Attached files
Exhibit
99.1
JG
GULF COAST TOWN CENTER, LLC
TABLE
OF CONTENTS
Page
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INDEPENDENT
AUDITORS’ REPORT
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1
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FINANCIAL
STATEMENTS:
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Balance
Sheets as of December 31, 2009 and 2008
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2
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Statements
of Operations for the Years Ended December 31, 2009, 2008 and
2007
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3
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Statements
of Members’ Deficit for the Years Ended December 31, 2009, 2008 and
2007
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4
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Statements
of Cash Flows for the Years Ended December 31, 2009, 2008 (Restated)
and 2007 (Restated)
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5
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Notes
to Financial Statements as of December 31, 2009 and 2008, and for the
Years Ended December 31, 2009, 2008 and 2007
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6–11
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INDEPENDENT
AUDITORS’ REPORT
To the
Members of
JG Gulf
Coast Town Center, LLC:
We have
audited the accompanying balance sheets of JG Gulf Coast Town Center, LLC
(the “Company”) as of December 31, 2009 and 2008, and the related
statements of operations, members’ deficit, and cash flows for each of the three
years in the period ended December 31, 2009. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, such financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2009 and 2008, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America.
As
discussed in Note 1 to the financial statements, the accompanying statements of
cash flows for the years ended December 31, 2008 and 2007 have been
restated.
/s/
Deloitte & Touche LLP
Atlanta,
Georgia
March 31,
2010
1
JG
GULF COAST TOWN CENTER, LLC
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BALANCE
SHEETS
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AS
OF DECEMBER 31, 2009 AND 2008
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2009
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2008
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ASSETS
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|||
REAL
ESTATE ASSETS:
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Land
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$
16,697,279
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$ 16,697,279
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Buildings,
improvements, and equipment
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181,420,595
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180,480,535
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Less
accumulated depreciation
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(21,414,570)
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(14,118,135)
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Real
estate assets — net
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176,703,304
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183,059,679
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CASH
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819,615
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903,339
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TENANT
RECEIVABLES — Net of allowance for doubtful
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|||
accounts
of $55,997 in 2009 and $22,481 in 2008
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1,622,429
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1,454,374
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MORTGAGE
ESCROWS
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7,098,556
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-
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DEFERRED
LEASING COSTS — Net
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2,175,225
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2,398,419
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DEFERRED
FINANCING COSTS — Net
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1,505,442
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1,825,225
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OTHER
ASSETS
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624,912
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617,027
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TOTAL
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$190,549,483
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$190,258,063
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LIABILITIES
AND MEMBERS’ DEFICIT
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MORTGAGE
AND OTHER NOTES PAYABLE
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$
202,360,980
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$
201,779,070
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ACCRUED
INTEREST PAYABLE
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907,838
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916,079
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ACCOUNTS
PAYABLE AND OTHER
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ACCRUED
LIABILITIES
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1,324,024
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1,147,790
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MEMBERS’
DEFICIT
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(14,043,359)
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(13,584,876)
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TOTAL
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$
190,549,483
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$
190,258,063
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See notes
to financial statements.
2
JG
GULF COAST TOWN CENTER, LLC
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STATEMENTS
OF OPERATIONS
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FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
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2009
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2008
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2007
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REVENUES:
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Minimum
rents
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$
12,793,328
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$
12,499,664
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$
8,542,514
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Percentage
rents
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899,349
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908,164
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1,269,287
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Other
rental income
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176,939
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183,282
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117,107
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Tenant
reimbursements
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7,351,342
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6,594,314
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5,103,024
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Other
income
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3,828
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5,365
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1,000,056
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Total
revenues
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21,224,786
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20,190,789
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16,031,988
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EXPENSES:
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Property
operating
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5,098,203
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5,333,072
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4,210,822
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Depreciation
and amortization
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7,724,862
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7,758,035
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5,545,747
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Real
estate taxes
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1,773,651
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1,919,983
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989,291
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Management
fees
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443,715
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412,419
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349,973
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Maintenance
and repairs
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1,144,387
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1,263,924
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992,155
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Total
expenses
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16,184,818
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16,687,433
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12,087,988
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INCOME
FROM OPERATIONS
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5,039,968
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3,503,356
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3,944,000
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LOSS
ON SALE OF REAL ESTATE ASSETS
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-
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(1,962)
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-
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INTEREST
INCOME
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5,851
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70,058
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324,864
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INTEREST
EXPENSE
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(11,242,433)
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(11,072,258)
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(8,393,020)
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NET
LOSS
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$ (6,196,614)
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$
(7,500,806)
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$
(4,124,156)
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See notes
to financial statements.
