10-K 1 form10k.htm FORM 10-K YEAR ENDED DECEMBER 31, 2006

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2006

 

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 Number 1-12494

 

CBL & ASSOCIATES PROPERTIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

(State or other jurisdiction of incorporate or organization)

 

62-1545718

(I.R.S. Employer Identification No.)

 

2030 Hamilton Place Blvd, Suite 500

Chattanooga, TN

(Address of principal executive office)

 

 

37421

(Zip Code)

 

Registrant’s telephone number, including area code: (423) 855-0001

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each Class

 

Name of each exchange on which registered

Common Stock, $0.01 par value 

New York Stock Exchange

8.75% Series B Cumulative Redeemable Preferred Stock, $0.01 par value 

New York Stock Exchange

7.75% Series C Cumulative Redeemable Preferred Stock, $0.01 par value 

New York Stock Exchange

7.375% Series D Cumulative Redeemable Preferred Stock, $0.01 par value 

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x    No o

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes     No x

 

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 periods that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

Accelerated filero

Non-accelerated filer o

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x

 

The aggregate market value of the 58,973,997 shares of common stock held by non-affiliates of the registrant as of June 30, 2006 was $2,295,857,703, based on the closing price of $38.93 per share on the New York Stock Exchange on June 30, 2006. (For this computation, the registrant has excluded the market value of all shares of its common stock reported as beneficially owned by executive officers and directors of the registrant; such exclusion shall not be deemed to constitute an admission that any such person is an “affiliate” of the registrant.)

 

As of February 21, 2007 there were 65,537,048 shares of common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s proxy statement for the annual shareholders meeting to be held on May 7, 2007, are incorporated by reference into Part III.

 

 

 

TABLE OF CONTENTS

 

 

Item No.

Page

 

PART I

 

 

1

Business

1

 

1A

Risk Factors

9

 

1B

Unresolved Staff Comments

18

 

2

Properties

18

 

3

Legal Proceedings

32

 

4

Submission of Matters to a Vote of Security Holders

32

 

PART II

 

 

5

Market For Registrant’s Common Equity, Related

 

Stockholder Matters and Issuer Purchases of Equity Securities

32

 

6

Selected Financial Data

34

 

7

Management’s Discussion and Analysis of Financial

 

Condition and Results of Operations

35

 

7A

Quantitative and Qualitative Disclosures about Market Risk

54

 

8

Financial Statements and Supplementary Data

55

 

9

Changes in and Disagreements With Accountants on

 

Accounting and Financial Disclosure

55

 

9A

Controls and Procedures

55

 

9B

Other Information

57

 

 

PART III

 

 

10

Directors, Executive Officers and Corporate Governance

58

 

11

Executive Compensation

58

 

12

Security Ownership of Certain Beneficial Owners

 

and Management and Related Stockholder Matters

58

 

13

Certain Relationships and Related Transactions, and Director Independence

58

 

14

Principal Accounting Fees and Services

58

 

PART IV

 

 

15

Exhibits, Financial Statement Schedules

59

 

 

Signatures

60

 

 

 

Cautionary Statement Relevant to Forward-Looking Information for the Purpose of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

 

Certain statements made in this section or elsewhere in this report may be deemed “forward looking statements” within the meaning of the federal securities laws. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we cannot give assurance that these expectations will be attained, and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. In addition to the risk factors discussed below in Item 1A of this report, such risks and uncertainties include, without limitation, general industry, economic and business conditions, interest rate fluctuations, costs of capital and capital requirements, availability of real estate properties, inability to consummate acquisition opportunities, competition from other companies and retail formats, changes in retail rental rates in our markets, shifts in customer demands, tenant bankruptcies or store closings, changes in vacancy rates at our properties, changes in operating expenses, changes in applicable laws, rules and regulations, the ability to obtain suitable equity and/or debt financing and the continued availability of financing in the amounts and on the terms necessary to support our future business. We disclaim any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information.

 

Part I.

ITEM 1. BUSINESS

 

Background

 

CBL & Associates Properties, Inc. (“CBL”) was organized on July 13, 1993, as a Delaware corporation, to acquire substantially all of the real estate properties owned by CBL & Associates, Inc., and its affiliates (“CBL’s Predecessor”), which was formed by Charles B. Lebovitz in 1978. On November 3, 1993, CBL completed an initial public offering (the “Offering”). Simultaneously with the completion of the Offering, CBL’s Predecessor transferred substantially all of its interests in its real estate properties to CBL & Associates Limited Partnership (the “Operating Partnership”) in exchange for common units of limited partnership interest in the Operating Partnership. The interests in the Operating Partnership contain certain conversion rights that are more fully described in Note 9 to the consolidated financial statements. The terms “we”, “us”, “our” and the “Company” refer to CBL & Associates Properties, Inc. and its subsidiaries.

 

Recent Developments

 

In February 2006, we amended one of our secured credit facilities to increase the maximum availability from $373.0 million to $476.0 million, extend the maturity date from February 28, 2006 to February 28, 2009 plus a one-year extension option, increase the minimum tangible net worth requirement, as defined, from $1.0 billion to $1.37 billion and increase the limit on the maximum availability that we may request from $500.0 million to $650.0 million.

 

In May 2006, we sold three community centers for an aggregate sales price of $42.3 million and recognized a gain of $7.2 million. We sold two additional community centers in May 2006 for an aggregate sales price of $63.0 million and recognized an impairment loss of $0.3 million. All five of these community centers were sold to Galileo America LLC in connection with a put right that we held.

 

In July 2006, we obtained four separate ten-year, non-recourse loans totaling $317.0 million that bear interest at fixed rates ranging from 5.86% to 6.10%, with a weighted average of 5.96%. The proceeds were used to retire $249.8 million of mortgage notes payable that were scheduled to mature during the next twelve months and to pay outstanding balances on our credit facilities. We recognized a

 

1

 

 

loss on extinguishment of debt of $0.6 million in July 2006 related to prepayment fees and the write-off of unamortized deferred financing costs.

 

On August 22, 2006, we amended our unsecured credit facility with Wells Fargo Bank to increase the availability from $500.0 million to $560.0 million, extend the maturity date from August 27, 2006 to August 27, 2008 plus three one-year extension options, amend certain financial covenants to provide us with enhanced borrowing flexibility, increase the limit on the maximum availability that we may request from $600.0 million to $700.0 million and added a letter of credit feature to the credit facility.

 

The Company’s Business

 

We are a self-managed, self-administered, fully integrated real estate investment trust (“REIT”). We own, develop, acquire, lease, manage, and operate regional malls and open-air and community shopping centers. Our shopping center properties are located in 27 states, but primarily in the southeastern and midwestern United States. We have elected to be taxed as a REIT for federal income tax purposes.

 

We conduct substantially all of our business through the Operating Partnership. We are the 100% owner of two qualified REIT subsidiaries, CBL Holdings I, Inc. and CBL Holdings II, Inc. CBL Holdings I, Inc. is the sole general partner of the Operating Partnership. At December 31, 2006, CBL Holdings I, Inc. owned a 1.6% general partnership interest and CBL Holdings II, Inc. owned a 54.7% limited partnership interest in the Operating Partnership, for a combined interest held by us of 56.3%.

 

 

As of December 31, 2006, we owned:

 

 

§

interests in a portfolio of operating properties including 77 enclosed regional malls and two open-air centers (the “Malls”), 31 associated centers (the “Associated Centers”), five community centers (the “Community Centers”) and our corporate office building (the “Office Building”);

 

 

§

interests in seven mall/lifestyle expansions, one open-air center, one open-air shopping center expansion, one associated center and three community centers that are currently under construction (the “Construction Properties”), as well as options to acquire certain shopping center development sites; and

 

 

§

mortgages on 13 properties that are secured by first mortgages or wrap-around mortgages on the underlying real estate and related improvements (the “Mortgages”).

 

The Malls, Associated Centers, Community Centers, Construction Properties, Mortgages and Office Building are collectively referred to as the “Properties” and individually as a “Property.”

 

We conduct our property management and development activities through CBL & Associates Management, Inc. (the “Management Company”) to comply with certain technical requirements of the Internal Revenue Code of 1986, as amended.

 

The Management Company manages all but three of the Properties. Governor’s Square and Governor’s Plaza in Clarksville, TN, and Kentucky Oaks Mall, in Paducah, KY are all owned by joint ventures and are managed by a property manager that is affiliated with the third party managing general partner, which receives a fee for its services. The managing partner of each of these Properties controls the cash flow distributions, although our approval is required for certain major decisions.

 

2

 

 

The majority of our revenues are derived from leases with retail tenants and generally include minimum rents, percentage rents based on tenants’ sales volumes and reimbursements from tenants for expenditures related to property operating expenses, real estate taxes, insurance and maintenance and repairs, as well as certain capital expenditures. We also generate revenues from advertising, sponsorships, sales of peripheral land at the Properties and from sales of real estate assets when it is determined that we can realize a premium value for the assets. Proceeds from such sales are generally used to reduce borrowings on our credit facilities.

 

The following terms used in this annual report on Form 10-K will have the meanings described below:

 

 

§

GLA – refers to gross leasable area of retail space in square feet, including anchors and mall tenants

 

§

Anchor – refers to a department store or other large retail store

 

§

Freestanding – property locations that are not attached to the primary complex of buildings that comprise the mall shopping center

 

§

Outparcel – land used for freestanding developments, such as retail stores, banks and restaurants, on the periphery of the Properties

 

Significant Markets

 

Our top five markets, in terms of revenues, were as follows for the year ended December 31, 2006: 

 

 

Market

 

Percentage

Total of

Revenues

 

Nashville, TN

 

5.7

%

Pittsburgh, PA

 

4.9

%

Overland Park, KS

 

4.2

%

Madison, WI

 

3.2

%

Chattanooga, TN

 

3.0

%

 

 

3

 

 

Top 25 Tenants

 

Our top 25 tenants based on percentage of total revenues were as follows for the year ended December 31, 2006:

 

 

 

Tenant

 

Number of
Stores

 

 

 

Square Feet

 

 

Annual Gross
Rentals (1)

 

 

 

Percentage of Total Revenues

 

1

 

Limited Brands, LLC

 

227

 

 

 

1,373,565

 

 

$

47,671,538

 

 

 

4.74

%

2

 

Foot Locker, Inc.

 

194

 

 

 

753,110

 

 

 

29,846,809

 

 

 

2.97

%

3

 

The Gap, Inc.

 

98

 

 

 

1,003,202

 

 

 

24,028,013

 

 

 

2.39

%

4

 

Abercrombie & Fitch, Co.

