543

 
94

Equity in earnings of unconsolidated affiliates
2,619

 
1,266

Income tax benefit
174

 
228

Income from continuing operations
39,766

 
34,534

Operating income (loss) from discontinued operations
(662
)
 
1,106

Gain on discontinued operations
781

 
911

Net income
39,885

 
36,551

Net income attributable to noncontrolling interests in:
 

 
 

Operating partnership
(3,491
)
 
(4,362
)
Other consolidated subsidiaries
(6,081
)
 
(6,140
)
Net income attributable to the Company
30,313

 
26,049

Preferred dividends
(11,223
)
 
(10,594
)
Net income attributable to common shareholders
$
19,090

 
$
15,455



4

Table of Contents

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
(Continued)
 
 
Three Months
Ended March 31,
 
2013
 
2012
Basic per share data attributable to common shareholders:
 

 
 

Income from continuing operations, net of preferred dividends
$
0.12

 
$
0.09

Discontinued operations

 
0.01

Net income attributable to common shareholders
$
0.12

 
$
0.10

Weighted-average common shares outstanding
161,540

 
148,495

 
 
 
 
Diluted earnings per share data attributable to common shareholders:
 
 

Income from continuing operations, net of preferred dividends
$
0.12

 
$
0.09

Discontinued operations

 
0.01

Net income attributable to common shareholders
$
0.12

 
$
0.10

Weighted-average common and potential dilutive common shares outstanding
161,540

 
148,538

 
 
 
 
Amounts attributable to common shareholders:
 

 
 

Income from continuing operations, net of preferred dividends
$
18,989

 
$
13,880

Discontinued operations
101

 
1,575

Net income attributable to common shareholders
$
19,090

 
$
15,455

 
 
 
 
Dividends declared per common share
$
0.23

 
$
0.22


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


5

Table of Contents

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

 
Three Months
Ended March 31,
 
2013
 
2012
Net income
$
39,885

 
$
36,551

 
 
 
 
Other comprehensive income:
 
 
 
   Unrealized holding gain on available-for-sale securities
764

 
1,518

   Unrealized loss on hedging instruments
(281
)
 
(278
)
   Reclassification adjustment on hedging instruments included in net income
557

 
562

Total other comprehensive income
1,040

 
1,802

 
 
 
 
Comprehensive income
40,925

 
38,353

  Comprehensive income attributable to noncontrolling interests in:
 
 
 
     Operating partnership
(3,667
)
 
(4,757
)
     Other consolidated subsidiaries
(6,081
)
 
(6,140
)
Comprehensive income attributable to the Company
$
31,177

 
$
27,456


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


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Table of Contents

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, 2012
$
32,271

 
$
23

 
$
1,484

 
$
1,657,927

 
$
3,425

 
$
(399,581
)
 
$
1,263,278

 
$
207,113

 
$
1,470,391

Net income
1,089

 

 

 

 

 
26,049

 
26,049

 
4,269

 
30,318

Other comprehensive income
14

 

 

 

 
1,407

 

 
1,407

 
381

 
1,788

Redemption of Operating Partnership common units

 

 

 

 

 

 

 
(6,359
)
 
(6,359
)
Dividends declared - common stock

 

 

 

 

 
(32,700
)
 
(32,700
)
 

 
(32,700
)
Dividends declared - preferred stock

 

 

 

 

 
(10,594
)
 
(10,594
)
 

 
(10,594
)
Issuance of common stock and restricted
     common stock

 

 
2

 
282

 

 

 
284

 

 
284

Cancellation of restricted common stock

 

 

 
(247
)
 

 

 
(247
)
 

 
(247
)
Exercise of stock options

 

 
1

 
2,337

 

 

 
2,338

 

 
2,338

Accrual under deferred compensation arrangements

 

 

 
14

 

 

 
14

 

 
14

Amortization of deferred compensation

 

 

 
1,041

 

 

 
1,041

 

 
1,041

Distributions to noncontrolling interests
(1,893
)
 

 

 

 

 

 

 
(9,454
)
 
(9,454
)
Adjustment for noncontrolling interests
843

 

 

 
1,811

 

 

 
1,811

 
(2,654
)
 
(843
)
Adjustment to record redeemable
     noncontrolling interests at redemption value
4,272

 

 

 
(4,272
)
 

 

 
(4,272
)
 

 
(4,272
)
Balance, March 31, 2012
$
36,596

 
$
23

 
$
1,487

 
$
1,658,893

 
$
4,832

 
$
(416,826
)
 
$
1,248,409

 
$
193,296

 
$
1,441,705


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


7

Table of Contents

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, 2013
$
40,248

 
$
25

 
$
1,613

 
$
1,773,630

 
$
6,986

 
$
(453,561
)
 
$
1,328,693

 
$
192,404

 
$
1,521,097

Net income
788

 

 

 

 

 
30,313

 
30,313

 
3,698

 
34,011

Other comprehensive income
10

 

 

 

 
864

 

 
864

 
166

 
1,030

Issuance of common stock

 

 
19

 
43,850

 

 

 
43,869

 

 
43,869

Dividends declared - common stock

 

 

 

 

 
(37,713
)
 
(37,713
)
 

 
(37,713
)
Dividends declared - preferred stock

 

 

 

 

 
(11,223
)
 
(11,223
)
 

 
(11,223
)
Issuance of restricted common stock

 

 
2

 
(2
)
 

 

 

 

 

Cancellation of restricted common stock

 

 

 
(402
)
 

 

 
(402
)
 

 
(402
)
Amortization of deferred compensation

 

 

 
1,464

 

 

 
1,464

 

 
1,464

Distributions to noncontrolling interests
(1,744
)
 

 

 

 

