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Combined Guarantor Subsidiary - Noncash Investing and Financing Activities | 3 Months Ended
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Mar. 31, 2019
Condensed Financial Information Disclosure [Abstract] |
Combined Guarantor Subsidiaries | Combined Guarantor Subsidiaries of CBL & Associates Limited Partnership Combined Balance Sheets (In thousands) (Unaudited)
ASSETS | March 31, 2019 |  | December 31, 2018
Real estate assets: |  |  |
Land | $ | 221,773 |  |  | $ | 232,813 |
Buildings and improvements | 2,218,595 |  |  | 2,361,707 |
| 2,440,368 |  |  | 2,594,520 |
Accumulated depreciation | (880,724 | ) |  | (921,562 | )
| 1,559,644 |  |  | 1,672,958 |
Developments in progress | 8,083 |  |  | 6,582 |
Net investment in real estate assets | 1,567,727 |  |  | 1,679,540 |
Cash and cash equivalents | 8,057 |  |  | 5,880 |
Receivables: |  |  |
Tenant, net of allowance for doubtful accounts of $2 60 in 2018 | 28,302 |  |  | 30,553 |
Other | 1,063 |  |  | 1,007 |
Mortgage and other notes receivable | 76,729 |  |  | 76,747 |
Intangible lease assets and other assets | 42,218 |  |  | 48,133 |
| $ | 1,724,096 |  |  | $ | 1,841,860 |
LIABILITIES AND OWNERS EQUITY |  |  |  |  |
Mortgage notes payable, net | $ | 256,078 |  |  | $ | 377,996 |
Accounts payable and accrued liabilities | 34,416 |  |  | 59,241 |
Total liabilities | 290,494 |  |  | 437,237 |
Commitments and contingencies (Note 7 and Note 11) |  |  |  |  |
Owners' equity | 1,433,602 |  |  | 1,404,623 |
| $ | 1,724,096 |  |  | $ | 1,841,860 |
The accompanying notes are an integral part of these combined statements.
The Combined Guarantor Subsidiaries of CBL & Associates Limited Partnership Combined Statements of Operations (In thousands) (Unaudited)
| Three Months Ended March 31,
| 2019 |  | 2018
REVENUES: |  |  |
Rental revenues | $ | 71,272 |  |  | $ | 78,706 |
Other | 1,720 |  |  | 1,732 |
Total revenues | 72,992 |  |  | 80,438 |
OPERATING EXPENSES: |  |  |
Property operating | (11,208 | ) |  | (12,308 | )
Depreciation and amortization | (24,101 | ) |  | (24,499 | )
Real estate taxes | (6,801 | ) |  | (7,159 | )
Maintenance and repairs | (4,756 | ) |  | (4,718 | )
Loss on impairment | (22,770 | ) |  | — |
Total operating expenses | (69,636 | ) |  | (48,684 | )
OTHER INCOME (EXPENSES): |  |  |
Interest and other income | 942 |  |  | 2,133 |
Interest expense | (3,985 | ) |  | (5,990 | )
Gain on extinguishment of debt | 61,796 |  |  | — |
Gain on sales of real estate assets | — |  |  | 1,718 |
Total other income (expenses) | 58,753 |  |  | (2,139 | )
Net income | $ | 62,109 |  |  | $ | 29,615 |
The accompanying notes are an integral part of these combined statements. Combined Guarantor Subsidiaries of CBL & Associates Limited Partnership Combined Statements of Owners' Equity (In thousands) (Unaudited)
Balance, January 1, 2018 |  | $ | 1,486,164 |
Net income |  | 29,615 |
Contributions |  | 50,514 |
Distributions |  | (56,447 | )
Balance, March 31, 2018 |  | $ | 1,509,846 |
Balance, January 1, 2019 |  | $ | 1,404,623 |
Net income |  | 62,109 |
Contributions |  | 17,363 |
Distributions |  | (41,658 | )
Noncash distributions |  | (8,835 | )
Balance, March 31, 2019 |  | $ | 1,433,602 |
The accompanying notes are an integral part of these combined statements.
The Combined Guarantor Subsidiaries of CBL & Associates Limited Partnership Combined Statements of Cash Flows (In thousands) (Unaudited)
| Three Months Ended March 31,
| 2019 |  | 2018
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |
Net income | $ | 62,109 |  |  | $ | 29,615 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation and amortization | 24,101 |  |  | 24,499 |
Net amortization of deferred financing costs, debt premiums and discounts | 62 |  |  | (122 | )
Net amortization of intangible lease assets and liabilities | (611 | ) |  | (568 | )
Gain on sales of real estate assets | — |  |  | (1,718 | )
Loss on insurance proceeds | 64 |  |  | — |
Loss on impairment | 22,770 |  |  | — |
Gain on extinguishment of debt | (61,796 | ) |  | — |
Change in estimate of uncollectable rental revenues | 584 |  |  | 476 |
Changes in: |  |  |
Tenant and other receivables | (367 | ) |  | (844 | )
Other assets | (632 | ) |  | (883 | )
Accounts payable and accrued liabilities | (10,251 | ) |  | (3,016 | )
Net cash provided by operating activities | 36,033 |  |  | 47,439 |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |
Additions to real estate assets | (6,207 | ) |  | (13,032 | )
Proceeds from sales of real estate assets | — |  |  | 2,547 |
Proceeds from insurance | 367 |  |  | — |
Payments received on mortgage and other notes receivable | 17 |  |  | 4,457 |
Changes in other assets | (313 | ) |  | (142 | )
Net cash used in investing activities | (6,136 | ) |  | (6,170 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |
Principal payments on mortgage and other indebtedness | (6,709 | ) |  | (39,516 | )
Distributions to owners | (41,658 | ) |  | (56,447 | )
Contributions from owners | 17,363 |  |  | 50,514 |
Net cash used in financing activities | (31,004 | ) |  | (45,449 | )
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (1,107 | ) |  | (4,180 | )
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | 13,020 |  |  | 14,544 |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | $ | 11,913 |  |  | $ | 10,364 |
Reconciliation from combined statements of cash flows to combined balance sheets:
Cash and cash equivalents | $ | 8,057 |  |  | $ | 5,085 |
Restricted cash (1): |  |  |
Restricted cash | — |  |  | 2,309 |
Mortgage escrows | 3,856 |  |  | 2,970 |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | $ | 11,913 |  |  | $ | 10,364 |
SUPPLEMENTAL INFORMATION: |  |  |  |  |
Cash paid for interest, net of amounts capitalized | $ | 3,375 |  |  | $ | 4,217 |
(1) | Included in intangible lease assets and other assets in the combined balance sheets.