 

74

 

 

 

505,346

 

 

 

18,014,698

 

 

 

1.79

%

5

 

AE Outfitters Retail Company

 

72

 

 

 

399,330

 

 

 

16,239,348

 

 

 

1.61

%

6

 

Signet Group PLC (2)

 

109

 

 

 

172,405

 

 

 

15,933,859

 

 

 

1.58

%

7

 

Finish Line, Inc.

 

80

 

 

 

407,017

 

 

 

15,145,098

 

 

 

1.51

%

8

 

Zale Corporation

 

145

 

 

 

146,318

 

 

 

14,506,203

 

 

 

1.44

%

9

 

Luxottica Group, S.P.A. (3)

 

139

 

 

 

294,809

 

 

 

13,524,240

 

 

 

1.34

%

10

 

JC Penney Co. Inc. (4)

 

68

 

 

 

7,618,875

 

 

 

13,175,977

 

 

 

1.31

%

11

 

New York & Company, Inc.

 

49

 

 

 

364,227

 

 

 

12,195,910

 

 

 

1.21

%

12

 

The Regis Corporation

 

200

 

 

 

232,361

 

 

 

11,579,244

 

 

 

1.15

%

13

 

Dick’s Sporting Goods, Inc.

 

13

 

 

 

770,686

 

 

 

11,046,980

 

 

 

1.10

%

14

 

Genesco Inc. (5)

 

149

 

 

 

193,550

 

 

 

11,006,429

 

 

 

1.09

%

15

 

The Children’s Place Retail Stores, Inc. (6)

 

63

 

 

 

269,387

 

 

 

10,752,746

 

 

 

1.07

%

16

 

Pacific Sunwear of California

 

86

 

 

 

298,660

 

 

 

10,658,390

 

 

 

1.06

%

17

 

Charming Shoppes, Inc. (7)

 

54

 

 

 

321,104

 

 

 

9,548,131

 

 

 

0.95

%

18

 

Aeropostale, Inc.

 

68

 

 

 

230,104

 

 

 

9,378,531

 

 

 

0.93

%

19

 

Trans World Entertainment (8)

 

68

 

 

 

302,746

 

 

 

9,212,133

 

 

 

0.92

%

20

 

Christopher & Banks, Inc.

 

71

 

 

 

244,094

 

 

 

8,392,940

 

 

 

0.83

%

21

 

Hallmark Cards, Inc.

 

66

 

 

 

264,337

 

 

 

8,246,956

 

 

 

0.82

%

22

 

The Buckle, Inc.

 

46

 

 

 

225,408

 

 

 

8,052,582

 

 

 

0.80

%

23

 

Charlotte Russe Holding, Inc.

 

36

 

 

 

251,336

 

 

 

7,956,383

 

 

 

0.79

%

24

 

Claire’s Stores, Inc.

 

115

 

 

 

131,996

 

 

 

7,844,315

 

 

 

0.78

%

25

 

Federated Department Stores, Inc. (9)

 

80

 

 

 

5,981,863

 

 

 

7,757,476

 

 

 

0.77

%

 

 

 

 

2,370

 

 

 

22,755,836

 

 

$

351,714,929

 

 

 

34.95

%

 

 

 

(1)

Includes annual minimum rent and tenant reimbursements based on amounts in effect at December 31, 2006.

(2)

Signet Group PLC operates Kay Jewelers, Marks & Morgan, JB Robinson, Shaw’s Jewelers, Osterman’s Jewelers, LeRoy’s Jewelers, Jared Jewelers, Belden Jewelers, and Rogers Jewelers. 

 

(3)

Luxottica Group, S.P.A. operates Lenscrafters, Sunglass Hut, and Pearl Vision. As of September 29, 2006, they no longer operate Things

 

Remembered stores.

 

(4)

JC Penney Co. Inc. owns 28 of these stores.

 

(5)

Genesco Inc. operates Journey’s, Jarman, Underground Station, Hat World, Lids, Hat Zone, and Cap Factory stores.

 

(6)

The Children’s Place Retail Stores, Inc. also operates The Disney Stores. 

 

(7)

Charming Shoppes, Inc. operates Lane Bryant, Fashion Bug, and Catherine’s.  

(8)

Trans World Entertainment operates FYE (formerly Camelot Music and Record Town), Sam Goody, Suncoast Motion Picture, and Saturday Matinee.

 

(9)

Federated Department Stores, Inc. merged with May Company in 2005. They now operate After Hours Formalwear, Desmond’s Formal Wear,

 

Mitchell’s Formal Wear, Tuxedo World, David’s Bridal, and 41 Macy’s department stores.

 

Our Growth Strategy

 

Our objective is to achieve growth in funds from operations by maximizing cash flows through a variety of methods that are discussed below.

 

4

 

 

Leasing, Management and Marketing

 

Our objective is to maximize cash flows from our existing Properties through:

 

 

§

aggressive leasing that seeks to increase occupancy,

 

§

originating and renewing leases at higher base rents per square foot compared to the previous lease,

 

§

merchandising, marketing, sponsorship and promotional activities and

 

§

aggressively controlling operating costs and resulting tenant occupancy costs.

 

Renovations and Redevelopments

 

Redevelopments represent situations where we capitalize on opportunities to add incremental square footage or increase the productivity of previously occupied space through aesthetic upgrades, retenanting and/or changing the use of the space. Many times, redevelopments result from acquiring possession of anchor space and subdividing it into multiple spaces. The following presents redevelopments that we completed during 2006, as well as three that are scheduled to be completed in 2007:

 

Property

 

Location

 

GLA

 

Opening Date

 

Completed in 2006:

 

 

 

 

 

 

 

Hickory Hollow Mall - former JCPenney

 

Nashville, TN

 

138,189

 

June

 

Cary Town Center - Lifestyle component

 

Cary, NC

 

21,595

 

November

 

Burnsville Center – former Mervyn’s – Phase II

 

Burnsville, MN

 

82,900

 

April

 

 

 

 

 

242,684

 

 

 

Scheduled for 2007:

 

 

 

 

 

 

 

Mall del Norte - Cinemark Theater

 

Laredo, TX

 

72,000

 

May

 

Northpark Mall – former Wards

 

Little Rock, AR

 

91,000

 

August/October

 

Columbia Place – former JC Penney

 

Columbia, SC

 

125,000

 

August/September

 

 

 

 

 

288,000

 

 

 

 

Renovations usually include renovating existing facades, uniform signage, new entrances and floor coverings, updating interior décor, resurfacing parking lots and improving the lighting of interiors and parking lots. Renovations can result in attracting new retailers, increased rental rates and occupancy levels and maintaining the Property’s market dominance. As shown below, we renovated eight Properties during 2006 and expect to renovate five Properties during 2007.

 

5

 

 

Property

 

 

 

Location

Completed in 2006:

 

 

 

 

CoolSprings Galleria

 

 

 

Nashville, TN

Chapel Hill Mall

 

 

 

Akron, OH

Hamilton Crossing

 

 

 

Chattanooga, TN

Harford Mall

 

 

 

Baltimore, MD

Madison Square

 

 

 

Huntsville, AL

Northpark Mall

 

 

 

Joplin, MO

Park Plaza

 

 

 

Little Rock, AR

Wausau Center

 

 

 

Wausau, WI

 

 

 

 

 

Scheduled for 2007:

 

 

 

 

Honey Creek Mall

 

 

 

Terre Haute, IN

Georgia Square

 

 

 

Athens, GA

Mall del Norte

 

 

 

Laredo, TX

Brookfield Square

 

 

 

Brookfield, WI

Madison Plaza

 

 

 

Huntsville, AL

 

Development of New Retail Properties and Expansions

 

In general, we seek development opportunities in middle-market trade areas that we believe are under-served by existing retail operations. These middle-markets must also have sufficient demographics to provide the opportunity to effectively maintain a competitive position. The following shows the new developments and expansions we opened during 2006 and those under construction at December 31, 2006:

 

Property

 

 

Location

 

GLA

 

 

Opening Date

 

Completed in 2006:

 

 

 

 

 

 

 

 

 

Lakeview Point

 

 

Stillwater, OK

 

207,300

 

 

October

 

High Pointe Commons

 

 

Harrisburg, PA

 

299,395

 

 

October

 

Gulf Coast Town Center - Phase II (Anchors)

 

 

Ft. Myers, FL

 

356,913

 

 

October / November

 

The Shops at Pineda Ridge

 

 

Melbourne, FL

 

169,974

 

 

November

 

The Plaza at Fayette Mall

 

 

Lexington, KY

 

190,309

 

 

November

 

 

 

 

 

 

1,223,891

 

 

 

 

Currently under construction:

 

 

 

 

 

 

 

 

 

The Shoppes at St. Clair

 

 

Fairview Heights, IL

 

84,080

 

 

March 2007

 

Gulf Coast Town Center - Phase II (Costco & small shops)

 

 

Ft. Myers, FL

 

518,944

 

 

March / May 2007

 

Milford Marketplace

 

 

Milford, CT

 

112,038

 

 

July 2007

 

Cobblestone Village at Palm Coast

 

 

Palm Coast, FL

 

277,770

 

 

October 2007

 

Alamance Crossing East

 

 

Burlington, NC

 

622,600

 

 

August 2007

 

York Town Center

 

 

York, PA

 

280,645

 

 

October 2007

 

Pearland Town Center

 

 

Pearland, TX

 

718,000

 

 

October 2008

 

 

 

 

 

 

2,614,077

 

 

 

 

 

 

6

 

 

We can also generate additional revenues by expanding a Property through the addition of department stores, mall stores and large retail formats. An expansion also protects the Property’s competitive position within its market. As shown below, we completed seven expansions during 2006 and expect to expand six Properties in 2007:

 

Property

 

Location

GLA

 

Opening Date

Completed in 2006:

 

 

 

 

 

Southaven Town Center (Gordman’s)

 

Southaven, MS

59,360

 

April

Cross Creek Mall (Starbucks and Salsarita’s)

 

Fayetteville, NC

4,900

 

April

Coastal Grand - Myrtle Beach (PetSmart)

 

Myrtle Beach, SC

20,100

 

May

Hanes Mall - (Dick’s Sporting Goods)

 

Winston—Salem, NC

66,000

 

July

Southaven Towne Center (Books-A-Million)

 

Southaven, MS

15,500

 

September

Cary Town Center (Starbucks & Pei Wei Diner)

 

Cary, NC

5,000

 

November

The District at Valley View – Phase I

 

Roanoke, VA

14,000

 

November

 

 

 

184,860

 

 

Scheduled for 2007:

 

 

 

 

 

The District at Valley View – Phase II

 

Roanoke, VA

61,576

 

March

Mall del Norte - Cinemark Theater

 

Laredo, TX

72,000

 

May

Harford Mall - Lifestyle Expansion

 

Bel Air, MD

39,222

 

September

The District at Cherryvale

 

Rockford, IL

82,000

 

October

Brookfield Square - Restaurant Addition

 

Brookfield, WI

19,500

 

October

Brookfield Square - Outparcel Development

 

Brookfield, WI

57,500

 

November

Southpark Mall - Regal Cinema

 

Richmond, VA

85,392

 

Fall

 

 

 

417,190

 

 

 

Our total investment in the new and expanded Properties opened in 2006 was $151.8 million and the total investment in the Properties we had under construction at December 31, 2006 is projected to be $507.4 million.

