Attached files
Exhibit
99.2
TRIANGLE
TOWN MEMBER, LLC
TABLE
OF CONTENTS
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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 and
2007
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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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6–10
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INDEPENDENT
AUDITORS’ REPORT
To the
Members of
Triangle
Town Member, LLC:
We have
audited the accompanying balance sheets of Triangle Town Member, 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 the three years then ended
December 31, 2009, in conformity with accounting principles generally
accepted in the United States of America.
/s/
Deloitte & Touche LLP
Atlanta,
Georgia
March 31,
2010
1
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TRIANGLE
TOWN MEMBER, 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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$
17,278,287
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$ 17,278,287
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Buildings,
improvements, and equipment
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156,288,150
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156,897,935
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Less
accumulated depreciation
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(37,275,432)
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(28,561,831)
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Real
estate assets — net
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136,291,005
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145,614,391
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CASH
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2,209,025
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2,512,731
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TENANT
RECEIVABLES — Net of allowance for doubtful
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accounts
of $56,491 in 2009 and $75,790 in 2008
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1,924,271
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2,646,546
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DEFERRED
LEASING COSTS — Net
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2,542,855
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3,104,549
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DEFERRED
FINANCING COSTS — Net
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533,169
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623,282
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OTHER
ASSETS
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1,956,796
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864,651
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TOTAL
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$ 145,457,121
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$ 155,366,150
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LIABILITIES
AND MEMBERS’ DEFICIT
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MORTGAGE
NOTE PAYABLE
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$ 193,883,626
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$ 197,029,304
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ACCRUED
INTEREST PAYABLE
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926,925
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941,964
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ACCOUNTS
PAYABLE AND OTHER ACCRUED
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LIABILITIES
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1,145,664
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1,109,833
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MEMBERS’
DEFICIT
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(50,499,094)
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(43,714,951)
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TOTAL
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$ 145,457,121
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$ 155,366,150
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See notes to
financial statements.
2
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TRIANGLE
TOWN MEMBER, 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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$ 14,998,113
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$ 16,555,839
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$ 16,789,842
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Tenant
reimbursements
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5,805,773
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6,178,596
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5,831,936
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Percentage
rents
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216,958
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368,138
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484,305
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Other
rental income
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638,125
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592,126
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615,426
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Other
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66,357
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44,552
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53,134
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Total
revenues
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21,725,326
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23,739,251
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23,774,643
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EXPENSES:
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Property
operating
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3,723,456
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4,351,479
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4,057,608
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Depreciation
and amortization
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10,197,345
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10,004,659
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10,867,122
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Real
estate taxes
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1,574,457
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1,738,985
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1,443,246
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Maintenance
and repairs
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1,203,028
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1,348,868
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1,376,863
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Management
fees
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517,836
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542,140
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553,950
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Total
expenses
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17,216,122
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17,986,131
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18,298,789
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INCOME
FROM OPERATIONS
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4,509,204
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5,753,120
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5,475,854
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INTEREST
INCOME
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1,865
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6,292
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12,961
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INTEREST
EXPENSE
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(11,296,786)
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(11,472,604)
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(11,583,254)
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GAIN
ON SALE OF REAL ESTATE ASSETS
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-
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346,480
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-
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NET
LOSS
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$ (6,785,717)
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$ (5,366,712)
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$ (6,094,439)
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See notes to
financial statements.
3
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TRIANGLE
TOWN MEMBER, 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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$(27,424,470)
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Contributions
from members
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2,595,396
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Net
loss
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(6,094,439)
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BALANCE
— December 31, 2007
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(30,923,513)
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Contributions
from members
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226,266
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Distributions
to members
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(7,650,992)
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Net
loss
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(5,366,712)
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BALANCE
— December 31, 2008
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(43,714,951)
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Contributions
from members
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1,574
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Net
loss
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(6,785,717)
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BALANCE
— December 31, 2009
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$(50,499,094)
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See notes
to financial statements.
