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Section 1: 10-Q (10-Q - 3.31.2019)

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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, 2019
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 every Interactive Data File required to be submitted 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 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
Smaller reporting company o
Emerging growth company o
 
 
 
 
 
CBL & Associates Limited Partnership
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
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



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Securities registered under Section 12(b) of the Act:
CBL & Associates Properties, Inc.
Title of each Class
Trading
Symbol(s)
Name of each exchange on
which registered
Common Stock, $0.01 par value 
CBL
New York Stock Exchange
7.375% Series D Cumulative Redeemable Preferred Stock, $0.01 par value 
CBLprD
New York Stock Exchange
6.625% Series E Cumulative Redeemable Preferred Stock, $0.01 par value 
CBLprE
New York Stock Exchange
CBL & Associates Limited Partnership: None

As of May 7, 2019, there were 173,475,641 shares of CBL & Associates Properties, Inc.'s common stock, par value $0.01 per share, outstanding.


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EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended March 31, 2019 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, 2019, 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 85.6% limited partner interest for a combined interest held by the Company of 86.6%.
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 7 - Unconsolidated Affiliates and Noncontrolling Interests; Note 8 - Mortgage and Other Indebtedness, Net; and Note 11 - 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.


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Combined Guarantor Subsidiaries of the Operating Partnership
In January 2019, the Operating Partnership entered into a new $1,185,000 senior secured credit facility which replaced all of the Operating Partnership’s prior unsecured bank facilities. The secured credit facility is secured by 17 malls and 3 associated centers that are directly or indirectly owned by 36 wholly owned subsidiaries of the Operating Partnership (collectively the “Combined Guarantor Subsidiaries”). The Combined Guarantor Subsidiaries own an additional five malls, one associated center and four mortgage notes receivable that are not collateral for the secured credit facility. The properties that are collateral for the secured credit facility and the properties and mortgage notes receivable that are not collateral are collectively referred to as the “Guarantor Properties.” In addition to the secured credit facility, the Operating Partnership’s debt includes three separate series of senior unsecured notes (the “Notes”). Based on the terms of the Notes, to the extent that any subsidiary of the Operating Partnership executes and delivers a guarantee to another debt facility, the Operating Partnership shall also cause the subsidiary to guarantee the Operating Partnership’s obligations under the Notes on a senior basis. In January 2019, the Combined Guarantor Subsidiaries entered a guarantee agreement with the issuer of the Notes to satisfy the guaranty requirement.    
This report also includes as an exhibit the combined financial statements and notes to the combined financial statements of the Combined Guarantor Subsidiaries. Each of the Combined Guarantor Subsidiaries meet the criteria in Rule 3-10(f) of SEC Regulation S-X to provide condensed consolidating financial information as additional disclosure in the notes to the Operating Partnership's condensed consolidated financial statements because each Combined Guarantor Subsidiary is 100% owned by the Operating Partnership, the guaranty issued by each Combined Guarantor Subsidiary is full and unconditional and the guaranty issued by each Combined Guarantor Subsidiary is joint and several. However, the Operating Partnership has elected to provide combined financial statements and accompanying notes for the Combined Guarantor Subsidiaries in lieu of including the condensed consolidating financial information in the notes to its condensed consolidated financial statements. These combined financial statements and notes are presented as an exhibit to this quarterly report on Form 10-Q for ease of reference.



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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,
2019
 
December 31,
2018
Real estate assets:
 
 
 
Land
$
783,055

 
$
793,944

Buildings and improvements
6,248,286

 
6,414,886

 
7,031,341

 
7,208,830

Accumulated depreciation
(2,478,821
)
 
(2,493,082
)
 
4,552,520

 
4,715,748

Held for sale
14,171

 
30,971

Developments in progress
56,273

 
38,807

Net investment in real estate assets
4,622,964

 
4,785,526

Cash and cash equivalents
21,055

 
25,138

Receivables:
 
 
 
Tenant, net of allowance for doubtful accounts of $2,337 in 2018
71,358

 
77,788

Other, net of allowance for doubtful accounts of $838 in 2018
9,855

 
7,511

Mortgage and other notes receivable
7,406

 
7,672

Investments in unconsolidated affiliates
277,357

 
283,553

Intangible lease assets and other assets
151,953

 
153,665

 
$
5,161,948

 
$
5,340,853

 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
 

 
 

