CBL & Associates Properties, Inc. (CBL) 2008 Q2 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 11:00 a.m. central time, and running through August 13th at 11:59 p.m. central time. You can access this by dialing 303-590-3000 or 800-405-2236 and entering passcode 11110989.

At this time for opening remarks I would like to turn the call over to the 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 second 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 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 conditions and results of operations included therein for 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 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 express written consent of CBL is strictly prohibited.

During this conference call, the Company may discussion non-GAAP financial measures as defined by SEC regulation G. A description 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.

Thank you, Katie.

We are pleased to report 9.5% FFO growth per share this quarter, particularly in light of the retail climate. We were disappointed with our same center NOI growth, which was impacted by the increase in bankruptcy and store closure activity; however, we are still seeing positive leasing progress as retailers focus on quality expansion. Our senior management team has weathered many previous economic downturns, and we are confident we will work through this one as well.

Last week we were joined by representatives from the department stores, specialty retailers, area officials, lenders, as well as shoppers and other guests for the ribbon-cutting for Pearland Town Center. Our new mixed-use center is located 20 miles south of Houston in Pearland, Texas. The Houston market, including the Pearland submarket, is experiencing considerable growth, and Pearland Town Center is well positioned to capitalize on this growth.

This project represents our first mixed-use development, incorporating retail, hotel, office, and residential components. Despite the retail climate, the CBL leasing team did an outstanding job and the center opened an impressive 85% leased and committed and 70% occupied.

We are excited to share the news of this successful opening and invite you all to visit the center and experience the success for yourselves.

In addition to Pearland we currently have four large new projects under construction, plus 1.5 million square feet of additional development expansion and redevelopment projects. These projects combined represent a total net investment of approximately $440 million through 2010.

All the equity has been funded and construction financing for the balance of the cost is in place. While the leasing environment is challenging, we believe that each of these projects will have a strong grand opening similar to what we were able to accomplish at Pearland. One of these projects, the Promenade in D'Iberville, Mississippi, celebrated its groundbreaking in June. This 700,000 square foot power center project has commitments from retailers for approximately 405,000 square feet, including Best Buy, Dick's Sporting Goods, Marshall's, and others that will be announced shortly.

Our development project in Brazil, Plaza Macae, is going extremely well. We anticipate opening in the fall 95% leased and committed. The Brazilian retail market fundamentals are very strong, and while we will maintain a controlled international strategy, we believe this market will be a great source of growth for us.

Our Brazilian joint venture partner, Tenco Realty, has identified several new opportunities that we are looking into and completing due diligence.

We also announced an expansion to our sustainability initiative in the second quarter. The program will address sustainability opportunities in the three major areas of our business, including the corporate and regional offices, our properties, and new developments. We are continuing to look for ways to make a positive impact on the markets we serve.

During the second quarter our leasing activity remained solid. We signed a total of approximately 1.4 million square feet of leases, including approximately 557,000 square feet of development leases and 863,000 square feet of leases in our operating portfolio. The 863,000 square feet in our operating portfolio was comprised of 412,000 square feet of new leases, and 451,000 square feet of renewal leases.

To date, we have completed approximately 81% of our 2008 renewals. For stabilized mall leasing year-to-date on a same-space basis, we achieved an average increase of 11.6% over the prior gross rent per square foot.

Portfolio occupancy, excluding the centers acquired in 2007, was flat year-over-year at 91.6%. Stabilized mall occupancy, excluding centers acquired in 2007, declined 100 basis points to 91.2%.

Following the first quarter call, we experienced a significant increase in bankruptcy activity. We are working to minimize downtime on this space and have made headway in replacing some of the locations. Despite the increase in bankruptcy, stored closures through the second quarter have amounted to less than 1% of total revenues.

The largest outstanding bankruptcy exposure is Steve & Barry's. Since there is still uncertainty surrounding the future of this retailer, our guidance does not anticipate any lost income other than the write-off during the second quarter of accounts receivable of approximately $632,000.

We have 21 Steve & Barry's locations in our portfolio, comprising 813,000 square feet and representing $7.3 million of annual gross rents.

In the meantime, we have a team in place exploring strategies to limit the impact should we receive some of the space back. They are developing a plan for each space which would include maximizing temporary income as well as options for redevelopment and replacement with another junior anchor, alternative uses, or subdividing the space.

Most locations are between 25,000 and 35,000 square feet. Average gross rent for the Steve & Barry stores is approximately $9 per square foot.

Same-store sales declined 2.3% to $341 per square foot for reporting 10,000 square feet or less in stabilized malls for the rolling 12 months ended June 30, 2008. Consumer sentiment continues to weigh on sales, with traffic at the centers declining year-over-year.

