CBL & Associates Properties, Inc. (CBL) 2008 Q1 法說會逐字稿

Good day 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 12 PM Eastern Time and running through May 8th at 12 AM Eastern Time by dialing 303 590-3000 or 1 800 405-2236 and the entering pass code 11110988.

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

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties, Inc. conference call to discuss first quarter 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 meanings of the federal securities laws. Such statements are inherently subject to risk 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 on 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 10K, 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 references made to per share are based on a fully diluted-converted share. A transcript of today's comments, the earnings release and additional supplemental schedules we 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 and Associates Properties, Inc. Any redistribution, retransmission or rebroadcast of this call without the express 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 description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the comparable GAAP financial measure will be included in the earnings release that is furnished on Form 8-K.

Thank you, Katie. In 2008 we will celebrate CBL's thirtieth anniversary and our fifteenth anniversary as a publicly traded Company. These are significant milestones and we appreciate the role that each of you have played in helping us. To celebrate this anniversary we will have the honor of ringing the closing bell at the New York Stock Exchange on June 3rd and invite each of you to join us for this event. Please contact Katie for the details.

Today we are focused on continuing the successful track record we have built over the last 30 years. While the environment has changed over the past year, the fundamentals of the business have remained virtually the same. Despite the challenging economy, we recorded encouraging results this quarter including increases in occupancy, positive same center NOI growth, strong leasing spreads and FFO growth. We are continuing to maximize the productivity of our core portfolio through leasing and management and through opportunistic expansions and redevelopments. We are generating growth with the pipeline of solid new development projects that are well positioned for long-term success. As a result of the tight credit markets, we are seeing an increase in the number of projects and smaller private developers that are unable to secure funding. Not only is this providing us with new opportunities, but it is also making retailers more inclined to sign on to projects with established developers like CBL.

Our largest and most important development opening in 2008 is Pearland Town Center. We will celebrate the grand opening of this outstanding project on July 30th and we invite you to join us for this exciting event. Pearland Town Center is a 1.2 million square foot mixed-use center located 20 miles south of Houston in Pearland, Texas. The project represents our first large-scale mixed use development incorporating retail, hotel, office and residential components. The center will include a 718,000 square foot lifestyle center anchored by Macys, Dillard's, Barnes & Noble and a tremendous line of specialty stores and restaurants including Hollister, American Eagle, Pac Sun, Charlotte Roos, Forever 21, Mimi's Caf and BJ's Brew House. The Life-style center will open more than 80% lease and committed. The development also includes approximately 50,000 square feet of office space and a 100 room Courtyard by Marriott that are both located above the retail shops.

We recently announced details on the residential component of the project, which is called the Residences of Pearland Town Center. The Residences will consist of 250 apartment units, including 62 unites located above the retail shops and 188 units in two free standing apartment buildings owned by a third party.

In the Fall we'll celebrate another first for our Company with the grand opening of Plaza Macae in Macae, Brazil, our first international development. The 230,000 square foot project is a 60/40 joint venture with Tenco Realty of [Belo Horizon Cheri]. Plaza Macae is receiving very strong interest in the market from retailers and is already more than 65% leased and committed. The lease for the final anchor location is currently wrapping up, which will bring the occupancy up to 90%. The retail fundamentals in Macae and the overall Brazilian market are very favorable and it is a positive that CBL is able to tap into this opportunity through our Tenco-CBL joint venture.

This afternoon we will issue a press release on a new 700,000 square foot power center called The Promenade in D'Iberville, Mississippi near Biloxi Gulfport. The Promenade will feature 11 anchors and more than 80,000 square feet of specialty shops and restaurants. We have leased or committed more than 365,000 square feet of the anchor and big box space. The project is an 85/15 joint venture of CBL and Forum Development. The project will benefit from tax exempt bond funding through the Go-Zone legislation, which is designed to encourage development in hurricane impacted areas. Construction will begin this month with the grand opening scheduled for Fall 2009.

We announced several new additions and redevelopments at our existing centers during the first quarter. At Oak Park Mall in Overland Park, Kansas we announced the addition of Barnes & Noble. The new 35,000 square foot store is under construction and will open early next year. In the fourth quarter a 30,000 square foot, two-level Barnes and Noble will open in the 90,000 square foot lifestyle redevelopment at West County Center in St. Louis, Missouri. Additional shops and restaurants will follow in early 2009. At Coastal Grand in Myrtle, North Carolina, JC Penny's celebrated their grand opening. The new 103,000 square foot store received a very strong reception from the market.

