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Section 1: 10-Q (10-Q)

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Table of Contents

UNITED STATES OF AMERICA
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 MARCH 31, 2018
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.)
COMMISSION FILE NO. 333-182515-01 (CBL & ASSOCIATES LIMITED PARTNERSHIP)
______________
CBL & ASSOCIATES PROPERTIES, INC.
CBL & ASSOCIATES LIMITED PARTNERSHIP
(Exact Name of registrant as specified in its charter)
______________
DELAWARE (CBL & ASSOCIATES PROPERTIES, INC.)
 
   62-1545718
DELAWARE (CBL & ASSOCIATES LIMITED PARTNERSHIP)
 
   62-1542285
(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. 
CBL & Associates Properties, Inc.
 
 Yes x   
No o
CBL & Associates Limited Partnership
 
 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).
CBL & Associates Properties, Inc.
 
 Yes x   
No o
CBL & Associates Limited Partnership
 
 Yes x   
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
CBL & Associates Properties, Inc.
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth company o
 
 
 
 
 
CBL & Associates Limited Partnership
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x (Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth company o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
CBL & Associates Properties, Inc.
 
 Yes o  
No x
CBL & Associates Limited Partnership
 
 Yes o  
No x
As of May 2, 2018, there were 172,663,035 shares of CBL & Associates Properties, Inc.'s common stock, par value $0.01 per share, outstanding.


Table of Contents


EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended March 31, 2018 of CBL & Associates Properties, Inc. and CBL & Associates Limited Partnership. Unless stated otherwise or the context otherwise requires, references to the "Company" mean CBL & Associates Properties, Inc. and its subsidiaries. References to the "Operating Partnership" mean CBL & Associates Limited Partnership and its subsidiaries. The terms "we," "us" and "our" refer to the Company or the Company and the Operating Partnership collectively, as the context requires.
The Company is a real estate investment trust ("REIT") whose stock is traded on the New York Stock Exchange. The Company is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At March 31, 2018, 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 85.3% limited partner interest for a combined interest held by the Company of 86.3%.
As the sole general partner of the Operating Partnership, the Company's subsidiary, CBL Holdings I, Inc., has exclusive control of the Operating Partnership's activities. Management operates the Company and the Operating Partnership as one business. The management of the Company consists of the same individuals that manage the Operating Partnership. The Company's only material asset is its indirect ownership of partnership interests of the Operating Partnership. As a result, the Company conducts substantially all its business through the Operating Partnership as described in the preceding paragraph. The Company also issues public equity from time to time and guarantees certain debt of the Operating Partnership. The Operating Partnership holds all of the assets and indebtedness of the Company and, through affiliates, retains the ownership interests in the Company's joint ventures. Except for the net proceeds of offerings of equity by the Company, which are contributed to the Operating Partnership in exchange for partnership units on a one-for-one basis, the Operating Partnership generates all remaining capital required by the Company's business through its operations and its incurrence of indebtedness.
We believe that combining the two quarterly reports on Form 10-Q for the Company and the Operating Partnership provides the following benefits:
enhances investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner that management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation, since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
To help investors understand the differences between the Company and the Operating Partnership, this report provides separate condensed consolidated financial statements for the Company and the Operating Partnership. Noncontrolling interests, shareholders' equity and partners' capital are the main areas of difference between the condensed consolidated financial statements of the Company and those of the Operating Partnership. A single set of notes to condensed consolidated financial statements is presented that includes separate discussions for the Company and the Operating Partnership, when applicable. A combined Management's Discussion and Analysis of Financial Condition and Results of Operations section is also included that presents combined information and discrete information related to each entity, as applicable.
In order to highlight the differences between the Company and the Operating Partnership, this report includes the following sections that provide separate financial and other information for the Company and the Operating Partnership:
condensed consolidated financial statements;
certain accompanying notes to condensed consolidated financial statements, including Note 6 - Unconsolidated Affiliates and Noncontrolling Interests; Note 7 - Mortgage and Other Indebtedness, Net; and Note 10 - Earnings per Share and Earnings per Unit;
controls and procedures in Item 4 of Part I of this report;
information concerning unregistered sales of equity securities and use of proceeds in Item 2 of Part II of this report; and
certifications of the Chief Executive Officer and Chief Financial Officer included as Exhibits 31.1 through 32.4.


Table of Contents

CBL & Associates Properties, Inc.
CBL & Associates Limited Partnership
Table of Contents
PART I
FINANCIAL INFORMATION
 
 
 
CBL & Associates Properties, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CBL & Associates Limited Partnership
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CBL & Associates Properties, Inc. and CBL & Associates Limited Partnership
 
 
 
 
 
 
 
 
 
 
 


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 (1)
March 31,
2018
 
December 31,
2017
Real estate assets:
 
 
 
Land
$
808,228

 
$
813,390

Buildings and improvements
6,688,716

 
6,723,194

 
7,496,944

 
7,536,584

Accumulated depreciation
(2,496,629
)
 
(2,465,095
)
 
5,000,315

 
5,071,489

Developments in progress
100,481

 
85,346

Net investment in real estate assets
5,100,796

 
5,156,835

Cash and cash equivalents
23,346

 
32,627

Receivables:
 
 
 
Tenant, net of allowance for doubtful accounts of $2,062
and $2,011 in 2018 and 2017, respectively
78,788

 
83,552

Other, net of allowance for doubtful accounts of $838 in 2018 and 2017
8,726

 
7,570

Mortgage and other notes receivable
8,677

 
8,945

Investments in unconsolidated affiliates
306,191

 
249,192

Intangible lease assets and other assets
176,046

 
166,087

 
$
5,702,570

 
$
5,704,808

 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 

 
 