Same-store sales held up best in the Midwest, Texas and the non-coastal Southeast.

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

Thank you, Stephen.

We were pleased this quarter to achieve a 9.5% increase in FFO per share to $0.81, compared with $0.74 per share in the prior year period. Although lease termination fees and out-parcel sales were $0.03 higher in the second quarter 2008 than the prior year, this was partially offset by an increase in the non-cash income tax provision.

FFO was also reduced by an increase in the write-off for bad debt, and an increase in abandoned project costs. FFO was positively impacted by properties acquired in the prior year, and lower interest expense on floating rate debt during the quarter.

Same-center NOI declined 80 basis points for the quarter, and declined 70 basis points for the six months ended June 30, 2008 compared with the prior year. Excluding lease termination fees, same-center NOI declined 1.8% for the quarter and declined 40 basis points for the six months compared with the prior year period.

Same-center NOI was negatively impacted by a $2 million increase in the write-off of bad debt for store closures, as well as a year-over-year decline in occupancy. If you exclude lease termination fees and bad debt expense from both periods, same-center NOI in the second quarter was flat and year-to-date was up 60 basis points.

Our cost recovery ratio for the quarter ended June 30, 2008, was 96.7% compared with 102.8% in the prior year period. Excluding the bad debt expense in the quarter, the cost recovery ratio would have been 100%. Today we are about 75% converted to fixed cam. We anticipate the cost recovery ratio for the full year to be close to 100%.

G&A represented approximately 4.1% of total revenue in the second quarter ended June 30, 2008, compared with 4.3% of revenues for the quarter ended June 30, 2007.

Our debt to total market capitalization ratio was 68.6% as of the end of June compared with 53.2% as of the end of the prior year period. The increase in our debt to market cap is primarily a result of the decline in our stock price. All of our bank covenants are based on gross asset value tests and are not influenced by market volatility.

Variable rate debt was 15.1% of the total market capitalization as of the end of June 30 versus 9.6% as of the end of the prior year period. Variable rate debt represented 22% of CBL's share of consolidated and unconsolidated debt compared with 18.1% in the prior year period.

Our EBITDA to interest coverage ratio for the quarter ended June 30 2008 was 2.27 times compared with 2.35 times for the prior year period. Our dividend payout ratio in the second quarter was 68% of FFO, which we are very comfortable with. We view the safety of our dividend to be very important.

We are maintaining our FFO guidance for 2008 range of $3.46 to $3.56 per share, which represents a 6.1% to 9.2% increase over 2007 FFO per share, excluding the prior year impairment charge for marketable securities. The guidance assumes NOI growth of 0% to 2%, excluding the impact of lease termination fees from both periods.

At this time, we believe that the lower end of this NOI range is more probable. The guidance incorporates the write-off of outstanding receivables for bankruptcies to date, including $632,000 related to the recent Steve & Barry's bankruptcy filing, but does not anticipate any lost rent and common area maintenance reimbursements resulting from the potential future Steve & Barry store closures or other future store closures.

The guidance also assumes out-parcel sales of $0.12 to $0.16 per share, and does not include any unannounced acquisitions or dispositions. Once the full impact of the Steve & Barry's bankruptcy is known, we will incorporate any closures or rental reductions in our quarterly update.

In conjunction with the Starmount transaction in the second quarter, we sold one office building, Westridge Suites, located in Greensboro, North Carolina, for $1.2 million. Additionally, we have entered into a contract to sell New Gardens Center, a community center located in Greensboro, North Carolina, for $19.5 million. We anticipate closing the sale this month.

As we announced on last quarter's call, we completed the sale of five community centers located in Greensboro, North Carolina, in April for approximately $24.3 million to three separate buyers. All of the proceeds are used to reduce outstanding balances on the Starmount facilities. As of June 30th, we had retired the $193 million bridge loan, and have reduced the term loan balance to $240 million.

We are continuing to market the remaining properties and will announce information on any additional sales quarterly. We are comfortable with our liquidity position and ability to fund our future capital needs. Excluding the loans and facilities that have remaining extension options, we have approximately $340 million of remaining maturities this year.

We have term sheets and commitments in place and anticipate completing new loans within the next 60 days. The terms we are receiving on the loans are relatively favorable and we anticipate just a slight increase in the weighted average interest rate. The loans on Hanes mall and Meridian mall are fully non-recourse. Rivergate and Hickory Hollow mall may include a portion that would be recourse to the company.

We will provide specific loan information once we have closed. We also have approximately $305 million of loans maturing in 2009 and are presently discussing refinancing options for those. These assets are very high quality with low loan to values, so we anticipate benefitting from significant excess proceeds.