During the first quarter we signed a total of approximately 1.66 million square feet of leases including approximately 760,000 square feet of development leases and 900,000 square feet of leases in our operating portfolio. The 900,000 square feet in our operating portfolio was comprised of 225,000 square feet of new leases and 675,000 square feet of renewal leases. This compares with the total of 2.1 million square feet of leases signed in the first quarter of 2007 including 1.2 million square feet of development leasing and 880,000 square feet completed in the operating portfolio. Of the 880,000 square feet in the operating portfolio 375,000 square feet were new leases and 505,000 square feet were renewals.

To date we have completed approximately 80% of our 2008 renewals. For stabilized mall leasing in the first quarter on a same-space basis we achieved an average increase of 12.8% over the prior gross rent per square foot. Total portfolio occupancy increased 60 basis points to 91.6% as of March 31, 2008. Mall occupancy increased 10 basis points to 91.3% with stabilized mall occupancy declining 10 basis points to 91.4%. Occupancy in the associated centers increased to 94.9% from 92% at year end. Portfolio occupancy, excluding the Centers acquired in the fourth quarter 2007, rose 80 basis points to 91.8%. Stabilized mall occupancy, excluding Centers acquired in the fourth quarter 2007, increased 10 basis points to 91.6%.

While bankruptcy and store closures have certainly increased, the impact to date to our portfolio has been minimal. Friedman's, the Disney Store and Bombay are the major retailers that have gone into bankruptcy recently. While we are still working through the process, we anticipate that the resulting store closures will comprise less than half of one percent of annual gross rents. We have 23 Freedman Stores representing 34,000 square feet and $2.3 million in annual gross rent. We are currently in negotiations for another national jeweler to take approximately 25% of the locations closing and we are lining up prospects for the remainder.

Bombay entered Chapter 11 last year and closed their stores. We had 14 locations representing 59,000 square feet and $2.1 million in annual gross rents. We have deals completed for over a third of the space and are receiving strong interest on the remainder.

The operators of the Disney Store entered Chapter 11 during the quarter and Children's Place announced they were in advanced discussions to sell the unit back to Disney. We have 15 Disney Stores representing 63,000 square feet and $2.7 million in annual gross rent. While we are still in discussions, we anticipate that only 9 stores will close totaling 30,000 square feet and $1.1 million in annual rents.

At this time all the stores are still open and operating and we are working on back-filling spaces that we anticipate getting back. Linens and Things announced that they may seek bankruptcy protection. We currently have 11 locations representing $4.1 million of annual gross rents and 333,000 square feet. The locations are all open and operating at this time.

Same store sales declined 2.7% to $341 per square foot for recording tenants 10,000 square feet or less in stabilized malls for the rolling 12 months ended March 31, 2008. January sales numbers were impacted this year by the mismatched fiscal calendar. There were 4 retail weeks in January this year versus 5 weeks in January 2007. This phenomenon happens about once every six years.

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

Thank you, Stephen. We were pleased with our first quarter results achieving FFO per share of $0.80 compared with $0.78 per share in the prior year period. FFO for the first quarter 2008 included $0.04 per share of lease termination fees and out parcels sales compared with $0.06 per share for the prior year period. FFO in the first quarter 2008 was also reduced by $1.3 million due to the benefit payments related to the retirement of our former senior vice president of leasing. FFO was also reduced by $1.7 million due to write-offs of abandoned projects.

Same-center NOI growth, excluding lease termination fees increased 90 basis points for the first quarter compared with the prior year period. The increase was within our guidance range.

Our cost-recover ratio for the quarter ended March 31, 2008 was 96.3% compared to 98.3% in the prior year period. Today we are about 75% converted to fixed cam. As such the recovery ratio will fluctuate during the year, as seasonal items such as snow removal impact the ratio. We anticipate that the cost-recovery ratio for the full year will be close to 100%.

G&A represented approximately 4.5% of total revenues in the first quarter ended March 31, 2008 compared with 4.1% of revenues for the quarter ended March 31, 2007. Excluding the $1.3 million retirement benefits charge G&A would have been 4% of total revenues.

Our debt-to-total market capitalization ratio was 76.8% as of the end of March compared with 46.8% as of the end of the prior year prior quarter. The increase in our debt-to-market cap is primarily a result of the decline in our stock price. Using the price from March 31, 2007, our debt-to-market cap would have been 53.4%.

Variable rate debt was 13.6% of the total market capitalization as of the end of March versus 8.2% as of the end of the prior year. Variable debt represented 20.2% of total debt compared with 17.6% in the prior year period. Our EBITA to cut-- the interest coverage ratio for the quarter ended March 31, 2008 was 2.17 times compared with 2.45 times for the prior year period.