 

 

 
(8,544
)
 
(8,544
)
Adjustment for noncontrolling interests
157

 

 

 
(10,909
)
 

 

 
(10,909
)
 
10,752

 
(157
)
Adjustment to record redeemable
     noncontrolling interests at redemption value
4,156

 

 

 
(3,523
)
 

 

 
(3,523
)
 
(633
)
 
(4,156
)
Balance, March 31, 2013
$
43,615

 
$
25

 
$
1,634

 
$
1,804,108

 
$
7,850

 
$
(472,184
)
 
$
1,341,433

 
$
197,843

 
$
1,539,276


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


8

Table of Contents

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
  
 
Three Months Ended
March 31,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 
Net income
$
39,885

 
$
36,551

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

Depreciation and amortization
71,662

 
63,273

Net amortization of deferred finance costs and debt premiums
1,586

 
2,071

Net amortization of intangible lease assets and liabilities
(314
)
 
272

Gain on sales of real estate assets
(543
)
 
(587
)
Gain on discontinued operations
(781
)
 
(911
)
Write-off of development projects
2

 
(124
)
Share-based compensation expense
1,464

 
1,275

Loss on impairment of real estate from discontinued operations

 
293

Equity in earnings of unconsolidated affiliates
(2,619
)
 
(1,266
)
Distributions of earnings from unconsolidated affiliates
4,465

 
3,167

Provision for doubtful accounts
698

 
668

Change in deferred tax accounts
2,661

 
2,823

Changes in:
 

 
 

Tenant and other receivables
102

 
8,236

Other assets

 
756

Accounts payable and accrued liabilities
(50,763
)
 
(24,675
)
Net cash provided by operating activities
67,505

 
91,822

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Additions to real estate assets
(42,567
)
 
(42,862
)
Reductions to restricted cash
1,697

 
15,067

Proceeds from sales of real estate assets
44,328

 
35,547

Payments received on mortgage and other notes receivable
3,630

 
599

Proceeds from sales of available-for-sale securities
11,002

 

Additional investments in and advances to unconsolidated affiliates
(20,588
)
 
(3,908
)
Distributions in excess of equity in earnings of unconsolidated affiliates
4,343

 
3,741

Changes in other assets
(1,816
)
 
(746
)
Net cash provided by investing activities
29

 
7,438

 


 



9

Table of Contents

 
CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
(Continued)
 
 
 
 
 
 
Three Months
Ended March 31,
 
 
2013
 
2012
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from mortgage and other indebtedness
$
247,209

 
$
581,791

 
Principal payments on mortgage and other indebtedness
(307,697
)
 
(611,382
)
 
Additions to deferred financing costs
(651
)
 
(1,105
)
 
Proceeds from issuances of common stock
43,869

 
42

 
Proceeds from exercises of stock options

 
1,334

 
Purchase of noncontrolling interest in the Operating Partnership

 
(6,359
)
 
Contributions from noncontrolling interests

 
285

 
Distributions to noncontrolling interests
(15,224
)
 
(16,539
)
 
Dividends paid to holders of preferred stock
(11,223
)
 
(10,594
)
 
Dividends paid to common shareholders
(35,485
)
 
(31,156
)
 
Net cash used in financing activities
(79,202
)
 
(93,683
)
 
 
 
 
 
 
NET CHANGE IN CASH AND CASH EQUIVALENTS
(11,668
)
 
5,577

 
CASH AND CASH EQUIVALENTS, beginning of period
78,248

 
56,092

 
CASH AND CASH EQUIVALENTS, end of period
$
66,580

 
$
61,669

 
 
 
 
 
 
SUPPLEMENTAL INFORMATION:
 

 
 

 
Cash paid for interest, net of amounts capitalized
$
57,775

 
$
57,054


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


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Table of Contents

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, outlet 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 March 31, 2013, the Operating Partnership owned controlling interests in 77 regional malls/open-air and outlet centers (including one mixed-use center), 28 associated centers (each located adjacent to a regional mall), six community centers and eight 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 ("VIE").  At March 31, 2013, the Operating Partnership owned noncontrolling interests in nine regional malls/open-air centers, four associated centers, four community centers and seven 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 one outlet center development, four mall expansions, one community center development, two mall redevelopments and one associated center redevelopment at March 31, 2013.  The Operating Partnership had a noncontrolling interest in one community center development at March 31, 2013. 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 March 31, 2013, CBL Holdings I, Inc., the sole general partner of the Operating Partnership, owned a 1.0% general partner interest in the Operating Partnership and CBL Holdings II, Inc. owned an 83.7% limited partner interest for a combined interest held by CBL of 84.7%.
The noncontrolling interest in the Operating Partnership is held by CBL & Associates, Inc., its shareholders and affiliates and certain senior officers of the Company, all of which 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 (collectively “CBL’s Predecessor”) and by various third parties. At March 31, 2013, CBL’s Predecessor owned a 9.4% limited partner interest and the third parties owned a 5.9% limited partner interest in the Operating Partnership.  CBL’s Predecessor also owned 3.2 million shares of CBL’s common stock at March 31, 2013, for a total combined effective interest of 11.1% in the Operating Partnership.
The Operating Partnership conducts CBL’s property management and development activities through its wholly-owned subsidiary, CBL & Associates Management, Inc. (the “Management Company”) to comply with certain requirements of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).
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 March 31, 2013 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, 2012.