In these tough economic times, we are all experiencing the importance of strong relationships. Maintaining relationships with retailers as well as our financial partners is crucial. The successful opening of Pearland Town Center is evidence of how strong retailer relationships have benefitted us.

In addition to the completion of our new $228 million term loan with our banks at a spread of $150 to $180 over LIBOR likewise shows how the relationships with our banks and financial partners have been beneficial to us as well.

There are many other examples that we could tell you about illustrating how our relationships, as well as the confidence in our management team by these industry leaders enhances the ability of CBL's team to produce not only in good times but in challenging times as well.

Senior management has gone through many other difficult times and we are determined to continue the success we've enjoyed over the years. Our ownership position in CBL continues to increase, with management currently owning over 21% of the Company. We believe that during these times, we will see an increasing number of opportunities to grow our Company in a very sound and secure way.

We understand the vagaries of volatility of the market as well as the need to ensure that our Company is running in a sound financial manner. We are operating proactively and believe we are positioned to weather the economic strains and strengths, and strengthen CBL.

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

Thank you, sir.

(Operator Instructions).

Our first question is from the line of Christy McElroy with Bank of America. Please go ahead.

Hi, Christy.

Morning guys -- good morning. John, did you say that the total amount of bad debt expense in Q2 was $2 million, and if so, what other retailers besides Steve & Barry's did that relate to?

It was an increase of $2 million.

And the retailers other than Steve & Barry's were Linens and Things, Goody's, and those were the main ones, those three. But then there were some others as well -- Friedman's, Street Stuff, some of the other bankruptcies, [Zahares], Disney. So there were about 10 different retailers that contributed to that.

So what was the total amount and what should I be thinking about in terms of a normalized run rate, in terms of kind of what your guidance includes for any additional bad debt expense in the back half of the year?

$2.9 million.

That was that amount.

Yes. And the run rate should be -- I think we've basically said that we'll get back to you with regard to what ultimately happens with regard to Steve & Barry's, so we're monitoring that on a daily basis. It appears that there is somebody who wants to take over a vast amount of those stores, so it's really difficult to basically see where it is.

And then again we're getting into that time of the year when retailers are doing pretty well, coming into the holiday season. So we would anticipate that as we see things occur we'll basically stay on top of those and announce those.

Okay, and then just looking at your guidance range, kind of what's offsetting the higher bad debt expense that you would keep guidance unchanged? Is that the lease termination fees?

We see interest savings there as well as some other properties and projects that are coming on stream, so we see that as basically one way of accomplishing that.

And then what kind of lease termination fees are you forecasting in the second half?

We're not forecasting any lease termination fees in the second half.

Okay, and then just lastly, following up on Hickory Hollow, you've got the debt coming to you this month. I believe you just had a Dillard's close there, you've got a pretty large Steve & Barry's there. Can you give us a sense for kind of your long-term plan for that mall, and what options do you have from a lender's standpoint on refinancing the mall? I know you mentioned a new loan would probably be recourse?

Yes, on a couple of fronts. One is we are looking at redeveloping that mall. The mall was probably overbuilt from the standpoint of square footage, so we're exploring other non-retail uses for that and some new concepts that we're working with some partners who have been very successful in their endeavors of changing malls around typical of this.

Nashville is a great market area and Hickory Hollow has been impacted somewhat by a new mall that opened down in Murphysboro, Lifestyle Center. In addition to that, the city metro government of Davidson county in Nashville has really shown a lot of interest in seeing Hickory Hollow basically be revitalized and come back.

We are definitely in the midst of discussions with lenders with regard to that, but we feel that we will accomplish something on the Hickory Hollow refinancing. There will probably be some recourse on that asset, but all of our other refinancings are in great shape and we'll be announcing those and closing those just over that next 60-day period.

So we're very, very comfortable and confident with regard to our refinancings, and we couldn't be more pleased with the results we're getting from the lenders.

Thank you.

Thank you. Our next question is from the line of Paul Morgan with FBR. Please go ahead.

Morning.

Hey, Paul.

Hi. On the -- did I get this right? You said that 81% of your '08 renewals have been dealt with already?

That's correct.

How would that compare to this same time last year?

That's about the same place we were last year. That's pretty much for this time of year where we typically see it.

Okay. And then what kind of visibility do you have and what's your feeling -- I know it's a little bit early, still -- about your holiday seasonal leasing and kind of what is that program, the whole specialty program as a percent of your NOI?

I think that the specialty and seasonal leasing for this year is going to end up pretty much flat from last year. With mall traffic being down it's been impacted somewhat, but we're still seeing good demand for the fourth quarter and we feel like we'll be able to end up roughly where we were last year. And that's roughly a $100 million program, total, so that just gives you a sense for the amount of revenues we get from that.