The accompanying notes are an integral part of these combined statements. Note 1 – Organization and Basis of Presentation CBL & Associates Properties, Inc. (“CBL”), a Delaware corporation, is a self-managed, self-administered, fully-integrated real estate investment trust (“REIT”) that is engaged in the ownership, development, acquisition, leasing, management and operation of regional shopping malls, open-air and mixed-use centers, outlet centers, associated centers, community centers and office properties. Its properties are located in 26 states, but are primarily in the southeastern and midwestern United States. CBL conducts substantially all of its business through CBL & Associates Limited Partnership (the “Operating Partnership”), which is a variable interest entity ("VIE"). The Operating Partnership consolidates the financial statements of all entities in which it has a controlling financial interest or where it is the primary beneficiary of a VIE. In January 2019, the Operating Partnership entered into a new $1,185,000 senior secured credit facility which replaced all of the Operating Partnership’s prior unsecured bank facilities. The secured credit facility is secured by 17 malls and 3 associated centers that are owned by 36 wholly owned subsidiaries of the Operating Partnership (collectively the “Combined Guarantor Subsidiaries”). The Combined Guarantor Subsidiaries own an additional five malls, two associated centers and four mortgage notes receivable that are not collateral for the secured credit facility. The properties that are collateral for the secured credit facility and the properties and mortgage notes receivable that are not collateral are collectively referred to as the “Guarantor Properties”. In addition to the secured credit facility, the Operating Partnership’s debt includes three separate series of senior unsecured notes (the “Notes”). Based on the terms of the Notes, to the extent that any subsidiary of the Operating Partnership executes and delivers a guarantee to another debt facility, the Operating Partnership shall also cause the subsidiary to guarantee the Operating Partnership’s obligations under the Notes on a senior basis. In January 2019, the Combined Guarantor Subsidiaries entered a guarantee agreement with the issuer of the Notes to satisfy the guaranty requirement. The Combined Guarantor Subsidiaries and Guarantor Properties consisted of the following:
Combined Guarantor Subsidiaries | Guarantor Properties | Location
CW Joint Venture, LLC Arbor Place Limited Partnership Multi-GP Holdings, LLC | Acadiana Mall(1) Arbor Place(1) Greenbrier Mall(1) Park Plaza(1) Shoppes at St. Claire Square(1) St. Claire Square(1) | Lafayette, LA Douglasville, GA Chesapeake, VA Little Rock, AR Fairview Heights, IL Fairview Heights, IL
CBL/Westmoreland, L.P. CBL/Westmoreland I, LLC CBL/Westmoreland II, LLC CW Joint Venture, LLC Arbor Place Limited Partnership Multi-GP Holdings, LLC | Westmoreland Mall Westmoreland Crossing | Greensburg, PA Greensburg, PA
Cherryvale Mall, LLC | CherryVale Mall | Rockford, IL
Madison/East Towne, LLC Madison Joint Venture CBL/Madison I, LLC | East Towne Mall | Madison, WI
Frontier Mall Associates Limited Partnership Mortgage Holdings LLC | Frontier Mall | Cheyenne, WY
JG Winston-Salem, LLC | Hanes Mall | Winston-Salem, NC
Imperial Valley Mall II, L.P. Imperial Valley Mall GP, LLC Imperial Valley Mall, L.P. CBL/Imperial Valley, GP, LLC | Imperial Valley Mall | El Centro, CA
Kirkwood Mall Acquisition LLC Kirkwood Mall Mezz LLC CBL/Kirkwood Mall, LLC | Kirkwood Mall | Bismarck, ND
Combined Guarantor Subsidiaries | Guarantor Properties | Location
Layton Hills Mall CMBS, LLC | Layton Hills Mall and Cinema Layton Hills Plaza Layton Hills Convenience Center | Layton, UT Layton, UT Layton, UT
Mall del Norte, LLC MDN/Laredo GP, LLC | Mall del Norte and Cinema | Laredo, TX
Mayfaire Town Center, LP Mayfaire GP, LLC | Mayfaire Town Center | Wilmington, NC
Mortgage Holdings, LLC | Four mortgage notes receivable (1) | Chattanooga, TN
Hixson Mall, LLC | Northgate Mall | Chattanooga, TN
Pearland Town Center Limited Partnership Pearl Ground, LLC Pearland Town Center GP, LLC | Pearland Town Center - Retail Pearland Town Center - Office | Pearland, TX
POM-College Station, LLC | Post Oak Mall | College Station, TX
CBL RM-Waco, LLC CBL/Richland G.P., LLC | Richland Mall | Waco, TX
CBL SM - Brownsville, LLC CBL/Sunrise GP, LLC | Sunrise Mall | Brownsville, TX
Turtle Creek Limited Partnership Mortgage Holdings, LLC | Turtle Creek Mall | Hattiesburg, MS
Madison/West Towne, LLC Madison Joint Venture CBL/Madison I, LLC | West Towne Mall | Madison, WI
Madison Joint Venture CBL/Madison I, LLC | West Town Crossing (1) | Madison, WI
(1) | Property/asset is not collateral on the secured credit facility.
Each of the Combined Guarantor Subsidiaries meet the criteria in Rule 3-10(f) of SEC Regulation S-X to provide condensed consolidating financial information as additional disclosure in the notes to the Operating Partnership’s condensed consolidated financial statements because each Combined Guarantor Subsidiary is 100% owned by the Operating Partnership, the guaranty issued by each Combined Guarantor Subsidiary is full and unconditional and the guaranty issued by each Combined Guarantor Subsidiary is joint and several. However, the Operating Partnership has elected to provide these combined financial statements and accompanying notes for the Combined Guarantor Subsidiaries in lieu of including the condensed consolidating financial information in the notes to its condensed consolidated financial statements. These combined financial statements and notes are presented as an exhibit to the Operating Partnership's quarterly report on Form 10-Q for ease of reference. The accompanying combined financial statements are unaudited. The results for the interim period ended March 31, 2019 are not necessarily indicative of the results to be obtained for the full fiscal year. Note 2 – Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements represent the combined financial statements of the Combined Guarantor Subsidiaries on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. All intercompany transactions have been eliminated. Results of operations realized in any one quarter may not be indicative of the results likely to be experienced over the course of the fiscal year. Accounting Guidance Adopted
Description |  | Date Adopted & Application Method |  | Financial Statement Effect and Other Information
ASU 2016-02, Leases, and related subsequent amendments |  | January 1, 2019 - Modified Retrospective (electing optional transition method to apply at adoption date and record cumulative-effect adjustment as of January 1, 2019) |  | The objective of the leasing guidance is to increase transparency and comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. Putting nearly all leases on the balance sheet is the biggest change for lessees, as lessees will now be required to recognize a right-of-use (“ROU”) asset and corresponding lease liability for assets with terms greater than 12 months. Under the FASB model, lessees will classify a lease as either a finance lease or an operating lease, while a lessor will classify a lease as either a sales-type, direct financing, or operating lease. A lessee should classify a lease based on whether the arrangement is effectively a purchase of the underlying asset. Leases that transfer control of the underlying asset to a lessee are classified as finance leases for lessees and sales-type leases for lessors, whereas leases where the lessee obtains control of only the use of the underlying asset, but not the underlying asset itself, will be classified as operating leases for both lessees and lessors. A lease may meet the lessee finance lease criteria even when control of the underlying asset is not transferred to the lessee, and in these cases the lease would be classified as an operating lease for the lessee and a direct finance lease by the lessor. The guidance to be applied by lessors is substantially similar to existing GAAP. In order to align lessor accounting with the principles in the revenue recognition guidance in ASC 606, a lessor is precluded from recognizing selling profit or sales revenue at lease commencement for a lease that does not transfer control of the underlying asset to the lessee. As a lessee, the guidance impacted the Combined Guarantor Subsidiaries' combined financial statements through the recognition of right-of-use ("ROU") assets and corresponding lease liabilities for operating leases as of January 1, 2019. As a lessor, the guidance impacted the Combined Guarantor Subsidiaries' combined financial statements in regard to the narrowed definition of initial direct costs that can be capitalized, the change in the presentation of rental revenues as one line item and the change in reporting uncollectable operating lease receivables as a reduction of rental revenues instead of property operating expense. The adoption did not result in a cumulative catch-up adjustment to opening equity. See Note 4 for further details.