Mortgage and other indebtedness, net
$
4,207,685

 
$
4,230,845

Accounts payable and accrued liabilities
232,430

 
228,650

Total liabilities (1)
4,440,115

 
4,459,495

Commitments and contingencies (Note 7 and Note 11)


 


Redeemable noncontrolling interests
6,467

 
8,835

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, 172,656,783 and 171,088,778 issued and
outstanding in 2018 and 2017, respectively
1,727

 
1,711

Additional paid-in capital
1,970,169

 
1,974,537

Dividends in excess of cumulative earnings
(810,740
)
 
(836,269
)
Total shareholders' equity
1,161,181

 
1,140,004

Noncontrolling interests
94,807

 
96,474

Total equity
1,255,988

 
1,236,478

 
$
5,702,570

 
$
5,704,808

(1)
As of March 31, 2018, includes $644,383 of assets related to consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and $350,123 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Company. See Note 6.

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

1

Table of Contents

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

 
Three Months Ended
March 31,
 
2018
 
2017
REVENUES:
 
 
 
Minimum rents
$
150,361

 
$
159,750

Percentage rents
2,043

 
2,389

Other rents
2,055

 
3,652

Tenant reimbursements
60,613

 
67,291

Management, development and leasing fees
2,721

 
3,452

Other
2,407

 
1,479

Total revenues
220,200

 
238,013

 
 
 
 
OPERATING EXPENSES:
 
 
 
Property operating
32,826

 
34,914

Depreciation and amortization
71,750

 
71,220

Real estate taxes
21,848

 
22,083

Maintenance and repairs
13,179

 
13,352

General and administrative
18,304

 
16,082

Loss on impairment
18,061

 
3,263

Other
94

 

Total operating expenses
176,062

 
160,914

Income from operations
44,138

 
77,099

Interest and other income
213

 
1,404

Interest expense
(53,767
)
 
(56,201
)
Gain on extinguishment of debt

 
4,055

Income tax benefit
645

 
800

Equity in earnings of unconsolidated affiliates
3,739

 
5,373

Income (loss) from continuing operations before gain on sales of real estate assets
(5,032
)
 
32,530

Gain on sales of real estate assets
4,371

 
5,988

Net income (loss)
(661
)

38,518

Net (income) loss attributable to noncontrolling interests in:
 
 
 
Operating Partnership
1,665

 
(3,690
)
Other consolidated subsidiaries
(101
)
 
(713
)
Net income attributable to the Company
903

 
34,115

Preferred dividends
(11,223
)
 
(11,223
)
Net income (loss) attributable to common shareholders
$
(10,320
)
 
$
22,892

 
 
 
 
Basic and diluted per share data attributable to common shareholders:
 
 
 
Net income (loss) attributable to common shareholders
$
(0.06
)
 
$
0.13

Weighted-average common and potential dilutive common shares outstanding
171,943

 
170,989

 
 
 
 
Dividends declared per common share
$
0.200

 
$
0.265


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

2

Table of Contents

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands, except share data)
 (Unaudited)
 
 
 
Equity
 
 
 
Shareholders' Equity
 
 
 
 
 
Redeemable
Noncontrolling
Interests
 
Preferred
 Stock
 
Common
 Stock
 
Additional
 Paid-in
 Capital
 
Dividends in
Excess of
Cumulative
Earnings
 
Total
Shareholders'
Equity
 
Noncontrolling
Interests
 
Total
 Equity
Balance, January 1, 2017
$
17,996

 
$
25

 
$
1,708

 
$
1,969,059

 
$
(742,078
)
 
$
1,228,714

 
$
112,138

 
$
1,340,852

Net income
204

 

 

 

 
34,115

 
34,115

 
4,199

 
38,314

Dividends declared - common stock

 

 

 

 
(45,338
)
 
(45,338
)
 

 
(45,338
)
Dividends declared - preferred stock

 

 

 

 
(11,223
)
 
(11,223
)
 

 
(11,223
)
Issuances of 330,938 shares of common stock
and restricted common stock

 

 
3

 
371

 

 
374

 

 
374

Cancellation of 29,683 shares of restricted common stock

 

 

 
(294
)
 

 
(294
)
 

 
(294
)
Performance stock units

 

 

 
344

 

 
344

 

 
344

Amortization of deferred compensation

 

 

 
1,246

 

 
1,246

 

 
1,246

Adjustment for noncontrolling interests
730

 

 

 
(1,572
)
 

 
(1,572
)
 
842

 
(730
)
Adjustment to record redeemable
    noncontrolling interests at redemption value
(2,315
)
 

 

 
2,001

 

 
2,001

 
314

 
2,315

Deconsolidation of investment

 

 

 

 

 

 
(2,231
)
 
(2,231
)
Contributions from noncontrolling interests

 

 

 

 

 

 
263

 
263

Distributions to noncontrolling interests
(1,143
)
 

 

 

 

 

 
(9,440
)
 
(9,440
)
Balance, March 31, 2017
$
15,472

 
$
25

 
$
1,711

 
$
1,971,155

 
$
(764,524
)
 
$
1,208,367

 
$
106,085

 
$
1,314,452





3

Table of Contents

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Equity
(In thousands, except share data)
(Unaudited)
(Continued)
 
 
 
Equity
 
 
 
Shareholders' Equity
 
 
 
 
 