Mortgage and other indebtedness, net
$
3,898,550

 
$
4,043,180

Accounts payable and accrued liabilities
277,256

 
218,217

Liabilities related to assets held for sale
24,653

 
43,716

Total liabilities (1)
4,200,459

 
4,305,113

Commitments and contingencies (Note 8 and Note 12)


 


Redeemable noncontrolling interests
3,017

 
3,575

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, 173,461,976 and 172,656,458 issued and
outstanding in 2019 and 2018, respectively
1,735

 
1,727

Additional paid-in capital
1,967,845

 
1,968,280

Dividends in excess of cumulative earnings
(1,069,104
)
 
(1,005,895
)
Total shareholders' equity
900,501

 
964,137

Noncontrolling interests
57,971

 
68,028

Total equity
958,472

 
1,032,165

 
$
5,161,948

 
$
5,340,853

(1)
As of March 31, 2019, includes $609,856 of assets related to consolidated variable interest entities that can be used only to settle obligations of the consolidated variable interest entities and $406,466 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Company. See Note 7.
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,
 
2019
 
2018
REVENUES:
 
 
 
Rental revenues
$
190,980

 
$
212,729

Management, development and leasing fees
2,523

 
2,721

Other
4,527

 
4,750

Total revenues
198,030

 
220,200

 
 
 
 
OPERATING EXPENSES:
 
 
 
Property operating
(28,980
)
 
(32,826
)
Depreciation and amortization
(69,792
)
 
(71,750
)
Real estate taxes
(19,919
)
 
(21,848
)
Maintenance and repairs
(12,776
)
 
(13,179
)
General and administrative
(22,007
)
 
(18,304
)
Loss on impairment
(24,825
)
 
(18,061
)
Litigation settlement
(88,150
)
 

Other

 
(94
)
Total operating expenses
(266,449
)
 
(176,062
)
 
 
 
 
OTHER INCOME (EXPENSES):
 
 
 
Interest and other income
489

 
213

Interest expense
(53,998
)
 
(53,767
)
Gain on extinguishment of debt
71,722

 

Gain on sales of real estate assets
228

 
4,371

Income tax benefit (provision)
(139
)
 
645

Equity in earnings of unconsolidated affiliates
3,308

 
3,739

Total other income (expenses)
21,610

 
(44,799
)
Net loss
(46,809
)

(661
)
Net (income) loss attributable to noncontrolling interests in:
 
 
 
Operating Partnership
7,758

 
1,665

Other consolidated subsidiaries
75

 
(101
)
Net income (loss) attributable to the Company
(38,976
)
 
903

Preferred dividends
(11,223
)
 
(11,223
)
Net loss attributable to common shareholders
$
(50,199
)
 
$
(10,320
)
 
 
 
 
Basic and diluted per share data attributable to common shareholders:
 
 
Net loss attributable to common shareholders
$
(0.29
)
 
$
(0.06
)
Weighted-average common and potential dilutive common shares outstanding
173,252

 
171,943


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, 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, 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

 

 

 

 
70,380

 
70,380

 

 
70,380

Dividends declared - common stock ($0.200 per share)

 

 

 

 
(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





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, 2019
$
3,575

 
$
25

 
$
1,727

 
$
1,968,280

 
$
(1,005,895
)
 
$
964,137

 
$
68,028

 
$
1,032,165

Net loss
(453
)
 

 

 

 
(38,976
)
 
(38,976
)
 
(7,380
)
 
(46,356
)
Dividends declared - common stock ($0.075 per share)

 

 

 

 
(13,010
)
 
(13,010
)
 

 
(13,010
)
Dividends declared - preferred stock

 

 

 

 
(11,223
)
 
(11,223
)
 

 
(11,223
)
Issuances of 863,174 shares of common stock
and restricted common stock

 

 
9

 
708

 

 
717

 

 
717

Cancellation of 57,656 shares of restricted common stock

 

 
(1
)
 
(133
)
 

 
(134
)
 

 
(134
)
Performance stock units

 

