CBL & Associates Properties, Inc. (CBL) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. And welcome to the CBL & Associates Properties Inc. conference call. Today's call is being recorded and will be available for replay beginning today at 11 Eastern time, running through February 15 at midnight Eastern time by dialing 303-590-3000 and entering the pass code 11106058.

At this time for opening remarks, I would like to turn the call over to the President, Mr. Stephen Lebovitz. Please go ahead, sir.

Good morning. We appreciate your participation in the CBL & Associates Properties Inc. conference call to discuss fourth quarter and year-end results. Joining me today is John Foy, Chief Financial Officer, and Katie Reinsmidt, Director of Corporate Communications and Investor Relations, who will begin by reading our Safe Harbor disclosure.

This conference call contains forward-looking statements within the meaning of the federal securities laws. Such statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy, and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ materially from the events and results discussed in the forward-looking statements. We direct you to the Company's various filings with the Securities and Exchange Commission, including without limitation the Company's annual report on Form 10-K and Management's Discussion and Analysis of financial condition and results of operations included therein for a discussion of such risks and uncertainties.

During our discussion today reference is made to per-share based on a fully diluted converted share. A transcript of today's comments, the earnings release, and additional supplemental schedules will be furnished to the SEC on Form 8-K and will be available on our website.

This call will also be available for replay on the Internet through a link on our website at cblproperties.com. This conference call is the property of CBL & Associates Properties Inc. Any redistribution, retransmission or rebroadcast of this call without the expressed written consent of CBL is strictly prohibited.

During this conference call the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. A discussion of each non-GAAP measure and a reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure will be included in the earnings release that is furnished on Form 8-K.

We wanted to start off the call by acknowledging that we are disappointed with earnings results for 2007 we announced yesterday. Foremost we are displeased that after a nearly uninterrupted 13 year track record of solid FFO growth, we have posted negative growth in 2007 and were not able to reach First Call numbers. However, we want you to know that we are more determined than ever to achieve better results in 2008 and re-establish CBL's credibility with analysts and investors.

In addition, we feel the 2007 disappointing results, coupled with fears of a potential recession, have fueled a fire sale on our stock. In 2007 our stock declined 45% to a three-year low.

There's no doubt that the state of the economy had an impact on consumer spending in 2007, with sales flat for the year versus the 3 to 4% increases we experienced in recent years. Retailers are off to a slow start in 2008 based on January sales, and we're certainly taking a more guarded approach to the business. However, retailer growth plans in the retail real estate business have always have a long-term prospective, and we as well continue to have a long-term prospective.

It is true that some retailers have reduced their growth plans for 2009. Also, some retailers have announced store closures or bankruptcy this year, and it is possible we may see additional announcements. All of these are part of the normal ebb and flow of the retail real estate business.

Store closures and bankruptcies enhance the overall credit quality of our retailers and provide us with an opportunity to increase the productivity in our models, both in terms of rent and sales. As we had previously stated, we see great opportunity when capital is constrained. The limited on capital availability also tends to reduce new development competition in the marketplace. Retailers will start to reallocate a larger portion of their open to buys to developers that are proven and have ready access to capital, like CBL.

That said, we are realistic in our expectation for 2008 and maintain a conservative approach to new development. We will continue our discipline of not starting construction on new ground up development projects until we have the anchor in place, with roughly 50% of the space committed. For each project that is currently under construction, including every project that is listed in the development table included in our supplemental package, as well as those that started construction after 12/31/07, we have funded our equity and have a committed funding source.

Let me take a few minutes to review our recent project announcements and completions during the fourth quarter. In October we celebrated the grand opening of the District of Cherryvale, an 84,000 square foot lifestyle addition to Cherryvale Mall in Rockford, Illinois. Barnes & Noble, Chico's, Coldwater Creek and other retailers opened in the expansion, which has had a very successful start.

We announced two new Barnes & Noble additions at existing centers. Barnes & Noble will be relocating from an existing store in the market to join Asheville Mall, in Asheville, North Carolina in a larger 40,000 square foot store. Barnes & Noble will also anchor our redevelopment project at West County Center in St. Louis. We are redeveloping the former Lord & Taylor location into 90,000 square foot lifestyle wing, with a 30,000 square foot Barnes & Noble, 20,000 square foot of small shops, and four premier restaurants. This redevelopment represents one of the many opportunities we are capitalizing on from the St. Louis transaction. And we look forward to sharing more with you as projects develop.

We recently commenced construction on the third phase of Gull Coast Town Center. The third phase will initially include a 70,000 square foot Dick's Sporting Goods, along with 9,000 square feet of small shops. Dick's will hold its grand opening in October.

We have two great joint venture projects with the Benchmark Group of Amherst, New York under construction in Florida. The first is Hammock Landing, a 750,000 square foot open air shopping center to be built in West Melbourne, Florida. This center will be anchored by Marshalls, Linens 'n Things, Michael's and Petco, as well as two major anchors who will be announced soon, and will offer shoppers a great selection with more than 120,000 dozen square feet of small shops and restaurants. Construction on the 460,000 square foot first phase of the project has started, with a grand opening planned for spring 2009.

The second joint venture project with Benchmark is the Pavilion at Port Orange, a 550,000 square foot open-air development in Port Orange, Florida. The project will feature Belk, a 14 screen Hollywood Theater, Barnes & Noble, Circuit City, HomeGoods, Marshalls Megastore, and Michael's and about 190,000 square feet of specialty stores and restaurants. The opening is scheduled for fall 2009.