Accounting Guidance Not Yet Effective
Description |  | Expected Adoption Date & Application Method |  | Financial Statement Effect and Other Information
ASU 2016-13, Measurement of Credit Losses on Financial Instruments |  | January 1, 2020 - Modified Retrospective |  | The guidance replaces the current incurred loss impairment model, which reflects credit events, with a current expected credit loss model, which recognizes an allowance for credit losses based on an entity's estimate of contractual cash flows not expected to be collected. The Combined Guarantor Subsidiaries are evaluating the impact that this update may have on the combined financial statements and related disclosures.
Real Estate Assets The Combined Guarantor Subsidiaries capitalize predevelopment project costs paid to third parties. All previously capitalized predevelopment costs are expensed when it is no longer probable that the project will be completed. Once development of a project commences, all direct costs incurred to construct the project, including interest and real estate taxes, are capitalized. Additionally, certain general and administrative expenses are allocated to the projects and capitalized based on the amount of time applicable personnel work on the development project. Ordinary repairs and maintenance are expensed as incurred. Major replacements and improvements are capitalized and depreciated over their estimated useful lives. All acquired real estate assets have been accounted for using the acquisition method of accounting and accordingly, the results of operations are included in the consolidated statements of operations from the respective dates of acquisition. The Combined Guarantor Subsidiaries allocate the purchase price to (i) tangible assets, consisting of land, buildings and improvements, as if vacant, and tenant improvements, and (ii) identifiable intangible assets and liabilities, generally consisting of above-market leases, in-place leases and tenant relationships, which are included in other assets, and below-market leases, which are included in accounts payable and accrued liabilities. The Combined Guarantor Subsidiaries use estimates of fair value based on estimated cash flows, using appropriate discount rates, and other valuation techniques to allocate the purchase price to the acquired tangible and intangible assets. Liabilities assumed generally consist of mortgage debt on the real estate assets acquired. Assumed debt is recorded at its fair value based on estimated market interest rates at the date of acquisition. The Combined Guarantor Subsidiaries expect future acquisitions will be accounted for as acquisitions of assets in which related transaction costs will be capitalized. Depreciation is computed on a straight-line basis over estimated lives of 40 years for buildings, 10 to 20 years for certain improvements and 7 to 10 years for equipment and fixtures. Tenant improvements are capitalized and depreciated on a straight-line basis over the term of the related lease. Lease-related intangibles from acquisitions of real estate assets are generally amortized over the remaining terms of the related leases. The amortization of above- and below-market leases is recorded as an adjustment to rental revenues, while the amortization of all other lease-related intangibles is recorded as amortization expense. Any difference between the face value of the debt assumed and its fair value is amortized to interest expense over the remaining term of the debt using the effective interest method. The Combined Guarantor Subsidiaries' intangibles and their balance sheet classifications as of March 31, 2019 and December 31, 2018, are summarized as follows:
| March 31, 2019 |  | December 31, 2018
| Cost |  | Accumulated Amortization |  | Cost |  | Accumulated Amortization
Intangible lease assets and other assets: |  |  |  |  |  |  |
Above-market leases | $ | 12,064 |  |  | $ | (11,124 | ) |  | $ | 12,307 |  |  | $ | (11,198 | )
In-place leases | 44,321 |  |  | (36,547 | ) |  | 46,229 |  |  | (37,381 | )
Tenant relationships | 25,818 |  |  | (4,455 | ) |  | 27,866 |  |  | (4,880 | )
Accounts payable and accrued liabilities: |  |  |  |  |  |  |
Below-market leases | 27,975 |  |  | (21,683 | ) |  | 28,942 |  |  | (21,805 | )
These intangibles are related to specific tenant leases. Should a termination occur earlier than the date indicated in the lease, the related unamortized intangible assets or liabilities, if any, related to the lease are recorded as expense or income, as applicable. The total net amortization expense of the above intangibles was $626 and $726 for the three months ended March 31, 2019 and 2018, respectively. The estimated total net amortization expense for the nine remaining months of 2019 and the following five succeeding years is $1,255 for the remainder of 2019, $1,195 in 2020, $1,241 in 2021, $1,020 in 2022, $706 in 2023 and $620 in 2024. Total interest expense capitalized was $95 and $188 for the three months ended March 31, 2019 and 2018, respectively. Carrying Value of Long-Lived Assets The Combined Guarantor Subsidiaries monitor events or changes in circumstances that could indicate the carrying value of a long-lived asset may not be recoverable. When indicators of potential impairment are present that suggest that the carrying amounts of a long-lived asset may not be recoverable, the Combined Guarantor Subsidiaries assess the recoverability of the asset by determining whether the asset’s carrying value will be recovered through the estimated undiscounted future cash flows expected from the Combined Guarantor Subsidiaries' probability weighted use of the asset and its eventual disposition. In the event that such undiscounted future cash flows do not exceed the carrying value, the Combined Guarantor Subsidiaries adjust the carrying value of the long-lived asset to its estimated fair value and recognizes an impairment loss. The estimated fair value is calculated based on the following information, in order of preference, depending upon availability: (Level 1) recently quoted market prices, (Level 2) market prices for comparable properties, or (Level 3) the present value of future cash flows, including estimated salvage