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Note 2 – Recent Accounting Pronouncements
 Accounting Guidance Adopted
In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ("ASU 2013-02"). The objective of ASU 2013-02 is to improve reporting of reclassifications out of accumulated other comprehensive income ("AOCI") by presenting information about such reclassifications and their corresponding effect on net income primarily in one place either on the face of the financial statements or in the notes. ASU 2013-02 requires an entity to disclose information by component for significant amounts reclassified out of AOCI if the amounts reclassified are required to be reclassified under GAAP to net income in their entirety in the same reporting period. For amounts not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. For public companies, this guidance was effective on a prospective basis for fiscal years, and interim periods within those years, beginning after December 15, 2012. ASU 2013-02 did not change the calculation of or amounts reported as net income and comprehensive income but did change the presentation of the components of AOCI reported in the Company's condensed consolidated financial statements.
Accounting Pronouncements Not Yet Effective
In February 2013, the FASB issued ASU 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date ("ASU 2013-04"). ASU 2013-04 addresses the diversity in practice related to the recognition, measurement and disclosure of certain obligations which are not addressed within existing GAAP guidance. Such obligations under the scope of ASU 2013-04 include debt arrangements, other contractual obligations, settled litigation and judicial rulings. The guidance requires an entity to measure these joint and several obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors as well as any additional amount the reporting entity expects to pay on behalf of its co-obligors. ASU 2013-04 also requires an entity to disclose information about the nature and amount of these obligations. For public companies, ASU 2013-04 is effective on a retrospective basis for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company may elect to use hindsight for the comparative periods (if the Company changes its accounting as a result of the adoption of this guidance). Early adoption is permitted. The Company is evaluating the impact that this update may have on its 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 Accounting Standards Codification ("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.

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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 March 31, 2013 and December 31, 2012:
 
 
 
Fair Value Measurements at Reporting Date Using
 
Fair Value at
March 31, 2013
 
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
$
17,320

 
$
17,320

 
$

 
$

Privately-held debt and equity securities
2,475

 

 

 
2,475

Interest rate cap

 

 

 

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Interest rate swaps
$
5,529

 
$

 
$
5,529

 
$


 
 

 
Fair Value Measurements at Reporting Date Using
 
Fair Value at
December 31, 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
$
27,679

 
$
16,556

 
$

 
$
11,123

Privately-held debt and equity securities
2,475

 

 

 
2,475

Interest rate cap

 

 

 

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Interest rate swaps
$
5,805

 
$

 
$
5,805

 
$


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 any periods presented.

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Intangible lease assets and other assets in the condensed consolidated balance sheets include marketable securities consisting of corporate equity securities 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 AOCI 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 months ended March 31, 2013 and 2012, the Company did not record any write-downs related to other-than-temporary impairments.  During the three months ended March 31, 2013 and 2012, the Company did not recognize any realized gains or losses related to sales of marketable securities. The fair values of the Company’s available-for-sale securities are based on quoted market prices and are classified under Level 1.  Tax increment financing bonds ("TIF bonds"), which were classified as Level 3 as of December 31, 2012, were redeemed during the three month period ended March 31, 2013. The following is a summary of the available-for-sale securities held by the Company as of March 31, 2013 and December 31, 2012:

 
 
 
Gross Unrealized
 
 
 
Adjusted Cost
 
Gains
 
Losses
 
Fair Value
March 31, 2013:
 
 
 
 
 
 
 
Common stocks
$
4,195

 
$
13,125

 
$

 
$
17,320


 
 

 
Gross Unrealized
 
 

 
Adjusted Cost
 
Gains
 
Losses
 
Fair Value
December 31, 2012:
 

 
 

 
 

 
 

Common stocks
$
4,195

 
$
12,361

 
$

 
$
16,556

Government and government-sponsored entities
11,123

 

 

 
11,123

 
$
15,318

 
$
12,361

 
$

 
$
27,679


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 March 31, 2013 and December 31, 2012, 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) ("OCI/L") 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 $4,969,289 and $5,058,411 at March 31, 2013 and December 31, 2012, respectively.  The fair value was calculated using Level 2 inputs by discounting future cash flows for mortgage and other indebtedness using estimated market rates at which similar loans would be made currently. The carrying amount of mortgage and other indebtedness was $4,680,521 and $4,745,683 at March 31, 2013 and December 31, 2012, respectively.
Prior to February 2013, the Company held TIF bonds, which had a 2028 maturity date and were received in a private placement as consideration for infrastructure improvements made by the Company related to the development of a community center. The Company had the intent and ability to hold the TIF bonds through the recovery period. The Company adjusted the bonds to their net realizable value as of December 31, 2012 and they were redeemed in January 2013. Due to the significant unobservable estimates and assumptions used in the valuation of the TIF bonds, such as the forecasted growth in sales and lack of marketability discount, the Company had classified the TIF bonds under Level 3 in the fair value hierarchy. The following

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table provides a reconciliation of changes between the beginning and ending balances of items measured at fair value on a recurring basis in the tables above that used significant unobservable inputs (Level 3):
 
 
Three Months Ended
March 31, 2013
 
Year Ended
 December 31, 2012
Available-for-sale securities (Level 3):
 
 
 
 
     Balance, beginning of period
 
$
11,123

 
$
11,829

       Redemption of TIF bonds
 
(11,002
)
 

       Reclassification adjustment AOCI
 

 
1,542

       Transfer out of Level 3 (1)
 
(121
)
 
