CBL & ASSOCIATES PROPERTIES INC

Note 7 – Unconsolidated Affiliates and Noncontrolling Interests

Unconsolidated Affiliates

At September 30, 2024, the Company had investments in 25 entities, which are accounted for using the equity method of accounting. All investments in unconsolidated affiliates were similar in nature and the entities all were developing or held and operated real estate assets.

The Company had three unconsolidated affiliates with its ownership interests ranging from 33% to 49%,17 unconsolidated affiliates owned in 50/50 joint ventures and four unconsolidated affiliates with ownership interests of 65%.

Although the Company had majority ownership of certain joint ventures during 2024 and 2023, it evaluated the investments and concluded that the other partners or owners in these joint ventures had substantive participating rights, such as approvals of:

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the pro forma for the development and construction of the project and any material deviations or modifications thereto;

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the site plan and any material deviations or modifications thereto;

•

the conceptual design of the project and the initial plans and specifications for the project and any material deviations or modifications thereto;

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any acquisition/construction loans or any permanent financings/refinancings;

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the annual operating budgets and any material deviations or modifications thereto;

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the initial leasing plan and leasing parameters and any material deviations or modifications thereto; and

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any material acquisitions or dispositions with respect to the project.

As a result of the joint control over these joint ventures, the Company accounts for these investments using the equity method of accounting.

Additionally, the Company had a wholly owned investment that was deconsolidated as a result of losing control when the property went into receivership.

2024 Activity - Unconsolidated Affiliates

BI Development II, LLC

Subsequent to September 30, 2024, the $3,062 loan secured by the former Sears parcel at Northgate Mall was paid off using proceeds from the sale of that parcel. See Note 14 for additional information.

CBL-TRS Med OFC Holding, LLC

In September 2024, construction was completed and the Company's full payment guaranty of the construction loan was released.

Louisville Outlet Shoppes, LLC

Subsequent to September 30, 2024, the loan secured by The Outlet Shoppes of the Bluegrass was paid off using proceeds from a new loan. See Note 14 for additional information.

Mall of South Carolina, LP and Mall of South Carolina Outparcel, LP

In August 2024, the Company was notified by the lender that the loans secured by Coastal Grand Mall and Coastal Grand Crossing were in maturity default. The Company is in discussions with the lender regarding a loan modification/extension.

Subsequent to September 30, 2024, the Company was notified by the lender that the loan secured by Coastal Grand Dick's Sporting Goods was in maturity default. The Company is in discussions with the lender regarding a loan modification/extension.

Vision-CBL Hamilton Place, LLC

In July 2024, the loan secured by Hamilton Place Aloft Hotel was modified and extended. The modified loan bears a fixed interest rate of 7.2% and matures in June 2029.

West Melbourne I, LLC

Subsequent to September 30, 2024, the Company and its joint venture partner entered into new non-recourse loans secured by Hammock Landing, which total $45,000. See Note 14 for additional information.

WestGate Mall CMBS, LLC

In May 2024, the Company transferred title of the mall to the mortgage holder in satisfaction of the non-recourse debt secured by the property, which had a balance of $28,661.

2023 Activity - Unconsolidated Affiliates

Alamance Crossing CMBS, LLC

In February 2023, the Company deconsolidated Alamance Crossing East as a result of the Company losing control when the property was placed in receivership. As of September 30, 2024, the loan secured by Alamance Crossing East had an outstanding balance of $41,122. For the nine months ended September 30, 2023, the Company recognized gain on deconsolidation of $28,151. See Note 5 for more information.

CBL-TRS Med OFC Holding, LLC

In June 2023, the Company and its joint venture partner in Friendly Center and The Shops at Friendly Center entered into a new 50/50 joint venture, CBL-Med OFC Holding, LLC, for the purpose of entering into a joint venture, CBL DMC I, LLC, with a third party to develop a medical office building on a parcel of land adjacent to those centers. CBL-TRS Med OFC Holding, LLC contributed the parcel of land valued at $2,600 to CBL DMC I, LLC in exchange for a 50% interest in CBL DMC I, LLC. The unconsolidated affiliate is a VIE.