value. Certain of the Combined Guarantor Subsidiaries' long-lived assets may be carried at more than an amount that could be realized in a current disposition transaction. Projections of expected future operating cash flows require that the Combined Guarantor Subsidiaries estimate future market rental income amounts subsequent to expiration of current lease agreements, property operating expenses, the number of months it takes to re-lease the property, and the number of years the property is held for investment, among other factors. As these assumptions are subject to economic and market uncertainties, they are difficult to predict and are subject to future events that may alter the assumptions used or management’s estimates of future possible outcomes. Therefore, the future cash flows estimated in the Combined Guarantor Subsidiaries' impairment analyses may not be achieved. See Note 5 for information related to the impairment of long-lived assets for 2019 and 2018. Cash and Cash Equivalents The Combined Guarantor Subsidiaries consider all highly liquid investments with original maturities of three months or less as cash equivalents. Restricted Cash Restricted cash of $3,856 and $7,139 was included in intangible lease assets and other assets at March 31, 2019 and December 31, 2018, respectively. Restricted cash consists primarily of cash held in escrow accounts for insurance, real estate taxes, capital expenditures and tenant allowances as required by the terms of certain mortgage notes payable. Deferred Financing Costs Net deferred financing costs related to the Combined Guarantor Subsidiaries' indebtedness of $299 and $361 were included in mortgage notes payable at March 31, 2019 and December 31, 2018, respectively. Deferred financing costs include fees and costs incurred to obtain financing and are amortized on a straight-line basis to interest expense over the terms of the related indebtedness. Amortization expense related to deferred financing costs was $62 and $77 for the three months ended March 31, 2019 and 2018, respectively. Accumulated amortization of deferred financing costs was $1,154 and $1,092 as of March 31, 2019 and December 31, 2018, respectively. Gain on Sales of Real Estate Assets Gains on the sale of real estate assets, like all non-lease related revenue, are subject to a five-step model requiring that the Combined Guarantor Subsidiaries identify the contract with the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue upon satisfaction of the performance obligations. In circumstances where the Combined Guarantor Subsidiaries contract to sell a property with material post-sale involvement, such involvement must be accounted for as a separate performance obligation in the contract and a portion of the sales price allocated to each performance obligation. When the post-sale involvement performance obligation is satisfied, the portion of the sales price allocated to it will be recognized as gain on sale of real estate assets. Property dispositions with no continuing involvement will continue to be recognized upon closing of the sale. Income Taxes No provision has been made for federal and state income taxes since these taxes are the responsibility of the owners. As of March 31, 2019, tax years that generally remain subject to examination by the Combined Guarantor Subsidiaries' major tax jurisdictions include 2018, 2017, 2016 and 2015. Concentration of Credit Risk The Combined Guarantor Subsidiaries tenants include national, regional and local retailers. Financial instruments that subject the Combined Guarantor Subsidiaries to concentrations of credit risk consist primarily of tenant receivables. The Combined Guarantor Subsidiaries generally do not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of tenants. The Combined Guarantor Subsidiaries derive a substantial portion of rental income from various national and regional retail companies; however, no single tenant collectively accounted for more than 4.1% of the Combined Guarantor Subsidiaries' total combined revenues in the three months ended March 31, 2019 and 2018. 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 and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Note 3 – Revenues Contract Balances A summary of the Combined Guarantor Subsidiaries' contract liability activity during the three months ended March 31, 2019 is presented below:
|  | Contract Liability
Balance as of December 31, 2018 |  | $ | 79 |
Completed performance obligation |  | — |
Contract obligation |  | — |
Balance as of March 31, 2019 |  | $ | 79 |
The Combined Guarantor Subsidiaries have the following contract balances as of March 31, 2019:
|  |  | As of March 31, 2019 |  | Expected Settlement Period
Description | Financial Statement Line Item |  |  | 2019 |  | 2020 |  | 2021 |  | 2022
Contract liability (1) | Other rents |  | 79 |  |  | (19 | ) |  | (20 | ) |  | (20 | ) |  | (20 | )
(1) | Relates to a contract in which the Combined Guarantor Subsidiaries received advance payments in the initial year of the multi-year contract.
Revenues Sales taxes are excluded from revenues. The following table presents the Combined Guarantor Subsidiaries' revenues disaggregated by revenue source:
|  | Three Months Ended March 31, 2019 |  | Three Months Ended March 31, 2018
Rental revenues (1) |  | $ | 71,272 |  |  | $ | 78,706 |
Revenues from contracts with customers (ASC 606): |  |  |  |
Operating expense reimbursements (2) |  | 1,151 |  |  | 1,168 |
Marketing revenues (3) |  | 437 |  |  | 508 |
|  | 1,588 |  |  | 1,676 |
Other revenues |  | 132 |  |  | 56 |
Total revenues |  | $ | 72,992 |  |  | $ | 80,438 |
(1) | Revenues from leases that commenced subsequent to December 31, 2018 are accounted for in accordance with ASC 842, Leases, whereas all leases existing prior to that date are accounted for in accordance with ASC 840, Leases. See Note 4.
(2) | Includes $1,151 in the Malls segment for the three months ended March 31, 2019. Includes $1,168 in the Malls segment for the three months ended March 31, 2018. See description below.
(3) | Includes $437 in the Malls segment for the three months ended March 31, 2019. Includes $508 in the Malls segment for the three months ended March 31, 2018.