Redeemable
Noncontrolling
Interests
 
Preferred
 Stock
 
Common
 Stock
 
Additional
 Paid-in
 Capital
 
Dividends in
Excess of
Cumulative
Earnings
 
Total
Shareholders'
Equity
 
Noncontrolling
 Interests
 
Total
 Equity
Balance, January 1, 2018
$
8,835

 
$
25

 
$
1,711

 
$
1,974,537

 
$
(836,269
)
 
$
1,140,004

 
$
96,474

 
$
1,236,478

Net income (loss)
(94
)
 

 

 

 
903

 
903

 
(1,470
)
 
(567
)
Cumulative effect of accounting change (Note 2)

 

 

 

 
11,433

 
11,433

 

 
11,433

Cumulative effect of accounting change (Note 3)

 

 

 

 
58,947

 
58,947

 

 
58,947

Dividends declared - common stock

 

 

 

 
(34,531
)
 
(34,531
)
 

 
(34,531
)
Dividends declared - preferred stock

 

 

 

 
(11,223
)
 
(11,223
)
 

 
(11,223
)
Issuances of 700,534 shares of common stock
      and restricted common stock

 

 
7

 
734

 

 
741

 

 
741

Conversion of 915,338 Operating Partnership
common units into shares of common stock

 

 
9

 
3,050

 

 
3,059

 
(3,059
)
 

Cancellation of 47,867 shares of restricted
      common stock

 

 

 
(233
)
 

 
(233
)
 

 
(233
)
Performance stock units

 

 

 
419

 

 
419

 

 
419

Amortization of deferred compensation

 

 

 
1,196

 

 
1,196

 

 
1,196

Adjustment for noncontrolling interests
1,399

 

 

 
(11,737
)
 

 
(11,737
)
 
10,338

 
(1,399
)
Adjustment to record redeemable
     noncontrolling interests at redemption value
(2,530
)
 

 

 
2,203

 

 
2,203

 
328

 
2,531

Distributions to noncontrolling interests
(1,143
)
 

 

 

 

 

 
(7,804
)
 
(7,804
)
Balance, March 31, 2018
$
6,467

 
$
25

 
$
1,727

 
$
1,970,169

 
$
(810,740
)
 
$
1,161,181

 
$
94,807

 
$
1,255,988


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


4

Table of Contents


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

 
Three Months Ended
March 31,
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 
Net income (loss)
$
(661
)
 
$
38,518

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 

Depreciation and amortization
71,750

 
71,220

Net amortization of deferred financing costs, debt premiums and discounts
1,709

 
1,113

Net amortization of intangible lease assets and liabilities
(475
)
 
(748
)
Gain on sales of real estate assets
(4,371
)
 
(5,988
)
Write-off of development projects
94

 

Share-based compensation expense
2,314

 
1,912

Loss on impairment
18,061

 
3,263

Gain on extinguishment of debt

 
(4,055
)
Equity in earnings of unconsolidated affiliates
(3,739
)
 
(5,373
)
Distributions of earnings from unconsolidated affiliates
4,011

 
3,995

Provision for doubtful accounts
2,041

 
1,744

Change in deferred tax accounts
(629
)
 
1,608

Changes in:
 
 
 

Tenant and other receivables
1,826

 
(2,838
)
Other assets
(2,339
)
 
(4,816
)
Accounts payable and accrued liabilities
8,635

 
5,321

Net cash provided by operating activities
98,227

 
104,876

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Additions to real estate assets
(39,997
)
 
(51,522
)
Acquisitions of real estate assets

 
(79,799
)
Proceeds from sales of real estate assets
11,848

 
13,716

Payments received on mortgage and other notes receivable
267

 
456

Additional investments in and advances to unconsolidated affiliates
(1,232
)
 
(2,723
)
Distributions in excess of equity in earnings of unconsolidated affiliates
2,859

 
7,907

Changes in other assets
(2,277
)
 
(7,749
)
Net cash used in investing activities
(28,532
)
 
(119,714
)

5

Table of Contents

CBL & Associates Properties, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
(Continued)

 
Three Months Ended
March 31,
 
2018
 
2017
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from mortgage and other indebtedness
$
99,160

 
$
389,391

Principal payments on mortgage and other indebtedness
(123,634
)
 
(299,063
)
Additions to deferred financing costs
(98
)
 
(120
)
Proceeds from issuances of common stock
41

 
49

Contributions from noncontrolling interests

 
263

Payment of tax withholdings for restricted stock awards
(231
)
 
(292
)
Distributions to noncontrolling interests
(9,130
)
 
(10,582
)
Dividends paid to holders of preferred stock
(11,223
)
 
(11,223
)
Dividends paid to common shareholders
(34,217
)
 
(45,260
)
Net cash provided by (used in) financing activities
(79,332
)
 
23,163

 
 
 
 
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(9,637
)
 
8,325

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
68,172

 
65,069

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
58,535

 
$
73,394

 
 
 
 
Reconciliation from condensed consolidated statements of cash flows to condensed consolidated balance sheets:
Cash and cash equivalents
$
23,346

 
$
27,553

Restricted cash (1):
 
 
 
Restricted cash
3,212

 
5,659

Mortgage escrows
31,977

 
40,182

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
58,535

 
$
73,394

 
 
 
 
SUPPLEMENTAL INFORMATION:
 

 
 

Cash paid for interest, net of amounts capitalized
$
34,896

 
$
37,063

(1)
Included in intangible lease assets and other assets in the condensed consolidated balance sheets.
 
The accompanying notes are an integral part of these condensed consolidated statements.