(2,248
)
     Balance, end of period
 
$

 
$
11,123

(1) The TIF bonds were adjusted to their net realizable value as of December 31, 2012 and were redeemed in January 2013. The difference in estimate was recorded as a transfer to real estate assets.
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 March 31, 2013 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 March 31, 2013, the Company has 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 January 1, 2012 through March 31, 2013. See Note 5 for further discussion.
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. The Company considers both quantitative and qualitative factors in its impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each property such as net operating income ("NOI"), occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the property and tenant mix. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experience impairment, the Company classifies such long-lived assets under Level 3 in the fair value hierarchy. As of March 31, 2013, 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
Acquisition
Subsequent to March 31, 2013, the Company acquired the remaining 51% noncontrolling interest in Kirkwood Mall in Bismarck, ND. See Notes 5 and 15 for additional information.
Discontinued Operations
The results of operations of the properties described below, as well as any gains or impairment losses related to those properties, are included in discontinued operations for all periods presented, as applicable.    
In March 2013, the Company sold three office buildings. One office building, 1500 Sunday Drive, located in Raleigh, NC, was sold for a gross sales price of $8,300 less commissions and customary closing costs for a net sales price of $7,862. The Company recorded a $634 loss related to the sale of this office building in the first quarter of 2013. Additionally, the Company sold its Peninsula I and II office buildings, located in Newport News, VA, for a gross sales price of $5,250 less commissions and customary closing costs for a net sales price of $5,121. The Company recorded a gain of $590 attributable to the sale of the Peninsula I and II buildings in the first quarter of 2013. Net proceeds from these sales were used to reduce the outstanding borrowings on the Company's credit facilities.

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In January 2013, the Company sold its Lake Point and Suntrust Bank office buildings, located in Greensboro, NC, for a gross sales price of $30,875 less commissions and customary closing costs for a net sales price of $30,490. Net proceeds from the sale were used to reduce the outstanding borrowings on the Company's credit facilities. These office buildings were classified as held for sale as of December 31, 2012. In the first quarter of 2013, the Company recorded a gain of $824 attributable to the sale.
In December 2012, the Company sold Willowbrook Plaza, a community center located in Houston, TX, for a gross sales price of $24,450 less commissions and customary closing costs for a net sales price of $24,171. Net proceeds from the sale were used to reduce the outstanding borrowings on the Company's credit facilities.
In October 2012, the Company sold Towne Mall, located in Franklin, OH and Hickory Hollow Mall, located in Antioch, TN. Towne Mall sold for a gross sales price of $950 less commissions and customary closing costs for a net sales price of $892. Hickory Hollow Mall sold for a gross sales price of $1,000 less commissions and customary closing costs for a net sales price of $966. Net proceeds from the sale of both malls were used to reduce the outstanding borrowings on the Company's credit facilities.
In July 2012, the Company sold Massard Crossing, a community center located in Fort Smith, AR, for a gross sales price of $7,803 less commissions and customary closing costs for a net sales price of $7,432. Proceeds from the sale were used to reduce the outstanding borrowings on the Company's credit facilities.
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. Net proceeds from the sale were used to reduce the outstanding borrowings on the Company's credit facilities. The Company recorded a gain of $883 attributable to the sale in the first quarter of 2012.
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 $255 in the first quarter of 2012 related to the true-up of certain estimated amounts to actual amounts.
Total revenues of the properties described above that are included in discontinued operations were $434 and $4,613 for the three months ended March 31, 2013 and 2012, respectively. The total net investment in real estate assets at the time of sale for the office buildings sold during the three months ended March 31, 2013 was $42,693. There were no outstanding mortgage loans for any of the office buildings that were sold during the three months ended March 31, 2013. Discontinued operations for the three month periods ended March 31, 2013 and 2012 also include settlements of estimated expenses based on actual amounts for properties sold during previous periods.

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Note 5 – Unconsolidated Affiliates, Noncontrolling Interests and Cost Method Investments
 
Unconsolidated Affiliates
 
At March 31, 2013, the Company had investments in the following 17 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%
Fremaux Town Center JV, LLC
Fremaux Town Center
65.0%
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%
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 had majority ownership of certain joint ventures during 2013 and 2012, it evaluated the investments and concluded that the other partners or owners in these joint ventures had substantive participating rights, such as approvals of:
the pro forma for the development and construction of the project and any material deviations or modifications thereto;
the site plan and any material deviations or modifications thereto;
the conceptual design of the project and the initial plans and specifications for the project and any material deviations or modifications thereto;
any acquisition/construction loans or any permanent financings/refinancings;
the annual operating budgets and any material deviations or modifications thereto;
the initial leasing plan and leasing parameters and any material deviations or modifications thereto; and
any material acquisitions or dispositions with respect to the project.
As a result of the joint control over these joint ventures, the Company accounts for these investments using the equity method of accounting.






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Condensed combined financial statement information of these unconsolidated affiliates is as follows:
 
As of
ASSETS
March 31,
2013
 
December 31,
2012
Investment in real estate assets
$
2,144,269

 
$
2,143,187

Accumulated depreciation
(509,082
)
 
(492,864
)
 
1,635,187

 
1,650,323

Developments in progress
48,495

 
21,809

Net investment in real estate assets
1,683,682

 
1,672,132

Other assets
164,980

 
175,540

    Total assets
$
1,848,662

 
$
1,847,672

 
 
 
 
LIABILITIES
 
 
 
Mortgage and other indebtedness
$
1,454,672

 
$
1,456,622

Other liabilities
38,776

 
48,538

    Total liabilities
1,493,448

 
1,505,160

 
 
 
 
OWNERS' EQUITY
 
 
 
The Company
210,439

 
196,694

Other investors
144,775

 
145,818

Total owners' equity
355,214

 
342,512

    Total liabilities and owners' equity
$
1,848,662

 
$
1,847,672


 
Total for the Three Months
Ended March 31,
 
Company's Share for the Three
Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
Revenues
$
60,719

 
$
62,294

 
$
31,670

 
$
33,411

Depreciation and amortization
(19,148
)
 
(20,766
)
 
(9,948
)
 
(11,111
)
Interest expense
(19,668
)
 
(21,111
)
 
(10,072
)
 