We are maintaining our guidance for 2008 of $3.46 to $3.56 per share, which represents a 6.1% to 9.2% increase over the 2007 FFO per share, excluding the impairment charge. The guidance assumes NOI growth of zero to 2% excluding lease termination fees from both periods. The guidance also assumes that out parcel sales of $.012 to $0.16 per share. It does not include any new acquisitions.

In April we completed the sale of five community centers located in Greensboro, North Carolina for approximately $24 million to three separate buyers. A list of these centers is included in our earnings release. The community centers were originally acquired in the fourth quarter of 2007 as part of the Starmount acquisition. As a result of the sales, we anticipate recording a $1.5 million gain on the sale of real estate in net income during the second quarter. This gain will not impact FFO.

We've received a strong interest for sale of other office and community center properties and anticipate providing updates on any subsequent sales when we announce second quarter results. As we previously indicated, we are taking our time with these sales to ensure that we are able to maximize the value.

Despite the difficulties in the credit markets, we are pleased to have completed more than $383 million in financings year-to-date, including a new unsecured term facility of $228 million. Our joint venture partnership completed a $100 million interest only non-recourse five-year loan secured by Friendly Center and six adjacent office buildings in Greensboro, North Carolina. The loan has a fixed interest rate of 5.33%. The joint venture also completed a $15.7 million interest only non-recourse five-year loan secured by Renaissance Center in Durham, North Carolina. The loan has a fixed interest rate 5.22%.

CBL entered into a separate one-year extension of the $39.6 million non-recourse loan secured by Oak Hollow Mall in High Point, North Carolina. The extension maintains the interest rate of 7.3%. We also have the option to extend the maturity an additional five years. These financings demonstrate the strong the relationships and confidence we share with our financial partners. Even in this capital constrained environment, we are still able to borrow at very attractive rates. We have remaining maturities of approximately $340 million of non-recourse loans coming due in 2008 and are making good progress towards financing these assets. We currently have $744 million listed on the development schedule for projects under construction. We have construction loans for each of these projects totaling $591 million and we have funded all of the required equity for these development projects.

We're pleased with our first quarter results and are focused on continuing to meet and exceed expectations through the balance of the year. Despite the fickle credit markets and lower consumer confidence levels, we believe that we have a successful 2008. We are looking forward to visiting with many of you at the ICSC convention in May and anticipate a strong convention for our Company.

We appreciate you joining us today and would now be happy to answer any questions you may have.

Thank you Sir. (Operator Instructions). Our first question comes from the line of Michael Bilerman with Citi.

John, you talked a little about the asset sales you completed in the quarter of the 25 million. You had a 160 million held for sale on the balance sheet. What's the remaining piece there?

Those are the Starmount portfolio office buildings and the community centers that when we acquired the portfolio we anticipated selling those. We have strong interest in and we're negotiating letters of intent on a significant portion of those and I think that we will make very good progress with those.

And so you anticipate that's more of a 2Q/3Q event?

Yes I think that's probable third to fourth quarter events.

And have you evaluated the potential sales, any malls?

Yes, Michael, we have. We continually look at that and we have a lot of interest from people who want acquire some of our malls and we are focused on that as well.

Are you in active discussions on any sales or joint ventures to raise capital or is that is not something you are actively pursuing?

I think we're actively pursuing all financial aspects of the Company so as to lower those debt ratios. And, in fact, I made a mistake I think in my comments. I said 76%; it's really 67% debt-to-market capitalization so we are focused on reducing that. If you will recall when we bought the Jacobs Portfolio in 2001, we-- our debt-to-market capitalization numbers crept up to about 63%. We brought those down fairly quickly and we would anticipate bringing these down as well.

And it sounds like for the office, the other office assets, you have marketing materials out, you're in negotiations but I'm just trying to understand if these other things if you're really deep in negotiations in terms of having marketing material, having brokers out selling the assets.

Well, I think we haven't basically made any disclosure on that, but when we do something we really actively pursue it and normally see excellent results so.

And, John, you talked a little bit about the refinancings that you did in the quarter and that you have $340 million coming due in the back half of the year. What's your targeted plan in terms raising those proceeds? Is it going out and just doing more secured loans on those assets or are you going to try to pursue some other strategy in terms of those repayments.

I think it depends on the asset as well but basically we have term sheets for approximately $280 million of those refinancings. As you know, we basically use non-recourse loans and we like to have at least a five-year term on those. In turn we would explore other alternatives as well. Some of those assets could possibly be sold or whatever, but there are opportunities with regard to the refinancings on those as well and we're comfortable and confident that we can achieve what we're doing on those assets.