 

 
313

 

 
313

 

 
313

Amortization of deferred compensation

 

 

 
1,033

 

 
1,033

 

 
1,033

Adjustment for noncontrolling interests
1,038

 

 

 
(2,356
)
 

 
(2,356
)
 
1,318

 
(1,038
)
Contributions from noncontrolling interests

 

 

 

 

 

 
455

 
455

Distributions to noncontrolling interests
(1,143
)
 

 

 

 

 

 
(4,450
)
 
(4,450
)
Balance, March 31, 2019
$
3,017

 
$
25

 
$
1,735

 
$
1,967,845

 
$
(1,069,104
)
 
$
900,501

 
$
57,971

 
$
958,472


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,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 
Net loss
$
(46,809
)
 
$
(661
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 

Depreciation and amortization
69,792

 
71,750

Net amortization of deferred financing costs, debt premiums and discounts
2,304

 
1,709

Net amortization of intangible lease assets and liabilities
(551
)
 
(475
)
Gain on sales of real estate assets
(228
)
 
(4,371
)
Gain on insurance proceeds
(690
)
 

Write-off of development projects

 
94

Share-based compensation expense
2,043

 
2,314

Loss on impairment
24,825

 
18,061

Gain on extinguishment of debt
(71,722
)
 

Equity in earnings of unconsolidated affiliates
(3,308
)
 
(3,739
)
Distributions of earnings from unconsolidated affiliates
5,671

 
4,011

Change in estimate of uncollectable rental revenues
1,540

 
2,041

Change in deferred tax accounts
63

 
(629
)
Changes in:
 
 
 

Tenant and other receivables
(387
)
 
1,826

Other assets
(3,826
)
 
(2,339
)
Accounts payable and accrued liabilities
76,771

 
8,635

Net cash provided by operating activities
55,488

 
98,227

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Additions to real estate assets
(26,429
)
 
(39,997
)
Proceeds from sales of real estate assets
35,260

 
11,848

Proceeds from insurance
548

 

Payments received on mortgage and other notes receivable
266

 
267

Additional investments in and advances to unconsolidated affiliates
(566
)
 
(1,232
)
Distributions in excess of equity in earnings of unconsolidated affiliates
4,979

 
2,859

Changes in other assets
(321
)
 
(2,277
)
Net cash provided by (used in) investing activities
13,737

 
(28,532
)

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Table of Contents

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

 
Three Months Ended
March 31,
 
2019
 
2018
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from mortgage and other indebtedness
$
941,217

 
$
99,160

Principal payments on mortgage and other indebtedness
(978,006
)
 
(123,634
)
Additions to deferred financing costs
(15,107
)
 
(98
)
Proceeds from issuances of common stock
17

 
41

Contributions from noncontrolling interests
455

 

Payment of tax withholdings for restricted stock awards
(132
)
 
(231
)
Distributions to noncontrolling interests
(5,593
)
 
(9,130
)
Dividends paid to holders of preferred stock
(11,223
)
 
(11,223
)
Dividends paid to common shareholders
(12,949
)
 
(34,217
)
Net cash used in financing activities
(81,321
)
 
(79,332
)
 
 
 
 
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(12,096
)
 
(9,637
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
57,512

 
68,172

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
45,416

 
$
58,535

 
 
 
 
Reconciliation from condensed consolidated statements of cash flows to condensed consolidated balance sheets:
Cash and cash equivalents
$
21,055

 
$
23,346

Restricted cash (1):
 
 
 
Restricted cash
79

 
3,212

Mortgage escrows
24,282

 
31,977

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
45,416

 
$
58,535

 
 
 
 
SUPPLEMENTAL INFORMATION:
 

 
 

Cash paid for interest, net of amounts capitalized
$
35,659

 
$
34,896

(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 Limited Partnership
Condensed Consolidated Balance Sheets
(In thousands, except unit data)
(Unaudited)
ASSETS (1)
March 31,
2019
 
December 31,
2018
Real estate assets:
 
 
 
Land
$
783,055

 
$
793,944

Buildings and improvements
6,248,286

 
6,414,886

 
7,031,341

 
7,208,830

Accumulated depreciation
(2,478,821
)
 