 

Acquisitions

 

We believe there is opportunity for growth through acquisitions of regional malls and other associated properties. We selectively acquire regional mall properties where we believe we can increase the value of the property through our development, leasing and management expertise. We did not acquire any properties during 2006.

 

Insurance

 

We carry a comprehensive blanket policy for general liability, property casualty (including fire, earthquake and flood) and rental loss covering all of the Properties, with specifications and insured limits customarily carried for similar properties. The property and liability insurance policies on our Properties currently include coverage for loss resulting from acts of terrorism, whether foreign or domestic. We believe the Properties are adequately insured in accordance with industry standards.

 

Environmental Matters

 

Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the costs of removal or remediation of petroleum, certain hazardous or toxic substances on, under or in such real estate. Such laws typically impose such liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such substances. The costs of remediation or removal of such substances may be substantial. The presence of such substances, or the failure to promptly remove or remediate such substances, may adversely affect the owner’s or operator’s ability to lease or sell such real estate or to borrow using such real estate as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also

 

7

 

 

be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, regardless of whether such facility is owned or operated by such person. Certain laws also impose requirements on conditions and activities that may affect the environment or the impact of the environment on human health. Failure to comply with such requirements could result in the imposition of monetary penalties (in addition to the costs to achieve compliance) and potential liabilities to third parties. Among other things, certain laws require abatement or removal of friable and certain non-friable asbestos-containing materials in the event of demolition or certain renovations or remodeling. Certain laws regarding asbestos-containing materials require building owners and lessees, among other things, to notify and train certain employees working in areas known or presumed to contain asbestos-containing materials. Certain laws also impose liability for release of asbestos-containing materials into the air and third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with asbestos-containing materials. In connection with the ownership and operation of properties, we may be potentially liable for all or a portion of such costs or claims.

 

All of our Properties (but not properties for which we hold an option to purchase but do not yet own) have been subject to Phase I environmental assessments or updates of existing Phase I environmental assessments. Such assessments generally consisted of a visual inspection of the Properties, review of federal and state environmental databases and certain information regarding historic uses of the property and adjacent areas and the preparation and issuance of written reports. Some of the Properties contain, or contained, underground storage tanks used for storing petroleum products or wastes typically associated with automobile service or other operations conducted at the Properties. Certain Properties contain, or contained, dry-cleaning establishments utilizing solvents. Where believed to be warranted, samplings of building materials or subsurface investigations were undertaken. At certain Properties, where warranted by the conditions, we have developed and implemented an operations and maintenance program that establishes operating procedures with respect to asbestos-containing materials. The costs associated with the development and implementation of such programs were not material. We have also obtained environmental insurance coverage at certain of our Properties.

 

We believe that our Properties are in compliance in all material respects with all federal, state and local ordinances and regulations regarding the handling, discharge and emission of hazardous or toxic substances. We have recorded in our financial statements a liability of $2.4 million related to potential future asbestos abatement activities at our Properties which are not expected to have a material impact on our financial condition or results of operations. We have not been notified by any governmental authority, and are not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances in connection with any of our present or former Properties. Therefore, we have not recorded any liability related to related to hazardous or toxic substances. Nevertheless, it is possible that the environmental assessments available to us do not reveal all potential environmental liabilities. It is also possible that subsequent investigations will identify material contamination, that adverse environmental conditions have arisen subsequent to the performance of the environmental assessments, or that there are material environmental liabilities of which management is unaware. Moreover, no assurances can be given that (i) future laws, ordinances or regulations will not impose any material environmental liability or (ii) the current environmental condition of the Properties has not been or will not be affected by tenants and occupants of the Properties, by the condition of properties in the vicinity of the Properties or by third parties unrelated to us, the Operating Partnership or the relevant Property’s partnership.

 

Competition

 

The Properties compete with various shopping facilities in attracting retailers to lease space. In addition, retailers at our Properties face competition from discount shopping centers, outlet malls, wholesale clubs, direct mail, television shopping networks, the internet and other retail shopping developments. The extent of the retail competition varies from market to market. We work aggressively to attract customers through marketing promotions and campaigns.

 

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Seasonality

 

Our business is somewhat seasonal in nature with tenant sales achieving the highest levels during the fourth quarter because of the holiday season, which results in higher percentage rent income in the fourth quarter. The Malls earn most of their “temporary” rents (rents from short-term tenants) during the holiday period. Thus, occupancy levels and revenue production are generally the highest in the fourth quarter of each year. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of the entire year.

 

Financial Information About Segments

 

See Note 12 to the consolidated financial statements for information about our reportable segments.

 

Employees

 

CBL does not have any employees other than its statutory officers. Our Management Company currently has 790 full-time and 721 part-time employees. None of our employees are represented by a union.

 

Corporate Offices

 

Our principal executive offices are located at CBL Center, 2030 Hamilton Place Boulevard, Suite 500, Chattanooga, Tennessee, 37421 and our telephone number is (423) 855-0001.

 

Available Information

 

There is additional information about us on our web site at cblproperties.com. Electronic copies of our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to those reports, are available free of charge by visiting the “investor relations” section of our web site. These reports are posted as soon as reasonably practical after they are electronically filed with, or furnished to, the Securities and Exchange Commission. The information on the web site is not, and should not, be considered to be a part of this Form 10-K.

 

ITEM 1A. RISK FACTORS

 

RISKS RELATED TO REAL ESTATE INVESTMENTS

 

Real property investments are subject to various risks, many of which are beyond our control, that could cause declines in the operating revenues and/or the underlying value of one or more of our Properties.

 

A number of factors may decrease the income generated by a retail shopping center property, including:

 

 

National, regional and local economic climates, which may be negatively impacted by plant closings, industry slowdowns, adverse weather conditions, natural disasters, and other factors which tend to reduce consumer spending on retail goods.

 

Local real estate conditions, such as an oversupply of, or reduction in demand for, retail space or retail goods, and the availability and creditworthiness of current and prospective tenants.

 

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Increased operating costs, such as increases in real property taxes, utility rates and insurance premiums.

 

Perceptions by retailers or shoppers of the safety, convenience and attractiveness of the shopping center.

 

The willingness and ability of the shopping center’s owner to provide capable management and maintenance services.

 

The convenience and quality of competing retail properties and other retailing options, such as the Internet.

 

In addition, other factors may adversely affect the value of our Properties without affecting their current revenues, including:

 

 

Adverse changes in governmental regulations, such as local zoning and land use laws, environmental regulations or local tax structures that could inhibit our ability to proceed with development, expansion, or renovation activities that otherwise would be beneficial to our Properties.

 

Potential environmental or other legal liabilities that reduce the amount of funds available to us for investment in our Properties.

 

Any inability to obtain sufficient financing (including both construction financing and permanent debt), or the inability to obtain such financing on commercially favorable terms, to fund new developments, acquisitions, and property expansions and renovations which otherwise would benefit our Properties.

 

An environment of rising interest rates, which could negatively impact both the value of commercial real estate such as retail shopping centers and the overall retail climate.

 

The loss of one or more significant tenants, due to bankruptcies or as a result of ongoing consolidations in the retail industry, could adversely affect both the operating revenues and value of our Properties.

 

Regional malls are typically anchored by well-known department stores and other significant tenants who generate shopping traffic at the mall. A decision by an anchor tenant or other significant tenant to cease operations at one or more Properties could have a material adverse effect on those Properties and, by extension, on our financial condition and results of operations. The closing of an anchor or other significant tenant may allow other anchors and/or tenants at an affected Property to terminate their leases, to seek rent relief and/or cease operating their stores or otherwise adversely affect occupancy at the Property. In addition, key tenants at one or more Properties might terminate their leases as a result of mergers, acquisitions, consolidations, dispositions or bankruptcies in the retail industry. The bankruptcy and/or closure of one or more significant tenants, if we are not able to successfully re-tenant the affected space, could have a material adverse effect on both the operating revenues and underlying value of the Properties involved.

 

We may incur significant costs related to compliance with environmental laws, which could have a material adverse effect on our results of operations, cash flow and the funds available to us to pay dividends.

 

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in that real property. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic

 

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substances. The costs of investigation, removal or remediation of hazardous or toxic substances may be substantial. In addition, the presence of hazardous or toxic substances, or the failure to remedy environmental hazards properly, may adversely affect the owner’s or operator’s ability to sell or rent affected real property or to borrow money using affected real property as collateral.

 

Persons or entities that arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of hazardous or toxic substances at the disposal or treatment facility, whether or not that facility is owned or operated by the person or entity arranging for the disposal or treatment of hazardous or toxic substances. Laws exist that impose liability for release of asbestos-containing materials into the air, and third parties may seek recovery from owners or operators of real property for personal injury associated with exposure to asbestos-containing materials. In connection with our ownership, operation, management, development and redevelopment of our Properties, or any other Properties we acquire in the future, we may be potentially liable under these laws and may incur costs in responding to these liabilities, which could have an adverse effect on our results of operations, cash flow and the funds available to us to pay dividends.

 

RISKS RELATED TO OUR BUSINESS AND THE MARKET FOR OUR STOCK

 

We may elect not to proceed with certain development projects once they have been undertaken, resulting in charges that could have a material adverse effect on our results of operations for the period in which the charge is taken.

 

We intend to pursue development and expansion activities as opportunities arise. In connection with any development or expansion, we will incur various risks including the risk that development or expansion opportunities explored by us may be abandoned and the risk that construction costs of a project may exceed original estimates, possibly making the project not profitable. Other risks include the risk that we may not be able to refinance construction loans which are generally with full recourse to us, the risk that occupancy rates and rents at a completed project will not meet projections and will be insufficient to make the project profitable, and the risk that we will not be able to obtain anchor, mortgage lender and property partner approvals for certain expansion activities. In the event of an unsuccessful development project, our loss could exceed our investment in the project.