In the $280 million so that's five-year term, what sort of rate do you have?

Those are basically five-year term loans is what we would pursue and the rates basically vary from-- we're just looking at those term sheets to negotiate those now. But, we have other alternatives to those term sheets so that's not to say that we're going to accept those terms sheets and so the rates are fairly favorable in today's market. We're not seeing any tremendous escalation in those rates and I think that what we were able achieve on our unsecured term loan that we just completed was really an excellent interest rate versus what we're hearing is going on in the market today with some other term loans that are being negotiated.

And then pro forma for the financings you did in the quarter, where does your-- and post quarter-- how much availability to do you have on your lines of credit if you decide not to pursue the secured loans of 280? I mean can you fund 340 off of your line or you don't have that capacity?

We have that capacity with other capacities lined up as well so-- and all of these loans that we have that are coming up this year are non-recourse loans as well, so if the assets are not-- it doesn't put any pressure on us from the standpoint of creating any defaults under any of our credit agreements and so on. We're comfortable and confident with where we are as far as the progress we're making on refinancing these loans.

Okay, my last question, just on your abandoned projects expense, the $1.7 million, can you just give a little bit more color of what that related to and--?

There were a few projects we had that that at this point in time based upon where the capital markets are and the returns that we saw on those projects, we elected not to go forward with those projects. We probably will get some-- it helps us from a negotiating standpoint possibly with property owners and other people who were interested in those projects but we felt that taking the conservative approach and writing those off at this time was the best approach to take. Our returns weren't where they should be and we felt that in order to do so we needed to just go ahead and recognize this at this time.

This was land that you own that you were planning developments on or--?

Absolutely not. We never buy land unless we're ready to start a project so we would have not changed that since we started the Company over 30 years ago. We don't think that land basically doesn't pay any interest or doesn't pay any return to us, so we will not buy land unless we are ready to start a project.

So this is just cost you occurred in going after certain development deals?

That's correct. It's engineering, options fees, legal fees, etcetera.

It wasn't acquisitions, it was development?

No it was totally development.

Okay, all right thank you

Thomas Baldwin with Goldman Sachs.

You have a couple pretty large developments going on right now in Florida, Hammock Landing and the Pavilion at Port Orange. Given how challenged that market is right now and how severe the decline in single family homes values has been there, I'm just curious how leasing is going, if there have been any delays on the development front and if you still plan on delivering those projects in the Spring and Fall of 2009 respectively?

Yes we're still on track. I mean the good news on both those projects is that we had all our anchor commitments signed at the time we started construction and so that gave us a good start on the pre-leasing and they're on schedule from a delivery point of view. The small shop leasing is definitely more challenging today than it was a year ago but we're confident that we'll get it done. Hammock Landing is really more of a power center than-- I mean that's the kind of project it is and so that leasing is going really well and it's in good shape. That's the first one to come one line and then the other project in Port Orange is more lifestyle oriented and we've had some tenants that have put it on hold but by the time that comes on line we anticipate that their business will come back and that the leasing will be in good shape.

Okay thanks a to, guys, and then as a follow-up I appreciate all the detail you provided with respect to what you're experiencing in terms of store closings and tenant bankruptcies. Can you elaborate a little bit on your expectations regarding your ability to extract these termination fees from those tenants? I know in particular Bombay is under Chapter 11 protection right now so I mean is there going to be some trouble in terms of extracting some remuneration from those guys?

We can't really get lease termination fees if once a tenant files bankruptcy. The only time we're really able to negotiate that is when the retailers don't want to file bankruptcy and we'll work lease termination fees to let them out of certain stores where we feel like we can re-lease them and so that's where that comes into play, not once they've filed Chapter 11.

And then I think, if I am not mistaken, you mentioned $0.04 combined from out parcel sales and lease termination fees this quarter. Can you break out what portion of that $0.04 was out parcel sales and how far along you are this year in achieving the $0.12 to $0.16 that you guided?

$0.03 was out parcel sales. $0.01 was lease termination. I think that's in the supplemental.

Okay thanks a lot for that color, guys, really appreciate it.

Lou Taylor with Deutsche Bank.

John, in terms of the assets held for sale, what's your expected average cap rate on those assets?

Lou, we haven't disclosed the cap rate on those but I think we're seeing very favorable responses to these. These are not huge, huge projects and, therefore, the availability of buyers is much more available to us so in the regard we're selling to a lot of local people and so on and, as you will note, we did make a gain of about $1.5 million on those assets that we've already sold so we would anticipate that we'll at least break even or make some money off those continued sales.