(2,493,082
)
 
4,552,520

 
4,715,748

Held for sale
14,171

 
30,971

Developments in progress
56,273

 
38,807

Net investment in real estate assets
4,622,964

 
4,785,526

Cash and cash equivalents
21,054

 
25,138

Receivables:
 

 
 

Tenant, net of allowance for doubtful accounts of $2,337 in 2018
71,358

 
77,788

Other, net of allowance for doubtful accounts of $838 in 2018
9,807

 
7,462

Mortgage and other notes receivable
7,406

 
7,672

Investments in unconsolidated affiliates
277,890

 
284,086

Intangible lease assets and other assets
151,834

 
153,545

 
$
5,162,313

 
$
5,341,217

 
 
 
 
LIABILITIES, REDEEMABLE INTERESTS AND CAPITAL
 

 
 

Mortgage and other indebtedness, net
$
3,898,550

 
$
4,043,180

Accounts payable and accrued liabilities
277,328

 
218,288

Liabilities related to assets held for sale
24,653

 
43,716

Total liabilities (1)
4,200,531

 
4,305,184

Commitments and contingencies (Note 8 and Note 12)


 


 Redeemable common units  
3,017

 
3,575

Partners' capital:
 

 
 

Preferred units
565,212

 
565,212

Common units:
 
 
 
 General partner
3,874

 
4,628

 Limited partners
378,600

 
450,507

Total partners' capital
947,686

 
1,020,347

Noncontrolling interests
11,079

 
12,111

Total capital
958,765

 
1,032,458

 
$
5,162,313

 
$
5,341,217

(1)
As of March 31, 2019, includes $609,856 of assets related to consolidated variable interest entities that can only be used to settle obligations of the consolidated variable interest entities and $406,466 of liabilities of consolidated variable interest entities for which creditors do not have recourse to the general credit of the Operating Partnership. See Note 7.

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

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

 
Three Months Ended
March 31,
 
2019
 
2018
REVENUES:
 
 
 
Rental revenues
$
190,980

 
$
212,729

Management, development and leasing fees
2,523

 
2,721

Other
4,527

 
4,750

Total revenues
198,030

 
220,200

 
 
 
 
OPERATING EXPENSES:
 
 
 
Property operating
(28,980
)
 
(32,826
)
Depreciation and amortization
(69,792
)
 
(71,750
)
Real estate taxes
(19,919
)
 
(21,848
)
Maintenance and repairs
(12,776
)
 
(13,179
)
General and administrative
(22,007
)
 
(18,304
)
Loss on impairment
(24,825
)
 
(18,061
)
Litigation settlement
(88,150
)
 

Other

 
(94
)
Total operating expenses
(266,449
)
 
(176,062
)
 
 
 
 
OTHER INCOME (EXPENSES):
 
 
 
Interest and other income
489

 
213

Interest expense
(53,998
)
 
(53,767
)
Gain on extinguishment of debt
71,722

 

Gain on sales of real estate assets
228

 
4,371

Income tax benefit (provision)
(139
)
 
645

Equity in earnings of unconsolidated affiliates
3,308

 
3,739

Total other income (expenses)
21,610

 
(44,799
)
Net loss
(46,809
)

(661
)
Net (income) loss attributable to noncontrolling interests
75

 
(101
)
Net loss attributable to the Operating Partnership
(46,734
)
 
(762
)
Distributions to preferred unitholders
(11,223
)
 
(11,223
)
Net loss attributable to common unitholders
$
(57,957
)
 
$
(11,985
)
 
 
 
 
Basic and diluted per unit data attributable to common unitholders:
 
 
Net loss attributable to common unitholders
$
(0.29
)
 
$
(0.06
)
Weighted-average common and potential dilutive common units outstanding
200,010

 
199,694


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

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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, 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
 

 

 

 

 
722

 
69,658

 
70,380

 

 
70,380

Distributions declared - common units ($0.209 per unit)
 
(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





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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, 2019
$
3,575

 
25,050

 
199,415

 
$
565,212

 
$
4,628

 
$
450,507

 
$
1,020,347

 
$
12,111

 
$
1,032,458

Net income (loss)
(453
)
 

 