6

Table of Contents

CBL & Associates Limited Partnership
Condensed Consolidated Balance Sheets
(In thousands, except unit data)
(Unaudited)
ASSETS (1)
March 31,
2018
 
December 31,
2017
Real estate assets:
 
 
 
Land
$
808,228

 
$
813,390

Buildings and improvements
6,688,716

 
6,723,194

 
7,496,944

 
7,536,584

Accumulated depreciation
(2,496,629
)
 
(2,465,095
)
 
5,000,315

 
5,071,489

Developments in progress
100,481

 
85,346

Net investment in real estate assets
5,100,796

 
5,156,835

Cash and cash equivalents
23,345

 
32,627

Receivables:
 

 
 

Tenant, net of allowance for doubtful accounts of $2,062
and $2,011 in 2018 and 2017, respectively
78,788

 
83,552

Other, net of allowance for doubtful accounts of $838
in 2018 and 2017
8,678

 
7,520

Mortgage and other notes receivable
8,677

 
8,945

Investments in unconsolidated affiliates
306,719

 
249,722

Intangible lease assets and other assets
175,926

 
165,967

 
$
5,702,929

 
$
5,705,168

 
 
 
 
LIABILITIES, REDEEMABLE INTERESTS AND CAPITAL
 

 
 

Mortgage and other indebtedness, net
$
4,207,685

 
$
4,230,845

Accounts payable and accrued liabilities
232,501

 
228,720

Total liabilities (1)
4,440,186

 
4,459,565

Commitments and contingencies (Note 7 and Note 11)


 


 Redeemable common units  
6,467

 
8,835

Partners' capital:
 

 
 

Preferred units
565,212

 
565,212

Common units:
 
 
 
 General partner
6,927

 
6,735

 Limited partners
676,053

 
655,120

Total partners' capital
1,248,192

 
1,227,067

Noncontrolling interests
8,084

 
9,701

Total capital
1,256,276

 
1,236,768

 
$
5,702,929

 
$
5,705,168

(1)
As of March 31, 2018, includes $644,383 of assets related to consolidated variable interest entities that can only be used to settle obligations of the consolidated variable interest entities and $350,123 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Operating Partnership. See Note 6.

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

7

Table of Contents

CBL & Associates Limited Partnership
Condensed Consolidated Statements of Operations
(In thousands, except per unit data)
(Unaudited)

 
Three Months Ended
March 31,
 
2018
 
2017
REVENUES:
 
 
 
Minimum rents
$
150,361

 
$
159,750

Percentage rents
2,043

 
2,389

Other rents
2,055

 
3,652

Tenant reimbursements
60,613

 
67,291

Management, development and leasing fees
2,721

 
3,452

Other
2,407

 
1,479

Total revenues
220,200

 
238,013

 
 
 
 
OPERATING EXPENSES:
 
 
 
Property operating
32,826

 
34,914

Depreciation and amortization
71,750

 
71,220

Real estate taxes
21,848

 
22,083

Maintenance and repairs
13,179

 
13,352

General and administrative
18,304

 
16,082

Loss on impairment
18,061

 
3,263

Other
94

 

Total operating expenses
176,062

 
160,914

Income from operations
44,138

 
77,099

Interest and other income
213

 
1,404

Interest expense
(53,767
)
 
(56,201
)
Gain on extinguishment of debt

 
4,055

Income tax benefit
645

 
800

Equity in earnings of unconsolidated affiliates
3,739

 
5,373

Income (loss) from continuing operations before gain on sales of real estate assets
(5,032
)
 
32,530

Gain on sales of real estate assets
4,371

 
5,988

Net income (loss)
(661
)

38,518

Net income attributable to noncontrolling interests
(101
)
 
(713
)
Net income (loss) attributable to the Operating Partnership
(762
)
 
37,805

Distributions to preferred unitholders
(11,223
)
 
(11,223
)
Net income (loss) attributable to common unitholders
$
(11,985
)
 
$
26,582

 
 
 
 
Basic and diluted per unit data attributable to common unitholders:
 
 
 
Net income (loss) attributable to common unitholders
$
(0.06
)
 
$
0.13

Weighted-average common and potential dilutive common units outstanding
199,694

 
199,281

 
 
 
 
Distributions declared per common unit
$
0.209

 
$
0.273


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

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Table of Contents

CBL & Associates Limited Partnership
Condensed Consolidated Statements of Capital
(In thousands)
 (Unaudited)
 
 
 
 
Number of
 
 
 
Common Units
 
 
 
 
 
 
 
 
Redeemable
Common
Units
 
Preferred
Units
 
Common
Units
 
Preferred
Units
 
General
Partner
 
Limited
Partners
 
Total
Partners'
Capital
 
Noncontrolling
Interests
 
Total
Capital
Balance, January 1, 2017
 
$
17,996

 
25,050

 
199,085

 
$
565,212

 
$
7,781

 
$
756,083

 
$
1,329,076

 
$
12,103

 
$
1,341,179

Net income
 
204

 

 

 
11,223

 
271

 
26,107

 
37,601

 
713

 
38,314

Distributions declared - common units
 
(1,143
)
 

 

 

 
(533
)
 
(52,716
)
 
(53,249
)
 

 
(53,249
)
Distributions declared - preferred units
 

 

 

 
(11,223
)
 

 

 
(11,223
)
 

 
(11,223
)
Issuances of common units
 

 

 
331

 

 

 
374

 
374

 

 
374

Cancellation of restricted common stock
 

 

 
(30
)
 

 

 
(294
)
 
(294
)
 

 
(294
)
Performance stock units
 

 

 

 

 
3

 
341

 
344

 