See Note 10 for information on the Combined Guarantor Subsidiaries' segments. Revenue from Contracts with Customers Operating expense reimbursements Under operating and other agreements with third parties that own anchor or outparcel buildings at the Combined Guarantor Subsidiaries' properties and pay no rent, the Combined Guarantor Subsidiaries receive reimbursements for certain operating expenses such as ring road and parking lot maintenance, landscaping and other fees. These arrangements are primarily either set at a fixed rate with rate increases typically every five years or are on a variable (pro rata) basis, typically as a percentage of costs allocated based on square footage or sales. The majority of these contracts have an initial term and one or more extension options, which cumulatively approximate 50 or more years as historically the initial term and any extension options are reasonably certain of being executed by the third party. The standalone selling price of each performance obligation is determined based on the terms of the contract, which typically assign a price to each performance obligation that directly relates to the value the customer receives for the services being provided. Revenue is recognized as services are transferred to the customer. Variable consideration is based on historical experience and is generally recognized over time using the cost-to-cost method of measurement because it most accurately depicts the Combined Guarantor Subsidiaries' performance in satisfying the performance obligation. The cumulative catch-up method is used to recognize any adjustments in variable consideration estimates. Under this method, any adjustment is recognized in the period it is identified. Marketing revenues The Combined Guarantor Subsidiaries earn marketing revenues from advertising and sponsorship agreements. These fees may be for tangible items in which the Combined Guarantor Subsidiaries provide advertising services and creates signs and other promotional materials for the tenant or may be arrangements in which the customer sponsors a play area or event and receives specified brand recognition and other benefits over a set period of time. Revenue related to advertising services is recognized as goods and services are provided to the customer. Sponsorship revenue is recognized on a straight-line basis over the time period specified in the contract. Performance obligations A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. If the contract does not specify the revenue by performance obligation, the Combined Guarantor Subsidiaries allocate the transaction price to each performance obligation based on its relative standalone selling price. Such prices are generally determined using prices charged to customers or using the Combined Guarantor Subsidiaries' expected cost plus margin. Revenue is recognized as the Combined Guarantor Subsidiaries' performance obligations are satisfied over time, as services are provided, or at a point in time, such as leasing a space to earn a commission. Open performance obligations are those in which the Combined Guarantor Subsidiaries have not fully or have partially provided the applicable good or services to the customer as specified in the contract. If consideration is received in advance of the Combined Guarantor Subsidiaries' performance, including amounts which are refundable, recognition of revenue is deferred until the performance obligation is satisfied or amounts are no longer refundable. Practical Expedients The Combined Guarantor Subsidiaries do not disclose the value of open performance obligations for (1) contracts with an original expected duration of one year or less and (2) contracts for which the Combined Guarantor Subsidiaries recognize revenue at the amount to which they have the right to invoice, which primarily relate to services performed for certain operating expense reimbursements, as described above. Performance obligations related to fixed operating expense reimbursements for certain noncancellable contracts are disclosed below. Outstanding Performance Obligations The Combined Guarantor Subsidiaries have outstanding performance obligations related to certain noncancellable contracts with customers for which they will receive fixed operating expense reimbursements for providing certain maintenance and other services as described above. As of March 31, 2019, the Combined Guarantor Subsidiaries expect to recognize these amounts as revenue over the following periods:
Performance obligation |  | Less than 5 years |  | 5-20 years |  | Over 20 years |  | Total
Fixed operating expense reimbursements |  | $ | 15,263 |  |  | $ | 27,709 |  |  | $ | 34,288 |  |  | $ | 77,260 |
The Combined Guarantor Subsidiaries evaluate performance obligations each period and makes adjustments to reflect any known additions or cancellations. Performance obligations related to variable consideration which is based on sales is constrained. Note 4 – Leases Adoption of ASU 2016-02, and all related subsequent amendments The Combined Guarantor Subsidiaries adopted ASC 842 (which includes ASU 2016-02 and all related subsequent amendments) on January 1, 2019 and applied the guidance to leases that commenced on or after January 1, 2019. Historical amounts for prior periods were not adjusted and will continue to be reported using the guidance in ASC 840, Leases. To determine whether a contract contains a lease, the Combined Guarantor Subsidiaries evaluated contracts and verified that there was an identified asset and that the Combined Guarantor Subsidiaries, or the tenant, have the right to obtain substantially all the economic benefits from the use of the asset throughout the contract term. If a contract is determined to contain a lease, the lease is evaluated to determine whether it is an operating or financing lease, if the Combined Guarantor Subsidiaries are the lessee, or the lease is evaluated to determine whether it is an operating, direct financing or sales-type lease, if the Combined Guarantor Subsidiaries are the lessor. After determining that the contract contains a lease, the Combined Guarantor Subsidiaries identified the lease component and any nonlease components associated with that lease component, and through the Combined Guarantor Subsidiaries' election to combine lease and nonlease components for all asset classes, combined the components into a single lease component within each applicable lease. The discount rate to be used for each lease was determined by assessing the Company’s debt information, assessing the credit rating of the Company and the Company’s debt, estimating a synthetic “secured” credit rating for the Company and estimating an appropriate incremental borrowing rate. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term. See Note 2 for additional information about these accounting standards. Lessor Rental Revenues The majority of the Combined Guarantor Subsidiaries' revenues are earned through the lease of space at its properties. All of the Combined Guarantor Subsidiaries' leases with tenants for the use of space at our properties are classified as operating leases. Rental revenues include minimum rent, percentage rent, other rents and reimbursements from tenants for real estate taxes, insurance, common area maintenance ("CAM") and other operating expenses as provided in the lease agreements. The option to extend or terminate our leases is specific to each underlying tenant agreement. Typically, the Combined Guarantor Subsidiaries' leases contain penalties for early termination. The Combined Guarantor Subsidiaries do not have any leases that convey the right for the lessee to purchase the leased asset. Minimum rental revenue from operating leases is recognized on a straight-line basis over the initial terms of the related leases. Certain tenants are required to pay percentage rent if their sales volumes exceed thresholds specified in their lease agreements. Percentage rent is recognized as revenue when the thresholds are achieved and the amounts become determinable. The Combined Guarantor Subsidiaries receive reimbursements from tenants for real estate taxes, insurance, CAM and other recoverable operating expenses as provided in the lease agreements. Any tenant reimbursements that require fixed payments are recognized on a straight-line basis over the initial terms of the related leases, whereas any variable payments are recognized when earned in accordance with the tenant lease agreements. Tenant reimbursements related to certain capital expenditures are billed to tenants over periods of 5 to 15 years. The components of rental revenues are as follows:
|  | Three Months Ended March 31, 2019
Fixed lease payments |  | $ | 60,247 |
Variable lease payments |  | 11,025 |
Total rental revenues |  | $ | 71,272 |
The undiscounted future fixed lease payments to be received under the Combined Guarantor Subsidiaries' operating leases as of March 31, 2019, are as follows:
Year Ending December 31, |  | Operating Leases
2019 (1) |  | $ | 155,169 |
2020 |  | 185,745 |
2021 |  | 164,309 |
2022 |  | 134,017 |
2023 |  | 112,541 |
2024 |  | 85,865 |
Thereafter |  | 248,223 |
Total undiscounted lease payments |  | $ | 1,085,869 |
(1) | Reflects rental payments for the fiscal period April 1, 2019 through December 31, 2019.