 
11,223

 
(590
)
 
(56,914
)
 
(46,281
)
 
(75
)
 
(46,356
)
Distributions declared - common units ($0.086 per unit)
(1,143
)
 

 

 

 
(151
)
 
(15,897
)
 
(16,048
)
 

 
(16,048
)
Distributions declared - preferred units

 

 

 
(11,223
)
 

 

 
(11,223
)
 

 
(11,223
)
Issuances of common units

 

 
863

 

 

 
717

 
717

 

 
717

Cancellation of restricted common stock

 

 
(58
)
 

 

 
(133
)
 
(133
)
 

 
(133
)
Performance stock units

 

 

 

 
3

 
309

 
312

 

 
312

Amortization of deferred compensation

 

 

 

 
11

 
1,022

 
1,033

 

 
1,033

Allocation of partners' capital
1,038

 

 

 

 
(34
)
 
(1,004
)
 
(1,038
)
 

 
(1,038
)
Contributions from noncontrolling interests

 

 

 

 

 

 

 
455

 
455

Distributions to noncontrolling interests

 

 

 

 

 

 

 
(1,412
)
 
(1,412
)
Balance, March 31, 2019
$
3,017

 
25,050

 
200,220

 
$
565,212

 
$
3,867

 
$
378,607

 
$
947,686

 
$
11,079

 
$
958,765


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


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

 
Three Months Ended
March 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 
Net loss
$
(46,809
)
 
$
(661
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 

Depreciation and amortization
69,792

 
71,750

Net amortization of deferred financing costs, debt premiums and discounts
2,304

 
1,709

Net amortization of intangible lease assets and liabilities
(551
)
 
(475
)
Gain on sales of real estate assets
(228
)
 
(4,371
)
Gain on insurance proceeds
(690
)
 

Write-off of development projects

 
94

Share-based compensation expense
2,043

 
2,314

Loss on impairment
24,825

 
18,061

Gain on extinguishment of debt
(71,722
)
 

Equity in earnings of unconsolidated affiliates
(3,308
)
 
(3,739
)
Distributions of earnings from unconsolidated affiliates
5,671

 
4,012

Change in estimate of uncollectable rental revenues
1,540

 
2,041

Change in deferred tax accounts
63

 
(629
)
Changes in:
 

 
 

Tenant and other receivables
(387
)
 
1,826

Other assets
(3,826
)
 
(2,339
)
Accounts payable and accrued liabilities
76,770

 
8,633

Net cash provided by operating activities
55,487

 
98,226

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Additions to real estate assets
(26,429
)
 
(39,997
)
Proceeds from sales of real estate assets
35,260

 
11,848

Proceeds from insurance
548

 

Payments received on mortgage and other notes receivable
266

 
267

Additional investments in and advances to unconsolidated affiliates
(566
)
 
(1,232
)
Distributions in excess of equity in earnings of unconsolidated affiliates
4,979

 
2,859

Changes in other assets
(321
)
 
(2,277
)
Net cash provided by (used in) investing activities
13,737

 
(28,532
)

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

 
Three Months Ended
March 31,
 
2019
 
2018
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from mortgage and other indebtedness
$
941,217

 
$
99,160

Principal payments on mortgage and other indebtedness
(978,006
)
 
(123,634
)
Additions to deferred financing costs
(15,107
)
 
(98
)
Proceeds from issuances of common units
17

 
41

Contributions from noncontrolling interests
455

 

Payment of tax withholdings for restricted stock awards
(132
)
 
(231
)
Distributions to noncontrolling interests
(2,554
)
 
(2,861
)
Distributions to preferred unitholders
(11,223
)
 
(11,223
)
Distributions to common unitholders
(15,988
)
 
(40,486
)
Net cash used in financing activities
(81,321
)
 
(79,332
)
 
 
 
 
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(12,097
)
 
(9,638
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
57,512

 
68,172

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
45,415

 
$
58,534

 
 
 
 
Reconciliation from condensed consolidated statements of cash flows to condensed consolidated balance sheets:
Cash and cash equivalents
$
21,054

 
$
23,345

Restricted cash (1):
 
 
 
Restricted cash
79

 
3,212

Mortgage escrows
24,282

 
31,977

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
45,415

 
$
58,534

 
 