CBL-TRS Joint Venture, LLC

In April 2023, the Company and its joint venture partner entered into a new $148,000 loan secured by Friendly Center and The Shops at Friendly Center. Proceeds from the new loan were used to pay off two previous loans totaling $145,591. The new loan bears a fixed interest rate of 6.44% and matures in May 2028.

Louisville Outlet Shoppes, LLC

In April 2023, the $7,247 loan secured by The Outlet Shoppes of the Bluegrass - Phase II was paid off.

West County Mall CMBS, LLC

In March 2023, the loan secured by West County Mall was extended through December 2024, with one two-year conditional extension available upon meeting certain requirements.

WestGate Mall CMBS, LLC

In September 2023, the Company deconsolidated WestGate Mall as a result of the Company losing control when the property was placed in receivership. For the three and nine months ended September 30, 2023, the Company recognized gain on deconsolidation of $19,728. See Note 5 for more information.

Condensed Combined Financial Statements - Unconsolidated Affiliates

Condensed combined financial statement information of the unconsolidated affiliates is as follows:

(1)

The Company's pro rata share of net income was $7,084 and $3,266 for the three months ended September 30, 2024 and 2023, respectively. The Company's pro rata share of net income was $18,826 and $2,822 for the nine months ended September 30, 2024 and 2023, respectively.

Variable Interest Entities

The Operating Partnership and certain of its subsidiaries are VIEs primarily because the limited partners of these entities do not collectively possess substantive kick-out or participating rights.

The Company consolidates the Operating Partnership because it is the primary beneficiary. The Company, through the Operating Partnership, consolidates all VIEs for which it is the primary beneficiary. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership is considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether the Company is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of the Company's investment; the obligation or likelihood for the Company or other investors to provide financial support; and the similarity with and significance to the Company's business activities and the business activities of the other investors.

Consolidated VIEs

As of September 30, 2024, the Company had investments in 10 consolidated VIEs with ownership interests ranging from 50% to 92%.

Unconsolidated VIEs

The table below lists the Company's unconsolidated VIEs as of September 30, 2024:

(1)

During the year ended December 31, 2023, the property was placed into receivership.

(2)

The Operating Partnership has guaranteed all or a portion of the debt. See Note 11 for more information.

Note 8 – Mortgage and Other Indebtedness, Net

CBL has no indebtedness. Either the Operating Partnership or one of its consolidated subsidiaries that it has a direct or indirect ownership interest in are the borrowers on all the Company's debt. At September 30, 2024, all the Company's consolidated debt is non-recourse.

The Company’s mortgage and other indebtedness, net, consisted of the following:

(1)

Weighted-average interest rate excludes amortization of deferred financing costs.

(2)

The Operating Partnership has an interest rate swap on a notional amount of $32,000 related to the variable portion of the loan to effectively fix the interest rate at 7.3975%.

(3)

In conjunction with fresh start accounting upon emergence from bankruptcy on November 1, 2021, the Company estimated the fair value of its mortgage notes with the assistance of a third-party valuation advisor. This resulted in recognizing debt discounts upon emerging from bankruptcy. The debt discounts are accreted over the term of the respective debt using the effective interest method. The remaining debt discounts at September 30, 2024 will be accreted over a weighted average period of 1.6 years.

Non-recourse loans on operating properties, the open-air centers and outparcels loan and the secured term loan include loans that are secured by properties owned by the Company that have a carrying value of $1,293,555 at September 30, 2024.

2024 Loan Activity

In February 2024, the Company redeemed U.S. Treasury securities and used the proceeds to pay off the $15,190 loan secured by Brookfield Square Anchor Redevelopment.

In May 2024, the Company exercised aone-year extension option on the loan secured by Fayette Mall.

In August 2024, the Company used proceeds from the sales of Layton Hills Mall, Layton Hills Convenience Center, Layton Hills Plaza and 9 associated outparcels to partially paydown $46,000 and $18,297 on the outstanding principal balances of the secured term loan and the open-air centers and outparcels loan, respectively. In conjunction with the partial paydown of the open-air centers and outparcels loan, the Company recognized $819 of loss on extinguishment of debt related to a prepayment fee.

2023 Loan Activity

In February 2023, the Company exercised its first option to extend the loan secured by Fayette Mall through May 2024. The interest rate remains fixed at 4.25%.