And what kind of growth have you been seeing over the past few years or year-over-year? Has it been generally growing, I'm assuming, kind of faster than core NOI?

Yes, it's been growing roughly 10% a year, and it's been slowed down by a couple of factors. One is that some of the retailers have put restrictions that have limited the number of carts, so that has kept us from adding to the supply in some cases, and then just with the economy and the traffic. And then the other thing is that the immigration has cracked down on some of our operators, so we've lost a few people over that.

Okay, last question on the [for sale] assets, do you have any sort of update on what you expect to see in the second half for those?

Paul, I think we're having conversations with people on all of the remaining assets that we're willing to dispose of in the Starmount portfolio, and we look at our own portfolio as opportunities come along. So in the second half of the year we have projected no sales or disposition of those assets.

So we like to take a conservative approach to what we put into our numbers, and so if they were to occur it would just be a bonus from the standpoint of additional income for the Company.

Okay, but there's nothing in guidance related to sales?

That's correct.

Thanks.

Thanks, Paul.

Thank you. Our next question is from the line of Jay Habermann with Goldman Sachs. Please go ahead.

Hi, Jay.

Hey, good morning.

Morning.

John, question for you. I guess you mentioned in your comments on FFO growth that your increase largely year-over-year due to acquisitions and lower interest expense from lower interest rates, but you're currently at about debt to asset of about 75%. You've got $1.5 billion on shorter-term financing and your fixed charge is down year-over-year. Can you just update us in terms of thoughts on de-leveraging the balance sheet a bit in this current environment, especially given the continued turmoil in the credit markets?

Yes, I think we are, Jay. As I think you know, when we started this Company, we built a lot of community centers and power centers and sold those off to de-leverage -- well, at that time not to de-leverage but to provide equity for the Company.

So we think that that same basic fundamental applies today. With the development pipeline that we have going today and the ability to sell those assets, that should generate additional income to us as well.

As we pointed out just a minute ago to Paul, we don't project any sales of assets in our FFO numbers, but we're very cognizant of where we are on our debt to market capitalization number, but in turn it really has no relevance to our bank lines of credit. They're all based upon gross asset value tests, and we have plenty of capacity in there.

And then under our lines of credit at the end of the second quarter, we had about $190 million of availability there, and we had construction loans that we had excess financing, so we saw the pull-down on that of approximately $30 million.

Granted, that doesn't de-leverage the Company from a debt to market capitalization standpoint, but we think ultimately the market's got to realize that CBL is the best value out there, especially when the dividend is so safe and secure. An 11% dividend payment is just really kind of crazy in today's market, so we think that ultimately, the market will realize that CBL is underpriced, number one; number two is that we have plans in place that we've learned over the years that we can sell assets and de-leverage at any time.

And number three is that we have a great relationship with our banks and financial institutions, so we're very, very comfortable with our financial position and we think we're just going through one of those cyclical times in the retail business. It happens, and we've been here -- it's hard to believe that I've been in this business for 40 years, but I have been and we've seen many of these opportunities.

I was just looking in debt to assets and just, again, thinking that -- would you reconsider sort of taking it to a lower level going forward?

Yes, I think we're always focused on the ability to pay down debt and bring those levels down. No question that debt to market capitalization in a lot of people's minds is an important deal, but I think it doesn't have anything to do with regard to the safety and the soundness of our financial capabilities of this Company.

And we've got good coverage ratios as well, so I think that's what we're focused on, is to make certain we get those coverage ratios in place. We're sorry that the market doesn't view us as a tremendous opportunity to own at this time, and we will do what we need to do to bring those debt levels down.

And then just turning to NOI growth, can you give us a sense of just the disparity of growth, say, between your top centers, maybe your top 25 versus, say, the remainder?

Jay, we don't really break out the portfolio and look at it that way. There's a lot of disparity. Some of the tourist markets have been impacted more than non-tourist markets. The properties along the border with Mexico have stayed very strong and have performed well.

It's not just kind of a top 25 versus the rest, and I think what you're saying is -- unfortunately, this retail environment is not discriminating. You saw in the journal today this article on Whole Foods and Starbucks and companies that have appealed to the high end have been hit as well as companies in the more moderate range.

And so I think it's just a weak retail environment, and like John said we've seen it before, we'll work through it. And some of the most successful retailers, a company like Buckle, has unbelievable sales growth just because they got their merchandise right, and then some other companies that had been very hot are struggling.