 
 
SUPPLEMENTAL INFORMATION:
 

 
 

Cash paid for interest, net of amounts capitalized
$
35,659

 
$
34,896

(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, 2019, the Operating Partnership owned interests in the following properties:
 
 
 
Other Properties
 
 
 
Malls (1)
 
Associated
Centers
 
Community
Centers
 
Office
Buildings/Other
 
Total
Consolidated properties
57
 
20
 
2
 
5
(2) 
84
Unconsolidated properties (3)
8
 
3
 
5
 
2
 
18
Total
65
 
23
 
7
 
7
 
102
(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, 2019, the Operating Partnership had interests in the following properties under development:
 
Consolidated
Properties
 
Unconsolidated
Properties
 
Malls
 
All Other
 
Malls
 
All Other
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, 2019, 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 85.6% limited partner interest for a combined interest held by CBL of 86.6%.
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, 2019, CBL’s Predecessor owned a 9.1% limited partner interest and third parties owned a 4.3% limited partner interest in the Operating Partnership.  CBL's Predecessor also owned 4.3 million shares of CBL’s common stock at March 31, 2019, for a total combined effective interest of 11.2% in the Operating Partnership.
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”).

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Table of Contents

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, 2019 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, 2018.
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 operating expense reimbursements in its condensed consolidated statements of operations for the three months ended March 31, 2018 related to the adoption of ASC 606. As a result, operating expense reimbursements of $2,343, previously included in tenant reimbursements, were reclassified to other revenues for the three months ended March 31, 2018. Additionally, the Company reclassified minimum rents, percentage rents, other rents and tenant reimbursements into one line item, rental revenues, for the three months ended March 31, 2018 related to the adoption of ASC 842.
Note 2 – Recent Accounting Pronouncements
Accounting Guidance Adopted    
Description
 
Date Adopted &
Application
Method
 
Financial Statement Effect and Other Information
ASU 2016-02, Leases, and related subsequent amendments
 
January 1, 2019 -
Modified Retrospective (electing optional transition method to apply at adoption date and record cumulative-effect adjustment as of January 1, 2019)
 
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. Putting nearly all leases on the balance sheet is the biggest change for lessees, as lessees will now be required to recognize a right-of-use (“ROU”) asset and corresponding lease liability for leases with terms greater than 12 months. Under the FASB model, lessees will classify a lease as either a finance lease or an operating lease, while a lessor will classify a lease as either a sales-type, direct financing, or operating lease. A lessee should classify a lease based on whether the arrangement is effectively a purchase of the underlying asset. Leases that transfer control of the underlying asset to a lessee are classified as finance leases for lessees and sales-type leases for lessors, whereas leases where the lessee obtains control of only the use of the underlying asset, but not the underlying asset itself, will be classified as operating leases for both lessees and lessors. A lease may meet the lessee finance lease criteria even when control of the underlying asset is not transferred to the lessee, and in these cases the lease would be classified as an operating lease for the lessee and a direct finance lease by the lessor. The guidance to be applied by lessors is substantially similar to existing GAAP. In order to align lessor accounting with the principles in the revenue recognition guidance in ASC 606, a lessor is precluded from recognizing selling profit or sales revenue at lease commencement for a lease that does not transfer control of the underlying asset to the lessee. As a lessee, the guidance impacted the Company's condensed consolidated financial statements through the recognition of right-of-use ("ROU") assets and corresponding lease liabilities for operating leases as of January 1, 2019. As a lessor, the guidance impacted the Company's condensed consolidated financial statements in regard to the narrowed definition of initial direct costs that can be capitalized, the change in the presentation of rental revenues as one line item and the change in reporting uncollectable operating lease receivables as a reduction of rental revenues instead of property operating expense. The adoption did not result in a cumulative catch-up adjustment to opening equity. See Note 4 for further details.

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Table of Contents

Accounting Guidance Not Yet Effective
Description
 
Expected
Adoption Date &
Application
Method
 
Financial Statement Effect and Other Information
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.
 