In March 2023, the secured term loan was amended to replace LIBOR with the secured overnight financing rate ("SOFR") for purposes of calculating interest. The transition to SOFR is effective as of June 30, 2023. As of the conversion date, the interest rate is SOFR plus the applicable margin (2.75%) plus the SOFR adjustment (0.11448%).

In April 2023, the Company exercised its extension option on the loan secured by The Outlet Shoppes at Laredo for an extended maturity date of June 2024.

In May 2023, the Operating Partnership entered into an interest rate swap with a notional amount of $32,000 to fix the interest rate at 7.3975% on $32,000 of the variable rate portion of the open-air centers and outparcels loan. The swap has a maturity date of June 7, 2027. The Company designated the swap as a cash flow hedge on its variable rate debt.

In June 2023, the loan secured by Cross Creek Mall was modified for an extended maturity date of June 2025. The interest rate is fixed at 8.19%.

Scheduled Principal Payments

As of September 30, 2024, the scheduled principal amortization and balloon payments of the Company’s consolidated debt, excluding extensions available at the Company’s option, on all mortgage and other indebtedness, are as follows:

(1)

Reflects scheduled principal amortization for the period October 1, 2024 through December 31, 2024.

The $7,877 ofscheduled principal payments for the remainder of 2024 represents scheduled principal amortization, as all 2024 loan maturities have been addressed.

Interest Rate Hedge Instruments

The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company does not anticipate that its counterparty will fail to meet their obligation.

The Company records its derivative instruments in its condensed consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the derivative has been designated as a hedge and, if so, whether the hedge has met the criteria necessary to apply hedge accounting.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Such derivatives were used to hedge the variable cash flows associated with variable-rate debt.

(1)

Gain reclassified from accumulated other comprehensive income into earnings shown in interest expense.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that $150 will be reclassified from other comprehensive income (loss) as a decrease to interest expense.

The Company has an agreement with each derivative counterparty that contains a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

As of September 30, 2024, the Company didnot have any derivatives with a fair value in a net liability position including accrued interest but excluding any adjustment for nonperformance risk. As of September 30, 2024, the Company has posted $1,920 of cash collateral related to the interest rate swap. The Company is not in breach of any agreement provisions.

Note 9 – Segment Information

The Company measures performance and allocates resources according to property type, which is determined based on certain criteria such as type of tenants, capital requirements, economic risks, leasing terms, and short and long-term returns on capital. Rental income and tenant reimbursements from tenant leases provide the majority of revenues from all segments.

Information on the Company’s segments is as follows:

(1)

The Malls category includes malls, lifestyle centers and outlet centers.

(2)

The All Other category includes open-air centers, outparcels, office buildings, corporate-level debt and the Management Company.

(3)

Management, development and leasing fees are included in All Other category. See Note 3 for information on the Company’s revenues disaggregated by revenue source for each of the above segments.

(4)

Property operating expenses include property operating, real estate taxes and maintenance and repairs.

(5)

Includes additions to and acquisitions of real estate assets and investments in unconsolidated affiliates. Developments in progress are included in the All Other category.

Note 10 – Earnings Per Share

Earnings per share ("EPS") is calculated under the two-class method. Under the two-class method, all earnings (distributed and undistributed) are allocated to common stock and participating securities. The Company grants restricted stock awards to certain employees under its share-based compensation program, which entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of common stock. These unvested restricted stock awards meet the definition of participating securities based on their respective rights to receive nonforfeitable dividends.

Diluted EPS incorporates the potential impact of contingently issuable shares. Diluted EPS is calculated under both the two-class and treasury stock methods, and the more dilutive amount is reported. Performance stock units ("PSUs") and unvested restricted stock awards are contingently issuable common shares and are included in diluted EPS if the effect is dilutive.