So it's just a function of the retailers working through their issues and getting their products right. And the other thing that's going on with the retailers is they've gotten so conservative on inventory for this year that there's no way holiday sales aren't going to decrease. So they're looking very closely and they've got issues with higher cost to goods sold and issues like that that are going to impact us, and we're working with them. But that's a big struggle from their point of view.

And just one more from me, and then Tom has a question as well. Can you mention, what was the $1.2 million of abandoned development costs associated with?

Yes, it was associated with two or three projects that we had that we basically couldn't get the returns that we thought we should. We didn't see the pre-leasing that needed to be done, and it's consistent with the conservative approach that we've taken and will continue to take.

So it was three basic projects that we had that we were going to develop that we have basically written off now.

Hey, guys, it's Tom here. I apologize if you spoke to this earlier on the call, but what's your outlook for stabilized mall occupancy for the balance of the year, and do you think that the increase that might result from temporary leasing is enough to offset the potential for increased store closings and the impact that'll have on occupancy?

I think we're looking at roughly 100 basis points down from where we were at the end of last year, and the temporary leasing and specialty leasing will help out, especially with some of the spaces from the bankruptcies or the store closings. So that's going to absorb some of that, but I think at the end of the day we'll still be down year-over-year.

Okay, thanks a lot. One final question -- the credit facility that matures in August of this year, I know you guys plan on utilizing the extension option. I'm just curious if there are any changes in the terms of that loan that take effect upon exercise of the extension option?

Tom, Tom, I'm amazed that you would even ask that question, [not only] that we would have negotiated in a great deal for us. So it's basically the same that goes throughout. It's got three additional periods of one year each, so there's plenty of room on that as well as the rest of our lines.

Okay, thanks a lot, guys.

Thank you, Tom.

Thank you. Our next question is from the line of Craig Schmidt with Merrill Lynch. Please go ahead.

Thank you. The operating income of discontinued offset of $3.3 million, what assets does that consist of?

Those are the Starmount office buildings that we bought, Craig, when we bought the Starmount portfolio. So it was always our game plan to sell those off. That's not our business, and so we're in the midst of selling those off.

But I heard earlier you don't have that in your guidance, though. So that could be a positive.

That's correct.

Okay. And then you had one of the Boscov in Monroeville, that's one of your more productive centers. I wonder what were some of the alternatives you thought of of replacing the closed Boscovs?

It is interesting because they just filed this week. We've already gotten two emails from retailers that have expressed interest in it, and I probably shouldn't name who they are but we've got interest from those two plus a possibility of a theater that we were looking to develop on some land around it, that we could redevelop that.

We don't own the store; Boscov's owns it. They bought it directly from Macy's when Macy's bought May Company. But I'm sure we'll have conversations with them once they sort out their situation.

Thanks.

Thank you.

Thanks, Craig.

Our next question is from the line of Jeff Donnelly with Wachovia Securities. Please go ahead.

Good morning, guys.

Hey, Jeff.

Morning.

Hey, John. Maybe you touched on this in an answer to Christy's question but I guess why not get more conservative in your guidance for this year and put in more of a cushion for retailer losses? Or does that mean that you expect we're done for the time being, if you will, on retailer issues as they go through a back-to-school, holiday sales period?

Well, I don't think we're necessarily done, because I think we're in a very fluid economy and I don't know that we're necessarily done from that standpoint.

But as you'll note, our range is pretty wide and it does give us a lot of flexibility to that, and I think that the biggest issue still outstanding that we've got to focus on -- we're focused on it from the standpoint of leasing and taking care of the space, but Steve & Barry's is the big question mark today.

If two weeks ago you would basically ask the question, everybody would have said they're going to liquidate the whole company. And then yesterday, there's a [talking source] basically now talking about operating the stores, etc., and is in the midst of negotiating.

So I think what we felt is that we had a broad range there, and then looking at the numbers and so on we felt fairly comfortable with that other than these unforeseen things that could occur.

And I'm curious, on your development and redevelopment pipeline, we saw opening dates on a handful of projects pushed back and you had initial yields, I think pretty much across the board were either flat or up slightly.

I'm curious -- were the delays generally leasing or construction-motivated, and what gives you the confidence on initial yields for your projects, given the environment that we're in?

I think there was only one delay, which was a Barnes & Noble store, and that was just we got behind on approvals -- government approvals, and so we delayed it from fourth quarter to first quarter. But other than that, we haven't delayed any development projects.

I'm thinking about the opening dates also, some of your redevelopment projects as well. Looks like they had slipped back from where I think they were published within the supplemental in Q1.