 
 
 
 
ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
 
January 1, 2020 -
Prospective
 
The guidance addresses diversity in practice in accounting for the costs of implementation activities in a cloud computing arrangement that is a service contract. Under the guidance, the Company is to follow Subtopic 350-40 on internal-use software to determine which implementation costs to capitalize and which to expense.
The guidance also requires an entity to expense capitalized implementation costs over the term of the hosting arrangement and include that expense in the same line item as the fees associated with the service element of the arrangement.
The Company does not expect the adoption of this guidance will have a material impact on its condensed consolidated financial statements or disclosures.
 
 
 
 
 
Note 3 – Revenues
Contract Balances
A summary of the Company's contract assets activity during the three months ended March 31, 2019 is presented below:
 
 
Contract Assets
Balance as of December 31, 2018
 
$
289

Tenant openings
 
(139
)
Executed leases
 
25

Balance as of March 31, 2019
 
$
175


A summary of the Company's contract liability activity during the three months ended March 31, 2019 is presented below:
 
 
Contract Liability
Balance as of December 31, 2018
 
$
265

Completed performance obligation
 
(4
)
Contract obligation
 

Balance as of March 31, 2019
 
$
261

    

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Table of Contents

The Company has the following contract balances as of March 31, 2019:
 
 
 
As of
March 31, 2019
 
Expected Settlement Period
Description
Financial Statement Line Item
 
 
2019
 
2020
 
2021
 
2022
 
2023
Contract assets (1)
Management, development and leasing fees
 
$
175

 
$
(167
)
 
$
(3
)
 
$
(1
)
 
$

 
$
(4
)
Contract liability (2)
Other rents
 
261

 
(99
)
 
(54
)
 
(54
)
 
(54
)
 

(1)
Represents leasing fees recognized as revenue in the period in which the lease is executed. Under third party and unconsolidated affiliates' contracts, the remaining 50% of the commissions are 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, 2019
 
Three Months Ended
March 31, 2018
Rental revenues (1)
 
$
190,980

 
$
212,729

Revenues from contracts with customers (ASC 606):
 
 
 
 
  Operating expense reimbursements (2)
 
2,143

 
2,343

  Management, development and leasing fees (3)
 
2,523

 
2,721

  Marketing revenues (4)
 
874

 
1,295

 
 
5,540

 
6,359

 
 
 
 
 
Other revenues
 
1,510

 
1,112

Total revenues
 
$
198,030

 
$
220,200

(1)
Revenues from leases that commenced subsequent to December 31, 2018 are accounted for in accordance with ASC 842, Leases, whereas all leases existing prior to that date are accounted for in accordance with ASC 840, Leases. See Note 4.
(2)
Includes $2,192 in the Malls segment and $(49) in the All Other segment for the three months ended March 31, 2019. Includes $2,190 in the Malls segment and $153 in the All Other segment for the three months ended March 31, 2018. See description below.
(3)
Included in All Other segment.
(4)
Includes $876 in the Malls segment and $(2) in the All Other segment for the three months ended March 31, 2019. Includes $1,294 in the Malls segment and $1 in the All Other segment for the three months ended March 31, 2018.
See Note 10 for information on the Company's segments.
Revenue from Contracts with Customers
Operating expense reimbursements
Under operating and other agreements with third parties that own anchor or outparcel buildings at the Company's properties and pay no rent, the Company receives reimbursements for certain operating expenses such as ring road and parking lot maintenance, landscaping and other fees. These arrangements are primarily either set at a fixed rate with rate increases typically every five years or are on a variable (pro rata) basis, typically as a percentage of costs allocated based on square footage or sales. The majority of these contracts have an initial term and one or more extension options, which cumulatively approximate 50 or more years as historically the initial term and any extension options are reasonably certain of being executed by the third party. 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. Revenue is recognized as services are transferred to the customer. Variable consideration is based on historical experience and 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. 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.


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Table of Contents

Management, development and leasing fees    
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. The Company's share of such fees are recorded as a reduction to the Company’s investment in the unconsolidated affiliate.
Marketing revenues
The Company 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.
Performance obligations
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 certain operating expense reimbursements and management, leasing and development activities, as described above. Performance obligations related to pro rata operating expense reimbursements for certain noncancellable contracts are disclosed below.