3
JG
GULF COAST TOWN CENTER, LLC
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STATEMENTS
OF MEMBERS’ DEFICIT
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FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
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BALANCE
— December 31, 2006
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$ 20,002,747
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Contributions by members | 177,395,224 |
Distributions
to members
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(204,051,232)
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Net
loss
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(4,124,156)
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BALANCE
— December 31, 2007
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(10,777,417)
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Contributions by members | 11,953,769 |
Distributions to
members
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(7,260,422)
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Net
loss
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(7,500,806)
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BALANCE
— December 31, 2008
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(13,584,876)
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Contributions by members | 6,352,306 |
Distributions to
members
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(614,175)
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Net
loss
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(6,196,614)
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BALANCE
— December 31, 2009
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$(14,043,359)
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See notes
to financial statements.
4
JG
GULF COAST TOWN CENTER, LLC
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STATEMENTS
OF CASH FLOWS
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FOR
THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
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2009
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2008
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2007
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(As
Restated)
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(As
Restated)
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CASH
FLOWS FROM OPERATING
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ACTIVITIES:
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Net
loss
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$
(6,196,614)
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$
(7,500,806)
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$ (4,124,156)
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Adjustments
to reconcile net loss to net cash
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provided
by (used in) operating activities:
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Depreciation
and amortization
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8,055,043
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8,091,560
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5,535,919
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Changes
in operating assets and liabilities:
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Tenant
receivables
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(168,055)
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(317,220)
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(618,854)
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Other
assets
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(16,255)
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(82,114)
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(385,204)
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Accrued
interest payable, accounts payable,
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and
other accrued liabilities
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516,247
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(181,006)
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1,083,567
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Net
cash provided by operating activities
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2,190,366
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10,414
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1,491,272
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CASH
FLOWS FROM INVESTING
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ACTIVITIES:
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Additions
to mortgage escrow
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(7,098,556)
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-
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-
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Additions
to real estate assets
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(1,437,714)
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(18,927,676)
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(32,823,866)
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Additions
to other assets
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(2,028)
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(49,393)
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(45,259)
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Additions
to deferred leasing costs
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(55,833)
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(650,366)
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(1,846,290)
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Net
cash used in investing activities
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(8,594,131)
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(19,627,435)
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(34,715,415)
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CASH
FLOWS FROM FINANCING
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ACTIVITIES:
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Repayment
of construction loan borrowings
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-
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-
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(124,058,265)
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Proceeds
from mortgage and other
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notes
payable
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581,910
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10,979,070
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190,800,000
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Additions
to deferred financing costs
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-
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(248,133)
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(1,845,114)
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Contributions by members | 6,352,306 | 11,953,769 | 177,395,224 | ||
Distributions to members
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(614,175)
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(7,260,422)
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(204,051,232)
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Net
cash provided by financing activities
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6,320,041
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15,424,284
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38,240,613
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NET
CHANGE IN CASH
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(83,724)
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(4,192,737)
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5,016,470
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CASH
— Beginning of year
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903,339
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5,096,076
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79,605
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CASH
— End of year
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$
819,615
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$
903,339
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$ 5,096,075
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SUPPLEMENTAL
DISCLOSURE OF
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CASH
FLOW INFORMATION —
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Cash
paid for interest — net of capitalized
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interest
of $0, $81,326 and $1,649,834 in
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2009,
2008 and 2007, respectively
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$ 10,930,891
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$ 10,763,096
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$ 8,190,357
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Additions
to real estate assets accrued but not yet paid
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$ -
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$ 348,254
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$ 1,709,951
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See notes to financial statements.