The following table presents the calculation of basic and diluted EPS (in thousands, except per share amounts):

(1)

For the nine months ended September 30, 2024, the computation of diluted EPS includes contingently issuable shares related to PSUs calculated under the treasury stock method. For the three and nine months ended September 30, 2024, the computation of diluted EPS does not include contingently issuable shares related to unvested restricted stock awards due to their anti-dilutive nature. For the three and nine months ended September 30, 2024, had the contingently issuable shares been dilutive, thedenominator for diluted EPS would have been 30,940 and 31,224, respectively, including 184 and 73, respectively, contingently issuable shares related to unvested restricted stock awards. For the three and nine months ended September 30, 2023, the computation of diluted EPS does not include contingently issuable shares related to unvested restricted stock awards due to their anti-dilutive nature. For the three and nine months ended September 30, 2023, had the contingently issuable shares been dilutive, the denominator for diluted EPS would have been 31,334 and 31,320, respectively, including 29 and 13, respectively, contingently issuable shares related to unvested restricted stock awards.

Note 11 – Contingencies

The Company is currently involved in litigation that arises in the ordinary course of business, most of which is expected to be covered by liability insurance. Management makes assumptions and estimates concerning the likelihood and amount of any potential loss relating to these matters using the latest information available. The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the liquidity, results of operations, business or financial condition of the Company.

Environmental Contingencies

The Company evaluates potential loss contingencies related to environmental matters using the same criteria described above related to litigation matters. Based on current information, an unfavorable outcome concerning such environmental matters, both individually and in the aggregate, is considered to be reasonably possible. However, the Company believes its maximum potential exposure to loss would not be material to its results of operations or financial condition. The Company has a master insurance policy that provides coverage through 2027 for certain environmental claims up to $40,000 per occurrence and up to $40,000 in the aggregate, subject to deductibles and certain exclusions. At certain locations, individual policies are in place.

Guarantees

The Operating Partnership may guarantee the debt of a joint venture primarily because it allows the joint venture to obtain funding at a lower cost than could be obtained otherwise. This results in a higher return for the joint venture on its investment, and a higher return on the Operating Partnership's investment in the joint venture. The Operating Partnership may receive a fee from the joint venture for providing the guaranty. Additionally, when the Operating Partnership issues a guaranty, the terms of the joint venture agreement typically provide that the Operating Partnership may receive indemnification from the joint venture partner or have the ability to increase its ownership interest. The guarantees expire upon repayment of the debt, unless noted otherwise.

The following table represents the Operating Partnership's guarantees of unconsolidated affiliates' debt as reflected in the accompanying condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023:

(1)

Excludes any extension options.

(2)

Subsequent to September 30, 2024, the existing loan was paid off using proceeds from a new loan secured by Hammock Landing. The new loan removes the previous payment guaranty. See Note 14 for additional information.

(3)

The loan has aone-year extension option at the joint venture’s election.

(4)

In September 2024, construction was completed and the Company's full payment guaranty was released.

For the three and nine months ended September 30, 2024 and 2023, the Company evaluated each guaranty, listed in the table above, by evaluating the debt service ratio, cash flow forecasts and the performance of each loan, where applicable. The result of the analysis was that each loan is current and performing. The Company did not record a credit loss related to the guarantees listed in the table above for the three or nine months ended September 30, 2024 and 2023.

Note 12 – Share-Based Compensation

Restricted Stock Awards

Compensation expense is recognized on a straight-line basis over the requisite service period. The share-based compensation expense related to restricted stock awards granted under the CBL & Associates Properties, Inc. 2021 Equity Incentive Plan ("EIP") was $2,110 and $6,187 for the three and nine months ended September 30, 2024, respectively. The share-based compensation expense related to restricted stock awards was $1,835 and $5,475 for the three and nine months ended September 30, 2023, respectively. Share-based compensation cost capitalized as part of real estate assets was$38 and $97 for the three and nine months ended September 30, 2024, respectively. As of September 30, 2024, there was $10,691 of total unrecognized compensation cost related to unvested restricted stock awards, which is expected to be recognized over a weighted-average period of 1.5 years. Share-based compensation cost resulting from share-based awards is recorded at the Management Company, which is a taxable entity.

A summary of the status of the Company’s unvested restricted stock awards as of September 30, 2024, and changes during the nine months ended September 30, 2024, are presented below:

The total grant-date fair value of restricted stock awards granted during the nine months ended September 30, 2024 was $3,398. The total fair value of restricted stock awards that vested during the nine months ended September 30, 2024 was $2,229.