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Outstanding Performance Obligations
The Company has outstanding performance obligations related to certain noncancellable contracts with customers for which it will receive fixed operating expense reimbursements for providing certain maintenance and other services as described above. As of March 31, 2019, the Company expects to recognize these amounts as revenue over the following periods:
Performance obligation
 
Less than 5 years
 
5-20 years
 
Over 20 years
 
Total
Fixed operating expense reimbursements
 
$
29,101

 
$
53,781

 
$
49,866

 
$
132,748

The Company evaluates its performance obligations each period and makes adjustments to reflect any known additions or cancellations. Performance obligations related to variable consideration which is based on sales is constrained.
Note 4 – Leases
Adoption of ASU 2016-02, and all related subsequent amendments
The Company adopted ASC 842 (which includes ASU 2016-02 and all related subsequent amendments) on January 1, 2019 and applied the guidance to leases that commenced on or after January 1, 2019. Historical amounts for prior periods were not adjusted and will continue to be reported using the guidance in ASC 840, Leases.
To determine whether a contract contains a lease, the Company evaluated its contracts and verified that there was an identified asset and that the Company, or the tenant, has the right to obtain substantially all the economic benefits from the use of the asset throughout the contract term. If a contract is determined to contain a lease, the lease is evaluated to determine whether it is an operating or financing lease, if the Company is the lessee, or the lease is evaluated to determine whether it is an operating, direct financing or sales-type lease, if the Company is the lessor. After determining that the contract contains a lease, the Company identified the lease component and any nonlease components associated with that lease component, and through the Company’s election to combine lease and nonlease components for all asset classes, combined the components into a single lease component within each applicable lease where the Company is the lessor.
The discount rate to be used for each lease was determined by assessing the Company’s debt information, assessing the credit rating of the Company and the Company’s debt, estimating a synthetic “secured” credit rating for the Company and estimating an appropriate incremental borrowing rate. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.
See Note 2 for additional information about these accounting standards.
Lessor
Rental Revenues
The majority of the Company’s revenues are earned through the lease of space at its properties. All of the Company's leases with tenants for the use of space at our properties are classified as operating leases. Rental 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. The option to extend or terminate our leases is specific to each underlying tenant agreement. Typically, the Company's leases contain penalties for early termination. The Company doesn't have any leases that convey the right for the lessee to purchase the leased asset.
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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The Company receives reimbursements from tenants for real estate taxes, insurance, CAM and other recoverable operating expenses as provided in the lease agreements. Any tenant reimbursements that require fixed payments are recognized on a straight-line basis over the initial terms of the related leases, whereas any variable payments 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.
Additionally, ASU 2018-19 clarifies that operating lease receivables are within the scope of ASC 842. Therefore, in conjunction with our adoption of ASC 842 on January 1, 2019, the Company began recognizing changes in the collectability assessment of its operating lease receivables as a reduction of rental revenues, rather than as a property operating expense. As a result, the Company recognized $1,540 of uncollectable operating lease receivables as a reduction of rental revenues for the three months ended March 31, 2019, and recognized $2,041 of uncollectable operating lease receivables as a property operating expense for the three months ended March 31, 2018.
The components of rental revenues are as follows:
 
 
Three Months Ended
March 31, 2019
Fixed lease payments
 
$
159,278

Variable lease payments
 
31,702

Total rental revenues
 
$
190,980

The undiscounted future fixed lease payments to be received under the Company's operating leases as of March 31, 2019, are as follows:
Years Ending December 31,
 
Operating Leases
2019 (1)
 
$
423,830

2020
 
516,103

2021
 
450,880

2022
 
370,764

2023
 
304,864

2024
 
236,102

Thereafter
 
640,986

Total undiscounted lease payments
 
$
2,943,529

(1)
Reflects rental payments for the fiscal period April 1, 2019 through December 31, 2019.
As required by the Comparative Under ASC 840 Option, which is a transitional amendment that allows for the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), the Company's future minimum rental income from lessees under non-cancellable operating leases where the Company is the lessor as of December 31, 2018 is also presented below:
Years Ending December 31,
 
Operating Leases
2019
 
$
497,014

2020
 
426,228

2021
 
363,482

2022
 
294,441

2023