Right, okay, there were a couple of Barnes & Nobels, Ashville and West County, where -- and actually, at West County, that one's -- the Barnes is opening, it's just a restaurant. So they're going to be opening in the spring, and that was just a matter of getting the leasing done and getting everyone open, and it was an ambitious schedule. We were pushing really hard on our leasing group originally, and it was overly ambitious, and so just the reality of what we could accomplish set in there.

But that project has really come together nicely, and we'll be announcing a second really strong restaurant very soon, and we've got four good restaurants plus Barnes & Nobel as part of that. So that's really come together well, and the Barnes & Nobel at Ashville just was a few month delay from what we originally said it was.

But we've held to the schedules for the most part. The leasing environment for new developments is definitely challenge, like I said, but we are confident that we're going to pull those projects off and they're going to get to the leasing levels that we were able to achieve at Pearland.

And just one last question. I know you don't put this into your guidance, but considering the assets you do hold for sale, I was curious -- do you still expect the majority or a good number, I should say, of the Starmount office portfolio assets to maybe be sold by year end, and how is occupancy holding up in the office out of that business?

I think occupancies are holding up pretty well there. There were long-term leases in place on those, and today's market, the cost of replacement in those market areas basically stymies the ability of people to come in and compete against that.

There is a lot of interest in those market areas. I think one of the reluctances of a lot of people that's slowed down the process somewhat is the ability to get financing, and we're able to work through that with them as well.

Okay, thanks, guys.

Thanks, Jeff.

Thank you.

Thank you. Our next question is from the line of Nathan Isbee with Stifel Nicolaus. Please go ahead.

Hi, good morning.

Hey, Nate.

CapEx is down about $10 million in the first half of '08. Is that a timing issue or are you still comfortable you'll be in line with last year's totals?

We feel comfortable that we are going to be in line with last year's. We've been proactive with regard to taking the steps necessary in this market area to handle those types of situations, and we feel comfortable with where we are today.

Okay, and then one last -- how are you doing in the '09 lease renewals?

We're about 40% of '09, and so we're making good progress there. And that's around this time of year typically where we would be.

Okay. Thank you very much.

Thanks, Nate.

Thanks, Nate.

Thank you. Our next question is from the line of Michael Bilerman with Citigroup. Please go ahead.

Good morning.

Hey, Mike.

Hey. Ambika Goel's on with me as well.

Hey, Michael.

Hey, Ambika.

John, maybe you can just talk a little bit more, just a clarification on the financing. I think you mentioned you had 340 rolling, and I guess you had two loans subject to extension options. Is that Lakeview and Milford?

Yes, uh-huh.

And when do those have extensions too?

I think that they have one or two more years on them.

Okay. And then I guess the balance of the 340 is right now at a 64 interest rate, and I think you said it would be north of where you are today, so we should expect that this is a 675 or 7% or all in type of rate?

Yes, it's about 6.5% today and it should go up about 30 basis points or something like that, in that range.

And that's all in in terms of all your up front fees and all the costs to do it?

Yes.

And then are you getting excess proceeds out of the 340 that's rolling, or it's just a straight swap?

We've been able to negotiate some excellent terms on those loans, and we're working to close those loans. The appraisals are coming in; the appraisals are basically in line with what we expected, and there are some proceeds.

Magnitude wise, are we talking about $100 million, or something less?

Well, we're -- I'm going to slip that question by, Michael. Because we're in negotiations on one of these loans, we'd prefer not to answer that at this time.

It's probably not extraordinarily significant.

It's not going to be extraordinarily significant, that's -- thank you.

Okay. And then just going back to the -- I think your regular unsecured facility, you have your three one-year extensions and the cost stays the same. Is that the same for your secured facility that most of it rolls early next year, or do you have a one-year extension that's going to be the same terms, same fees?

Yes, that's correct.

And you don't have to pay anything to get the extension, right? There's no --

I think there's a minimal fee.

A minimal fee to do it. And how far along are you on all the discussions of next year's maturities?

The lenders that we've been talking to today about the '08 financings, basically what's really primed their desire to do these loans with us is the ability to do more next year. It seems like these people that we've been dealing with are very excited about it, and they're really some of our best properties coming up next year, so we feel really pretty good and comfortable about those.

And you said Hickory and Rivergate would both have recourse on them, but Hanes would not. Hanes and Meridian would not.

Yes, they'll be partial recourse.

On Hickory and Rivergate?

Yes. They're basically -- these are two assets that we bought about nine or 10 years ago, and they're cross-collateralized. One will basically come out of the cross-collateralization and the other one will basically have some recourse. They'll both have some type of recourse on them.