(11,203
)
Other operating expenses
(18,413
)
 
(18,947
)
 
(9,031
)
 
(9,831
)
Net income
$
3,490

 
$
1,470

 
$
2,619

 
$
1,266

Fremaux Town Center JV, LLC
In January 2013, the Company formed a 65/35 joint venture, Fremaux Town Center JV, LLC ("Fremaux"), to develop, own and operate Fremaux Town Center, a community center located in Slidell, LA. Construction began in March 2013 with completion expected in July 2014. The partners contributed aggregate initial equity of $20,500, of which the Company's contribution was $18,450. Following the initial formation of Fremaux, all required future contributions will be funded on a 65/35 pro rata basis. In March 2013, Fremaux obtained a construction loan on the property that allows for borrowings up to $46,000 and bears interest at LIBOR plus 2.125%. The loan matures in March 2016 and has two one-year extension options, which are at the joint venture's election, for an outside maturity date of March 2018. The Company has guaranteed 100% of the construction loan. As of March 31, 2013, Fremaux had borrowed $2,698 under the loan. The Company holds the majority ownership interest in Fremaux but the noncontrolling interest partner holds substantive participating rights. As a result, the Company accounted for its investment in Fremaux using the equity method of accounting as of March 31, 2013.
2013 Financings
In March 2013, Renaissance Phase II CMBS, LLC closed on a $16,000 10-year, non-recourse commercial mortgage-backed securities ("CMBS") loan, secured by Renaissance Center Phase II in Durham, NC. The loan bears interest at a fixed rate of 3.4895% and matures in April 2023. Proceeds from the loan were used to retire the existing $15,700 loan that was scheduled to mature in April 2013.
Also during March 2013, CBL-Friendly Center CMBS, LLC closed on a $100,000 10-year, non-recourse CMBS loan, secured by Friendly Center, located in Greensboro, NC. The loan bears interest at a fixed rate of 3.4795% and matures in April

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2023. Proceeds from the new loan were used to retire four existing loans aggregating $96,934 that were secured by Friendly Center, Friendly Center Office Building, First National Bank Building, Green Valley Office Building, First Citizens Bank Building and Bank of America Building, all located in Greensboro, NC and scheduled to mature in April 2013.
All of the debt on the properties owned by the unconsolidated affiliates is non-recourse, except for Fremaux, West Melbourne, Port Orange, High Pointe Commons, and Gulf Coast Phase III. See Note 11 for a description of guarantees the Company has issued related to certain unconsolidated affiliates.
Noncontrolling Interests

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 $43,615 as of March 31, 2013 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 $37,574 and $6,041, respectively.  At December 31, 2012, the total redeemable noncontrolling partnership interests of $40,248 consisted of noncontrolling interests in the Operating Partnership and in the Company’s consolidated security and maintenance services subsidiary of $33,835 and $6,413, 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:
 
Three Months Ended
March 31,
 
2013
 
2012
Beginning Balance
$
423,834

 
$
423,834

Net income attributable to redeemable noncontrolling preferred joint venture interest
5,085

 
5,144

Distributions to redeemable noncontrolling preferred joint venture interest
(5,200
)
 
(5,201
)
Ending Balance
$
423,719

 
$
423,777

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 March 31, 2013, the total noncontrolling interests of $197,843 consisted of noncontrolling interests in the Operating Partnership and in other consolidated subsidiaries of $135,281 and $62,562 respectively.  The total noncontrolling interests at December 31, 2012 of $192,404 consisted of noncontrolling interests in the Operating Partnership and in other consolidated subsidiaries of $128,907 and $63,497, respectively.
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 March 31, 2013, Jinsheng owns controlling interests in eight 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 to extend to May 30, 2013 the Company's right to convert the outstanding amount of the secured note into 16,565,534 Series A-2 Preferred Shares of Jinsheng. 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. Furthermore, the secured note will bear interest of 8.0% until the extended maturity date and, if not paid prior to or on the maturity date, will thereafter bear interest at 30.0%.
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

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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 the fourth quarter of 2012, the Company acquired a 49% ownership interest in Kirkwood Mall Mezz, LLC, which owns Kirkwood Mall located in Bismarck, ND. The Company determined that its investment in this joint venture represents an interest in a VIE and that the Company is the primary beneficiary, since under the terms of the agreement the Company's equity investment is at risk while the third party had a fixed price for which it would sell its remaining 51% equity interest to the Company. As a result, the joint venture is presented in the accompanying condensed consolidated financial statements as of March 31, 2013 on a consolidated basis, with the interests of the third party reflected as a noncontrolling interest. In accordance with its executed agreement, the Company acquired the remaining 51% interest subsequent to March 31, 2013 and assumed $40,368 of non-recourse debt.
In the second quarter of 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 an interest in a VIE and that the Company is the primary beneficiary since it has the power to direct activities of the joint venture that most significantly impact the joint venture's economic performance. As a result, the joint venture is presented in the accompanying condensed consolidated financial statements as of March 31, 2013 on a consolidated basis, with the interests of the third party reflected as a noncontrolling interest.
In the second quarter of 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 an interest in a VIE and that the Company is the primary beneficiary since it has the power to direct the activities of the joint venture that most significantly impact the joint venture's economic performance. As a result, the joint venture is presented in the accompanying condensed consolidated financial statements as of March 31, 2013 on a consolidated basis, with the interests of the third party reflected as a noncontrolling interest.