4
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TRIANGLE
TOWN MEMBER, 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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CASH
FLOWS FROM OPERATING ACTIVITIES:
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Net
loss
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$ (6,785,717)
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$ (5,366,712)
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$ (6,094,439)
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Adjustments
to reconcile net loss to net cash
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provided
by operating activities:
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Depreciation
and amortization
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10,297,642
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10,101,113
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10,963,734
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Gain
on sale of real estate assets
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-
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(346,480)
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-
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Changes
in operating assets and liabilities:
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Tenant
receivables
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722,275
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278,028
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(103,146)
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Other
assets
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12,850
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(14,195)
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(210,284)
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Accrued
interest payable, accounts payable, and
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other
accrued liabilities
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20,792
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(694,758)
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(598,190)
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Net
cash provided by operating activities
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4,267,842
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3,956,996
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3,957,675
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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Additions
to real estate assets
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(278,062)
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(386,764)
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(2,428,118)
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Proceeds
from the sale of real estate assets
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-
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1,200,000
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-
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Addition
to landlord inducement costs
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(22,751)
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(45,740)
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(4,690)
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Cash
in escrow
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(1,092,429)
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900,491
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830,835
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Additions
to deferred leasing costs
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(34,202)
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(147,787)
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(240,854)
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Change
in other assets
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-
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-
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45,705
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Net
cash provided by (used in) investing activities
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(1,427,444)
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1,520,200
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(1,797,122)
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CASH
FLOWS FROM FINANCING ACTIVITIES:
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Principal
payments on mortgage note payable
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(3,145,678)
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(2,970,696)
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-
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Net
additions to deferred financing costs
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-
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-
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(500,000)
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Net
contributions from (distributions to) members
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1,574
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(7,424,726)
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2,595,396
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Net
cash provided by (used) in financing activities
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(3,144,104)
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(10,395,422)
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2,095,396
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NET
CHANGE IN CASH
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(303,706)
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(4,918,226)
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4,255,949
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CASH
— Beginning of year
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2,512,731
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7,430,957
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3,175,008
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CASH
— End of year
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$
2,209,025
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$
2,512,731
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$
7,430,957
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SUPPLEMENTAL
DISCLOSURE OF CASH FLOW
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INFORMATION
— Cash paid for interest
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$ 11,221,712
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$ 11,396,694
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$ 11,474,000
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See notes
to financial statements.
5
TRIANGLE
TOWN MEMBER, LLC
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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1.
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ORGANIZATION
AND SIGNIFICANT ACCOUNTING POLICIES
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Organization — Triangle
Town Member, LLC (the “Company”) was formed on November 16, 2005, for
the purpose of owning and operating Triangle Town Center, a regional shopping
mall in Raleigh, NC; an attached lifestyle center, Triangle Town Commons; and an
adjacent associated center, Triangle Town Place. The Company is a joint venture
with the following members:
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Ownership
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Member
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Interest
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CBL
Triangle Town Member, LLC
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50.000
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% |
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REJ
Realty LLC
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49.500
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JG
Realty Investors Corp.
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0.484
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JG
Manager LLC
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0.016
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The
initial contribution of REJ Realty LLC, JG Realty Investors Corp., and JG
Manager LLC (collectively, the “REJ Members”) consisted of the three
shopping centers, which were recorded on the Company’s balance sheets at their
carryover basis. CBL Triangle Member, LLC (“CBL Member”) made an initial
cash contribution of $1,472,433. Concurrent with its formation, the Company
entered into a nonrecourse mortgage loan of $200,000,000 (see Note 2). The
net proceeds from the loan were used to retire an existing construction loan
totaling $121,828,000, and the remaining net proceeds were paid to the REJ
Members as a partial return of their equity contribution. The Company’s equity
will be equalized between the REJ Members and CBL Member through future
contributions by CBL Member and through property cash flow
distributions.
Under the
terms of the joint venture agreement (the “Agreement”), CBL Member is required
to fund any additional equity necessary for capital expenditures, including
future development or expansion of the Company’s properties, and any operating
deficits up to a maximum of $30,000,000. The Company’s profits and losses are
allocated to the REJ Members and CBL Member in accordance with their respective
ownership interests. CBL Member receives a preferred return on its invested
capital in the Company. After payment of such preferred return and repayment of
CBL Member’s invested capital and repayment of the balance of the REJ Members’
equity, the REJ Members and CBL Member will share equally in the Company’s cash
flows.
As of
December 31, 2009 and 2008, members’ deficit of the Company was as
follows:
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2009
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2008
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CBL
Triangle Town Member, LLC
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$ (12,525,053)
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$ (9,133,768)
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REJ
Realty, LLC
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(37,594,300)
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(34,235,371)
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JG
Realty Investors Corp.
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(367,588)
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(334,745)
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JG
Manager, LLC
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(12,153)
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(11,067)
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$ (50,499,094)
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$
(43,714,951)
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The
member’s 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. Under the Agreement, each member’s
initial capital contribution was determined based upon the agreed-upon values as
set forth in the Agreement, which were not equal to the historical carryover
basis recorded in accordance with GAAP. 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 as set forth in the
Agreement.
6
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2009
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2008
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REJ
Members’ unreturned initial capital
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$ 78,842,496
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$
78,842,496
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The CBL
Member earns an 11% interest return on any mandatory contributions; the REJ
Members earn a 2% interest return on their shortfall capital.
Basis of Presentation —
The accompanying financial statements are prepared on the accrual basis of
accounting in accordance with GAAP.
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.
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 (20–40 years) and equipment (5–10 years). Tenant
improvements are capitalized and depreciated on a straight-line basis over the
life of the related lease. Depreciation expense was $9,601,448, $9,342,066 and
$10,198,070 for the years ended December 31, 2009, 2008 and 2007,
respectively. Accumulated depreciation was $37,275,432 and $28,561,831 as of
December 31, 2009 and 2008, 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 December 31, 2009, 2008 or
2007.
Cash — The Company
considers all highly liquid instruments purchased with an original maturity of
three months or less to be cash.
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 $595,896, $662,593 and $669,052 for the years
ended December 31, 2009, 2008 and 2007, respectively. Accumulated
amortization was $2,100,294 and $1,643,705 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 $90,113, $90,114 and $90,113 for the years ended December 31,
2009, 2008 and 2007, respectively. Accumulated amortization was $307,214 and
$217,101 as of December 31, 2009 and 2008, respectively.