And going to the abandoned project expenses, you have almost $3 million year-to-date, which I guess refers to all developments that you haven't decided to pursue. How much more sort of pursuit costs do you have on the books related to projects that you potentially could start, just to get a sense of how much more is --

There's some other projects that we're still working on, but we're still feeling fairly good with regard to the prospects of those going forward, so if we thought that we were going to write those off we probably would have done it at this point in time, but I think people feel that where we are on those assets, we still have a lot of time left on the options.

Keep in mind that we don't buy any property until we're ready to commence construction on that, so it gives us tremendous flexibility and what we're at risk is engineering costs and option fees, so we minimize that, and then what we also keep in mind is that there's legal fees, etc., that are involved.

So we try to minimize our exposure and do a pretty good job of that on these that we wrote off this time. We felt that we just couldn't achieve the free and clear returns that we felt that we needed to.

But do you have, like, $25 million in investments right now, in developments, in a future development pipeline? I'm just trying to get a sense of --

No, no, no, it's considerably less.

It's a lot less than that.

Okay.

Yes, we're really careful -- we're careful even in great economic times about our up front costs, and I think we probably average $1 million to $1.5 million a year in write-offs, but given the size of our development program, that's pretty minimal.

Hi, this is Ambika. Just following up on the expense recovery rate, you had mentioned that it was lower because of the higher bad debt expense. Even adjusting for the bad debt expense, it appears that it's trending lower this year. Are there any other factors on the operating expense side that are trending higher just because of the impact of what's happening in the economy and occupancy down?

Ambika, as you transitioned from fixed cam -- pro-rata cam to fixed cam, you'll always go backwards till that time. So that's what it's impacted us, as well as what you mentioned. So as we finish up and get everybody on fixed cam, then we should see a positive 100% or back to those levels or better.

Okay, so it's just a matter of the timing of the recoveries which is causing the expense recovery rate to trend lower this year?

Yes, that's correct.

Okay. And then last quarter you went through just kind of talking about each tenant's exposure and how far you are on releasing the space. Could you update, tenant by tenant, how the releasing is going for the space that you've gotten back from either closures or bankruptcies?

Well, I think what happened this quarter was a lot of the store closings were right in June, or they're the bankruptcies, and we're not even sure which stores we're getting back in a lot of cases. So it's just preliminary to do that for this new batch, but we can do that with you at some other point, or we can update it probably with the next quarter, because then we'll have a lot more clarity as to how this is all going to shake out in terms of stores we're going to be having the opportunity to release.

Okay, and then if the closures, I guess, just happened in June, if we're thinking about a rolling from second quarter to third quarter NOI run rate, what's the impact of these closures, just to get a sense of how NOI will be impacted just because the second quarter wouldn't really include the impact of all these closures?

Well, that's why we reduced NOI guidance -- we didn't reduce it; I'm sorry -- we guided to the lower end of the NOI guidance of the range that we had projected. So that reflects this fallout that we've seen from this batch of retailers that filed.

Okay, so would it be fair to say -- you gave the number of 1% as revenues lost. Is that in the figure of what was lost right at the end of the second quarter?

No, that's the year-to-date revenues that we've seen.

Okay, great -- thank you.

Thanks, Ambika.

Thank you.

Thank you. Our next question is from the line of Ben Yang with Green Street Advisors. Please go ahead.

Hi, good morning.

Hey, Ben.

Hey.

Hi. Stephen, just a few questions on Pearland Town Center. You said that the property opened up 85% leased, which sounds very good given the tough environment, but the 70% of the space occupied sounds low. Are tenants deliberately postponing store openings until the market improves, or did you have any trouble coordinating tenant openings here?

Well, we opened 61 stores last Wednesday, plus Macy's, and that's the 70%. Dillard's, which is our second -- and plus Barnes & Nobel opened, I'm sorry.

Dillard's, which is the second department store anchor, isn't opening until the end of October, and that was always planned that way. There was no delay; that's been their plan from a couple of years ago.

So most of the difference between the 70% and the 85% is just happening over the next couple of months, around the time that Dillard's opens. So we figure right now we'll be 82% open by year end, and again, some of those are deals that just happened last minute and they couldn't get built out before the center opened and things like that.

So to be over 80% within three, four months of a new mall opening is good -- is pretty normal in good times, and given this economy, we think it's extraordinary. And we have good interest as a result of the opening, everyone's sales have been great. So I think it's a real success story for CBL. It shows what we can do.

Sounds like the delayed opening is really baked into the yield that you're expecting for the project?

That's correct.

And then can you give us an update on the residential and the office portion of Pearland? Are those open yet, or are they opening later this summer?

The residential, we opened 62 of the units, which are what we're going to own. And we have a local partner, Suba, who also has the ability to build other apartments. And they're handling the management and the leasing of those, so those opened with the center, but that was the first time people could look at them as well. So we anticipate that those will lease up over the next few months.