 
344

Amortization of deferred compensation
 

 

 

 

 
13

 
1,233

 
1,246

 

 
1,246

Allocation of partners' capital
 
730

 

 

 

 
(31
)
 
(733
)
 
(764
)
 

 
(764
)
Adjustment to record redeemable interests at redemption value
 
(2,315
)
 

 

 

 
24

 
2,291

 
2,315

 

 
2,315

Deconsolidation of investment
 

 

 

 

 

 

 

 
(2,231
)
 
(2,231
)
Contributions from noncontrolling interests
 

 

 

 

 

 

 

 
263

 
263

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 
(1,529
)
 
(1,529
)
Balance, March 31, 2017
 
$
15,472

 
25,050

 
199,386

 
$
565,212

 
$
7,528

 
$
732,686

 
$
1,305,426

 
$
9,319

 
$
1,314,745





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Table of Contents

CBL & Associates Limited Partnership
Condensed Consolidated Statements of Capital
(In thousands)
(Unaudited)
(Continued)
 
 
 
Number of
 
 
 
Common Units
 
 
 
 
 
 
 
Redeemable
Common
Units
 
Preferred
Units
 
Common
Units
 
Preferred
Units
 
General
Partner
 
Limited
Partners
 
Total
Partners'
Capital
 
Noncontrolling
Interests
 
Total
Capital
Balance, January 1, 2018
$
8,835

 
25,050

 
199,297

 
$
565,212

 
$
6,735

 
$
655,120

 
$
1,227,067

 
$
9,701

 
$
1,236,768

Net income (loss)
(94
)
 

 

 
11,223

 
(122
)
 
(11,769
)
 
(668
)
 
101

 
(567
)
Cumulative effect of accounting change (Note 2)

 

 

 

 
117

 
11,316

 
11,433

 

 
11,433

Cumulative effect of accounting change (Note 3)

 

 

 

 
605

 
58,342

 
58,947

 

 
58,947

Distributions declared - common units
(1,143
)
 

 

 

 
(402
)
 
(40,215
)
 
(40,617
)
 

 
(40,617
)
Distributions declared - preferred units

 

 

 
(11,223
)
 

 

 
(11,223
)
 

 
(11,223
)
Issuances of common units

 

 
701

 

 

 
741

 
741

 

 
741

Cancellation of restricted common stock

 

 
(48
)
 

 

 
(233
)
 
(233
)
 

 
(233
)
Performance stock units

 

 

 

 
4

 
415

 
419

 

 
419

Amortization of deferred compensation

 

 

 

 
12

 
1,184

 
1,196

 

 
1,196

Allocation of partners' capital
1,399

 

 

 

 
(48
)
 
(1,353
)
 
(1,401
)
 

 
(1,401
)
Adjustment to record redeemable interests at redemption value
(2,530
)
 

 

 

 
26

 
2,505

 
2,531

 

 
2,531

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(1,718
)
 
(1,718
)
Balance, March 31, 2018
$
6,467

 
25,050

 
199,950

 
$
565,212

 
$
6,927

 
$
676,053

 
$
1,248,192

 
$
8,084

 
$
1,256,276


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


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Table of Contents


CBL & Associates Limited Partnership
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 
Three Months Ended
March 31,
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 
Net income (loss)
$
(661
)
 
$
38,518

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 

Depreciation and amortization
71,750

 
71,220

Net amortization of deferred financing costs, debt premiums and discounts
1,709

 
1,113

Net amortization of intangible lease assets and liabilities
(475
)
 
(748
)
Gain on sales of real estate assets
(4,371
)
 
(5,988
)
Write-off of development projects
94

 

Share-based compensation expense
2,314

 
1,912

Loss on impairment
18,061

 
3,263

Gain on extinguishment of debt

 
(4,055
)
Equity in earnings of unconsolidated affiliates
(3,739
)
 
(5,373
)
Distributions of earnings from unconsolidated affiliates
4,012

 
3,995

Provision for doubtful accounts
2,041

 
1,744

Change in deferred tax accounts
(629
)
 
1,608

Changes in:
 

 
 

Tenant and other receivables
1,826

 
(2,838
)
Other assets
(2,339
)
 
(4,816
)
Accounts payable and accrued liabilities
8,633

 
5,323

Net cash provided by operating activities
98,226

 
104,878

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Additions to real estate assets
(39,997
)
 
(51,522
)
Acquisition of real estate assets

 
(79,799
)
Proceeds from sales of real estate assets
11,848

 
13,716

Payments received on mortgage and other notes receivable
267

 
456

Additional investments in and advances to unconsolidated affiliates
(1,232
)
 
(2,723
)
Distributions in excess of equity in earnings of unconsolidated affiliates
2,859

 
7,907

Changes in other assets
(2,277
)
 
(7,749
)
Net cash used in investing activities
(28,532
)
 
(119,714
)

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CBL & Associates Limited Partnership
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
(Continued)

 
Three Months Ended
March 31,
 
2018
 
2017
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from mortgage and other indebtedness
$
99,160

 
$
389,391

Principal payments on mortgage and other indebtedness
(123,634
)
 
(299,063
)
Additions to deferred financing costs
(98
)
 
(120
)
Proceeds from issuances of common units
41

 
49

Contributions from noncontrolling interests

 
263

Payment of tax withholdings for restricted stock awards
(231
)
 
(292
)
Distributions to noncontrolling interests
(2,861
)
 
(2,672
)
Distributions to preferred unitholders
(11,223
)
 
(11,223
)
Distributions to common unitholders
(40,486
)
 
(53,170
)
Net cash provided by (used in) financing activities
(79,332
)
 
23,163

 
 
 
 
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(9,638
)
 
8,327

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
68,172

 
65,061

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
58,534

 
$
73,388

 
 
 
 
Reconciliation from condensed consolidated statements of cash flows to condensed consolidated balance sheets:
Cash and cash equivalents
$
23,345

 
$
27,547

Restricted cash (1):
 
 
 
Restricted cash
3,212

 
5,659

Mortgage escrows
31,977

 
40,182

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
58,534

 
$
73,388

 
 
 
 
SUPPLEMENTAL INFORMATION:
 

 
 

Cash paid for interest, net of amounts capitalized
$
34,896

 
$
37,063

(1)
Included in intangible lease assets and other assets in the condensed consolidated balance sheets.