5
JG
GULF COAST TOWN CENTER, LLC
NOTES
TO FINANCIAL STATEMENTS
AS
OF DECEMBER 31, 2009 AND 2008 AND FOR THE
YEARS
ENDED DECEMBER 31, 2009, 2008, AND 2007
1.
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ORGANIZATION
AND SIGNIFICANT ACCOUNTING POLICIES
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Organization —
JG Gulf Coast Town Center, LLC (the “Company”) was formed in July 2003
for the purpose of developing, owning, and operating Gulf Coast Town Center, a
regional open-air shopping center in Ft. Myers, FL. On April 27, 2005,
JG Gulf Coast Member LLC and CBL/Gulf Coast, LLC a 100% owned
subsidiary of CBL & Associates Limited Partnership (“CBL”) formed a
50/50 joint venture when CBL/Gulf Coast, LLC was admitted to the Company as
a 50% member. CBL/Gulf Coast, LLC contributed $40,334,978 in exchange for
its 50% member interest. The Company then distributed that amount to
JG Gulf Coast Member LLC as reimbursement of the aggregate acquisition
and development costs incurred with respect to the project, which were
previously paid by JG Gulf Coast Member LLC.
Under the
terms of the joint venture agreement (the “Agreement”), CBL/Gulf Coast, LLC
must provide any additional equity necessary to fund the development of the
property, as well as fund up to an aggregate of $30,000,000 of operating
deficits of the Company. Cash flows of the Company are distributed to the
members in accordance with the priority of each member’s capital account and,
upon equalization between the members, cash flow will be shared
equally.
As of
December 31, 2009 and 2008, members’ deficit of the Company was as
follows:
2009
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2008
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CBL/Gulf
Coast, LLC
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$ (1,601,531)
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$
(4,241,355)
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JG
Gulf Coast Member, LLC
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(12,441,828)
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(9,343,521)
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Total
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$ (14,043,359)
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$
(13,584,876)
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The members’ equity accounts included in the accompanying balance sheets were determined based upon the initial contributions of each respective member being recorded at the carrying value of the contributed assets upon the formation of the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”). However, the distribution of cash flows to the members is determined based upon the priority of each member’s capital account as set forth in the Agreement. There have been certain distributions to CBL/Gulf Coast, LLC, which for GAAP purposes were recorded at carryover basis and at fair value for purposes of determining the capital accounts in accordance with the Agreement. Accordingly, the capital accounts as determined in accordance with the Agreement differ from the capital accounts recorded in accompanying balance sheets. As of December 31, 2009 and 2008, members’ capital accounts as determined in accordance with the Agreement were as summarized in the table below. Capitalized terms not defined herein have the meaning set forth in the Agreement.
2009
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2008
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CBL
member’s accrued and unpaid interest return on mandatory
contributions
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$
346,089
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$
223,721
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CBL
member’s unreturned mandatory contributions
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7,868,754
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1,784,534
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6
The
members can earn an 11% preferred return on any unreturned mandatory
contributions.
In
connection with obtaining the mortgage note payable discussed in Note 2,
CBL guaranteed that the Company would complete construction and tenant
improvement work related to certain leases. The total exposure under this
guarantee was $503,358 as of December 31, 2009 and 2008, respectively.
CBL’s obligation is reduced as construction and tenant improvement work is
completed. In connection with obtaining the construction loan (as discussed in
Note 2), CBL has guaranteed 100% of the outstanding balance of the loan.
The guarantee will expire upon the repayment of the debt. If CBL is required to
perform under any of these guarantees, then CBL has the right to obtain
indemnity of its costs from the Company as well as to assume the rights of the
lender, as applicable.
Basis of Presentation —
The accompanying financial statements are prepared on the accrual basis of
accounting in accordance with GAAP.