 

We have in the past elected not to proceed with certain development projects and anticipate that we will do so again from time to time in the future. If we elect not to proceed with a development opportunity, the development costs ordinarily will be charged against income for the then-current period. Any such charge could have a material adverse effect on our results of operations for the period in which the charge is taken.

 

Competition from other retail formats could adversely affect the revenues generated by our Properties, resulting in a reduction in funds available for distribution to our stockholders.

 

There are numerous shopping facilities that compete with our Properties in attracting retailers to lease space. In addition, retailers at our Properties face competition for customers from:

 

 

Discount shopping centers

 

Outlet malls

 

Wholesale clubs

 

Direct mail

 

Telemarketing

 

Television shopping networks

 

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Shopping via the Internet

 

Each of these competitive factors could adversely affect the amount of rents that we are able to collect from our tenants, thereby reducing our revenues and the funds available for distribution to our stockholders.

 

Since our Properties are located principally in the Southeastern and Midwestern United States, our financial position, results of operations and funds available for distribution to shareholders are subject generally to economic conditions in these regions.

 

Our Properties are located principally in the southeastern and midwestern United States. Our Properties located in the southeastern United States accounted for approximately 50.9% of our total revenues from all Properties for the year ended December 31, 2006 and currently include 42 malls, 19 associated centers, one community center and one office building. Our Properties located in the midwestern United States accounted for approximately 29.9% of our total revenues from all Properties for the year ended December 31, 2006 and currently include 22 malls, three associated centers and one community center. Our results of operations and funds available for distribution to shareholders therefore will be subject generally to economic conditions in the southeastern and midwestern United States. We will continue to look for opportunities to geographically diversify our portfolio in order to minimize dependency on any particular region; however, the expansion of the portfolio through both acquisitions and developments is contingent on many factors including consumer demand, competition and economic conditions.

 

Certain of our Properties are subject to ownership interests held by third parties, whose interests may conflict with ours and thereby constrain us from taking actions concerning these properties which otherwise would be in the best interests of the Company and our stockholders.

 

We own partial interests in eleven malls, eight associated centers, two community centers and one office building. We manage all of these Properties except for Governor’s Square, Governor’s Plaza and Kentucky Oaks. A property manager affiliated with the managing general partner performs the property management and leasing services for these Properties and receives a fee for its services. The managing partner of each of these three Properties controls the cash flow distributions, although our approval is required for certain major decisions.

 

Where we serve as managing general partner of the partnerships that own our Properties, we may have certain fiduciary responsibilities to the other partners in those partnerships. In certain cases, the approval or consent of the other partners is required before we may sell, finance, expand or make other significant changes in the operations of such Properties. To the extent such approvals or consents are required, we may experience difficulty in, or may be prevented from, implementing our plans with respect to expansion, development, financing or other similar transactions with respect to such Properties.

 

With respect to Governor’s Square, Governor’s Plaza and Kentucky Oaks we do not have day-to-day operational control or control over certain major decisions, including leasing and the timing and amount of distributions, which could result in decisions by the managing general partner that do not fully reflect our interests. This includes decisions relating to the requirements that we must satisfy in order to maintain our status as a REIT for tax purposes. However, decisions relating to sales, expansion and disposition of all or substantially all of the assets and financings are subject to approval by the Operating Partnership.

 

Certain agreements with prior owners of Properties that we have acquired may inhibit our ability to enter into future sale or refinancing transactions affecting such Properties, which otherwise would be in the best interests of the Company and our stockholders.

 

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Certain Properties that we originally acquired from third parties had unrealized gain attributable to the difference between the fair market value of such Properties and the third parties’ adjusted tax basis in the Properties immediately prior to their contribution of such Properties to the Operating Partnership pursuant to our acquisition. For this reason, a taxable sale by us of any of such Properties, or a significant reduction in the debt encumbering such Properties, could result in adverse tax consequences to the third parties who contributed these Properties in exchange for interests in the Operating Partnership. Under the terms of these transactions, we have generally agreed that we either will not sell or refinance such an acquired Property for a number of years in any transaction that would trigger adverse tax consequences for the parties from whom we acquired such Property, or else we will reimburse such parties for all or a portion of the additional taxes they are required to pay as a result of the transaction. Accordingly, these agreements may cause us not to engage in future sale or refinancing transactions affecting such Properties which otherwise would be in the best interests of the Company and our stockholders, or may increase the costs to us of engaging in such transactions.

 

Our financial position, results of operations and funds available for distribution to shareholders could be adversely affected by any economic downturn affecting the operating results at our Properties in the Nashville, TN, Pittsburgh, PA, Kansas City, KS, Madison, WI and Chattanooga, TN metropolitan areas, which are our five largest markets.

 

Our Properties located in the Nashville, TN, Pittsburgh, PA, and Kansas City (Overland Park), KS, Madison, WI and Chattanooga, TN metropolitan areas accounted for 5.7%, 4.9%, 4.2%, 3.2% and 3.0% of our revenues for the year ended December 31, 2006, respectively. No other market accounted for more than 3.0% of our revenues for the year ended December 31, 2006. Our financial position and results of operations will therefore be affected by the results experienced at Properties located in these metropolitan areas.

 

Rising interest rates could both increase our borrowing costs, thereby adversely affecting our cash flow and the amounts available for distributions to our stockholders, and decrease our stock price, if investors seek higher yields through other investments.

 

An environment of rising interest rates could lead holders of our securities to seek higher yields through other investments, which could adversely affect the market price of our stock. One of the factors that may influence the price of our stock in public markets is the annual distribution rate we pay as compared with the yields on alternative investments. Numerous other factors, such as governmental regulatory action and tax laws, could have a significant impact on the future market price of our stock. In addition, increases in market interest rates could result in increased borrowing costs for us, which may adversely affect our cash flow and the amounts available for distributions to our stockholders.

 

Recent changes in the U.S. federal income tax treatment of corporate dividends may make our stock less attractive to investors, thereby lowering our stock price.

 

The maximum U.S. federal income tax rate for dividends received by individual taxpayers has been reduced generally from 38.6% to 15.0% (currently effective from January 1, 2003 through 2010). However, dividends payable by REITs are generally not eligible for such treatment. Although this legislation did not have a directly adverse effect on the taxation of REITs or dividends paid by REITs, the more favorable treatment for non-REIT dividends could cause individual investors to consider investments in non-REIT corporations as more attractive relative to an investment in a REIT, which could have an adverse impact on the market price of our stock.

 

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Certain of our credit facilities, the loss of which could have a material, adverse impact on our financial condition and results of operations, are conditioned upon the Operating Partnership continuing to be managed by certain members of its current senior management and by such members of senior management continuing to own a significant direct or indirect equity interest in the Operating Partnership.

 

Certain of the Operating Partnership’s lines of credit are conditioned upon the Operating Partnership continuing to be managed by certain members of its current senior management and by such members of senior management continuing to own a significant direct or indirect equity interest in the Operating Partnership (including any shares of our common stock owned by such members of senior management). If the failure of one or more of these conditions resulted in the loss of these credit facilities and we were unable to obtain suitable replacement financing, such loss could have a material, adverse impact on our financial position and results of operations.

 

Our insurance coverage may change in the future, and may not include coverage for acts of terrorism.

 

The general liability and property casualty insurance policies on our Properties currently include coverage for loss resulting from acts of terrorism, whether foreign or domestic. The cost of general liability and property casualty insurance policies that include coverage for acts of terrorism has risen significantly post-September 11, 2001. The cost of coverage for acts of terrorism is currently mitigated by the Terrorism Risk Insurance Act (“TRIA”). If TRIA is not extended beyond its current expiration date of December 31, 2007, we may incur higher insurance costs and greater difficulty in obtaining insurance that covers terrorist-related damages. Our tenants may also experience similar difficulties.

 

RISKS RELATED TO FEDERAL INCOME TAX LAWS

 

If we fail to qualify as a REIT in any taxable year, our funds available for distribution to stockholders will be reduced.

 

We intend to continue to operate so as to qualify as a REIT under the Internal Revenue Code. Although we believe that we are organized and operate in such a manner, no assurance can be given that we currently qualify and in the future will continue to qualify as a REIT. Such qualification involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify. In addition, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to qualification or its corresponding federal income tax consequences. Any such change could have a retroactive effect.

 

If in any taxable year we were to fail to qualify as a REIT, we would not be allowed a deduction for distributions to stockholders in computing our taxable income and we would be subject to federal income tax on our taxable income at regular corporate rates. Unless entitled to relief under certain statutory provisions, we also would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. As a result, the funds available for distribution to our stockholders would be reduced for each of the years involved. This would likely have a significant adverse effect on the value of our securities and our ability to raise additional capital. In addition, we would no longer be required to make distributions to our stockholders. We currently intend to operate in a manner designed to qualify as a REIT. However, it is possible that future economic, market, legal, tax or other considerations may cause our board of directors, with the consent of a majority of our stockholders, to revoke the REIT election.

 

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Any issuance or transfer of our capital stock to any person in excess of the applicable limits on ownership necessary to maintain our status as a REIT would be deemed void ab initio, and those shares would automatically be transferred to a non-affiliated charitable trust.

 

To maintain our status as a REIT under the Internal Revenue Code, not more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year. Our certificate of incorporation generally prohibits ownership of more than 6% of the outstanding shares of our capital stock by any single stockholder determined by vote, value or number of shares (other than Charles Lebovitz, our Chief Executive Officer, David Jacobs, Richard Jacobs and their affiliates under the Internal Revenue Code’s attribution rules). The affirmative vote of 66 2/3% of our outstanding voting stock is required to amend this provision.

 

Our board of directors may, subject to certain conditions, waive the applicable ownership limit upon receipt of a ruling from the IRS or an opinion of counsel to the effect that such ownership will not jeopardize our status as a REIT. Absent any such waiver, however, any issuance or transfer of our capital stock to any person in excess of the applicable ownership limit or any issuance or transfer of shares of such stock which would cause us to be beneficially owned by fewer than 100 persons, will be null and void and the intended transferee will acquire no rights to the stock. Instead, such issuance or transfer with respect to that number of shares that would be owned by the transferee in excess of the ownership limit provision would be deemed void ab initio and those shares would automatically be transferred to a trust for the exclusive benefit of a charitable beneficiary to be designated by us, with a trustee designated by us, but who would not be affiliated with us or with the prohibited owner. Any acquisition of our capital stock and continued holding or ownership of our capital stock constitutes, under our certificate of incorporation, a continuous representation of compliance with the applicable ownership limit.