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Note 6 – Mortgage and Other Indebtedness
 
Mortgage and other indebtedness consisted of the following:
 
March 31, 2013
 
December 31, 2012
 
Amount
 
Weighted-
Average
Interest
Rate (1)
 
Amount
 
Weighted-
Average
Interest
Rate (1)
Fixed-rate debt:
 
 
 
 
 
 
 
Non-recourse loans on operating properties (2)
$
3,694,381

 
5.43
%
 
$
3,776,245

 
5.42
%
Financing method obligation (3)
18,264

 
8.00
%
 
18,264

 
8.00
%
Total fixed-rate debt
3,712,645

 
5.44
%
 
3,794,509

 
5.43
%
Variable-rate debt:
 

 
 

 
 

 
 

Non-recourse term loans on operating properties
123,500

 
3.28
%
 
123,875

 
3.36
%
Recourse term loans on operating properties
79,980

 
2.33
%
 
97,682

 
1.78
%
Construction loans
28,114

 
2.95
%
 
15,366

 
2.96
%
Unsecured lines of credit
458,282

 
2.06
%
 
475,626

 
2.07
%
Secured line of credit (4)

 
%
 
10,625

 
2.46
%
Unsecured term loans
278,000

 
1.86
%
 
228,000

 
1.82
%
Total variable-rate debt
967,876

 
2.21
%
 
951,174

 
2.20
%
Total
$
4,680,521

 
4.77
%
 
$
4,745,683

 
4.79
%
 
(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 $112,846 as of March 31, 2013 and $113,885 as of December 31, 2012 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 March 31, 2013 and December 31, 2012.
(3)
This amount represents the noncontrolling partner's equity contributions related to Pearland Town Center that is accounted for as a financing due to certain terms of the CBL/T-C, LLC joint venture agreement.
(4)
The Company converted its secured line of credit to unsecured in February 2013.

Unsecured Lines of Credit

The Company has three unsecured credit facilities that are used for mortgage retirement, working capital, construction and acquisition purposes, as well as issuances of letters of credit.

Wells Fargo Bank NA serves as the administrative agent for a syndicate of financial institutions for the Company's two unsecured $600,000 credit facilities ("Facility A" and "Facility B"). Facility A matures in November 2015 and has a one-year extension option for an outside maturity date of November 2016. Facility B matures in November 2016 and has a one-year extension option for an outside maturity date of November 2017. The extension options on both facilities are at the Company's election, subject to continued compliance with the terms of the facilities, and have a one-time extension fee of 0.20% of the commitment amount of each credit facility.

In February 2013, the Company amended and restated its $105,000 secured credit facility with First Tennessee Bank, NA. The facility was converted from secured to unsecured with a capacity of $100,000 and a maturity date of February 2016.
Borrowings under the three unsecured lines of credit bear interest at LIBOR plus a spread ranging from 155 to 210 basis points based on the Company’s leverage ratio. The Company also pays annual unused facility fees, on a quarterly basis, at rates of either 0.25% or 0.30% based on any unused commitment of each facility. In the event the Company obtains an investment grade rating by either Standard & Poor's or Moody's, the Company may make a one-time irrevocable election to use its credit rating to determine the interest rate on each facility. If the Company were to make such an election, the interest rate on each facility would bear interest at LIBOR plus a spread of 100 to 175 basis points. If the Company obtains and elects to use a credit rating to determine the interest rate on each facility, the Company will begin to pay an annual facility fee that ranges from 0.15% to 0.35% of the total capacity of each facility rather than the unused commitment fees as described above. The three unsecured lines of credit had a weighted-average interest rate of 2.06% at March 31, 2013.



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The following summarizes certain information about the Company's unsecured lines of credit as of March 31, 2013:     
 
 
 
Total
Capacity
 
 
Total
Outstanding
 
Maturity
Date
 
Extended
Maturity
Date
Facility A
 
$
600,000

 
$
300,297

(1) 
November 2015
 
November 2016
First Tennessee
 
100,000

 
10,179

 
February 2016
 
N/A
Facility B
 
600,000

 
147,806

 
November 2016
 
November 2017
 
 
$
1,300,000

 
$
458,282

 
 
 
 
(1) There was an additional $825 outstanding on this facility as of March 31, 2013 for letters of credit. Up to $50,000 of the capacity on this facility can be used for letters of credit.
Unsecured Term Loans
The Company had an unsecured term loan of $228,000 with a maturity date of April 2013 that bore interest at LIBOR plus a margin of 1.50% to 1.80%, based on the Company’s leverage ratio, as defined in the loan agreement.  At March 31, 2013, the outstanding borrowings of $228,000 under the unsecured term loan had a weighted-average interest rate of 1.81%. The Company retired this loan subsequent to March 31, 2013. See Note 15 for further information.
In February 2013, under the terms of the Company's amended and restated agreement with First Tennessee Bank, NA described above, the Company obtained a $50,000 unsecured term loan that bears interest at LIBOR plus 1.90% and matures in February 2018. At March 31, 2013, the outstanding borrowings of $50,000 had a weighted-average interest rate of 2.10%.
Letters of Credit
At March 31, 2013, the Company had a line of credit with a total commitment of $1,000 that can only be used for issuing letters of credit. The amount outstanding under this line of credit was $1,000 at March 31, 2013.
Covenants and Restrictions
The agreements to the unsecured lines of credit contain, among other restrictions, certain financial covenants including the maintenance of certain financial coverage ratios, minimum net worth requirements, minimum unencumbered asset and interest ratios, maximum secured indebtedness and limitations on cash flow distributions.  The Company believes that it was in compliance with all covenants and restrictions at March 31, 2013.
The following presents the Company's compliance with key unsecured debt covenant compliance ratios as of March 31, 2013:
Ratio
 
Required
 
Actual
Debt to total asset value
 
< 60%
 
51.7%
Ratio of unencumbered asset value to unsecured indebtedness
 
> 1.60x
 
3.52x
Ratio of unencumbered NOI to unsecured interest expense
 
> 1.75x
 
7.72x
Ratio of EBITDA to fixed charges (debt service)
 