As required by the Comparative Under ASC 840 Option, which is a transitional amendment that allows for the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), the Combined Guarantor Subsidiaries' future minimum rental income from lessees under non-cancellable operating leases where the Combined Guarantor Subsidiaries are the lessor as of December 31, 2018 is also presented below:
Years Ending December 31, | Operating Leases
2019 | $ | 184,923 |
2020 | 154,944 |
2021 | 133,093 |
2022 | 107,092 |
2023 | 86,957 |
Thereafter | 193,324 |
Total | $ | 860,333 |
Lessee The Combined Guarantor Subsidiaries have one ground lease where they own the buildings and improvements, but lease the underlying land. The maturity of the lease is January 1, 2073 and provides for five year renewal options. The Combined Guarantor Subsidiaries included the renewal options in the lease term for purposes of calculating the lease liability and ROU asset because they have no plans to cease operating the asset associated with this ground lease. The lease payments on the ground lease are fixed. The Combined Guarantor Subsidiaries' ROU asset and lease liability are presented in the combined balance sheets within intangible lease assets and other assets and accounts payable and accrued liabilities, respectively. A summary of the Combined Guarantor Subsidiaries' ROU asset and lease liability activity during the three months ended March 31, 2019 is presented below:
|  | ROU Asset |  | Lease Liability
Balance as of January 1, 2019 |  | $ | 493 |  |  | $ | 490 |
Cash reduction |  | (10 | ) |  | (10 | )
Noncash increase |  | 7 |  |  | 10 |
Balance as of March 31, 2019 |  | $ | 490 |  |  | $ | 490 |
The Combined Guarantor Subsidiaries' incurred $10 of lease expense for the three months ended March 31, 2019. The undiscounted future lease payments to be paid under the Combined Guarantor Subsidiaries' operating lease as of March 31, 2019, are as follows:
Year Ending December 31, |  | Operating Lease
2019 (1) |  | $ | 30 |
2020 |  | 41 |
2021 |  | 41 |
2022 |  | 41 |
2023 |  | 41 |
2024 |  | 41 |
Thereafter |  | 1,949 |
Total undiscounted lease payments |  | $ | 2,184 |
Less imputed interest |  | (1,694 | )
Lease Liability |  | $ | 490 |
(1) | Reflects rental payments for the fiscal period April 1, 2019 through December 31, 2019.
As required by the Comparative Under ASC 840 Option, which is a transitional amendment that allows for the presentation of comparative periods in the year of adoption under ASC 840 (the former leasing guidance), the Combined Guarantor Subsidiaries' future obligations to be paid under the Combined Guarantor Subsidiaries' operating leases where the Combined Guarantor Subsidiaries are the lessee as of December 31, 2018 are also presented below:
2019 |  | $ | 41 |
2020 |  | 41 |
2021 |  | 41 |
2022 |  | 41 |
2023 |  | 41 |
Thereafter |  | 1,990 |
|  | $ | 2,195 |
Practical Expedients In regard to leases that commenced before January 1, 2019, the Combined Guarantor Subsidiaries elected to use a package of practical expedients to not reassess whether any expired or existing contracts are or contain a lease, to not reassess lease classification for any expired or existing leases, and to not reassess initial direct costs for any existing leases. The Combined Guarantor Subsidiaries also elected a practical expedient to not assess whether existing or expired land easements that were not previously accounted for as leases under ASC 840 are or contain a lease under ASC 842. Additionally, the Combined Guarantor Subsidiaries elected a practical expedient by class of underlying asset applied to all leases to elect not to separate lease and nonlease components as long as the lease and at least one nonlease component have the same timing and pattern of transfer and the lease is classified as an operating lease. The combined component is being accounted for under ASC 842. The Combined Guarantor Subsidiaries made an accounting policy election to exclude sales and other similar taxes from revenues, and instead account for them as costs of the lessee. Lastly, the Combined Guarantor Subsidiaries have elected not to apply the recognition requirements of ASC 842 to short-term leases. See Note 2 for additional information about these accounting standards. Note 5 – Fair Value Measurements The Combined Guarantor Subsidiaries have categorized financial assets and financial liabilities that are recorded at fair value into a hierarchy in accordance with ASC 820, Fair Value Measurements and Disclosure, ("ASC 820") 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 Combined Guarantor Subsidiaries' assumptions and best judgment.
The asset or liability's fair value within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Under ASC 820, fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability in an orderly transaction at the measurement date and under current market conditions. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs and consider assumptions such as inherent risk, transfer restrictions and risk of nonperformance. Fair Value Measurements on a Recurring Basis The carrying values of cash and cash equivalents, receivables, accounts payable and accrued liabilities are reasonable estimates of their fair values because of the short-term nature of these financial instruments. Based on the interest rates for similar financial instruments, the carrying value of the note receivable is a reasonable estimate of fair value. The estimated fair value of mortgage notes payable was $257,032 and $319,222 at March 31, 2019 and December 31, 2018, respectively. The fair value was calculated using Level 2 inputs by discounting future cash flows for mortgage notes payable using estimated market rates at which similar loans would be made currently. Fair Value Measurements on a Nonrecurring Basis The Combined Guarantor Subsidiaries measure the fair value of certain long-lived assets on a nonrecurring basis, through quarterly impairment testing or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Combined Guarantor Subsidiaries consider both quantitative and qualitative factors in its impairment analysis of long-lived assets. Significant quantitative factors include historical and forecasted information for each property such as net operating income ("NOI"), occupancy statistics and sales levels. Significant qualitative factors used include market conditions, age and condition of the property and tenant mix. Due to the significant unobservable estimates and assumptions used in the valuation of long-lived assets that experience impairment, the Combined Guarantor Subsidiaries classify such long-lived assets under Level 3 in the fair value hierarchy. Level 3 inputs primarily consist of sales and market data, independent valuations and discounted cash flow models. Long-lived Assets Measured at Fair Value in 2019 The following table sets forth information regarding the Combined Guarantor Subsidiaries' assets that are measured at fair value on a nonrecurring basis and related impairment charges for the three months ended March 31, 2019:
|  |  | Fair Value Measurements at Reporting Date Using |  |
| Total |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total Loss on Impairment
Long-lived assets | $ | 56,300 |  |  | $ | — |  |  | $ | — |  |  | $ | 56,300 |  |  | $ | 22,770 |
During the three months ended March 31, 2019, the Combined Guarantor Subsidiaries recognized an impairment of $22,770 related to one mall.
Impairment Date |  | Property |  | Location |  | Segment Classification |  | Loss on Impairment |  | Fair Value
March |  | Greenbrier Mall (1) |  | Chesapeake, VA |  | Malls |  | $ | 22,770 |  |  | $ | 56,300 |
(1) | In accordance with the Combined Guarantor Subsidiaries' quarterly impairment process, the Combined Guarantor Subsidiaries wrote down the book value of the mall to its estimated fair value of $56,300. The mall has experienced a decline of NOI due to store closures and rent reductions. Additionally, one anchor was vacant as of March 31, 2019. Management determined the fair value of Greenbrier Mall using a discounted cash flow methodology. The discounted cash flow used assumptions including a holding period of ten years, with a sale at the end of the holding period, a capitalization rate of 11.0% and a discount rate 11.5%.