In 2007 we had very good results, both in terms of the quality and quantity of our leasing. We set a new record for leasing the most square footage in a single year in our Company's history. We signed a total of approximately 6.6 million square feet of leases, including approximately 3.3 million square feet of development leasing and 3.3 million square feet of leases in our operating portfolio. The 3.3 million square feet in our operating portfolio was comprised of 1.3 million square feet of new leases and 2 million square feet of renewal leases. This compares with a total of 4.8 million square feet of leases signed in 2006, including 2.1 million square feet of development leasing and 2.7 million square feet completed in the operating portfolio. Of the 2.7 million square feet in the operating portfolio, 1.1 million square feet were new leases and 1.6 million square feet were renewals.

For stabilized mall leasing in the fourth quarter on a same space basis, we achieved an average increase of 10.1% over the prior gross rent per square foot. In 2007 for same space stabilized mall leasing we achieved an average increase of 9.7% over the prior gross rent per square foot.

We reported occupancy numbers for the year excluding the properties acquired in the fourth quarter, since we did not have the benefit of ownership for much of the quarter. Total portfolio occupancy was 94%. Stabilized mall occupancy declined 30 basis points to 94.2% from 94.5% in the prior year. Total mall occupancy at the end of the quarter declined 40 basis points to 94% from 94.4% in the prior year. Occupancy in the associated centers increased to 95.9% from 93.6% at year end.

There have been several recent announcements regarding retail bankruptcies and store closures. Fortunately, so far there has been more smoke than fire. Ann Taylor announced last week that they will be closing over 100 underperforming stores over the next three years as their leases come up for renewal. We have been told that only one of our stores should be impacted by this. Talbots announced that they would be closing their Kid's and Men's divisions. We have two Talbots Kid's stores and we are currently in negotiations with replacements.

Friedman's filed bankruptcy last week. We have 23 stores representing 34,000 square feet and $1.7 million in annual base rents. Average occupancy costs for the Friedman's stores is very reasonable at around 12%, so we don't anticipate a material impact. In October Bombay announced that they would be entering Chapter 11 and closing their stores. We currently have 14 Bombay locations representing 59,000 square feet and $2.1 million in annual gross rents. We have retailers lined up to backfill over one-third of the space, and have significant interest on the remainder.

Same-store sales growth was flat in 2007 for reporting tenants 10,000 square feet or less in stabilized malls at $346 per square foot. The holiday sales season was mixed with healthy sales in November and disappointing sales in December.

Occupancy costs as a percentage of sales was 12.3% for the twelve months ended December 31, compared with 12.1% for the prior year.

Now I will turn the call over to John for our financial review.

During the fourth quarter 2007, excluding the non-cash write-down, we achieved total FFO per share of $0.99 compared with $0.97 per share in the prior year period. In 2007 we recorded FFO per share, excluding the write-down, of $3.26 versus FFO per share of $3.34 in the prior year period.

Our core portfolio NOI growth for the year was 1.7%, well within our projected levels of 1 to 2%, excluding lease termination fees. Same-center NOI in the fourth quarter increased 0.9%, excluding lease termination fees.

Earlier this week we made an announcement regarding the items impacting our fourth quarter results. We felt that it was important to communicate these items ahead of our earnings announcement. These items included an $18.5 million non-cash write-down of marketable real estate securities to reflect a year-end market value of $21.3 million, related to a decline in their market value. From time to time we may make investments in companies whose businesses are related to our own and which businesses we understand. These investments are noted in our 10-K filings in the notes to the financial statement, as well as in the cash-flow statement. We think that these are good investments, and we expect to continue to hold them for the foreseeable future.

While the market value of these investments, like virtually all real estate securities, has been materially and adversely impacted by the recent market turmoil, we believe that their underlying asset evaluation, economic fundamentals, and our investment thesis remains sound. However, GAAP requires that we record the non-cash write-down due to the material decline in the value of these securities at year end.

We also made the decision to delay the recording of $7 million of fee income receivable from affiliates of [centra] as a result of uncertainty. We had previously indicated that this would amount to $0.04 of our FFO per share, net of the income tax provision.

Other nonoperating items impacting results included lower than anticipated gains from the sale of out-parcels and lease termination fees. Results were also impacted by $1.3 million of abandoned project expense, higher interest rate expense due to an increase in rates, as well as increased in our borrowings, and lower fee income.

Additional highlights include our cost recovery ratio for the quarter ended December 31, 2007 was 98.1% compared with 104.4% in the prior year period. For the twelve months ended December 31, 2007 the cost recovery ratio was 101.1%, which is in line with our estimates, compared with 104.2% in the prior year period.

G&A represented approximately 3% and 3.6% of total revenues in the fourth quarter and twelve months ended December 31, 2007, compared with 4.2 and 4% of revenues for the quarter and twelve months ended December 31, 2006. G&A declined in the fourth quarter primarily due to adjustments for state tax reserves.

As a result of our lower stock price, our debt to total market capitalization ratio was 64% as of the end of December, compared with 47.6% as of the end of the prior year period. We feel that this is important to note that all of our debt covenants are tied to gross asset value tests and not to market capitalization. Variable rate debt was 14.1% of the total market capitalization as of the end of December versus 10.6% as of the end of the prior year. Variable rate debt represented 22% of total debt compared with 22.6% in the prior year period.