 

In order to maintain our status as a REIT and avoid the imposition of certain additional taxes under the Internal Revenue Code, we must satisfy minimum requirements for distributions to shareholders, which may limit the amount of cash we might otherwise have been able to retain for use in growing our business.

 

To maintain our status as a REIT under the Internal Revenue Code, we generally will be required each year to distribute to our stockholders at least 90% of our taxable income after certain adjustments. However, to the extent that we do not distribute all of our net capital gain or distribute at least 90% but less than 100% of our REIT taxable income, as adjusted, we will be subject to tax on the undistributed amount at ordinary and capital gains corporate tax rates, as the case may be. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by us during each calendar year are less than the sum of 85% of our ordinary income for such calendar year, 95% of our capital gain net income for the calendar year and any amount of such income that was not distributed in prior years. In the case of property acquisitions, including our initial formation, where individual Properties are contributed to our Operating Partnership for Operating Partnership units, we have assumed the tax basis and depreciation schedules of the entities’ contributing Properties. The relatively low tax basis of such contributed Properties may have the effect of increasing the cash amounts we are required to distribute as dividends, thereby potentially limiting the amount of cash we might otherwise have been able to retain for use in growing our business. This low tax basis may also have the effect of reducing or eliminating the portion of distributions made by us that are treated as a non-taxable return of capital.

 

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RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE

 

The ownership limit described above, as well as certain provisions in our amended and restated certificate of incorporation and bylaws, our stockholder rights plan, and certain provisions of Delaware law may hinder any attempt to acquire us.

 

There are certain provisions of Delaware law, our amended and restated certificate of incorporation, our bylaws, and other agreements to which we are a party that may have the effect of delaying, deferring or preventing a third party from making an acquisition proposal for us. These provisions may also inhibit a change in control that some, or a majority, of our stockholders might believe to be in their best interest or that could give our stockholders the opportunity to realize a premium over the then-prevailing market prices for their shares. These provisions and agreements are summarized as follows:

 

 

The Ownership Limit – As described above, to maintain our status as a REIT under the Internal Revenue Code, not more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year. Our certificate of incorporation generally prohibits ownership of more than 6% of the outstanding shares of our capital stock by any single stockholder determined by value (other than Charles Lebovitz, David Jacobs, Richard Jacobs and their affiliates under the Internal Revenue Code’s attribution rules). In addition to preserving our status as a REIT, the ownership limit may have the effect of precluding an acquisition of control of us without the approval of our board of directors.

 

 

Classified Board of Directors; Removal for Cause – Our certificate of incorporation provides for a board of directors divided into three classes, with one class elected each year to serve for a three-year term. As a result, at least two annual meetings of stockholders may be required for the stockholders to change a majority of our board of directors. In addition, our stockholders can only remove directors for cause and only by a vote of 75% of the outstanding voting stock. Collectively, these provisions make it more difficult to change the composition of our board of directors and may have the effect of encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts.

 

 

Advance Notice Requirements for Stockholder Proposals – Our bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures generally require advance written notice of any such proposals, containing prescribed information, to be given to our Secretary at our principal executive offices not less than 60 days nor more than 90 days prior to the meeting.

 

 

Vote Required to Amend Bylaws – A vote of 66  2/3% of the outstanding voting stock is necessary to amend our bylaws.

 

 

Stockholder Rights Plan – We have a stockholder rights plan, which may delay, deter or prevent a change in control unless the acquirer negotiates with our board of directors and the board of directors approves the transaction. The rights plan generally would be triggered if an entity, group or person acquires (or announces a plan to acquire) 15% or more of our common stock. If such transaction is not approved by our board of directors, the effect of the stockholder rights plan would be to allow our stockholders to purchase shares of our common stock, or the common stock or other merger consideration paid by the acquiring entity, at an effective 50% discount.

 

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Delaware Anti-Takeover Statute – We are a Delaware corporation and are subject to Section 203 of the Delaware General Corporation Law. In general, Section 203 prevents an “interested stockholder” (defined generally as a person owning 15% or more of a company’s outstanding voting stock) from engaging in a “business combination” (as defined in Section 203) with us for three years following the date that person becomes an interested stockholder unless:

 

(a)              before that person became an interested holder, our board of directors approved the transaction in which the interested holder became an interested stockholder or approved the business combination;

 

(b)              upon completion of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owns 85% of our voting stock outstanding at the time the transaction commenced (excluding stock held by directors who are also officers and by employee stock plans that do not provide employees with the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or

 

(c)              following the transaction in which that person became an interested stockholder, the business combination is approved by our board of directors and authorized at a meeting of stockholders by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock not owned by the interested stockholder.

 

Under Section 203, these restrictions also do not apply to certain business combinations proposed by an interested stockholder following the announcement or notification of certain extraordinary transactions involving us and a person who was not an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of our directors, if that extraordinary transaction is approved or not opposed by a majority of the directors who were directors before any person became an interested stockholder in the previous three years or who were recommended for election or elected to succeed such directors by a majority of directors then in office.

 

Certain ownership interests held by members of our senior management may tend to create conflicts of interest between such individuals and the interests of the Company and our Operating Partnership.

 

 

Retained Property Interests – Members of our senior management own interests in certain real estate Properties that were retained by them at the time of our initial public offering. These consist primarily of outparcels at certain of our properties, which are being offered for sale through our management company. As a result, these members of our senior management have interests that could conflict with the interests of the Company, our shareholders and the Operating Partnership with respect to any transaction involving these Properties.

 

 

Tax Consequences of the Sale or Refinancing of Certain Properties – Since certain of our Properties had unrealized gain attributable to the difference between the fair market value and adjusted tax basis in such Properties immediately prior to their contribution to the Operating Partnership, a taxable sale of any such Properties, or a significant reduction in the debt encumbering such Properties, could cause adverse tax consequences to the members of our senior management who owned interests in our predecessor entities. As a result, members of our senior management might not favor a sale of a property or a significant reduction in debt even though such a sale or reduction could be beneficial to us and the Operating Partnership. Our bylaws provide that any decision relating to the potential sale of any property that would result in a disproportionately higher taxable income for members of our senior management than for us and our stockholders, or that would result in a significant reduction in such property’s debt,

 

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must be made by a majority of the independent directors of the board of directors. The Operating Partnership is required, in the case of such a sale, to distribute to its partners, at a minimum, all of the net cash proceeds from such sale up to an amount reasonably believed necessary to enable members of our senior management to pay any income tax liability arising from such sale.

 

 

Interests in Other Entities; Policies of the Board of Directors – Certain entities owned in whole or in part by members of our senior management, including the construction company that built or renovated most of our Properties, may continue to perform services for, or transact business with, us and the Operating Partnership. Furthermore, certain property tenants are affiliated with members of our senior management. Accordingly, although our bylaws provide that any contract or transaction between us or the Operating Partnership and one or more of our directors or officers, or between us or the Operating Partnership and any other entity in which one or more of our directors or officers are directors or officers or have a financial interest, must be approved by our disinterested directors or stockholders after the material facts of the relationship or interest of the contract or transaction are disclosed or are known to them, these affiliations could nevertheless create conflicts between the interests of these members of senior management and the interests of the Company, our shareholders and the Operating Partnership in relation to any transactions between us and any of these entities.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None

 

ITEM 2. PROPERTIES

 

Refer to Item 7: Management’s Discussion and Analysis for additional information pertaining to the Properties’ performance.

 

Malls

 

We own a controlling interest in 72 Malls (including large open-air centers) and non-controlling interests in seven Malls. We also own a controlling interest in one Mall and six Mall expansions that are currently under construction. The Malls are primarily located in middle markets and generally have strong competitive positions because they are the only, or dominant, regional mall in their respective trade areas.

 

The Malls are generally anchored by two or more department stores and a wide variety of mall stores. Anchor tenants own or lease their stores and non-anchor stores (20,000 square feet or less) lease their locations. Additional freestanding stores and restaurants that either own or lease their stores are typically located along the perimeter of the Malls’ parking areas.

 

We classify our regional malls into two categories – malls that have completed their initial lease-up are referred to as stabilized malls and malls that are in their initial lease-up phase and have not been open for three calendar years are referred to as non-stabilized malls. The non-stabilized malls currently include Coastal Grand-Myrtle Beach in Myrtle Beach, SC, which opened in March 2004; Imperial Valley Mall in El Centro, CA, which opened in March 2005; Southaven Towne Center in Southaven, MS, which opened in October 2005; and Gulf Coast Town Center (Phase I) in Ft. Myers, FL, which opened in November 2005.

 

18

 

 

We own the land underlying each Mall in fee simple interest, except for Walnut Square, Westgate Mall, St. Clair Square, Bonita Lakes Mall, Meridian Mall, Stroud Mall, Wausau Center, Chapel Hill Mall, Eastgate Mall, Eastland Mall and Mall of Acadiana. We lease all or a portion of the land at each of these Malls subject to long-term ground leases.

 

The following table sets forth certain information for each of the Malls as of December 31, 2006.