Note 6 – Dispositions The Combined Guarantor Subsidiaries evaluate disposals utilizing the guidance in ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Based on analysis, the Combined Guarantor Subsidiaries determined that the dispositions described below do not meet the criteria for classification as discontinued operations and are not considered to be significant disposals based on its quantitative and qualitative evaluation. Thus, the results of operations of the properties described below, as well as any related gains or losses, are included in net income for all periods presented, as applicable. 2019 Dispositions The Combined Guarantor Subsidiaries recognized a gain on extinguishment of debt for the property listed below, which represented the amount by which the outstanding debt balance exceeded the net book value of the property as of the transfer date. See Note 7 for more information. The following is a summary of the Combined Guarantor Subsidiaries' 2019 dispositions:
Transfer Date |  |  |  |  |  |  |  | Balance of Non-recourse Debt |  | Gain on Extinguishment of Debt
| Property |  | Property Type |  | Location |  |
January |  | Acadiana Mall (1) |  | Mall |  | Lafayette, LA |  | $ | 119,760 |  |  | $ | 61,796 |
(1) | The Combined Guarantor Subsidiaries transferred title to the mall to the mortgage holder in satisfaction of the non-recourse debt secured by the property. A loss on impairment of real estate of $43,007 was recorded in 2017 to write down the book value of the mall to its then estimated fair value. The Combined Guarantor Subsidiaries also recorded $305 of aggregate non-cash default interest expense during the first quarter of 2019.
2018 Dispositions The Combined Guarantor Subsidiaries realized a gain of $1,718 primarily related to the sale of four outparcels during the three months ended March 31, 2018. Note 7 – Mortgage Notes Payable, Net Mortgage notes payable, net, consisted of the following:
| Interest Rate (1) |  | Maturity Date |  | March 31, 2019 |  | December 31, 2018
Property |  |  |  |  |  |  |  |
Acadiana Mall (2) | 5.67% |  | Apr-17 |  | $ | — |  |  | $ | 119,760 |
Greenbrier Mall | 5.41% |  | Dec-19 |  | 67,201 |  |  | 68,101 |
Park Plaza Mall | 5.28% |  | Apr-21 |  | 80,564 |  |  | 81,287 |
Arbor Place Mall | 5.10% |  | May-22 |  | 108,612 |  |  | 109,209 |
Total mortgage notes payable | 5.24% |  |  |  | 256,377 |  |  | 378,357 |
Unamortized deferred financing costs |  |  |  |  | (299 | ) |  | (361 | )
Total mortgage notes payable, net |  |  |  |  | $ | 256,078 |  |  | $ | 377,996 |
(1) | Weighted-average interest rate includes the effect of debt premiums and discounts, but excludes amortization of deferred financing costs.
(2) | See Note 6 related to the retirement of this loan.
2018 Loan Repayments In January 2018, the Combined Guarantor Subsidiaries repaid the outstanding balance of $37,295 on the fixed-rate loan secured by Kirkwood Mall with cash contributed by the Operating Partnership. The loan had a maturity date of April 2018 and bore interest at 5.75%. Scheduled Principal Payments As of March 31, 2019, the scheduled principal amortization and balloon payments of the Combined Guarantor Subsidiaries' mortgage notes payable, excluding extensions available at the Combined Guarantor Subsidiaries' option, are as follows:
2019 |  | $ | 71,187 |
2020 |  | 5,574 |
2021 |  | 77,844 |
2022 |  | 101,772 |
|  | 256,377 |
Unamortized deferred financing costs |  | (299 | )
Total mortgage notes payable, net |  | $ | 256,078 |
Of the $71,187 of scheduled principal payments in 2019, $67,201 relates to the principal balance of Greenbrier Mall and $3,986 relates to scheduled principal amortization. The Combined Guarantor Subsidiaries' mortgage notes payable had a weighted-average maturity of 2.11 years as of March 31, 2019 and 1.08 years as of December 31, 2018. Note 8 – Mortgage and Other Notes Receivable Each of the mortgage notes receivable is collateralized by a first mortgage. Other notes receivable include amounts due from a government sponsored district for reimbursable costs pursuant to an agreement with the district. The Combined Guarantor Subsidiaries review the mortgage and other notes receivable to determine if the balances are realizable based on factors affecting the collectability of those balances. Mortgage and other notes receivable consist of the following:
|  |  |  | As of March 31, 2019 |  | As of December 31, 2018
|  | Maturity Date |  | Interest Rate |  | Balance |  | Interest Rate |  | Balance
Mortgages: |  |  |  |  |  |  |  |  |  |
The Promenade (1) |  | Jun 2019 |  | 5.00% |  | $ | 47,514 |  |  | 5.00% |  | $ | 47,514 |
Hamilton Corner (1) |  | Aug 2019 |  | 5.67% |  | 14,295 |  |  | 5.67% |  | 14,295 |
Forum at Grandview (1) |  | Sep 2023 |  | 5.25% |  | 12,400 |  |  | 5.25% |  | 12,400 |
Village Square (2) |  | Mar 2019 |  | 4.00% |  | 1,290 |  |  | 4.00% |  | 1,308 |
|  |  |  |  |  | 75,499 |  |  |  |  | 75,517 |
Other Notes Receivable: |  |  |  |  |  |  |  |  |  |
Community improvement district |  | Aug 2028 |  | 7.50% |  | 1,230 |  |  | 7.50% |  | 1,230 |
|  |  |  |  |  | 1,230 |  |  |  |  | 1,230 |
|  |  |  |  |  | $ | 76,729 |  |  |  |  | $ | 76,747 |
(1) | The mortgaged property is owned by an entity that is controlled by the Operating Partnership and included in the Operating Partnership's condensed consolidated financials statements. The mortgage note receivable is interest only.
(2) | The note was amended subsequent to March 31, 2019 to extend the maturity date and restructure the monthly payment amount.