Okay but is it fair to assume that the cap rates probably would be higher than your short-term cost of debt or your cost to your line, so that when the assets do get sold there would be a little bit of dilution from the sale?

Yes I would say that we have very favorable rates with regard to our lines of credit and interest rates are moderately priced today and cap rates would be a little higher than that. I think that's a fair statement.

Can you also just clarify in terms of your construction pipeline do you have construction loans on all the projects?

We have construction loans on all the projects except the renovations and developments and expansions, so if the project were starting from construction we basically put a construction loan in place and what we do because we're able to negotiate more favorable terms we put our equity in on the front end and then the construction when it starts to fund.

And then in terms of the-- I know you're going to open Pearland this summer but you're not going to put a permanent mortgage on that till what, maybe stabilization on that sometime in '09?

Yes I think that's a fair statement. I think depending upon what happens in the capital markets and so on we would rather be safe than sorry and if we saw favorable loans coming in and so on we would do that but I think stabilization should occur in late '09 and that's probably a more favorable time to do it. And our construction loan that's in place today has I think approximately 3 to 4 years left on the term, so we're very comfortable with that and think that we're going to have success there as well.

Okay and then the last question just pertains to the term loan proceeds. How do you anticipate utilizing them? Will they go to development? Are you going to repay the line? Is it going to go to possibly debt maturities this year? I mean how do you anticipate using that?

Yes we took the $228 million term loan and we used that to pay down the existing lines of credit and our refinancing progress on the existing loans that are coming due is really coming along very, very favorably to us. We would not anticipate that our lines would need to be used for any of that and our lines, as we've mentioned, we have all of our equity in all the projects that we have under construction so the line availability is there for opportunities that we see that we can show good returns to our shareholders but we're also focused on trying to lower our debt as well at those ratios. So we hope that we'll have excess cash from those existing financings as well so I think from our perspective, notwithstanding what we're seeing in the capital markets, we were extremely pleased with our ability execute the term loan and what we're seeing as far as favorable response from our existing lenders on these existing properties really gives us a great deal of confidence in our ability to continue the financial flexibility of the Company.

Ben Yang with Green Street Advisors.

Stephen, just going back to the Hammock Landing and Port Orange projects, both are recent additions to your development pipeline and it looks like the yields that you're garnering here are much lower than what you've historically achieved and then when you even look at Settlers Ridge, another recent addition, it looks like you dropped the yield there by a pretty large amount. Can you talk a little bit about what's happening? Is it something specific to the project? Is it the tough retail environment that's really weighing on these results or these returns?

Sure, Ben. Those are good questions. Let me take them separately. On Settlers Ridge there was a change in the project pro forma where we had initially had two hotels that were going to be part of the project and now we're just including one in that project, so that actually lowered the yield somewhat and there was some public financing tied to that that we didn't think we could count on the pro forma at this point, so that lowered those returns.

On the other two I think those returns are definitely a little bit lower than we would like. One of the things going on is that we're conservative on our rents and we're hoping that the construction costs will come in lower than what we budgeted because of the economy down there, so hopefully we'll reel out some upside as those go forward. Also, on Hammock Landing we're carrying the land cost of phase two and phase one and what we're showing here is phase one so that depresses the phase one return when you do the blended including phase two, which should be an '0 what, an '010 project and then it comes in a lot closer to the 9% level, which we're targeting as a minimum going forward.

So it sounds like the difficulties there are more project specific and doesn't really provide insight into what's happening maybe, say for the demand of life style type centers?

I think that's right and both Hammock and Port Orange have phase twos and so when you blend those together the returns do get better and yes I think they are specific and we haven't seen-- I mean we're conservative up front in terms of the rents that we budget and we've been successful so far in holding the pro forma on those rents so I think that we feel like we'll be okay on these projects and obviously looking forward we're probably being even more conservative. You know also we include our development fees and leasing fees and all that in the pro forma. It's in these returns as well, so they're not just a return on pure costs.

Okay and then just last question, I know you guys have had some difficulties in the past getting tenants open at your life style centers on time and you have about a half dozen projects opening in the next year or so. Have you guys taken any steps or measures to prevent this from happening again?

Absolutely. We're a lot more focused on making the schedule. Pearland is opening this year and we've just been a lot more proactive. We've added additional tenant coordinators to work with each retailer and make sure that they're getting their plans done ahead of schedule and that the construction stays on track and so that's something that we're really pushing and similarly with the Florida projects and Settlers for next year. We don't like at all what happened last year with the delays that we experienced.