Our EBITDA to interest coverage ratio for the quarter and year ended December 31, 2007 was 2.22 times and 2.31 times, respectively, compared with 2.9 times and 2.6 times, respectively, for the prior year period. The EBITDA to interest coverage ratios for the fourth quarter and year ended December 31, 2007 were impacted by the non-cash write-down.

We are issuing guidance for 2008 of $3.45 to $3.56 per share, which represents a 6.1% to 9% increase over 2007 FFO per share, excluding the impairment charge. The guidance assumes NOI growth of 0 to 2%, excluding lease termination fees for both periods. The guidance also assumes out-partial sales of $0.12 to $0.16 per share, and does not include any new acquisitions or lease termination fees. We believe that our guidance represents realistic expectations for 2008 based on the information we have today.

In November we completed the acquisition of the Friendly Center and The Shop at Friendly Center in Greensboro, North Carolina, as well as eight community centers and 18 office buildings located throughout North Carolina and Virginia. We formed a joint venture with Teachers' Retirement System of Illinois. We placed the Friendly Center, the shops, as well as six office buildings in the joint venture. Subsequent to the quarter end the joint venture completed the acquisition of Renaissance Centers in Durham, North Carolina. The remaining eight community centers and twelve office buildings are wholly-owned by the Company. We're continuing to explore potential sales of these non-core properties.

As we announced last quarter, the Board of Directors approved a 7.9% increase in the regularly quarterly cash dividend for the Company's common stock to $2.18 per share annually from $2.02 per share. This increase was effective with our fourth quarter 2007 dividend. When management considers proposing an increase in the dividend to the Board, we review our current net taxable income levels, and our forward estimates to ensure that we meet or exceed compliance requirements. This analysis includes our cash-flow and projections of capital needs. We continue to believe our dividend is well covered. Our FFO payout ratio in 2007 was 63%, excluding the impact of the non-cash write-off.

We have been pleased at our ability to readily access capital, despite the turmoil in the markets. We were able to secure over $500 million in commitments within 48 hours for the Starmount transaction. Our credit facilities all have extensions that are available to us, and we have not -- we have only about $380 million of nonrecourse debt coming up to refinance in 2008, and have had positive discussions and reactions with lenders for each of these loans.

We are cautiously optimistic going into 2008. Our results should benefit from the expansion and enhancement we made to our existing portfolio in 2007, as well as new development projects. In addition, contributions from centers acquired in the fourth quarter should enhance the overall growth profile of our portfolio.

While we're keeping a watchful eye on the state of the economy and retailers' health, we will continue our focus on running the business in a sound and prudent way and executing for long-term growth. We appreciate your joining us today. We would now be happy to answer any questions you may have.

(OPERATOR INSTRUCTIONS). Jonathan Litt, Citi.

This is Ambika with John. Could you give some more detail on how your expectations for store closures relate to your guidance for occupancy in 2008?

We are looking at occupancy for the year being flat to a little down. And the reason it is down is because the occupancy of the malls we acquired in the fourth quarter, St. Louis and Friendly, is lower than our portfolio average. So when me include those in it will bring it down somewhat. But in terms of the malls where we are today, we're anticipating being flat for the year.

And we, like I said in my remarks, we haven't really had that much of an impact, only a few stores -- from announcing that have come out so far. And we continue to watch the retail world very carefully and are obviously sensitive to it. But the credit quality of retailers on the whole is pretty good. So I think there's some difficult results out there, but we don't see the store closings picking up, and we don't see bankruptcies from the nationals picking up that much more. It will definitely be the locals that are going to get hit harder.

Could you give more color on any potential bankruptcies from local tenants, what your exposure is? And then also your exposure to Charming Shoppes, given that they also announced store closures?

We talked to Charming Shoppes and, again, they said that there is one store that they anticipate closing, but it is not until January '09. We don't have anything in '08 from them that is coming up, and that is when that lease expires. So we don't really see an impact from them.

As far as locals, it is not that high a percentage of the portfolio. And in terms of the -- it really impacts specialty leasing more than permanent leasing. And that business has stayed strong. We had good growth last year in specialty leasing, and we are budgeting continued growth in this year. Another retail retailer we are watching is Goody's. They have gone private so there is not public information, but that is someone that we have on our watchlist.

Steve, you all have the exposure to the lifestyle development. Given that we've seen a pull back in expansion plans for some key lifestyle center retailers, I guess what makes CBL comfortable that you can get the in-line lease for those new developments?

I think one thing that we have done from a strategic point of view with our lifestyle centers is include department store anchors in them. So Pearland which is opening in August has both Macy's and Dillard's as anchors. And that has allowed us to have the project be attractive not just to the lifestyle retailers, but to a broad mix of retailers, really comparable to what we have in the malls. So there has definitely been a pull back from Chico's and Ann Taylor and stores like that, but we have a broad array of retailers that we're going to. Like I said, we don't start the project until we have good preleasing done. We have got Barnes & Noble. We've got restaurants in the tenant mix. We have got the mixed-use of Pearland with apartments in the office and the Marriott Courtyard. When you put it altogether, we are disappointed if we lose a couple of the lifestyle guys, but we feel we will be able to backfill that very readily.

Jay Habermann, Goldman Sachs.