Performance Stock Unit Awards

Compensation cost for the PSUs granted in February 2023 and February 2024 is recognized on a straight-line basis over the service period since it is longer than the performance period. The resulting expense is recorded regardless of whether any PSU awards are earned as long as the required service period is met. For the PSUs granted in February 2022, each quarter, management assesses the probability that the measures associated with the Company's outstanding PSU awards will be attained. The Company begins recognizing compensation expense on a straight-line basis over the remaining service period once the PSU award measures are deemed probable of achievement. Share-based compensation expense related to the PSUs granted under the EIP was $1,691 and $4,799 for the three and nine months ended September 30, 2024, respectively; and $1,410 and $4,229 for the three and nine months ended September 30, 2023, respectively. The unrecognized compensation expense related to the PSUs was $12,125 as of September 30, 2024, which is expected to be recognized over a weighted-average period of 2.1 years assuming all PSUs are earned.

A summary of the status of the Company’s outstanding PSU awards as of September 30, 2024, and changes during the nine months ended September 30, 2024, are presented below:

(1)

PSUs granted shall be adjusted as if the shares of common stock represented by such PSUs had received any applicable stock or cash dividends declared. As for stock dividends, a number of PSUs shall be added to the target amount corresponding to the number of shares of common stock that would have been payable per such stock dividend on the then outstanding number of PSUs under the agreement as if common stock had been issued for such PSUs. As to cash dividends, a number of PSUs shall be added to the target amount corresponding to the number of shares of common stock that could have been acquired by the cash dividend payable on the then outstanding number of PSUs under the agreement as if common stock had been issued for such PSUs, and the calculation of the number of shares of common stock that could have been acquired shall be based on the closing price of the common stock on the record date for the cash dividend at issue.

The total grant-date fair value of PSU awards granted during the nine months ended September 30, 2024 was $4,117.

The following table summarizes the assumptions used in the Monte Carlo simulation pricing model related to the PSUs granted in 2024:

(1)

The value of the 2024 PSU awards is estimated on the date of grant using a Monte Carlo simulation model. The valuation consists of computing the fair value using CBL's simulated stock price as well as TSR over athree-year performance period. The award is modeled as a contingent claim in that the expected return on the underlying shares is risk-free and the rate of discounting the pay off of the award is also risk-free. The weighted-average fair value per share related to the 2024 PSUs consists of 50,825 PSUs at a fair value of $29.38 per share (which relates to the relative TSR) and 118,595 PSUs at a fair value of $22.12 per share (which relates to absolute TSR).

(2)

The risk-free interest rate was based on the yield curve on zero-coupon U.S. Treasury securities in effect as of the valuation date, which is the grant date listed above.

(3)

The computation of expected volatility for the 2024 PSUs was based on the historical volatility of CBL's shares of common stock for a trading period equal to the time from the grant date to the end of the performance period. Since the performance period exceeds CBL's trading history, volatility indications of comparable public companies were also considered.

Note 13 – Noncash Investing and Financing Activities

The Company’s noncash investing and financing activities were as follows:

(1)

See Note 5 for more information.

Note 14 – Subsequent Events

In October 2024, the Company redeemed $25,307 in U.S. Treasury securities and purchased $25,300 in new U.S. Treasury securities with maturities through October 2025.

In October 2024, the Company completed the repu rchase of 500,000 shares of CBL stock for $12,525, in a privately negotiated block trade from a single shareholder. The block repurchase was completed separately from the Company’s existing stock repurchase program, which was completed in September 2024.

In October 2024, the Company and its joint venture partner entered into a new $66,000 non-recourse loan secured by The Outlet Shoppes of the Bluegrass. Proceeds from the new loan were used to pay off the existing $61,480 loan secured by the property. The new loan has aten-year term and bears afixed interest rate of 6.84%.

In November 2024, the Company and its joint venture partner sold the former Sears parcel at Northgate Mall and used the proceeds to pay off the $3,062 loan secured by that parcel.

In November 2024, the Company and its joint venture partner entered into new non-recourse loans secured by Hammock Landing, which total $45,000. Proceeds from the new loans were used to pay off the existing variable rate loans secured by the property, which totaled $44,243. The new loans have aten-year term and bear a fixed interest rate of 5.86%.

In November 2024, the Company was notified by the lender that the loan secured by Coastal Grand Dick's Sporting Goods was in maturity default. The Company is in discussions with the lender regarding a loan modification/extension.