 

Mall / Location

 

Year of
Opening/
Acquisition

 

Year of

Most

Recent
Expansion

 

Our

Ownership

 

Total
GLA(1)

 

Total Mall

Store

GLA(2)

 

Mall

Store Sales

per Square

Foot(3)

 

Percentage

Mall Store

GLA

Leased(4)

 

 

 

Anchors & Jr. Anchors

 

Non-Stabilized Malls:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coastal Grand-Myrtle Beach
Myrtle Beach, SC

 

2004

 

N/A

 

50

%

1,114,447

 

379,504

 

$

368

 

92

%

 

 

Bed Bath & Beyond, Belk, Books A Million, Dick’s Sporting Goods, Dillard’s, Sears

 

Gulf Coast Town Center
Ft. Meyers, FL

 

2005

 

N/A

 

50

%

811,721

 

112,638

 

 

111

 

69

%

 

 

Babies R Us, Bass Pro Outdoor World, Belk, Best Buy, JC Penney, Jo—Ann Fabrics, Linens N Things, Staples, Target

 

Imperial Valley Mall
El Centro, CA(13)

 

2005

 

N/A

 

60

%

762,031

 

269,674

 

 

327

 

91

%

 

 

Dillard’s, JC Penney, Macy’s, Sears

 

Southaven Towne Center
Southaven, MS

 

2005

 

N/A

 

100

%

766,071

 

112,133

 

 

285

 

100

%

 

 

Circuit City, Cost Plus, Dillard’s, Gordman’s, Linens N Things, JC Penney

 

 

 

Total Non—Stabilized Malls

 

 

 

3,454,270

 

873,949

 

$

339

 

92

%

 

 

 

 

Stabilized Malls:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arbor Place
Atlanta (Douglasville), GA

 

1999

 

N/A

 

100

%

1,176,472

 

378,386

 

$

395

 

99

%

 

 

Bed Bath & Beyond, Borders, Dillard’s, JC Penney, Macy’s, Old Navy, Parisian, Sears

 

Asheville Mall
Asheville, NC

 

1972/2000

 

2000

 

100

%

966,948

 

306,493

 

 

337

 

97

%

 

 

Belk, Dillard’s, Dillard’s West, JC Penney, Old Navy, Sears

 

Bonita Lakes Mall(5)
Meridian, MS

 

1997

 

N/A

 

100

%

634,041

 

185,900

 

 

280

 

98

%

 

 

Belk, Dillard’s, Goody’s, JC Penney, Sears

 

Brookfield Square
Brookfield, WI

 

1967/2001

 

1997

 

100

%

1,132,984

 

345,007

 

 

430

 

98

%

 

 

Barnes & Noble, Boston Store, JC Penney, Old Navy, Sears

 

Burnsville Center
Burnsville, MN

 

1977/1998

 

N/A

 

100

%

1,082,689

 

427,889

 

 

368

 

98

%

 

 

Dick’s Sporting Goods, JC Penney, Macy’s, Old Navy, Sears, Steve & Barry’s

 

Cary Towne Center
Cary, NC

 

1979/2001

 

1993

 

100

%

1,007,642

 

299,463

 

 

305

 

96

%

 

 

Belk, Dillard’s, JC Penney, Macy’s, Sears

 

Chapel Hill Mall(7)
Akron, OH

 

1966/2004

 

1995

 

100

%

860,306

 

300,982

 

 

297

 

89

%

 

 

JC Penney, Macy’s, Old Navy, Sears, Steve & Barry’s

 

Cherryvale Mall
Rockford, IL

 

1973/2001

 

2004

 

100

%

795,509

 

311,949

 

 

349

 

99

%

 

 

Bergner’s, JC Penney, Macy’s, Sears

 

Citadel Mall
Charleston, SC

 

1981/2001

 

2000

 

100

%

1,117,353

 

321,583

 

 

259

 

91

%

 

 

Belk, Dillard’s, Old Navy, Parisian, Sears, Target

 

College Square
Morristown, TN

 

1988

 

1999

 

100

%

493,734

 

153,265

 

 

261

 

99

%

 

 

Belk, Goody’s, JC Penney, Kohl’s, Sears

 

Columbia Place
Columbia, SC

 

1977/2001

 

N/A

 

100

%

1,094,908

 

329,296

 

 

251

 

96

%

 

 

Dillard’s, JC Penney(21), Macy’s, Old Navy, Sears

 

CoolSprings Galleria
Nashville, TN

 

1991

 

1994

 

100

%

1,117,624

 

362,988

 

 

438

 

99

%

 

 

Dillard’s, JC Penney, Macy’s, Parisian, Sears

 

Cross Creek Mall
Fayetteville, NC

 

1975/2003

 

2000

 

100

%

1,049,708

 

257,176

 

 

509

 

95

%

 

 

Belk, JC Penney, Macy’s, Sears

 

East Towne Mall
Madison, WI

 

1971/2001

 

2004

 

100

%

833,558

 

336,080

 

 

333

 

98

%

 

 

Barnes & Noble, Boston Store, Dick’s Sporting Goods, Gordman’s, JC Penney, Sears, Steve & Barry’s

 

Eastgate Mall(8)
Cincinnati, OH

 

1980/2003

 

1995

 

100

%

1,113,042

 

276,323

 

 

311

 

87

%

 

 

Dillard’s, JC Penney, Kohl’s, Sears, Steve & Barry’s

 

Eastland Mall
Bloomington, IL

 

1967/2005

 

N/A

 

100

%

764,753

 

225,098

 

 

314

 

97

%

 

 

Bergner’s, JC Penney, Kohl’s, Macy’s, Old Navy, Sears

 

Fashion Square
Saginaw, MI

 

1972/2001

 

1993

 

100

%

796,556

 

317,359

 

 

289

 

97

%

 

 

JC Penney, Macy’s, Sears, Steve & Barry’s

 

Fayette Mall
Lexington, KY

 

1971/2001

 

1993

 

100

%

1,214,288

 

365,890

 

 

492

 

100

%

 

 

Dick’s, Dillard’s, JC Penney, Macy’s, Sears

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

Mall / Location

 

Year of
Opening/
Acquisition

 

Year of

Most

Recent
Expansion

 

Our

Ownership

 

Total
GLA(1)

 

Total Mall

Store

GLA(2)

 

Mall

Store Sales

per Square

Foot(3)

 

Percentage

Mall Store

GLA

Leased(4

)

 

 

Anchors & Jr. Anchors

 

Foothills Mall
Maryville, TN

 

1983/1996

 

2004

 

95

%

482,473

 

155,777

 

 

260

 

94

%

 

 

Goody’s, JC Penney, Belk for Women, Belk for Men Kids & Home, Sears, TJ Maxx

 

Frontier Mall
Cheyenne, WY

 

1981

 

1997

 

100

%

529,043

 

215,292

 

 

260

 

94

%

 

 

Dillard’s I, Dillard’s II, Sports Authority, JC Penney, Sears

 

Georgia Square
Athens, GA

 

1981

 

N/A

 

100

%

674,738

 

253,184

 

 

278

 

100

%

 

 

Belk, JC Penney, Macy’s, Sears

 

Governor’s Square
Clarksville, TN

 

1986

 

1999

 

48

%

742,517

 

310,892

 

 

325

 

90

%

 

 

Belk, Dillard’s, Goody’s, JC Penney, Sears

 

Greenbrier Mall
Chesapeake, VA

 

1981/2004

 

2004

 

100

%

888,453

 

304,468

 

 

363

 

96

%

 

 

Dillard’s, JC Penney, Macy’s, Sears

 

Hamilton Place
Chattanooga, TN

 

1987

 

1998

 

90

%

1,157,528

 

373,880

 

 

384

 

99

%

 

 

Dillard’s, JC Penney, Parisian, Belk for Men Kids & Home, Belk for Women, Sears

 

Hanes Mall
Winston-Salem, NC

 

1975/2001

 

1990

 

100

%

1,604,839

 

543,651

 

 

353

 

96

%

 

 

Belk, Dillard’s, JC Penney, Macy’s, Old Navy, Sears

 

Harford Mall
Bel Air, MD

 

1973/2003

 

1999

 

100

%

476,262

 

174,326

 

 

373

 

99

%

 

 

Macy’s, Old Navy, Sears

 

Hickory Hollow Mall
Nashville, TN

 

1978/1998

 

1991

 

100

%

1,107,042

 

428,105

 

 

239

 

92

%

 

 

Dillard’s, Linens N Things, Macy’s, Sears, Steve & Barry’s

 

Hickory Point Mall
Decatur, IL

 

1977/2005

 

N/A

 

100

%

822,755

 

241,938

 

 

204

 

76

%

 

 

Bergner’s, JC Penney, Kohl’s, Old Navy, Sears, Von Maur

 

Honey Creek Mall
Terre Haute, IN

 

1968/2004

 

1981

 

100

%

678,763

 

212,640

 

 

325

 

97

%

 

 

Elder—Beerman, JC Penney, Macy’s, Sears

 

Janesville Mall
Janesville, WI

 

1973/1998

 

1998

 

100

%

616,786

 

163,456

 

 

331

 

98

%

 

 

Boston Store, JC Penney, Kohl’s, Sears

 

Jefferson Mall
Louisville, KY

 

1978/2001

 

1999

 

100

%

987,528

 

272,315

 

 

326

 

96

%

 

 

Dillard’s, JC Penney, Macy’s, Sears

 

Kentucky Oaks Mall
Paducah, KY

 

1982/2001

 

1995

 

50

%

1,125,723

 

354,671

 

 

272

 

94

%

 

 

Best Buy, Dillard’s, Elder—Beerman, JC Penney, K’s Merchandise Mart, Sears

 

The Lakes
Muskegon, MI

 

2001

 

N/A

 

90

%

593,256

 

262,002

 

 

265

 

90

%

 

 

Bed Bath & Beyond, Dick’s Sporting Goods, JC Penney, Sears, Younkers

 

Lakeshore Mall
Sebring, FL

 

1992

 

1999

 

100

%

500,740

 

147,911

 

 

297

 

86

%

 

 

Beall’s(9), Belk, JC Penney, Kmart, Sears

 

Laurel Park Place
Livonia, MI

 

1989/2005

 

1994

 

70

%

501,774

 

202,964

 

 

404

 

92

%

 

 

Parisian, Von Maur

 

Layton Hills Mall
Layton, UT

 

1980/2005

 

1998

 

100

%

628,164

 

191,882

 

 

388

 

100

%

 

 

JCPenney, Macy’s, Mervyn’s, Sports Authority

 

Madison Square
Huntsville, AL

 

1984

 

1985

 

100

%

931,232

 

298,397

 

 

284

 

92

%

 

 

Belk, Dillard’s, JC Penney, Parisian, Sears, Steve & Barry’s

 

Mall del Norte
Laredo, TX

 

1977/2004

 

1993

 

100

%

1,207,687

 

377,891

 

 

460

 

95

%

 

 

Beall Bros.(9), Circuit City, Dillard’s, JC Penney, Joe Brand, Macy’s, Macy’s Home Store, Mervyn’s, Sears, Ward’s(10)

 

Mall of Acadiana
Lafayette, LA

 

1979/2005

 

2004

 

100

%

1,001,176

 

306,769

 

 

440

 

98

%

 

 

Dillard’s, JCPenney, Macy’s, Sears

 

Meridian Mall(11)
Lansing, MI

 

1969/1998

 

2001

 

100

%

979,618

 

420,110

 

 

276

 

95

%

 

 

Bed Bath & Beyond, Dick’s Sporting Goods, JC Penney, Macy’s, Mervyn’s(6), Old Navy, Schuler Books, Steve & Barry’s, Younkers

 

Midland Mall
Midland, MI

 

1991/2001

 

N/A

 

100

%

514,156

 

196,882

 

 

287

 

93

%

 

 

Barnes & Noble, Elder—Beerman, JC Penney, Sears, Steve & Barry’s, Target

 

Monroeville Mall
Pittsburgh, PA

 

1969/2004

 

2003

 