Restatement — Subsequent
to the issuance of the 2008 financial statements, the Company's management
determined that $1,361,697 and $6,438,048 of cash paid during the years ended
December 31, 2008 and 2007, respectively, for additions to real estate assets
were presented as operating activities and that such additions should have been
presented as investing activities. Additionally, the Company previously excluded
the noncash disclosures related to additions to real estate assets accrued but
not yet paid as of December 31, 2008 and 2007. As a result, the statements of
cash flows for the years ended December 31, 2008 and 2007 have been restated
from amounts previously reported as follows:
2008
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2007
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As
Previously Reported
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As
Restated
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As
Previously Reported
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As
Restated
|
||||
Cash
Flows From Operating Activities:
|
|||||||
Accrued
interest payable, accounts payable and
other accrued liabilities
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$
1,542,703)
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$
(181,006)
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$ (5,354,481)
|
$ 1,083,567
|
|||
Net
cash provided by (used in) operating activities
|
(1,351,283)
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10,414
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(4,946,776)
|
1,491,272
|
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Cash
Flows From Investing Activities:
|
|||||||
Additions
to real estate assets
|
(17,565,979)
|
(18,927,676)
|
(26,385,818)
|
(32,823,866)
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|||
Net
cash used in investing activities
|
(18,265,738)
|
(19,627,435)
|
(28,277,367)
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(34,715,415)
|
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Supplemental
Noncash Information:
|
|||||||
Additions
to real estate assets accrued but not yet paid
|
-
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348,254
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-
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1,709,951
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In addition,
contributions by and distributions to members for 2008 and 2007 previously
presented on a net basis in the statements of members' deficit and the
statements of cash flows have been corrected and are presented on a gross basis
to conform to the current year presentation and ASC 230, Statement of Cash Flows.
Revenue Recognition —
Fixed minimum rents from operating leases are recognized on a straight-line
basis over the initial terms of the related leases. Certain tenants are required
to pay percentage rent if their sales volumes exceed thresholds specified in
their lease agreements. Percentage rent is recognized as revenue when the
thresholds are achieved and the amounts become determinable.
The
Company receives reimbursements from tenants for real estate taxes, insurance,
common area maintenance, and other recoverable operating expenses as provided in
the lease agreements. Tenant reimbursements are recognized as revenue in the
period the related operating expenses are incurred. Tenant reimbursements
related to certain capital expenditures are billed to tenants over periods of 5
to 15 years and are recognized as revenue when earned.
7
Real Estate Assets —
Ordinary repairs and maintenance are expensed as incurred. Major replacements
and betterments are capitalized. Depreciation is provided using the
straight-line method over the estimated useful life of buildings and
improvements (20 to 40 years) and equipment (5 to 10 years). Tenant
improvements are capitalized and depreciated on a straight-line basis over the
life of the related lease. Depreciation expense was $7,445,835, $7,511,781 and
$5,417,706 for the years ended December 31, 2009, 2008 and 2007,
respectively.
Carrying Value of Long-Lived
Assets — The Company evaluates the carrying value of long-lived
assets to be held and used when events or changes in circumstances warrant such
a review. The carrying value of a long-lived asset is considered impaired when
its estimated future undiscounted cash flows are less than its carrying value.
If it is determined that an impairment has occurred, the excess of the asset’s
carrying value over its estimated fair value will be charged to operations.
There were no impairment charges in 2009, 2008 or 2007.
Deferred Leasing Costs —
Deferred leasing costs include direct costs incurred to originate a lease and
are amortized using the straight-line method over the terms of the related
leases. Amortization expense was $279,027, $246,254 and $128,042 for the years
ended December 31, 2009, 2008 and 2007, respectively. Accumulated
amortization was $592,403 and $360,607 as of December 31, 2009 and 2008,
respectively.
Deferred Financing
Costs — Deferred financing costs include fees and costs incurred to
obtain long-term financing and are amortized using the straight-line method to
interest expense over the term of the mortgage note payable. Amortization
expense was $319,783, $283,642 and $153,188 for the years ended
December 31, 2009, 2008 and 2007, respectively. Accumulated amortization
was $695,628 and $375,845 as of December 31, 2009 and 2008,
respectively.