7
Other Assets — Other
assets include cash of $1,478,777 and $386,348 at December 31, 2009 and
2008, respectively, that was deposited in escrow, which is to be used for the
payment of real estate taxes and insurance in accordance with the terms of the
Company’s mortgage note payable (see Note 2), as well as contributions received
from tenants that are to be used for future marketing activities.
Income Taxes — No
provision has been made for federal and state income taxes since these taxes are
the responsibility of the members.
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, the 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, 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.
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2.
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MORTGAGE
NOTE PAYABLE
|
Concurrent
with the formation of the Company, the Company obtained a non-recourse,
commercial mortgage-backed securities loan from Wachovia Bank, a division of
Wells Fargo Bank, N.A., acting in the capacity of the servicer of the loan (the
“Servicer”), that matures on December 5, 2015, and bears interest at 5.74%.
The monthly payments are interest-only in the amount of $956,167, until
January 5, 2008. The monthly payments of $1,197,282 thereafter include
principal and interest. A balloon payment of $170,713,179, plus unpaid interest,
is 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, the Company did not meet the minimum required debt
service coverage ratio and as a result the Company is in the process of placing
the property under a cash management agreement with the Servicer. In addition to
placing the property under a cash management agreement, the Company will be
required to fund certain escrow reserves as required under the note agreement,
until such time that the Company meets the required minimum debt service
coverage ratio. Once the property is placed under the cash management agreement,
the Servicer will maintain control over the Company’s cash account and on a
monthly basis release cash to the Company after the monthly debt service and
escrow funding are received. 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.
8
The fair
value of the mortgage note payable was $170,278,768 and $154,874,988 at
December 31, 2009 and 2008, respectively. The fair value was calculated by
discounting future cash flows for the note payable using an estimated market
rate of 8.5% at December 31, 2009 and 2008.
Scheduled
principal payments on the mortgage note payable are as follows:
|
Years
Ending
|
|
|
December
31
|
|
|
2010
|
$
3,330,967
|
|
2011
|
3,527,171
|
|
2012
|
3,734,931
|
|
2013
|
3,954,929
|
|
2014
|
4,187,885
|
|
Thereafter
|
175,147,743
|
|
$
193,883,626
|
|
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
|
$14,993,215
|
|
2011
|
13,969,061
|
|
2012
|
13,680,046
|
|
2013
|
7,153,944
|
|
2014
|
5,325,687
|
|
Thereafter
|
18,268,126
|
|
$73,390,079
|
|
4.
|
RELATED-PARTY
TRANSACTIONS
|
The
Company is party to a management and leasing agreement with CBL &
Associates Management, Inc. (“CBL Management”), which is controlled by
affiliates of CBL Member, to manage and provide leasing services to the
properties. The agreement provides for the Company to pay CBL Management a
management fee based on revenues collected. Total management fee expense for the
years ended December 31, 2009, 2008 and 2007, were $517,836, $542,140 and
$553,950, respectively.
The
leasing and management agreement provides for the Company to pay CBL Management
leasing commissions depending on the type of lease executed. Total leasing
commissions for the years ended December 31, 2009, 2008 and 2007, were
$26,624, $57,598 and $226,648, respectively.
The
leasing and management agreement provides for the Company to pay monthly leasing
fees to CBL Management based on rent collected from executed temporary tenants
and sponsorship branding fees. Total temporary tenant leasing fees and
sponsorship branding fees for the years ended December 31, 2009, 2008 and
2007, were $169,764, $155,726 and $256,524, respectively.
9
The
leasing and management agreement with CBL Management also provides for the
Company to pay an outparcel sales fee to CBL Management based on the sales price
of the outparcel. Total outparcel sales fee for the year ended December 31,
2008, was $60,000.
Amounts
payable to CBL Management as of December 31, 2009 and 2008, were $22,982
and $42,603, respectively.
The entity
that provides security, maintenance, cleaning, and background music services for
the Company is owned by certain affiliates of CBL Member. The Company recognized
expenses of $1,267,921, $1,378,070 and $1,364,426, respectively, for services
provided by the affiliate for the years ended December 31, 2009, 2008 and
2007. The Company has no amounts outstanding due to the affiliate as of
December 31, 2009 and 2008.
A
subsidiary owned by certain affiliates of CBL Member leases equipment, including
computers, to the Company. The Company recognized expense of $11,688 and $9,773,
and $4,920, respectively, for services provided by the subsidiary for the years
ended December 31, 2009, 2008 and 2007. The Company had no outstanding
amounts payable to the subsidiary as of December 31, 2009 and
2008.
An
affiliate of CBL Member provides consulting for and negotiation of reductions
for real estate taxes. The Company recognized expenses of $2,876, $2,129, and
$2,876, for the years ended December 31, 2009, 2008 and 2007,
respectively.
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5.
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SUBSEQUENT
EVENTS
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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 that would require adjustment, or disclosure in,
the financial statements.
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