That's helpful. Thank you.

[Andrew Board] with [Fenmore].

I'm curious about the Nashville portfolio that has August maturity dates. Do you have the ability to extend the maturity on those two if you seek to and how long if possible?

I think where we are today those are CMBS loans but there are three specific lenders on those. It's not a widely traded CMBS transaction and those lenders have indicated to us the fact that they're willing to work on extensions if necessary and we are also working with these guys. They're institutional lenders and, therefore, they understand the business much better than all the securities type trades in the CMBS, so it's really an institutional loan and we're in deep discussions with them. Nashville is a great market area and I think they recognize that and I think that we'll see opportunities there as well.

Okay and I may, another quick question, you extended Ocala I think it was, right? And then Haines Mall has similar interest rate and maturities. I imagine that might be the same lender and could you talk about why that one was not extended?

Yes Haines Mall was coming up I think in February or March so we extended that one and the Haines Mall is basically later in the year and they are two separate lenders on those. The Haines Mall is a large institutional lender who basically knows the real estate business and is focused on regional mall financings, so we're comfortable and confident there as well as the fact that we have other people who have expressed interest in giving us loans on that project, so we are very comfortable with what will happen on Haines and, in fact, there is a significant amount of refinancing proceeds, excess financing proceeds when we complete that mall.

Great I'll look forward to seeing that.

Paul Morgan with Friedman, Billings, Ramsey.

This is actually [Tom Berry] here. Can you provide some additional color on your current leasing environments? Specifically, could you talk about trends you're seeing with cart and kiosk programs, given the shorter lease durations?

I'd say the specialty leasing program is actually continuing to go up this year. We've budgeted about a 10% increase for the year and we're tracking our budget, not to say that it's easy but we're on track on that. The other area that we're actually making some real good headway is what we call sponsorship, which is the in mall advertising and a lot of the non-- it's non retail type leasing where we've seen good increases there, greater than double-digit and that's an area where we're definitely making some headway, so we're still seeing good results in those areas.

And the other thing that we're seeing is, is that a lot of developments that retailers had anticipated coming on line for them are not coming on line because of equity needs, so the retailers are going to want to fill up those empty barrels that they originally anticipated occurring so I think that's speaking well for us too.

And what percentage of NOI does specialty leasing comprise?

I'll have to get back to you on that one.

Okay. Can you help me understand the structure of the 60/40 JV that's developing in Imperial Valley and Statesboro?

Yes those are just-- those are outside joint ventures with various developer parties who brought those transactions to us. In Statesboro, Georgia this was a project that a local developer out of Atlanta had put together. Statesboro is a 50/50 joint venture whereas Imperial Valley I think is a 60/40 venture and both of those--

Sorry, I meant Settlers Ridge.

Oh Settlers Ridge, Settlers Ridge likewise was a joint venture brought to us by the phase in organization, so that's the same thing. They had basically had the property under control for quite a period of time and they in turn wanted an equity partner, so we stepped in and took that over.

And this might just be a typo but the Imperial Valley total costs versus cost to date, cost to date's more than double total expected costs.

There were reimbursements from tenants who basically were paying us for-- reimbursing us for costs that we had expended.

Okay and also finally, could you quantify downside risk that you're anticipating from further store closures this year or what you guys have modeled?

We, I mean you know we can't really quantify that. We are anticipating that at the end of the year our occupancy will be flat to slightly down so what we've tried to be conservative in our budgeting for this year because given just the challenging environment out there but the bankruptcies that I mentioned in my comments are really what all we're seeing out there for now. Just also, so you know, the specialty income and sponsorship is about 7 to 8% of total revenue.

Rich Moore with RBC Capital Markets.

Have you guys talked at all about the concession environment? I mean what are retailers saying at this point? Do you sense that they're more looking for lower rents, looking for deals, that kind of thing?

Well, I think certain retailers are definitely looking for better deals and that's not surprising, given what's happened in the market with the sales out there and that impacts the negotiations when we have new leasing or renewals but that's really where we see it the most and you could see our leasing spreads were positive this quarter and we've really talked about how we focused on that over the past year or two and improving that and I think we're starting to see the results from that. So despite what the difficulties are out there we're pleased with the results that we were able to present on that front.

You don't think, Stephen, that there's anything special in terms of reduced expectations based on retailers somewhat feeling stretched and going to want to see a lower amount of rent going out?