I am here with Tom Baldwin as well. I guess, Stephen, just starting with your comments on the stock price, you mentioned the sort of fire sale on the stock of late. I'm just curious, you guys to seem to be focusing a lot on acquisitions and development at this point, but not a lot of share repurchase. Are you starting to rethink that?

This is John. What we have done is we did announce $100 million stock purchase last quarter. We did no acquisitions of stock in the fourth quarter. We continue to look at the best use of our capital, and did not buy any stock back. But management teams has bought back significant amounts of stock over that period of time, as well as our Directors have bought stock as well.

We look to see what we can basically do with the utilization of our capital and want to maximize the returns on that capital. A good example of that is what we did in Gulf Coast, where we were able to 100% finance that project and still have positive cash flow of $3 million to $4 million. So if we can do that, we think that that is the best utilization of our cash and follow a very conservative approach in underwriting each of our pro formas.

Can you give us a sense on the preleasing in the development pipeline at this point, and maybe specifically some of the larger projects where you are?

Pearland is the largest one opening this year. It is opening August 1. It is roughly just under 80% that is leased and committed at this point. That is where we are targeting opening at the 80% level. The other projects that are under construction, the larger ones, Port Orange and West Melbourne, are spring and summer '09. So those aren't quite as far along.

In following up on some things from the quarter, percentage rents down a little bit, and then also you mentioned a lower recovery rate. Was that really a function of the weaker sales productivity?

Yes, the percentage rents is definitely a result of the lower sales, and the --.

Segments that sort of drove that?

And snow removal was a bigger cost item. And with us going more to fixed CAM, because we're roughly 70% fixed CAM then that will have more of an impact on us quarter to quarter.

I have one more question. What was the cap rate on the office properties?

We didn't split out that cap rate on those.

Yes, we just did the cap rate for the whole transaction.

Can you break it out though for the office?

I think because there is such a variation as to what is going on as far as how you allocate the costs and what went into the venture costs, I'm not so sure we could basically do that. And I'm not so sure our partners want us to do that.

Tom has a question as well.

Just turning back to the Starmount transaction, is it fair to say that if you could have structured the transaction differently, you would have just purchased the retail and not the office?

No, we thought that there was good synergies across the portfolio, and it helped us in terms of the negotiation with Starmount. There is value that we're going to be able to create at a number of the properties. Some of them we will sell quicker than others. The office buildings, most of them are right around Friendly Center. That is not our core business, but Starmount had been managing them, and we're comfortable with that. And over the next 12 to 24 months we think we'll end up ahead of the game the way we structured it.

Let me clarify. Is it your intention longer-term to dispose of all 18 office assets, or is it possible you might keep some of those in your operating portfolio?

Six of them are part of the venture with the Teachers' Retirement System, so those will stay in. And the other 12 we anticipate over a period time selling those.

Christeen Kim, Deutsche Bank.

In terms of the NOI growth it has obviously been struggling a little bit. If you have underperforming assets, why not just sell them?

I think we do look at that. And one of our lowest performing assets is Del Rio, Texas, which is the first mall we built. And the sales per square foot there are like $175 a square foot. We have looked at those assets, and basically we have been able to refinance that asset and take out more cash that we could have if we had sold it. That is not to say we have partners in that and that we might ultimately sell that asset.

We sold Twin Peaks in the fourth quarter of last year. When we looked at that -- I'm sorry, it was in the third quarter of last year -- when we looked at the assets and what we can get for it versus what we could redevelop it, we made the strategic decision to do so. And I think we will look and continue to look at our portfolio to do the same with that.

As I think you'll recall, when we started the Company in 1978, we built community centers and sold those to basically owned regional malls, and today we do that same thing to develop those to pay down debt. So I think we're not adverse to selling the lower performing assets, and we continue to look at that to make certain that we can maximize returns.

In terms of your financing plans, could you just give us a little color on what your financing plans are for 2008?

We have approximately four or five malls that we will refinance this year. Those have an average -- the average interest rate on those is 6.46%. It involves five malls. And all of those are nonrecourse debt on those smalls. Some of those we will be able to finance and take out some excess proceeds on. Others we will basically have to put a little more money into those, or we always have that ability to give that back to the lender, if we don't like what type of situation we're being given by the lender as to those specific assets.

But As you can see, we have that approximately $380 million this year and about the same amount next year, and we're comfortable with that. We have had discussions with all those lenders and continue to negotiate on those. And we think that even in the capital markets today there is availability of capital to do so. We just financed $100 million in the Starmount transaction with an insurance company. So that will pay down some of our debt as well for that joint venture.

What sort of rates are you looking at now?

The rate on the $100 million was a 5.33% interest only rate, so it is a very favorable rate. It is a five-year loan. So we think that the market is there for good quality assets. As we mentioned, we are able to access tremendous amounts of capital to complete the Starmount transaction, and have seen no reluctance by the banks to basically work with us for other capital needs that we have as they come due.

What about your line, it seems like you're nearly maxed out on that. I know you probably have accordion features, but what are your thoughts on paying that back?

The lines basically are out. The earliest line is, I think, 2009. Discussions with them, we normally start now to basically work on those. We will probably increase some of those lines. We also will have some excess financing proceeds from these refinancings that we will pay down. We can sell assets. We think that from a capital structure standpoint we feel very comfortable with where we are today.

My last question is just, you touched upon some of the investments you have made in that kind of marketable securities bucket. It sounds like you are investing in other people's stock but not your own. Could you talk about maybe the valuation discrepancy, and is your stock not quite cheap enough yet?