100

%

1,143,718

 

420,172

 

 

321

 

98

%

 

 

Boscov’s, JC Penney, Macy’s

 

Northpark Mall
Joplin, MO

 

1972/2004

 

1996

 

100

%

971,793

 

370,198

 

 

301

 

85

%

 

 

JC Penney, Macy’s, Macy’s Home Store, Old Navy, Sears, Shopko(12), Ward’s(12)

 

Northwoods Mall
Charleston, SC

 

1972/2001

 

1995

 

100

%

1,022,037

 

291,360

 

 

338

 

99

%

 

 

Belk, Books A Million, Dillard’s, JC Penney, Sears

 

Oak Hollow Mall
High Point, NC

 

1995

 

N/A

 

75

%

1,261,537

 

251,185

 

 

195

 

87

%

 

 

Belk, Dillard’s, JC Penney, Sears, Steve & Barry’s

 

Oak Park Mall
Overland Park, KS

 

1974/2005

 

1998

 

100

%

1,551,709

 

526,996

 

 

470

 

99

%

 

 

Dillard’s North, Dillard’s South, JC Penney, Macy’s, Nordstrom

 

Old Hickory Mall
Jackson, TN

 

1967/2001

 

1994

 

100

%

547,197

 

167,102

 

 

331

 

91

%

 

 

Belk, JC Penney, Macy’s, Sears

 

 

 

20

 

 

 

Mall / Location

 

Year of
Opening/
Acquisition

 

Year of

Most

Recent
Expansion

 

Our

Ownership

 

Total
GLA(1)

 

Total Mall

Store

GLA(2)

 

Mall

Store Sales

per Square

Foot(3)

 

Percentage

Mall Store

GLA

Leased(4)

 

 

 

Anchors & Jr. Anchors

 

Panama City Mall
Panama City, FL

 

1976/2002

 

1984

 

100

%

603,868

 

221,561

 

 

309

 

99

%

 

 

Dillard’s, JC Penney, Linens N Things, Sears

 

Park Plaza
Little Rock, AR

 

1988/2004

 

N/A

 

100

%

566,664

 

287,840

 

 

487

 

91

%

 

 

Dillard’s I, Dillard’s II

 

Parkdale Mall
Beaumont, TX

 

1972/2001

 

1986

 

100

%

1,406,233

 

396,782

 

 

326

 

90

%

 

 

Beall Bros.(9), Books A Million, Dillard’s I, Dillard’s II(13), JC Penney, Linens N Things, Macy’s, Old Navy, Sears, Steve & Barry’s

 

Parkway Place Mall
Huntsville, AL

 

1957/1998

 

2002

 

45

%

627,165

 

272,354

 

 

301

 

91

%

 

 

Dillard’s, Parisian

 

Pemberton Square
Vicksburg, MS

 

1985

 

1999

 

100

%

351,920

 

133,685

 

 

154

 

51

%

 

 

Belk, Dillard’s, Hudson’s/LA, JC Penney

 

Plaza del Sol
Del Rio, TX

 

1979

 

1996

 

51

%

266,446

 

98,887

 

 

181

 

96

%

 

 

Beall Bros.(9), Bel Furniture/LA, JC Penney, Ross

 

Post Oak Mall
College Station, TX

 

1982

 

1985

 

100

%

777,718

 

290,192

 

 

315

 

94

%

 

 

Beall Bros.(9), Dillard’s, Dillard’s South, JC Penney, Macy’s, Sears, Steve & Barry’s

 

Randolph Mall
Asheboro, NC

 

1982/2001

 

1989

 

100

%

379,060

 

143,867

 

 

209

 

97

%

 

 

Belk, Books A Million, Dillard’s, JC Penney, Sears

 

Regency Mall
Racine, WI

 

1981/2001

 

1999

 

100

%

919,668

 

297,140

 

 

285

 

92

%

 

 

Boston Store, JC Penney, Linens N Things, Sears, Steve & Barry’s, Target

 

Richland Mall
Waco, TX

 

1980/2002

 

1996

 

100

%

708,063

 

228,585

 

 

290

 

90

%

 

 

Beall Bros.(9), Dillard’s I, Dillard’s II, JC Penney, Sears

 

River Ridge Mall
Lynchburg, VA

 

1980/2003

 

2000

 

100

%

784,746

 

203,176

 

 

331

 

95

%

 

 

Belk, JC Penney, Macy’s, Sears, Value City

 

Rivergate Mall
Nashville, TN

 

1971/1998

 

1998

 

100

%

1,129,191

 

347,362

 

 

327

 

97

%

 

 

Dillard’s, JC Penney, Macy’s, Linens N Things, Sears

 

Southpark Mall
Colonial Heights, VA

 

1989/2003

 

N/A

 

100

%

628,655

 

225,331

 

 

312

 

100

%

 

 

Dillard’s, JC Penney, Macy’s, Sears

 

St. Clair Square(14)
Fairview Heights, IL

 

1974/1996

 

1993

 

100

%

1,051,645

 

290,371

 

 

416

 

100

%

 

 

Dillard’s, JC Penney, Macy’s, Sears

 

Stroud Mall(15)
Stroudsburg, PA

 

1977/1998

 

2005

 

100

%

421,478

 

147,555

 

 

330

 

98

%

 

 

JC Penney, Sears, The Bon—Ton

 

Sunrise Mall
Brownsville, TX

 

1979/2003

 

2000

 

100

%

750,896

 

327,439

 

 

379

 

91

%

 

 

Beall Bros.(9), Dillard’s, JC Penney, Linens N Things, Sears

 

Towne Mall
Franklin, OH

 

1977/2001

 

N/A

 

100

%

454,964

 

153,907

 

 

217

 

73

%

 

 

Dillard’s, Elder—Beerman, Sears

 

Triangle Town Center
Raleigh, NC

 

2002/2005

 

N/A

 

50

%

1,272,881

 

330,829

 

 

359

 

93

%

 

 

Barnes & Noble, Belk, Dillard’s, Macy’s, Sak’s Fifth Avenue, Sears

 

Turtle Creek Mall
Hattiesburg, MS

 

1994

 

1995

 

100

%

846,953

 

223,859

 

 

422

 

93

%

 

 

Belk I, Belk II, Dillard’s, Goody’s, JC Penney, Sears

 

Twin Peaks Mall
Longmont, CO

 

1985

 

1997

 

100

%

556,253

 

242,868

 

 

232

 

93

%

 

 

Dillard’s I, Dillard’s II, JC Penney(20), Sears, Steve & Barry’s

 

Valley View Mall
Roanoke, VA

 

1985/2003

 

1999

 

100

%

1,250,188

 

290,539

 

 

347

 

95

%

 

 

Belk, JC Penney, Macy’s, Old Navy, Sears

 

Volusia Mall
Daytona Beach, FL

 

1974/2004

 

1982

 

100

%

1,060,754

 

242,211

 

 

440

 

97

%

 

 

Dillard’s East, Dillard’s West, Dillard’s South, JC Penney, Macy’s, Sears

 

Walnut Square(16)
Dalton, GA

 

1980

 

1992

 

100

%

449,010

 

169,815

 

 

263

 

98

%

 

 

Belk, Belk Home & Kids, Goody’s, JC Penney, Sears

 

Wausau Center(17)
Wausau, WI

 

1983/2001

 

1999

 

100

%

427,867

 

154,667

 

 

271

 

97

%

 

 

JC Penney, Sears, Younkers

 

West Towne Mall
Madison, WI

 

1970/2001

 

2004

 

100

%

915,478

 

271,573

 

 

443

 

96

%

 

 

Boston Store, Dick’s Sporting Goods, JC Penney, Sears, Steve & Barry’s

 

WestGate Mall(18)
Spartanburg, SC

 

1975/1995

 

1996

 

100

%

1,102,645

 

340,517

 

 

285

 

99

%

 

 

Bed Bath & Beyond, Belk I, Belk II(19), Dick’s Sporting Goods, Dillard’s, JC Penney, Sears

 

Westmoreland Mall
Greensburg, PA

 

1977/2002

 

1994

 

100

%

1,013,286

 

390,576

 

 

327

 

98

%

 

 

JC Penney, Macy’s, Macy’s Home Store, Old Navy, Sears, Steve & Barry’s, The Bon—Ton

 

York Galleria
York, PA

 

1989/1999

 

N/A

 

100

%

770,636

 

233,419

 

 

332

 

100

%

 

 

Boscov’s, JC Penney, Sears, The Bon—Ton

 

 

 

Total Stabilized Malls

 

 

 

63,996,690

 

20,894,450

 

$

341

 

95

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grand total

 

 

 

 

 

67,450,960

 

21,768,399

 

$

341

 

94

%

 

 

 

 

 

 

21

 

 

 

(1)

Includes total square footage of the Anchors (whether owned or leased by the Anchor) and Mall Stores. Does not include future expansion areas.

 

(2)

Excludes Anchors.

 

(3)

Totals represent weighted averages.

 

(4)

Includes tenants paying rent for executed leases as of December 31, 2006.

(5)

Bonita Lakes Mall - We are the lessee under a ground leases for 82 acres, which extends through June 30, 2035, including four five-year renewal options. The annual base rent at December 31, 2006 is $31,967 increasing by an average of 6% per year.

 

(6)

Meridian Mall - Mervyn's is vacant.

 

(7)

Chapel Hill Mall - Ground rent is $10,000 per year.

 

(8)

Eastgate Mall - Ground rent is $24,000 per year.

(9)

Lakeshore Mall, Mall del Norte, Parkdale Mall, Plaza del Sol, Post Oak Mall, Richland Mall, and Sunrise Mall - Beall Bros. operating in Texas is unrelated to Beall's operating in Florida.

(10)

Mall del Norte - Ward's is vacant and is currently being redeveloped. Circuit City opened in part of this space on February 3, 2006. A cinema will open in the remaining space in 2007.

 

(11)

Meridian Mall - We are the lessee under several ground leases in effect through March 2067, with extension options. Fixed rent is $18,700 per

 

year plus 3% to 4% of all rents.

 

(12)

Northpark Mall - Shopko and Ward's are vacant. Ward's is being redeveloped into a TJ Maxx and Steve & Barry's.

 

(13)

Parkdale Mall - Dillard's II is closed due to Hurricane Rita.

 

(14)

St. Clair Square - We are the lessee under a ground lease for 20 acres, which extends through January 31, 2073, including 14 five-year renewal

options and one four-year renewal option. The rental amount is $40,500 per year. In addition to base rent, the landlord receives .25% of Dillard's sales in excess of $16,200,000.