Income Taxes — No
provision has been made for federal and state income taxes since these taxes are
the responsibility of the members.
Other Income — Other
income includes gifts and commissions and other miscellaneous customer and
tenant receipts. In 2007, the Company received $1,000,000 from
adjacent property owners under an easement agreement.
Use of Estimates — The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Fair Value Measurements —
The Company has categorized its financial assets and financial liabilities that
are recorded at fair value into a hierarchy based on whether the inputs to
valuation techniques are observable or unobservable. The fair value hierarchy
contains three levels of inputs that may be used to measure fair value as
follows:
Level 1 — Inputs
represent quoted prices in active markets for identical assets and liabilities
as of the measurement date.
Level 2 — Inputs,
other than those included in Level 1, represent observable measurements for
similar instruments in active markets, or identical or similar instruments in
markets that are not active, and observable measurements or market data for
instruments with substantially the full term of the asset or
liability.
Level 3 — Inputs
represent unobservable measurements, supported by little, if any, market
activity, and require considerable assumptions that are significant to the fair
value of the asset or liability. Market valuations must often be determined
using discounted cash flow methodologies, pricing models, or similar techniques
based on the Company’s assumptions and best judgment.
As of
December 31, 2009, no assets or liabilities were measured at fair value on
a recurring or nonrecurring basis. The carrying values of cash and cash
equivalents, tenant receivables, accounts payable, and accrued liabilities are
reasonable estimates of their fair values because of the short maturity of these
financial instruments.
2.
|
MORTGAGE
AND OTHER NOTES PAYABLE
|
On
June 21, 2007, the Company obtained a non-recourse, commercial
mortgage-backed securities loan from KeyBank National Association (“Keybank”),
acting in the capacity of the servicer of the loan (the “Servicer”) in the
amount of $190,800,000, the proceeds of which were used to repay the existing
construction loans with availability of $52,000,000 and $119,680,000. This loan
matures July 2017 and bears interest at 5.601%. The monthly payments of $890,559
are interest only with a balloon payment of $190,800,000, plus unpaid interest
due on the maturity date. The mortgage note payable is collateralized by the
shopping center properties and assignment of all leases.
The note
payable contains, among other covenants, restrictions on incurrence of
indebtedness and transfers and sales of assets. The note payable also requires
that a minimum debt service coverage ratio be maintained for the purpose of
establishing a cash management account with the Servicer. As of
December 31, 2009 and 2008, the Company did not meet the minimum required
debt service coverage ratio. Therefore, as required under the terms of the note
payable, the Company funded $2,508,053 for certain escrow reserves during 2009.
Additionally, the Company began operating under a cash management agreement with
the Servicer, until such time that the Company meets the required minimum debt
service coverage ratio. The Servicer maintains control over the Company’s cash
account and on a monthly basis releases cash to the Company after the monthly
debt service and escrow funding are collected. The Company’s net
operating cash flows were sufficient to meet its debt service requirements for
the years ended December 31, 2009, 2008 and 2007.
In
connection with the origination of the note payable, the Company was required to
obtain an additional collateral letter of credit for the benefit of the
Servicer. The letter of credit was required to provide the Servicer with
additional collateral if the rental income to be received by the Company under a
certain tenant lease was less than an amount specified in the note payable. The
amount of the letter of credit is reduced as the tenant’s sales exceed certain
thresholds. The amount specified in the note payable was $4,590,503 as of
December 31, 2009 and 2008. During 2009, the letter of credit expired and
the Company deposited cash in escrow with the Servicer in the amount of
$4,590,503 as a replacement of the letter of credit.
In May
2008, the Company obtained a recourse construction loan with total availability
of $11,775,000 for Gulf Coast Town Center Phase III (“Phase III”) with KeyBank
at a rate of 150 basis points over the one month London InterBank Offered
Rate. The loan matures in April 2010 and has two one-year extensions available,
at the Company’s election. The outstanding balance was $11,560,980 and
$10,979,070 as of December 31, 2009 and 2008, respectively. The
construction loan is collateralized by Phase III and assignment of all
leases.