We think our stock is incredibly cheap, and the management team here, as I mentioned, has been buying it back, and so have our Directors. But again when we review things we look at what we can see as far as return of capital. And also what we can see as far as long-term growth. So when we did this acquisition of some marketable securities we saw an opportunity there. We still think that opportunities is there. But we can't, because our securities lawyers, etc., are telling us that we need to keep that confidential. That is as far as we could really comment on that. But we still are convinced that there are good opportunities for us, and the investments that we make should prove to be very good for us.

It also wasn't an investment that we made yesterday. It was made several months ago.

We revealed it in our '06 K, so it was in our financials all along.

Jeff Donnelly, Wachovia.

I think some of this was touched on in a response to an earlier question, so I apologize. But concerning the Starmount portfolio, what specifically is in your guidance for asset sales in 2008? And what are your expectations around, just going forward, timing and pricing of the office asset sales? I'm curious how you guys think about those prices today versus your original underwriting.

In our estimates and our guidance for this year we anticipated no sale of those assets. We think that as we get into each of these specific assets and we spent a considerable amount of time reviewing those in our due diligence, we felt comfortable at that time and we feel as comfortable today with that.

We think the market area where we bought the Friendly Center is a great, great market area. I was having a social occasion with a big restaurant owner who basically said that they wanted to go into the Starmount portfolio, specially into the Friendly Center, that it is unquestionably the best retail property in that region. But we said to him, don't overlook the Haines Mall, which we own there as well. Greensboro has been a good market area for us and we think that we should seek great growth and good opportunities there.

How is the tenancy in the office portion of Starmount holding up? My recollection at the time the guys bought it was that there was a decent amount of service uses, including banks and realtor offices? Is there anything there that is a concern for you guys?

It is very stable. We haven't -- there is always a little fallout, but we pick up as well other deals. And we haven't had anything material in terms of fallout. These buildings are -- they are not -- they are smaller buildings. Some are only worth -- are worth less than $5 million, and some are worth in maybe $20 million to $30 million. That size investment we still see buyers. And there's lots of locals that were interested during the process, but because of the size of the overall transaction, and them not being retail players, then they really couldn't pursue the office. We're actually seeing pretty decent interest there. Just the overall occupancy of the office is 87%, and like I said, that is stable.

Just because they're not your guidance to sell this year, it doesn't mean that you are necessarily not trying?

That is correct. But it is going to take time. I mean, things take time. We just closed at the end of last year, so --.

And we're comfortable with the buildings. And we think that there is possibly some lease up there that could achieve some additional income in a sale. We're comfortable with them. If, on the other hand, we can find somebody who is willing to pay us a good profit on these buildings, we will sell those as well.

Although that wouldn't go into FFO.

Just a last question actually on the up-parcel proceeds in your guidance, John. It isn't too different from what you guys experienced last year I think in out-parcel proceeds. But again I was curious how are you guys are thinking about pricing this year as it relates to what you've put in your guidance. Is it comparable or are you expecting higher cap rates or just maybe a longer time to get deals closed?

I think that the cap rates really don't enter into it, it is the users that the basically have. And I think that our guidance this year was fairly close to what we did last year as far as out-parcel sales. We have a much bigger development pipeline from the standpoint of our joint ventures in Florida, etc., so we feel comfortable with the numbers that we use as projections.

How do expect that will lay out throughout the year? Have any been consummated even thus far?

No, they haven't. I think as far as certain uses like the casual dining, some of those retailers or operators have had some softness. We're not seeing a stronger demand there. But then that gets made up by other categories. And so I think we feel that that business will continue to hold up.

We see that the hotel operators now, because of the synergies with retail restaurants and everything, that we're seeing a lot of interest by hotel operators to buy these out-parcels as well. From our perspective, as well as from the perspective of the restaurants, that is a great use for these out-parcels because it brings additional traffic to the centers.

Craig Schmidt, Merrill Lynch.

A question, is the reason the West County Center Lifestyle addition doesn't show up in the supplemental if construction started in '08?

Right. It started right after the first of the year, so it wasn't in the fourth quarter.

Do you have a total cost and expected return on that project?

We will announce it at the end of the first quarter.

Beyond Bravo, do you know of the three other restaurants you're going to be putting into that lifestyle addition?

We're still under negotiation with them, and so we've got a good idea, but we're just not at the point where we want to announce them yet. Also, different companies have different philosophies about announcing themselves, and some don't want to announce until a month or two before they actually open. We would love to announce more, but we're working and respecting what their wishes are on that as well.

In terms of other St. Louis properties that might get touched from a redevelopment standpoint, is that a year away or further?

The Dick's is under construction at Mid Rivers, and that will open this year. Those are the only two -- that and West County are the only two for '08. And we're still trying to figure out the timing on the others.

Tony Howard, Hilliard Lyons.

A couple of clarifications. On the G&A expense, you said there was a recap of some reserves. So what is an apples-to-apples comparison?

I think that basically it have been doing historically in the 4% range. And we think that that is the appropriate one. The G&A number, as we mentioned, was down because we were able to take some money out of our state tax reserves, and that is the reason why it was down this quarter.

How much was that?

It was about $2.3 million.

A good runrate going forward for 2008?

We think it is a 4 million -- a 4% of gross revenues number.

A similar question on the tenant reimbursements going towards fixed CAM, what is your expectation for 2008, to be around 100% or less?