> 1.50x
 
2.05x
The agreements for the unsecured credit facilities described above contain default provisions customary for transactions of this nature (with applicable customary grace periods). Additionally, any default in the payment of any recourse indebtedness greater than or equal to $50,000 or any non-recourse indebtedness greater than $150,000 (for the Company's ownership share) of the Company, the Operating Partnership or any Subsidiary, as defined, will constitute an event of default under the agreements to the credit facilities. The credit facilities also restrict the Company's ability to enter into any transaction that could result in certain changes in its ownership or structure as described under the heading “Change of Control/Change in Management” in the agreements to the credit facilities. The obligations of the Company under the agreements have been or will be unconditionally guaranteed, jointly and severally, by any subsidiary of the Company to the extent such subsidiary is or becomes a material subsidiary and is not otherwise an excluded subsidiary, as defined in the agreements.
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 condensed 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.

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Table of Contents



Mortgages on Operating Properties
In the first quarter of 2013, the Company retired two loans with an aggregate balance of $77,099, including a $13,460 loan secured by Statesboro Crossing in Statesboro, GA and a $63,639 loan secured by Westmoreland Mall in Greensburg, PA, with borrowings from the Company's credit facilities. Both loans were scheduled to mature in the first quarter of 2013.
The lender of the non-recourse mortgage loan secured by Columbia Place in Columbia, SC notified the Company in the first quarter of 2012 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 March 31, 2013, 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.
See Note 15 for information on an operating property loan retired subsequent to March 31, 2013.
Scheduled Principal Payments
As of March 31, 2013, 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: 
2013
$
417,904

2014
220,984

2015
879,696

2016
927,500

2017
552,682

Thereafter
1,669,379

 
4,668,145

Net unamortized premiums
12,376

 
$
4,680,521

Of the $417,904 of scheduled principal payments in 2013, $125,206 relates to the maturing principal balances of four operating property loans, $228,000 relates to one unsecured term loan and $64,698 represents scheduled principal amortization. Two maturing operating property loans with principal balances totaling $26,200 as of March 31, 2013 have extensions available at the Company's option, leaving approximately $99,006 of loan maturities in 2013 that the Company intends to retire or refinance. Subsequent to March 31, 2013, the Company retired the $228,000 unsecured term loan and one operating property loan with an outstanding balance of $71,740 as of March 31, 2013. See Note 15 for further information. The Company may use its three unsecured credit facilities to retire loans maturing in 2013 as well as to provide flexibility for liquidity purposes.
The Company’s mortgage and other indebtedness had a weighted-average maturity of 4.7 years as of March 31, 2013 and 4.9 years as of December 31, 2012.
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 derivatives designated as, and that qualify as, cash flow hedges is recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.  Such derivatives are used to hedge the variable cash flows associated with variable-rate debt.

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Table of Contents



As of March 31, 2013, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
Interest Rate
Derivative
 
Number of
Instruments
 
Notional
Amount
Outstanding
Interest Rate Cap
 
1
 
$
123,500

Interest Rate Swaps
 
4
 
$
112,846


Instrument Type
 
Location in
Condensed
Consolidated
Balance Sheet
 
Notional
Amount
Outstanding
 
Designated
Benchmark
Interest Rate
 
Strike
Rate
 
Fair
Value at
3/31/2013
 
Fair
Value at
12/31/12
 
Maturity
Date
Cap
 
Intangible lease assets
and other assets
 
$123,500
(amortizing
to $122,375)
 
3-month
LIBOR
 
5.000%
 
$

 
$

 
Jan 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pay fixed/ Receive
 variable Swap
 
Accounts payable and
accrued liabilities
 
$54,554
(amortizing
to $48,337)
 
1-month
LIBOR
 
2.149%
 
$
(2,644
)
 
$
(2,775
)
 
Apr 2016
Pay fixed/ Receive
   variable Swap
 
Accounts payable and
accrued liabilities
 
$34,155
(amortizing
to $30,276)
 
1-month
LIBOR
 
2.187%
 
(1,691
)
 
(1,776
)
 
Apr 2016
Pay fixed/ Receive
   variable Swap
 
Accounts payable and
accrued liabilities
 
$12,769
(amortizing
to $11,313)
 
1-month
LIBOR
 
2.142%
 
(616
)
 
(647
)
 
Apr 2016
Pay fixed/ Receive
   variable Swap
 
Accounts payable and
accrued liabilities
 
$11,368
(amortizing
to $10,083)
 
1-month
LIBOR
 
2.236%
 
(578
)
 
(607
)
 
Apr 2016
 
 
 
 
 
 
 
 
 
 
$
(5,529
)
 
$
(5,805
)
 
 

 
 
 
Gain
Recognized
in OCI/L
(Effective Portion)
 
Location of
Losses
Reclassified
from AOCI into Earnings(Effective  Portion)
 
 
Loss Recognized in
Earnings (Effective
Portion)
 
Location of
Gain
Recognized in Earnings
(Ineffective  Portion)
 
Gain Recognized
in Earnings
(Ineffective
Portion)
Hedging 
Instrument
 
Three Months
Ended March 31,
 
 
Three Months
Ended March 31,
 
 
Three Months
Ended March 31,
 
2013
 
2012
 
 
2013
 
2012
 
 
2013
 
2012
Interest rate contracts
 
$
276

 
$
284

 
Interest
Expense
 
$
(557
)
 
$
(562
)
 
Interest
Expense
 
$

 
$


As of March 31, 2013, the Company expects to reclassify approximately $2,181 of losses currently reported in AOCI to interest expense within the next twelve months due to amortization of its outstanding interest rate contracts.  Fluctuations in fair values of these derivatives between March 31, 2013 and the respective dates of termination will vary the projected reclassification amount.