9
The fair
value of mortgage and other notes payable was $171,705,922 and $168,167,990 at
December 31, 2009 and 2008, respectively. The fair value was calculated by
discounting future cash flows for the notes payable using an estimated market
rate of 8.5% and 8.5% at December 31, 2009 and 2008,
respectively.
3.
|
RENTAL
INCOME UNDER OPERATING LEASES
|
The
Company receives rental income by leasing space under operating leases. Future
minimum rents scheduled to be received under noncancelable tenant leases at
December 31, 2009, are as follows:
Years
Ending
|
|
December
31
|
|
2010
|
$ 12,519,776
|
2011
|
13,139,654
|
2012
|
12,770,525
|
2013
|
12,426,506
|
2014
|
12,435,234
|
Thereafter
|
51,267,922
|
Total
|
$ 114,559,617
|
4.
|
RELATED-PARTY
TRANSACTIONS
|
The
Company is party to a management agreement with CBL & Associates
Management, Inc. (“CBL Management”), which is controlled by affiliates of
CBL/Gulf Coast, LLC, to manage the properties. The agreement provides for
the Company to pay CBL Management a management fee based on revenues collected.
Total management fee expenses for the years ended December 31, 2009, 2008
and 2007, were $425,932, $392,480 and $335,629, respectively.
The
management agreement provides for the Company to pay monthly leasing fees to CBL
Management based on rent collected from temporary tenants and sponsorship
branding fees, as well as replacement tenant leasing commissions. The total
leasing and sponsorship branding fees for the years ended December 31,
2009, 2008 and 2007, were $17,783, $19,939 and $14,344,
respectively.
The
management agreement provides for the Company to pay CBL Management a fee for
sales or ground leases of outparcels or pads. The total outparcel/pad fees for
the years ended December 31, 2009, 2008 and 2007, were $0, $90,142 and
$622,601, respectively.
Amounts
payable to CBL Management as of December 31, 2009 and 2008, were $65,441
and $39,817, respectively.
The
entity that provides security, maintenance, cleaning, and background music
services for the Company is a subsidiary of CBL. The Company recognized expenses
of $710,310, $1,015,470 and $886,331 for services provided by the subsidiary for
the years ended December 31, 2009, 2008 and 2007, respectively. The Company
owed janitorial fees to the subsidiary of $14,223 and $0 as of December 31,
2009 and 2008, respectively.
A wholly
owned subsidiary of CBL Management leases equipment, including computers, to the
Company. The Company recognized $31,291, $21,324 and $15,501 of expenses for
services provided by the subsidiary for the years ended December 31, 2009,
2008 and 2007, respectively. The Company had no amounts due to the subsidiary as
of December 31, 2009 and 2008.
10
Certain
officers of CBL have a significant noncontrolling interest in, and CBL’s
Chairman of the Board is a director of, a construction company that provides
construction and development services to the Company. Charges for services
provided by the construction company for the years ended December 31, 2009,
2008 and 2007, were $38,782, $11,318,327 and $15,651,765, respectively. At
December 31, 2009 and 2008, accounts payable and other accrued liabilities
included $0 and $23,255, respectively, for amounts owed to the construction
company.
5.
|
SUBSEQUENT
EVENTS
|
In March
2010, the Company completed the origination of a letter of credit from Wells
Fargo Bank, N.A. for the benefit of the Servicer in the amount of $4,590,503.
Upon the origination of this letter of credit, the Servicer released the escrow
deposit as discussed in Note 2 to the Company in the amount of
$4,590,503.
In
January 2010, the Company elected to exercise the first one-year extension
option available on its construction loan for Phase III. The extended
loan matures in April 2011.
The
Company evaluated subsequent events through March 31, 2010, which represents the
date the financial statements were issued. The Company is not aware of any
significant events that occurred subsequent to the balance sheet date, but prior
to the issuance of this report other than the event described above that would
require adjustment, or disclosure in, the financial statements.