I mean they always want to see a lower amount going out and I think they're-- you know, where sales are under pressure they're using that as negotiating and I think that what's happened is retailers have-- some of them at least-- have slowed down their expansion plans but also they still, they're public companies and they have to grow and so expansion is part of their business. They're more cautious but, like John said, a lot of projects are falling out also so they're still going to need new locations and where we negotiate back. We leverage back and in turn take the good locations that we have and the strong locations and work with them to try to make things work, so it's-- there's a certain amount of partnership that we enjoy with the retailers that comes into play in this type of environment.

And then, as you guys look around, are there any assets or any situations you're seeing out there that might be good real estate that's kind of gotten into trouble because they don't have the capital and the depth to take on some of the challenges that are going on in the economic environment? I mean outside your portfolio.

Well, I mentioned in my comments there is a project that we're going to announce later today that's a development project in D'Iberville, Mississippi that was an opportunity that came to us. It was originally brought to us by one of the anchors and had been working with the developer and they were having financing problems and so we were able to step in and take that over and that's going to be a real attractive project for us and the financing is in place and we're really excited about that one. As far as existing assets, I mean we've gotten different I guess feelers from lenders about properties that they might be getting back over the next couple of years and we've looked at opportunities like that, nothing that really has gotten us too excited but I think we'll be seeing more of that in the future as well and that's one of the reasons we wanted to give ourselves some more flexibility on the balance sheet and we feel like we've achieved that this quarter and that there's additional things we're going to be doing as well that will help us be able to take advantage of those opportunities.

Okay good thank you. And then on the two management contracts you talked about in the Press Release, is there anything special there as in are those two properties you might look at potentially purchasing over time or are these just more kind of something you're doing for the income?

They're really more we're doing for the income. I don't think they're properties that we would look at for an acquisition opportunity but there is redevelopment opportunity, which will generate additional fees and upside for the projects and for the owner and I think that's a business opportunity for us as well is to pursue more fee generating and third party type activities.

Good thank you and then on the other comprehensive income, John, is there any reason that that fell so substantially? I think it fell about $12 million and I am wondering is that hedging activity or what's in there?

Yes, Rich, we did some hedging to eliminate some of the interest rate risk and that's the biggest portion of it.

And the last thing from me is anything special on the CapEx front, on the maintenance CapEx front? I mean, do you feel like this year and next have any unusually high needs for maintenance type CapEx?

No. I mean we've really I guess tightened up is the best way to put it on that, just given the current environment and we estimate roughly $50 million in total TIs for the year and total CapEx of $87 million and we're looking at everything very closely.

Nathan Isbee with Stifel Nicolaus.

Two quick questions-- the recent acquisitions in Saint Louis and in North Carolina obviously are not in the comp sales numbers. Can you just talk about sales trends in those two portfolios?

Those actually are in the numbers. We put them in this quarter, so they're included.

Oh you did, okay.

Yes they're included and the sales are good and Saint Louis is-- you know, that's doing well. The malls are performing well and holding up and Friendly Center has had good sales increases as well and the leasing that we projected is even coming in better than we had anticipated and so we'll have some real good announcements on that front in the next month or so hopefully.

So sales were positive in both?

Yes.

Any other areas of particular strength in your portfolio?

I think the border, on the Mexican border, Laredo and the Imperial Valley and Brownsville, that's been very strong in terms of increases as well.

And just one quick detail, you're showing mall same store NOI with negative 1.2%. What would that have been without lease term fees?

It would have been plus 0.3%.

(Operator Instructions) Thomas Baldwin with Goldman Sachs.

Last call you discussed a little bit your interest in participating in developments with some developers who, as a result of the credit crunch, haven't been able to take their developments to completion and might be looking for capital. Can you elaborate a little bit on what form or shape your participation in those projects might take, whether you participate as a co-developer or whether it just means you serve as a provider of capital?

Well, I think it can take all types of approaches. Stephen alluded earlier to D'Iberville, Mississippi, which is a project that is a joint venture with a developer who couldn't bring the necessary equity to the project and it did two things for us. One, it gave us the ability to get a project with some excellent going in returns, number one. And number two, it solidified an even stronger relationship with a major tenant, who really brought it to us and that was in that situation we are basically doing all the development. This initial developer had done the permitting etcetera but we're basically take over and manage the project and do the leasing. So but most I think in today's world we would focus more on projects where we're not providing just capital but we're providing expertise and can generate fee income as well. So I don't think we look at ourselves as just a capital provider and we're always looking at the down side and measuring the upside against that as well.

And then just as a follow-up, so you have any sense for what the dollar spend over the course of the next couple of years could be on these distressed opportunities or is it really too early to get a good sense for what that figure might be going forward?