Note 7 – Comprehensive Income
Comprehensive income includes all changes in redeemable noncontrolling interests and total equity during the period, except those resulting from investments by shareholders and partners, distributions to shareholders and partners and redemption valuation adjustments. OCI/L includes changes in unrealized gains (losses) on available-for-sale securities and interest rate hedge agreements. 



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Table of Contents




The changes in the components of AOCI for the three months ended March 31, 2013 are as follows: 
 
Redeemable Noncontrolling
 Interests
 
The Company
 
Noncontrolling Interests
 
 
 
Unrealized Gains (Losses)
 
 
 
Hedging Agreements
 
Available-for-Sale Securities
 
Hedging Agreements
 
Available-for-Sale Securities
 
Hedging Agreements
 
 Available-for-Sale Securities
 
Total
Beginning balance, January 1, 2013
$
373

 
$
353

 
$
(2,756
)
 
$
9,742

 
$
(3,563
)
 
$
2,263

 
$
6,412

  OCI before reclassifications
3

 
7

 
786

 
635

 
44

 
122

 
1,597

  Amounts reclassified from AOCI

 

 
(557
)
 

 

 

 
(557
)
Net current period OCI
3

 
7

 
229

 
635

 
44

 
122

 
1,040

Ending balance, March 31, 2013
$
376

 
$
360

 
$
(2,527
)
 
$
10,377

 
$
(3,519
)
 
$
2,385

 
$
7,452


Reclassifications out of AOCI for the three months ended March 31, 2013 are as follows:
 
 
Amount
Reclassified
from AOCI
 
Location in Condensed Consolidated
  Statement of Operations
Reclassification on cash flow hedges - interest rate contracts
 
$
557

 
Interest Expense



Note 8 – Mortgage and Other Notes Receivable
Each of the Company’s mortgage notes receivable is collateralized by either a first mortgage, or a second mortgage, or by an assignment of 100% of the partnership interests that own the real estate assets.  Other notes receivable include amounts due from tenants or government-sponsored districts and unsecured notes received from third parties as whole or partial consideration for property or investments.  Interest rates on mortgage and other notes receivable ranged from 2.7% to 10.0%, with a weighted-average interest rate of 6.92% and 7.33% at March 31, 2013 and December 31, 2012, respectively. Maturities of these notes receivable range from May 2014 to January 2047.
In February 2013, Woodstock GA Investments, LLC, a joint venture in which the Company owns a 75.0% interest, received $3,525 of the balance on its $6,581 note receivable with an entity that owns an interest in land in Woodstock, GA, adjacent to the site of The Outlet Shoppes at Atlanta.
The Company believes that its mortgage and other notes receivable balance of $22,337 was fully collectible as of March 31, 2013.

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Table of Contents


Note 9 – Segment Information
 
The Company measures performance and allocates resources according to property type, which is determined based on certain criteria such as type of tenants, capital requirements, economic risks, leasing terms, and short and long-term returns on capital. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments. Information on the Company’s reportable segments is presented as follows, restated for discontinued operations in all periods presented:

Three Months Ended
March 31, 2013
 
Malls
 
Associated
Centers
 
Community
Centers
 
All Other (1)
 
Total
Revenues
 
$
238,611

 
$
11,083

 
$
3,659

 
$
12,624

 
$
265,977

Property operating expenses (2)
 
(80,966
)
 
(2,797
)
 
(534
)
 
5,486

 
(78,811
)
Interest expense
 
(52,937
)
 
(2,046
)
 
(577
)
 
(4,268
)
 
(59,828
)
Other expense
 

 

 

 
(6,656
)
 
(6,656
)
Gain on sales of real estate assets
 
295

 

 

 
248

 
543

Segment profit
 
$
105,003

 
$
6,240

 
$
2,548

 
$
7,434

 
121,225

Depreciation and amortization expense
 
 

 
 

 
 

 
 

 
(71,555
)
General and administrative expense
 
 

 
 

 
 

 
 

 
(13,424
)
Interest and other income
 
 

 
 

 
 

 
 

 
727

Equity in earnings of unconsolidated affiliates
 
 

 
 

 
 

 
 

 
2,619

Income tax benefit
 
 

 
 

 
 

 
 

 
174

Income from continuing operations
 
 

 
 

 
 

 
 

 
$
39,766

Total assets
 
$
6,232,324

 
$
296,418

 
$
190,113

 
$
271,222

 
$
6,990,077

Capital expenditures (3)
 
$
19,557

 
$
1,006

 
$
1,184

 
$
40,062

 
$
61,809



Three Months Ended
March 31, 2012
 
Malls
 
Associated
Centers
 
Community
Centers
 
All Other (1)
 
Total
Revenues
 
$
221,313

 
$
10,241

 
$
2,828

 
$
12,087

 
$
246,469

Property operating expenses (2)
 
(74,395
)
 
(2,528
)
 
(800
)
 
5,772

 
(71,951
)
Interest expense
 
(52,528
)
 
(2,195
)
 
(669
)
 
(4,439
)
 
(59,831
)
Other expense
 

 

 

 
(6,758
)
 
(6,758
)
Gain (loss) on sales of real estate assets
 

 

 
97

 
(3
)
 
94

Segment profit
 
$
94,390

 
$
5,518

 
$
1,456

 
$
6,659

 
108,023

Depreciation and amortization expense
 
 

 
 

 
 

 
 

 
(62,258
)
General and administrative expense
 
 

 
 

 
 

 
 

 
(13,800
)
Interest and other income