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


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Table of Contents

CBL & Associates Properties, Inc.
CBL & Associates Limited Partnership
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in thousands, except per share and per unit data)

Note 1 – Organization and Basis of Presentation
Unless stated otherwise or the context otherwise requires, references to the "Company" mean CBL & Associates Properties, Inc. and its subsidiaries. References to the "Operating Partnership" mean CBL & Associates Limited Partnership and its subsidiaries.
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 and mixed-use centers, outlet centers, associated centers, community centers and office properties.  Its properties are located in 26 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”), which is a variable interest entity ("VIE"). 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 VIE.  
As of March 31, 2018, the Operating Partnership owned interests in the following properties:
 
 
 
Other Properties
 
 
 
Malls (1)
 
Associated
Centers
 
Community
Centers
 
Office
Buildings
 
Total
Consolidated properties
60
 
20
 
4
 
5
(2) 
89
Unconsolidated properties (3)
8
 
3
 
4
 
 
15
Total
68
 
23
 
8
 
5
 
104
(1)
Category consists of regional malls, open-air centers and outlet centers (including one mixed-use center).
(2)
Includes CBL's two corporate office buildings.
(3)
The Operating Partnership accounts for these investments using the equity method because one or more of the other partners have substantive participating rights.
At March 31, 2018, the Operating Partnership had interests in the following properties under development:
 
Consolidated
Properties
 
Unconsolidated
Properties
 
Malls
 
All Other
 
Malls
 
All Other
Development
 
1
 
 
2
Redevelopments
6
 
 
1
 
CBL is the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. At March 31, 2018, 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 85.3% limited partner interest for a combined interest held by CBL of 86.3%.
The noncontrolling interest in the Operating Partnership is held by CBL & Associates, Inc., its shareholders and affiliates and certain senior officers of the Company (collectively "CBL's Predecessor"), 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, and by various third parties. At March 31, 2018, CBL’s Predecessor owned a 9.1% limited partner interest and third parties owned a 4.6% limited partner interest in the Operating Partnership.  CBL's Predecessor also owned 4.2 million shares of CBL’s common stock at March 31, 2018, for a total combined effective interest of 11.2% in the Operating Partnership.

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The Operating Partnership conducts the Company’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”).
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, 2018 are not necessarily indicative of the results to be obtained for the full fiscal year.
These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2017.
Reclassifications
Certain reclassifications have been made to amounts in the Company's prior-year financial statements to conform to the current period presentation. The Company reclassified certain amounts related to restricted cash in its condensed consolidated statements of cash flows for the three months ended March 31, 2017 upon the adoption of the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-18, Restricted Cash ("ASU 2016-18") in the fourth quarter of 2017, which required the change in restricted cash to be reported with cash and cash equivalents when reconciling beginning and ending amounts on the condensed consolidated statements of cash flows. The guidance was applied retrospectively to the prior period presented. As a result, restricted cash additions of $412, previously included in cash flows from investing activities, were reclassified to cash flows from financing activities to reflect $689 of principal payments on mortgage and other indebtedness and the remaining $277 difference was reclassified to the beginning-of-period and end-of-period total amounts on the condensed consolidated statement of cash flows for the three months ended March 31, 2017.
Note 2 – Recent Accounting Pronouncements
Accounting Guidance Adopted    
Description
 
Date Adopted & Application Method
 
Financial Statement Effect and Other Information
ASU 2014-09, Revenue from Contracts with Customers, and related subsequent amendments
 
January 1, 2018 -
Modified Retrospective (applied to contracts not completed as of the implementation date)
 
The objective of this guidance is to enable financial statement users to better understand and analyze revenue by replacing transaction and industry-specific guidance with a more principles-based approach to revenue recognition. The core principle is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance also requires additional disclosure about the nature, timing and uncertainty of revenue and cash flows arising from customer contracts. The Company expects the adoption of the new guidance to be immaterial to its net income on an ongoing basis as the majority of the Company’s revenues relate to leasing. See Note 3 for further details and the cumulative adjustment recorded.
 
 
 
 
 
ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory
 
January 1, 2018 -
Modified Retrospective
 
The guidance requires an entity to recognize the income tax consequences of intercompany sales or transfers of assets, other than inventory, when the sale or transfer occurs. The Company recorded a cumulative effect adjustment of $11,433 to retained earnings as of January 1, 2018 related to certain 2017 asset sales from several of the Company's consolidated subsidiaries to the Management Company.
 
 
 
 
 
ASU 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
 
January 1, 2018 -
Modified Retrospective
 
This guidance applies to the partial sale or transfer of nonfinancial assets, including real estate assets, to unconsolidated joint ventures and requires 100% of the gain to be recognized for nonfinancial assets transferred to an unconsolidated joint venture and any noncontrolling interest received in such nonfinancial assets to be measured at fair value. See Note 3 for further details including the impact of adoption and the cumulative adjustment recorded.