(15)

Stroud Mall - We are the lessee under a ground lease, which extends through July, 2089. The current rental amount is $50,000 per year, increasing by $10,000 every ten years through 2059. An additional $100,000 is paid every 10 years.

 

(16)

Walnut Square - We are the lessee under several ground leases, which extend through March 14, 2078, including six ten-year renewal options and

 

collected. The Company has a right of first refusal to purchase the fee.

 

(17)

Wausau Center - Ground rent is $76,000 per year plus 10% of net taxable cash flow.

(18)

WestGate Mall - We are the lessee under several ground leases for approximately 53% of the underlying land. The leases extend through October 31, 2084, including six ten-year renewal options. The rental amount is $130,000 per year. In addition to base rent, the landlord receives 20% of the

 

percentage rents collected. The Company has a right of first refusal to purchase the fee.

 

(19)

WestGate Mall - Belk II is vacant.

 

(20)

Twin Peaks Mall - The JC Penney store closed 12/8/06. The building will be demolished and redeveloped.

 

(21)

Columbia Place - JC Penney is vacant. The building is being redeveloped. Steve & Barry's and Burlington Coat Factory will open in 2007.

 

 

Anchors

 

Anchors are an important factor in a Mall’s successful performance. The public’s identification with a mall property typically focuses on the anchor tenants. Mall anchors are generally a department store whose merchandise appeals to a broad range of shoppers and plays a significant role in generating customer traffic and creating a desirable location for the mall store tenants.

 

Anchors may own their stores and the land underneath, as well as the adjacent parking areas, or may enter into long-term leases with respect to their stores. Rental rates for anchor tenants are significantly lower than the rents charged to mall store tenants. Anchors account for 9.3% of the total revenues from our Properties. Each anchor that owns its store has entered into an operating and reciprocal easement agreement with us covering items such as operating covenants, reciprocal easements, property operations, initial construction and future expansion.

 

22

 

 

During 2006, we added the following anchors and junior anchor boxes (i.e., non-traditional anchors) to the following Malls:

 

Name

 

Property

 

Location

Boscov’s

 

Monroeville Mall

 

Monroeville, PA

Circuit City

 

Mall del Norte

 

Laredo, TX

Dick’s Sporting Goods

 

Burnsville Center

 

Burnsville, MN

Kohl’s

 

College Square

 

Morristown, TN

Old Navy

 

Asheville Mall

 

Asheville, NC

Steve & Barry’s

 

Hickory Hollow Mall

 

Antioch, TN

Dick’s Sporting Goods

 

Hanes Mall

 

Winston—Salem, NC

Dillards

 

Southaven Town Center

 

Southaven, MS

Books-A-Million

 

Southaven Town Center

 

Southaven, MS

Gordman’s

 

Southaven Town Center

 

Southaven, MS

Belk

 

Gulf Coast Town Center

 

Ft. Myers, FL

Bass Pro

 

Gulf Coast Town Center

 

Ft. Myers, FL

JC Penney

 

Gulf Coast Town Center

 

Ft. Myers, FL

Best Buy

 

Gulf Coast Town Center

 

Ft. Myers, FL

 

 

As of December 31, 2006, the Malls had a total of 407 anchors and junior anchors including six vacant anchor locations. The mall anchors and junior anchors and the amount of GLA leased or owned by each as of December 31, 2006 is as follows:

 

Anchor

 

Number
of Stores

 

 

Leased
GLA

 

 

Owned
GLA

 

 

Total
GLA

 

JCPenney

 

69

 

 

4,184,817

 

 

3,469,650

 

 

7,654,467

 

Sears

 

68

 

 

1,694,281

 

 

7,087,423

 

 

8,781,704

 

Dillard’s

 

55

 

 

481,759

 

 

7,109,878

 

 

7,591,637

 

Sak’s

 

1

 

 

 

 

83,066

 

 

83,066

 

Macy’s

 

41

 

 

1,964,914

 

 

3,948,572

 

 

5,913,486

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Belk

 

 

 

 

 

 

 

 

 

 

 

 

Belk

 

30

 

 

624,928

 

 

2,944,958

 

 

3,569,886

 

Parisian

 

7

 

 

281,431

 

 

647,633

 

 

929,064

 

Subtotal

 

37

 

 

906,359

 

 

3,592,591

 

 

4,498,950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bon-Ton

 

 

 

 

 

 

 

 

 

 

 

 

Bon-Ton

 

3

 

 

87,024

 

 

231,715

 

 

318,739

 

Boston Store

 

5

 

 

96,000

 

 

599,280

 

 

695,280

 

Bergner’s

 

3

 

 

 

 

385,401

 

 

385,401

 

Younkers

 

3

 

 

194,161

 

 

106,131

 

 

300,292

 

Elder-Beerman

 

4

 

 

194,613

 

 

117,888

 

 

312,501

 

Subtotal

 

18

 

 

571,798

 

 

1,440,415

 

 

2,012,213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Babies R Us

 

1

 

 

30,700

 

 

 

 

30,700

 

Barnes & Noble

 

4

 

 

118,360

 

 

 

 

118,360

 

Bass Pro Outdoor World

 

1

 

 

130,000

 

 

 

 

130,000

 

Beall Bros.

 

6

 

 

222,440

 

 

 

 

222,440

 

Beall’s (Fla)

 

1

 

 

45,844

 

 

 

 

45,844

 

Bed, Bath & Beyond

 

5

 

 

154,835

 

 

 

 

154,835

 

Bel Furniture

 

1

 

 

29,998

 

 

 

 

29,998

 

Best Buy

 

2

 

 

64,326

 

 

 

 

64,326

 

 

 

23

 

 

Anchor

 

Number
of Stores

 

 

Leased
GLA

 

 

Owned
GLA

 

 

Total
GLA

 

Books A Million

 

4

 

 

69,765

 

 

 

 

69,765

 

Borders

 

1

 

 

25,814

 

 

 

 

25,814

 

Boscov’s

 

2

 

 

 

 

384,538

 

 

384,538

 

Circuit City

 

2

 

 

55,652

 

 

 

 

55,652

 

Cost Plus

 

1

 

 

18,243

 

 

 

 

18,243

 

Dick’s Sporting Goods

 

8

 

 

469,551

 

 

 

 

469,551

 

Gart Sports

 

1

 

 

24,750

 

 

 

 

24,750

 

Goody’s

 

6

 

 

204,249

 

 

 

 

204,249

 

Gordman’s

 

2

 

 

107,303

 

 

 

 

107,303

 

Hudson’s

 

1

 

 

20,269

 

 

 

 

20,269

 

Jo-Ann Fabrics

 

1

 

 

35,330

 

 

 

 

35,330

 

Joe Brand

 

1

 

 

29,413

 

 

 

 

29,413

 

Kmart

 

1

 

 

86,479

 

 

 

 

86,479

 

Kohl’s

 

5

 

 

357,091

 

 

68,000

 

 

425,091

 

Linens N Things

 

8

 

 

222,034

 

 

 

 

222,034

 

Mervyn’s

 

2

 

 

167,500

 

 

 

 

167,500

 

Nordstrom

 

1

 

 

 

 

200,000

 

 

200,000

 

Old Navy

 

16

 

 

328,295

 

 

 

 

328,295

 

Ross

 

1

 

 

30,307

 

 

 

 

30,307

 

Schuler Books

 

1

 

 

24,116

 

 

 

 

24,116

 

Shopko/K’s Merchandise Mart

 

1

 

 

 

 

85,229

 

 

85,229

 

Sports Authority

 

1

 

 

16,537

 

 

 

 

16,537

 

Staples

 

1

 

 

20,388

 

 

 

 

20,388

 

Steve & Barry’s

 

15

 

 

658,129

 

 

 

 

658,129

 

Target

 

4

 

 

 

 

490,476

 

 

490,476

 

TJ Maxx

 

1

 

 

30,000

 

 

 

 

30,000

 

Value City

 

1

 

 

97,411

 

 

 

 

97,411

 

Von Maur

 

2

 

 

 

 

233,280

 

 

233,280

 

Vacant Anchors:

 

 

 

 

 

 

 

 

 

 

 

 

Shopko (1)

 

1

 

 

 

 

90,000

 

 

90,000

 

Ward’s (2)

 

2

 

 

190,461

 

 

 

 

190,461

 

Mervyn’s

 

1

 

 

74,889

 

 

 

 

74,889

 

JC Penney (3)

 

1

 

 

120,532

 

 

 

 

120,532

 

Belk

 

1

 

 

 

 

150,429

 

 

150,429

 

 

 

407

 

 

14,084,939

 

 

28,433,547

 

 

42,518,486

 

 

 

(1)

Although store is vacant, rental payments continue to be made.

 

(2)

The former Wards building at Mall del Norte is being redeveloped into a Circuit City and a Cinemark Theater.

 

(3)

The former JC Penney building at Columbia Place is being redeveloped into a Steve & Barry’s and a Burlington Coat Factory.

 

Mall Stores

 

The Malls have approximately 7,177 mall stores. National and regional retail chains (excluding local franchises) lease approximately 81.7% of the occupied mall store GLA. Although mall stores occupy only 28.2% of the total mall GLA, the Malls received 86.7% of their revenues from mall stores for the year ended December 31, 2006.

 

24

 

 

Mall Lease Expirations

 

The following table summarizes the scheduled lease expirations for mall stores as of December 31, 2006:

 

Year Ending

December 31,

 

Number of

Leases

Expiring

 

Annualized

Base

Rent (1)

 

GLA of

Expiring Leases

 

Average

Annualized

Base Rent Per
Square Foot

 

Expiring

Leases

as % of

Total

Annualized

Base

Rent (2)

 

Expiring

Leases

as a %

of Total

Leased

GLA(3)

 

2007

 

1,547

 

$

76,790,000

 

3,785,000

 

$

20.29

 

16.3

%

20.5

%

2008

 

957

 

 

57,275,000

 

2,490,000

 

 

23.00

 

12.2

%

13.5

%

2009

 

770

 

 

52,466,000

 

1,980,000

 

 

26.50

 

11.2

%

10.7

%

2010

 

751

 

 

53,641,000

 

1,928,000

 

 

27.82

 

11.4

%

10.5

%

2011

 

695

 

 

52,257,000

 

1,839,000

 

 

28.42

 

11.1

%

10.0

%

2012

 

467

 

 

36,398,000

 

1,274,000

 

 

28.57

 

7.0

%

6.9

%

2013

 

412

 

 

34,603,000

 

1,231,000

 

 

28.11

 

7.4

%

6.7

%

2014

 

329