We think it is at the 100%, maybe just a little lower. And what happens as you basically move people out of pro rata CAM into fixed CAM, there is a little fluctuation there. So we think that the recoveries will be the 100%. It could be just a tad lower, but it could be a tad higher as well.

A follow-up question on the capital raising. Are there any preferred stocks that are going to be -- are close to being called or redeemed in 2008 or 2009?

We have a preferred C, and it is trading with this rate. I don't know -- we'll review that as the markets go along and see what happens with the capital markets, to see if we want to redeem that. There has been no decision at this time on that.

Would that be financed by another preferred or what is your thinking on that?

I think it depends upon what the markets are today. Whether we sell some assets or whether we do another preferred, I think that is what we would look at to see what we would do on that.

Finally, back to the stock buyback, I also agree with your other comments as far as I'm not sure, given that you were buying back stock at $34, why you're not buying back now at $24?

I think at that time we bought back some because we had some excess proceeds. And now what has happened is that we see that as the capital markets tighten and our competitors in this business, more likely smaller developers, are having capital needs and needs for equity, we foresee that there is a possibility and opportunity for us to basically come in and be joint venture partners and access properties that they have ready to go under construction with great leasing in place. And the opportunity to take those over, and therefore we want to preserve our capital for that reason.

I think as an example, the JCPenney Company store program is very significant, but a great many of those stores are basically being developed by first-time developers, who basically are going to see that the banks are going to require 20, 25% equity, whereas they in the past have been saying 10% equity. So we're getting calls already, and we think we will get even more calls. And for that reason we didn't buy back any stock in the fourth quarter. And we will look at that each quarter and each day as we have capital and determine the best use of that capital.

Michael Mueller, JPMorgan.

A couple guidance questions. First, is the '08 guidance factor into any of the fee income coming in from Galileo?

No.

Then in terms of lease termination income, traditionally you haven't provided a number. Last year you did put out a number. This year you didn't put out a number. How should we read that? Should we read it that you are not expecting any lease term income, or it is just really up in the air at this point?

I would say it is probably up in the air. Because I think we basically wanted to take a realistic approach with regard to the guidance we gave, and things that we can control is what we attempted to put into those numbers. I think we have learned from last year that things happen that you can't control that we had put into our guidance. And so this year we want to be much more cautious with regard to that -- to those guidance numbers. And that is the reason we back those out.

We have never included acquisitions in those, and we will continue not to do so. But we think we can control better out-parcel sales on the items that we've included in there. That is the reason. And in fact, if you look at our guidance with regard to NOI growth, we're being cautious there as well.

Also the lease termination fees come with the costs. I mean, we have the vacancy. So we see those really as washing out. We might have the immediate infusion, but then over the rest of the year with the vacancy, if we're not able to lease it up, it washes out.

You mentioned out-parcel sales. Any sense as to the timing of those this year? Should we think in terms of being evenly throughout the year or back end loaded?

I think it is evenly throughout the year.

Paul Morgan, Friedman, Billings, Ramsey.

The thing with the guidance there, how should I think about the way you're looking at your variable rate interest? Is it basically consistent with the LIBOR curve at this point or something more conservative?

We have left a little room in that number. I think we've always been cautious in our pro formas, as well as in our budgets, to make certain that we have some flexibility, because we think that the interest rates are going to be volatile. We also announced that we did fix about $400 million of our debt. So we will look at swaps. Needless to say we're probably not going to hit the bottom of market, but our whole thought process is to make certain -- is to minimize risk with regard to interest rates. We will watch those, and we do have room in our budgets for some increases in those interest rate costs.

Then going back to developments, I tried to be clear here about the amount of [provey] space you had in these projects. I guess the Florida joint ventures and the Pittsburgh development, where are you there in terms of commitments? Are all three of those past that 50% threshold that you mentioned, or no?

Yes.

Yes.

So committed, but not actually a signed lease?

Most of those are the signed leases, in excess of the 50%.

Is that 50% of the small shop space?

It is 50% of the total combined. And on the small shop space it is moving along fairly well there. You've got --.

It really depends on the project in terms of we're we are on the small shop leasing. The Port Orange is roughly 40% of just the small shops. West Melbourne is a little bit lower than that, probably closer to 30%.

Does the change in the tone of retailers about their -- not so much store closings, but about their store growth expectations giving you any pause about going after these sort of joint venture projects that are out there?

I think we've always been conservative in terms of the amount of small shops that we build in our projects. West Melbourne, it is 120,000 square feet. So it is say a percent of the total project. It is less than a lot of other developers will do. We just learned that in the last cycle that the business is cyclical, and you've got to be conservative. And it is better to have a center that is 95 to 100% leased than 80 to 85% leased.

I think that we feel comfortable with what we have. There is just, even though with all the press about Florida and the residential, there is still solid growth in the markets that we are in and good incomes, and so we're still getting good interest.

With regard to those ventures that we would do in a joint venture with a local developer, a small developer, I think our criteria there is that we would require that at least 50% of the small shop space would be leased. On the projects that we're doing ourselves, we feel very comfortable with our leasing efforts and our ability for our team to basically lease up that space. But in turn we want to be cautious with regard to any joint venture we do.