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ASU 2017-09, Scope of Modification Accounting
 
January 1, 2018 -
Prospective
 
The guidance clarifies the types of changes to the terms or conditions of a share-based payment award to which an entity would be required to apply modification accounting. The guidance did not have a material impact on the Company's condensed consolidated financial statements.
Accounting Guidance Not Yet Effective
Description
 
Expected Adoption Date & Application Method
 
Financial Statement Effect and Other Information
ASU 2016-02, Leases, and related subsequent amendments
 
January 1, 2019 -
Modified Retrospective
 
The objective of the leasing guidance is to increase transparency and comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Lessees will be required to recognize a right-of-use asset and corresponding lease liability on the balance sheet for all leases with terms greater than 12 months.
The guidance applied by a lessor is substantially similar to existing GAAP and the Company expects substantially all leases will continue to be classified as operating leases under the new guidance. The Company expects to expense certain deferred lease costs due to the narrowed definition of indirect costs that may be capitalized.
The Company is completing an inventory of its leases in which it is a lessee and continues to evaluate the potential impact the guidance may have on its condensed consolidated financial statements and related disclosures.
The Company has 13 ground lease arrangements in which it is the lessee for land. As of March 31, 2018, these ground leases have future contractual payments of approximately $14,990 with maturity dates ranging from January 2019 to July 2089.
 
 
 
 
 
ASU 2016-13, Measurement of Credit Losses on Financial Instruments
 
January 1, 2020 -
Modified Retrospective
 
The guidance replaces the current incurred loss impairment model, which reflects credit events, with a current expected credit loss model, which recognizes an allowance for credit losses based on an entity's estimate of contractual cash flows not expected to be collected.
The Company is evaluating the impact that this update may have on its condensed consolidated financial statements and related disclosures.
Note 3 – Revenues
Adoption of ASU 2014-09, and all related subsequent amendments, and ASU 2017-05
The Company adopted ASC 606, Revenue from Contracts with Customers, ("ASC 606") (which includes ASU 2014-09 and all related subsequent amendments) on January 1, 2018 and applied the guidance to contracts that were not complete as of January 1, 2018. The cumulative effect of adopting ASC 606 included an opening adjustment of $196 to retained earnings as of January 1, 2018 in the accounts noted below. Historical amounts for prior periods were not adjusted and will continue to be reported using the guidance in ASC 605, Revenue Recognition.
Sales of real estate assets are accounted for under ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets, which provides for revenue recognition based on the transfer of control. There should be no change in revenue recognition for sales in which the Company has no continuing involvement. ASU 2017-05 addresses revenue recognition related to property sales in which the Company has continuing involvement and may require full gain recognition.
In its adoption of ASU 2017-05, the Company identified one unconsolidated affiliate, CBL/T-C, LLC, in which the Company recorded a partial sale of real estate assets in 2011, and recorded a cumulative effect adjustment that represents a gain of $57,850 as of January 1, 2018. Additionally, in conjunction with the transfer of land in the formation of a new joint venture in 2017, the Company recorded $901 related to this transaction as a cumulative effect adjustment as of January 1, 2018.
See Note 2 for additional information about these accounting standards.

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Table of Contents

Contract Balances
A summary of the Company's contract assets activity during the three months ended March 31, 2018 is presented below:
 
 
Contract Assets
Balance as of January 1, 2018 (1)
 
$
460

Tenant openings
 
(79
)
Executed leases
 
99

Balance as of March 31, 2018
 
$
480

(1)
In conjunction with the initial entry to record contract assets, $166 was also recorded in investments in unconsolidated affiliates in the condensed consolidated balance sheets to eliminate the Company's portion related to two unconsolidated affiliates.
There was no change to the $98 contract liability, recorded on January 1, 2018, for the three months ended March 31, 2018.
The Company has the following contract balances as of March 31, 2018:
 
 
 
As of
March 31, 2018
 
Expected Settlement Period
Description
Financial Statement Line Item
 
 
2018
 
2019
 
2023
Contract assets (1)
Management, development and leasing fees
 
$
480

 
$
(271
)
 
$
(205
)
 
$
(4
)
Contract liability (2)
Other rents
 
98

 
(49
)
 
(49
)
 

(1)
Represents leasing fees recognized as revenue under third party and unconsolidated affiliates' contracts in which the remaining 50% of the commissions will be paid when the tenant opens. The tenant typically opens within a year, unless the project is in development.
(2)
Relates to a contract in which the Company received advance payments in the initial year of the multi-year contract.
Revenues
Sales taxes are excluded from revenues. The following table presents the Company's revenues disaggregated by revenue source:
 
 
Three Months Ended March 31, 2018
Leasing revenues (1)
 
$
215,026

Revenues from contracts with customers (ASC 606):
 
 
  Management, development and leasing fees (2)
 
2,721

  Marketing revenues (3)
 
1,331

 
 
4,052

 
 
 
Other revenues
 
1,122

Total revenues
 
$
220,200

(1)
Revenues from leases are accounted for in accordance with ASC 840, Leases.
(2)
Included in All Other segment.
(3)
Includes $1,326 in the Malls segment and $5 in the All Other segment as of March 31, 2018.
Leasing Revenues
The majority of the Company’s revenues are earned through the lease of space at its properties. Lease revenues include minimum rent, percentage rent, other rents and reimbursements from tenants for real estate taxes, insurance, common area maintenance ("CAM") and other operating expenses as provided in the lease agreements.
Minimum rental revenue from operating leases is recognized on a straight-line basis over the initial terms of the related leases. Certain tenants are required to pay percentage rent if their sales volumes exceed thresholds specified in their lease agreements. Percentage rent is recognized as revenue when the thresholds are achieved and the amounts become determinable.