Yes I think it's really too early to see and I think as these opportunities arise we can evaluate those at that time and also depending upon the pressures, the return should get better as well.

Michael Bilerman with Citi.

Yes, John, could you just review on the credit lines I know you have multiple credit lines. Can you just tell me what the total capacity is and how much is drawn on each of your big facilities?

Michael, we've got I think like what we originally started out doing and really feel that it has been the right thing that we did was is that we have a lot of different and separate credit facilities and they go across geographical boundaries as well as international boundaries, so that we're not stuck in any one area so that we can maintain that flexibility. So it basically the total overall credit facilities we can get to you off line or whatever and we can tell you what's on each of those but we have basically around $300 million or a little more than that available under those credit facilities with the closing of this $228 million plus whatever we had available under the existing lines. That does not take into play the construction loans or the other facilities that we have availability to as well, so I think we're focused on the fact that cash is king today to a certain extent and want to maintain that flexibility.

Of $300 million taking into account the 228 million term loan and then separate from that you have the construction facilities to be able to do the development?

That's correct.

And do you have-- can you up size any of these credit facilities? I know you had done that last year. I didn't know if you had other up size options.

We do have accordion features in one or two of those lines that we could up size those as well and then we also have the availability to do more term loans as such. So it's a business where relationships not only on the retail side really are important to us, but also on the financial side as well and we've recognized that from the inception of the Company that it's a two way street and we need to work and make certain that our financial partners are kept up to date and that we're on very friendly terms with them as well and I think what we've done recently is proven that so far we've been successful in that regard.

Stephen, you talked a little bit about Settlers Ridge and the yield going down 80 basis points because you're not doing the hotel and how you're probably not going to be able to get some public financing. On Pearland your yield went up 40 basis points and can you talk about what drove that and where your sort of pre-leasing is with the opening coming up this summer?

It's a combination of we had some good results on the buyout on the cost side and then the leasing has come in better than we originally budgeted in the rent numbers and the out parcel proceeds are coming in above budget, so I think just we try to be conservative up front and so that these pro formas improve over time instead of going the other way.

And where do you think you're going to open from a lease percentage?

We're going to open in the 80% range leased and committed. We've got the grand opening is July 30th and then we've got the Dillard's is opening in October, so we'll probably have about 65% of the stores open in the grand opening in July and then by the Dillard's opening we'll be at that 80% level.

And you talked a little bit about the store closures that are coming up. What's your-- what's going to happen to occupancy as you move into the second, third and then at the end of the year? I think you said you wanted to be flat to slightly down. Just from a sequential aspect where do you think you're going to be?

I don't know. I mean I think we're going to see pretty much what we saw the first quarter, which was we had on the stabilized portfolio is flat to down a little and I think that typically most of the leasing happens in the fourth quarter, so I think we'll probably be around a flat level or down slightly over the second and third quarter as well.

[David Wiginton] with Merrill Lynch.

I just had a quick question with respect to the negative sales growth for the quarter. I notice your lease spreads did tick up in the quarter but are you seeing any pressure on with negotiations for future leases based on the negative sales trend at this point or do you foresee anything like that coming in the upcoming months?

I think, David, it's Stephen. I mean we're seeing from the retailers they're using that as an excuse, if you will, to try to make tougher deals and we're pushing back and saying yes you had decreases but it's only been a month or two and so it's part of the negotiating dynamics and I think we just all have to wait and see where the sales environment goes over the rest of this year, so that's what our-- that's really where we're experiencing and I think retailers love to cry the blues and they are great negotiators and so we just have to push back.

Now given that the majority of leasing for-- that takes place in the fourth quarter, where do you guys-- I mean do you have any expectations on sales at this point? I mean, do you think that sales are going to stabilize at the level they're at now in your portfolio? Will they decease more or will they kind of tick back up to where they were say in the fourth quarter?

I think it's probably early to say. We've heard that April has been better for a lot of the retailers just because the weather has finally warmed up and so sales have been better. We've got the tax rebate coming out and who knows how much of that will filter into us but that will be a positive stimulus for the economy, so we're-- we can't really predict the crystal ball where things are going to go but I think we're hopeful that things will get better as the year goes on.

And management there are no further questions. I'll turn it back to you for closing comments.

Great. Again, we look forward to seeing everyone at the ICSC Recon convention in May, at NAREIT in June and remind you that we are going to be closing the New York Stock Exchange with the closing bell on June 3rd, so we hope you can join us for that. Thank you all.

Thank you. Ladies and gentlemen, that will conclude today's teleconference. We do thank you again for your participation and thank you for using ACT Conferencing. You may now disconnect.