And likewise before we will enter into any joint venture with anybody, our leasing and development team has got to look at it and tell us that if this guy stumbles that they can basically put it back together, and we can make the numbers that are there. We are going to pursue those joint ventures in a very cautious and conservative way. And as far as our own in-line small shop leasing, I think that Stephen has alluded to that. We feel comfortable that cut back on the small shop square footage and other things that we can do with that square footage, we should be able to achieve those numbers.

Last question on cap rates. Your stock is implying a very high cap rate for the portfolio. Maybe you could comment on what you have seen happen to B quality cap rates over the past six months?

I don't think there has really been that much in the way of transactions to confirm or deny all the talk about cap rates moving. With the capital markets the way they are, I don't really see anything happening in the near term one way or another. It is really hard to answer that question.

Basically I think is the fact that we were able to bring in the Teachers' Retirement System of Illinois as a joint venture partner in Starmount basically confirmed what we had paid is basically a good price for that asset, and also that they saw upside potential in it as well, because they're not loose with their cash, I can tell you that.

I think that the transactions that we are going to see are probably going to be distressed. I think you'll probably see cap rates higher than what we have been seeing over the past few years, but that might be more indicative of who is selling and why than the actual market.

Can you put a rough sort of bracket on where you think a cap rate for $350, $400 a foot mall would be now?

I think it depends upon where it is and what -- why you sell it or, as Stephen pointed out, why you sell it. Is that because your partner wants out and things such as that. I think it is going to very.

It is lower than what our cap rate is.

Nathan Isbee, Stifel Nicolaus.

I'm here with David as well. What was the year-over-year comp sales growth if you just look at the fourth quarter?

I don't have that right now. We can get it for you or whatever.

Thanks. What was the cost basis subscribed to just the office portion of the Starmount portfolio?

We didn't allocate that because for real estate tax reasons, our partners' reasons, and things such as that. There was no allocation from the standpoint of what was office, what was retail.

Thank you. I think David has a question.

That confuses me a little bit. You're going to sell some of those assets, isn't there a basis calculation that has to occur at some point.

Yes, there will be when we do those allocations for tax, but as far as basically announcing those numbers, I think that is the reason why we haven't announced those. When we do -- for our own books we have basically done the allocations, but because of the partners' desires that that not be out there, and also from the standpoint of not letting it out for real estate appraisal of tax purposes, we basically didn't break those out or itemize those.

Lou Taylor, Deutsche Bank.

I joined a little late here. But in your guidances what does it assume for an outstanding line balance?

About where we are today. The debt level is basically staying the same. If we acquire anything that is not in our numbers so the debt, etc., would not change or whatever.

How much capacity to you have on your lines?

We have approximately, I think, $60 million today, but we have availability under all the construction loans that we have. What we do on that is that our pricing on our lines of credit are basically much more -- or lower than what they are on a construction loan. So what we attempt to do, and have done successfully, is to use our lines until we put pull them down to a certain level where we feel uncomfortable, and then we start pulling down under our construction loans.

You're maxed out on your lines, yet you talk about your opportunity to fund other people's developments. How are you going to pay for it?

We have some excess financing proceeds that we'll get from other deals. We are also in the process of some other financings that will provide us with additional capital. On the Starmount transaction, it was about -- when we originally thought the transaction was going to occur -- was a $500 million transaction. So when we wanted to do the Starmount transaction we contacted the lead banks that we have worked with, and within, as I said, within 48 hours they had provided us with that. We think that there is that opportunity to do that. Likewise, watching our debt levels to make certain that we're very cautious with regard to those, we have got plenty of flexibility under our bank covenants so that is not an inhibiting factor as well.

How much do you expect to pull out of the four mall refinancings you're planning this year?

We think anywhere from $50 million to $100 million should be the number.

It looks like you are extremely capital constrained here. And you can't really make a whole lot in the way of new investment. Your portfolio performed poorly last year, so why aren't you selling the underperforming assets to create some capacity to improve the portfolio?

I don't think we are capital constrained. I think that we have plans that will basically show that any capital that we needed to raise for anything that we intend to do, we can do that and do it fairly effectively and actively.

I guess I am missing that. You're going to pull $50 million to $100 million out of the refinancings. You've got $60 million out on the line. Given the size of the Company, that doesn't strike me as a whole lot of capacity, so where is the other money going to come from?

You basically have construction loans that we are closing. There is development fee income. There is development fees in those specific construction loans, so that you draw down out of those. In addition to that, we have the ability to sell some assets. And we do have two other assets that we'll be selling this year that we have the put capacity to, assuming that our friends at Central come through on those. But if not, we have some other sales. We have out-parcel sales that will generate us significant amounts of cash. And in addition to that we have other plans with regard to capital raises that don't impact our stock price or does not involve issuing any common equity.

The land parcel sales, development fees, those are small dollars. Why aren't you selling a lot more assets to create a lot more room on the balance sheet to get the debt level down or to buy some stock?

We will look at selling those specific assets as the opportunity arises.

Of course you're going to look at them. We all know that, but why aren't you looking at it and why don't you have properties on the market?

Well we are first and foremost. And we think that we have capital plans in place that basically will provide us with additional capital.

To me it just doesn't sound like you have much capital to do much, so it sounds like your plans must be pretty modest. Is that fair?

I think what we will do is we will surprise you and show you that we do have that capital access.

Okay. We will look forward to it. Thank you.

(OPERATOR INSTRUCTIONS). Ben Yang, Green Street Advisors.