Note 9 – Related Party Transactions The Combined Guarantor Subsidiaries are party to management agreements with CBL & Associates Management, Inc. (“CBL Management”), which is controlled by the Operating Partnership, to manage the Guarantor Properties. The agreements provide that the Guarantor Properties pay management fees equal to a percentage of gross revenues as defined by the respective management agreements. The management fee percentage ranges from 2.5% to 3.5% based on the agreements. Management fee expense was $1,491 and $1,551 for the three months ended March 31, 2019 and 2018, respectively. Amounts payable to CBL Management for management fees were $167 and $176 as of March 31, 2019 and December 31, 2018. Note 10 – Segment Information The Combined Guarantor Subsidiaries measure performance and allocate 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 Combined Guarantor Subsidiaries' segments is presented as follows:
Three Months Ended March 31, 2019 |  | Malls |  | All Other (1) |  | Total
Revenues |  | $ | 70,400 |  |  | $ | 2,592 |  |  | $ | 72,992 |
Property operating expenses (2) |  | (22,169 | ) |  | (596 | ) |  | (22,765 | )
Interest expense |  | (3,985 | ) |  | — |  |  | (3,985 | )
Segment profit |  | $ | 44,246 |  |  | $ | 1,996 |  |  | 46,242 |
Depreciation and amortization expense |  |  |  |  |  | (24,101 | )
Interest and other income |  |  |  |  |  | 942 |
Gain on extinguishment of debt |  |  |  |  |  | 61,796 |
Loss on impairment |  |  |  |  |  | (22,770 | )
Net income |  |  |  |  |  | $ | 62,109 |
Capital expenditures (3) |  | $ | 2,618 |  |  | $ | — |  |  | $ | 2,618 |
Three Months Ended March 31, 2018 |  | Malls |  | All Other (1) |  | Total
Revenues |  | $ | 77,661 |  |  | $ | 2,777 |  |  | $ | 80,438 |
Property operating expenses (2) |  | (23,553 | ) |  | (632 | ) |  | (24,185 | )
Interest expense |  | (5,990 | ) |  | — |  |  | (5,990 | )
Gain on sales of real estate assets |  | 1,718 |  |  | — |  |  | 1,718 |
Segment profit |  | $ | 49,836 |  |  | $ | 2,145 |  |  | 51,981 |
Depreciation and amortization expense |  |  |  |  |  |  |  | (24,499 | )
Interest and other income |  |  |  |  |  |  |  | 2,133 |
Net income |  |  |  |  |  |  |  | $ | 29,615 |
Capital expenditures (3) |  | $ | 9,163 |  |  | $ | 186 |  |  | $ | 9,349 |
Total Assets |  | Malls |  | All Other (1) |  | Total
March 31, 2019 |  | $ | 1,578,912 |  |  | $ | 145,184 |  |  | $ | 1,724,096 |
December 31, 2018 |  | $ | 1,697,211 |  |  | $ | 144,649 |  |  | $ | 1,841,860 |
(1) | The All Other category includes associated centers and notes receivable.
(2) | Property operating expenses include property operating, real estate taxes and maintenance and repairs.
(3) | Amounts include acquisitions of real estate assets. Developments in progress are included in the All Other category.
Note 11 – Contingencies Litigation On March 20, 2019, the board of directors of CBL, the parent of the Operating Partnership, approved the structure of a settlement of a class action lawsuit filed on March 16, 2016 in the United States District Court for the Middle District of Florida (the “Court”) by Wave Lengths Hair Salons of Florida, Inc. d/b/a Salon Adrian. The CBL entities that were the defendants in the action (and which are responsible for payments under the settlement) are CBL & Associates Properties, Inc., CBL & Associates Limited Partnership, CBL & Associates Management, Inc. and JG Gulf Coast Town Center, LLC (collectively, the “CBL Defendant Entities”). In its action, plaintiff sought unspecified monetary damages as well as costs and attorneys’ fees, based on allegations that the CBL Defendant Entities overcharged tenants at bulk metered malls for electricity. Under the terms of the proposed settlement, the CBL Defendant Entities have denied all allegations of wrongdoing and have asserted that their actions have at all times been lawful and proper. No Combined Guarantor Subsidiary is a CBL Defendant Entity and no Combined Guarantor Subsidiary is responsible for payment of amounts under the above-referenced settlement. Class members will include past and current tenants of certain Guarantor Properties (the “Guarantor Class Subsidiaries”) during the class period, which will extend from January 1, 2011 through the date of the Court's preliminary approval of the settlement. Under the terms of the proposed settlement, class members who are past tenants and make a claim will receive payment of their claims in cash. Class members who are current tenants will receive monthly credits against rents and future charges for a five-year period that will begin at a time determined in conjunction with the final settlement agreement (the “credit period”). Any amounts under the settlement allocated to tenants with outstanding amounts payable to the Guarantor Class Subsidiaries, the CBL Defendant Entities or any other affiliate of those entities, including tenants which have declared bankruptcy or declare bankruptcy over the credit period, will first be deducted from the amounts owed to the Guarantor Class Subsidiaries, the CBL Defendant Entities, or any other affiliate of those entities. CBL Defendant Entities will be responsible for directly paying all cash payments that are made to past tenants who have made a claim. CBL Defendant Entities will be responsible for directly funding to the Guarantor Class Subsidiaries an amount equal to any credits that are due to and taken by current tenants of the Guarantor Class Subsidiaries during the credit period. CBL Defendant Entities intend to fund all amounts due to past and current tenants under the settlement such that the Guarantor Class Subsidiaries' cash flows and results of operations are not impacted by the settlement. The Combined Guarantor Subsidiaries are currently involved in certain other 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 Combined Guarantor Subsidiaries record 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 Combined Guarantor Subsidiaries accrue the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Combined Guarantor Subsidiaries accrue the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Combined Guarantor Subsidiaries disclose the nature of the litigation and indicate 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 Combined Guarantor Subsidiaries disclose 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 Combined Guarantor Subsidiaries. Environmental Contingencies The Combined Guarantor Subsidiaries evaluate 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 Combined Guarantor Subsidiaries believe the maximum potential exposure to loss would not be material to results of operations or financial condition. The Combined Guarantor Subsidiaries have a master insurance policy that provides coverage through 2022 for certain environmental claims up to $10,000 per occurrence and up to $50,000 in the aggregate, subject to deductibles and certain exclusions. At certain locations, individual policies are in place. Note 12 – Noncash Investing and Financing Activities The Combined Guarantor Subsidiaries' noncash investing and financing activities were as follows:
| Three Months Ended March 31,
| 2019 |  | 2018
Additions to real estate assets accrued but not yet paid | $ | 2,583 |  |  | $ | 6,024 |
Distribution of properties to owners | 8,835 |  |  | — |
Lease liabilities arising from obtaining right-of-use assets | 490 |  |  | — |
Transfer of real estate assets in settlement of mortgage debt obligation: |  |  |
Decrease in real estate assets | (60,058 | ) |  | — |
Decrease in mortgage and other indebtedness | 115,271 |  |  | — |
Decrease in operating assets and liabilities | 8,246 |  |  | — |
Decrease in intangible lease and other assets | (1,663 | ) |  | — |

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- Definition The entire disclosure for condensed financial information, including the financial position, cash flows, and the results of operations of the registrant (parent company) as of the same dates or for the same periods for which audited consolidated financial statements are being presented. Alternatively, the details of this disclosure can be reported by the specific parent company taxonomy elements, indicating the appropriate date and period contexts in an instance document. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -SubTopic 10 -Section 45 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=108774443&loc=d3e5283-111683 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 235 -Section S99 -Paragraph 2 -Subparagraph (SX 210.9-06) -URI http://asc.fasb.org/extlink&oid=6882215&loc=d3e537971-122884 + Details
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