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Table of Contents

The Company receives reimbursements from tenants for real estate taxes, insurance, CAM and other recoverable operating expenses as provided in the lease agreements. Tenant reimbursements are recognized when earned in accordance with the tenant lease agreements. Tenant reimbursements related to certain capital expenditures are billed to tenants over periods of 5 to 15 years and are recognized as revenue in accordance with the underlying lease terms.
Revenue from Contracts with Customers
The Company earns revenue from contracts with third parties and unconsolidated affiliates for property management, leasing, development and other services. These contracts are accounted for on a month-to-month basis if the agreement does not contain substantive penalties for termination. The majority of the Company's contracts with customers are accounted for on a month-to-month basis. The standalone selling price of each performance obligation is determined based on the terms of the contract, which typically assign a price to each performance obligation that directly relates to the value the customer receives for the services being provided. These contracts generally are for the following:
Management fees - Management fees are charged as a percentage of revenues (as defined in the contract) and recognized as revenue over time as services are provided.
Leasing fees - Leasing fees are charged for newly executed leases and lease renewals and are recognized as revenue upon lease execution, when the performance obligation is completed. In cases for which the agreement specifies 50% of the leasing commission will be paid upon lease execution with the remainder paid when the tenant opens, the Company estimates the amount of variable consideration it expects to receive by evaluating the likelihood of tenant openings using the most likely amount method and records the amount as an unbilled receivable (contract asset).
Development fees - Development fees may be either set as a fixed rate in a separate agreement or be a variable rate based on a percentage of work costs. Variable consideration related to development fees is generally recognized over time using the cost-to-cost method of measurement because it most accurately depicts the Company's performance in satisfying the performance obligation. Contract estimates are based on various assumptions including the cost and availability of materials, anticipated performance and the complexity of the work to be performed. The cumulative catch-up method is used to recognize any adjustments in variable consideration estimates. Under this method, any adjustment is recognized in the period it is identified.
Development and leasing fees received from an unconsolidated affiliate are recognized as revenue only to the extent of the third-party partner’s ownership interest. Such fees are recorded as a reduction to the Company’s investment in the unconsolidated affiliate.
The Company also earns marketing revenues from advertising and sponsorship agreements. These fees may be for tangible items in which the Company provides advertising services and creates signs and other promotional materials for the tenant or may be arrangements in which the customer sponsors a play area or event and receives specified brand recognition and other benefits over a set period of time. Revenue related to advertising services is recognized as goods and services are provided to the customer. Sponsorship revenue is recognized on a straight-line basis over the time period specified in the contract.
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. If the contract does not specify the revenue by performance obligation, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price. Such prices are generally determined using prices charged to customers or using the Company’s expected cost plus margin. Revenue is recognized as the Company’s performance obligations are satisfied over time, as services are provided, or at a point in time, such as leasing a space to earn a commission. Open performance obligations are those in which the Company has not fully or has partially provided the applicable good or services to the customer as specified in the contract. If consideration is received in advance of the Company’s performance, including amounts which are refundable, recognition of revenue is deferred until the performance obligation is satisfied or amounts are no longer refundable.
Practical Expedients
The Company does not disclose the value of open performance obligations for (1) contracts with an original expected duration of one year or less and (2) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice, which primarily relate to services performed for management, leasing and development activities, as described above.

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Table of Contents

Outstanding Performance Obligations
As of March 31, 2018 the Company had no outstanding performance obligations related to contracts with customers.
Note 4 – Fair Value Measurements
The Company has categorized its financial assets and financial liabilities that are recorded at fair value into a hierarchy in accordance with ASC 820, Fair Value Measurements and Disclosure, ("ASC 820") based on whether the inputs to valuation techniques are observable or unobservable.  The fair value hierarchy contains three levels of inputs that may be used to measure fair value as follows:
Level 1 –
Inputs represent quoted prices in active markets for identical assets and liabilities as of the measurement date.
Level 2 –
Inputs, other than those included in Level 1, represent observable measurements for similar instruments in active markets, or identical or similar instruments in markets that are not active, and observable measurements or market data for instruments with substantially the full term of the asset or liability.
Level 3 –
Inputs represent unobservable measurements, supported by little, if any, market activity, and require considerable assumptions that are significant to the fair value of the asset or liability.  Market valuations must often be determined using discounted cash flow methodologies, pricing models or similar techniques based on the Company’s assumptions and best judgment.
The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under ASC 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date and under current market conditions. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs and consider assumptions such as inherent risk, transfer restrictions and risk of nonperformance.
Fair Value Measurements on a Recurring Basis
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 $4,035,913 and $4,199,357 at March 31, 2018 and December 31, 2017, 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.
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. Level 3 inputs primarily consist of sales and market data, independent valuations and discounted cash flow models.

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Table of Contents

Long-lived Assets Measured at Fair Value in 2018
The following table sets forth information regarding the Company's assets that are measured at fair value on a nonrecurring basis and related impairment charges for the three months ended March 31, 2018:
 
 
 
Fair Value Measurements at Reporting Date Using
 
 
 
Total
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Loss on
Impairment
Long-lived assets
$
17,640

 
$

 
$

 
$
17,640

 
$
18,061

During the three months ended March 31, 2018, the Company recognized an impairment of real estate of $18,061 related to one mall.
Impairment Date