Just going back to the Starmount acquisition, when you announced that deal it looked like there were some redevelopment in the works at the Friendly and The Shops at Friendly, yet they don't appear in your development schedule at this point. Are you still planning to expand those centers?

Yes. Those are -- yes, one building is actually already -- was built, and it is being leased up. And then there is an expansion to The Shop at Friendly that is under construction that is opening later this year.

I know it is not a lot --.

Those are definitely occurring.

It is not a lot of space that you need to fill, but can you talk a little bit about how the leasing has gone for that center -- that expansion that is opening later this year?

Yes. Bankers anchors, Ulta was signed, DSW was signed. And then there is like 20,000 square feet of shop that we are in the process of leasing up. The reason -- that was included in acquisition price so that was why we didn't split it out.

Great. Going back to the $0.05 FFO reduction regarding to the non-operating items. You went through that a little quickly. Can you break that down a little bit more than what you did?

Out-parcel sales were part of it. We had lowered our estimates on those, the lease termination fees would have been included in those, and the development fees are in there, as well as we think that there is higher interest cost in those numbers as well.

Rich Moore, RBC Capital Markets.

What are you hearing from retailers in terms of new store openings? And we have heard some of these guys saying they're pulling back. What are you guys hearing?

I think some retailers are definitely pulling back. There is no question. And there are retailers that are continuing to do well. It just depends on who you're talking to. We were with Abercrombie and they are just opening a new division that has had a good start. So that is going to expand and their business is healthy. Buckle is doing very well. And they are a retailer that we got in a number of malls and have some opportunities with. Aeropostale is doing well. So that category has held up.

The women's apparel, the Chico's and Talbots, those guys have definitely cut back. Jewelry is soft. So it depends on who you're talking to. But the '08 deals for the most part by retailers are done. And '09, they're cutting back maybe a little, but I think they also want to continue to have a program in place to take advantage of the economy when it comes out of the recession. And they have good balance sheets and good credit. So I think we feel pretty comfortable where we are for now.

You don't see '08 cutbacks, is that right?

Like I said, there's a few fallouts of deals, and some stores that will close at renewal in '08 that maybe we had thought would stay open. That is why we are being more conservative with our occupancy projection and our NOI growth in our guidance.

I got you.

I think also you're going to see some retailers who are planning on stores that are going to be delivered to them, so that they're going to need to fill that void as well.

Then in-place tenants, do you guys offer concessions? Are they asking for concessions? These are guys who are in-place already coming to you saying, I can't make the payment, or can you cut me some slack, that kind of thing?

Even when times are good, if someone for whatever reason isn't doing good business they come to us for a concession. That is part of the business. I think we just deal with it normal every day. We've got a retailer with a good balance sheet and good financials and they have a signed lease, then we expect them to honor their obligations.

Are you seeing more that right now, more requests for concessions?

Not really. No.

On these securities guys, I know you can't say what they are, but is there something strategic behind these or are you guys just investing where you think you can make a buck on some securities?

I think we basically have commented on that. And you're going to get me in big trouble with my securities lawyer if I commented on that.

I don't want to do that. The last thing is equity capital. You guys have your joint venture partner. What do you think about the desire by other equity sources out there to do transactions? Has that come down over the past four or five months or is that where it was before?

I think to the contrary. And thank you for asking that question because I do think there is great opportunities for joint ventures as well. We just did the State of Illinois Teachers' System, and I think working with their advisers they have indicated to us that they have tremendous amounts of capital, not only for existing properties, but for new developments as well. There is that opportunity to access that because of the comfort factor. And I think that the State of Illinois Teachers have been great to work with, but there is other -- many, many others out there that have tremendous amounts of capital, and other pension funds that have the same thing. I think these advisers for these pension guys are stocked full of money, and I think with real estate prices where they are, and the need to balance their portfolios, I think real estate is on the forefront of where they're going to put their money as well. Thanks for the question.

Back to Lou's question that could be a source of capital as well, is that right?

Definitely, definitely. We are just going to have to surprise Lou.

Michael Mueller.

Real quick. I missed the last part of Rich's question so I hope this isn't what he asked. Going back to Lou's question as well, can you comment on the portion of the portfolio that is unencumbered from a debt perspective? And then also I guess the number of assets that in your minds are clearly underlevered, where if you really wanted to you could tap them? Is there any way to put some numbers about that -- numbers around that?

We have, including in our lines of credit, we've got probably around $1 billion worth of unencumbered assets. Or maybe even more so than that, because a portion of our assets are secured, our lines are secured. And then in addition to that we still have a significant amount of unencumbered assets that we have.

And then what we done over the years is we basically have remodeled and redone a lot of these centers with old existing debt in place and used our lines of credit to do that. So when we go to refinance there should be great potential there.

in addition to that, when we bought the Westfield transaction we paid about $170 million in cash out of our lines for the Chesterfield project. It has got some debt on it which will rollover in '12, but that asset basically is -- and the total overall portfolio -- is pretty underleveraged. So when those come up the renewal we think there is great opportunities there as well.

Thank you, management, there are no further questions. Please continue with any closing comments.

We would like to thank all of you for your support. We're looking forward to '08, and like I have said, to re-establishing our credibility with everyone, and to moving forward in a positive direction. Thank you all.

Thank you, ladies and gentlemen. This does concludes the CBL & Associates Properties Inc. conference call. You may now disconnect. Thank you very much for using AC Conferencing. Have a very pleasant rest of your day.