And the office also was completed, and that -- again, we're starting to get some good activity now that the center is open, and we're close to signing our first lease for that.

The hotel opens this week, and so that also is a real attractive element of the project.

Okay, thank you.

Thanks, Ben.

Thank you. Our next question is from the line of Mike Mueller with JP Morgan. Please go ahead.

Yes, hi, just two questions. First of all, with respect to the guidance of land sale income, land sale gain income, I think it's $0.12 to $0.16 for the year. Looks like so far this year you've booked about $0.06. Can you just talk about the visibility and the comfort level of hitting the balance of that income in the second half of the year?

Yes, I think a lot of this is centered around the new developments and things such as that, so I think our guys are having a lot of interest in those parcels. So I think -- we reviewed that with our peripheral property guys before we did our guidance, and I think they all feel fairly comfortable that we can achieve those numbers.

Okay. Is there any sense at this point about will it be more Q4 than Q3, or fairly even?

It'll probably be more Q4 than Q3.

Okay. And then secondly, you commented before about -- I think Stephen did -- about the '09 leasing activity. Can you provide any insight in terms of if we're thinking about how the lease spreads have turned out so far this year versus the activity you're looking at at '09? Are you saying -- are those levels holding up still or any diminution in them?

Yes, I think we have been double digits with the lease spreads this year for new leases and renewals are a little bit less, but I think we're looking at comparable for '09. There's no question the retailers are pressuring to try to get as good a deals as possible, but I think we can hold those levels.

Okay. Okay, thank you.

Thanks.

Thank you. Our next question is from the line of Christeen Kim with Deutsche Bank. Please go ahead.

Hey, Christeen.

Hey, good morning. John, you mentioned before a couple of projects not meeting your return requirements. Can you just remind us where your yield hurdles are at point, and how much that's changed over the past three or six months?

Christeen, it's in the range of 8% to 10% on an unleveraged basis, after taking out management fees and the development fees. The typical normal way we underwrite before this sort of downturn in the economy, those probably were a little less than that, but that's basically where we are, is 8% to 10%.

And then on remodels and expansions, if you take into consideration lost rent for space that you're taking out of that, those returns could be a little lower than that, but it just adds to the total overall project's value.

So compared to where you guys were maybe three, six months ago, those requirements or hurdles have increased 50 basis points or not even something of that magnitude?

I'd say they're probably up by 100 basis points.

Okay, great. Thank you.

Thanks.

Thank you. Ladies and gentlemen, as a final reminder, that's star, one to ask a question.

And our next question is from the line of Rich Moore with RBC Capital Markets. Please go ahead.

Hello, good morning, guys.

Hey, Rich.

Question, John, on the credit facilities and the letters of credit, just so I don't confuse myself here. With all the different facilities and letters of credit and all, what is the total capacity that you have, and then the total outstanding on the group?

Total capacity, Rich, just the lines of credit, excluding the letters of credit, it's about $1,490,000,000 -- right in that range. And what we have outstanding on those today are -- let me go at it a different way. What we have available as of the end of the second quarter was $190.5 million available on that.

What we do is we basically, because our lines of credit interest rates are lower than what our construction loans are, we will use our lines of credit to the extent before we close the construction loan because of the pricing. So in addition to that, when we closed a couple of construction loans that are already committed and we're in the process of documenting, we would have another $31 million of available funds out of that, as well.

In addition to that, there's a line of credit for letters of credit, and that I think probably has availability in the $20 million range or so. Likewise, we're in the process of closing a lot of bond issues on TIF financings and other things that should generate additional revenues for us as well. So those TIF monies that we've basically taken back notes for -- as an example, on West County I think it's about a $10 million or $12 million TIF financing there -- when we close that loan we will get back that $10 million or $12 million.

And there are a number of those like that. So what we're focused on is the liquidity of the Company and making certain that it's financially sound, and that we have the flexibility to do what we need to do and to make certain that our dividend is safe and secure.

Okay. Okay, John, so then when I look in the supplemental and I see $1.5 billion of balance on the credit facilities, how does that $1.5 billion compare to the $1.49 that is the capacity of the facilities? You see what I'm talking about?

Rich, this is Stephen. This is dangerous, because I'm treading on John's water here.

Yes, that's all right.

But the total -- just the credit facilities, the total commitment is $1,455,200,000, and the outstanding is $1,264,700.00. So that's the $190 million of availability that John was talking about, and in the supplemental, that area you're looking at also includes the term loan. And the term loan is -- when we talk about the credit facilities, we're talking about that's a separate item.

So the term loan we closed on the $228 million, and what we did with that is we paid off some debt and then we paid down our lines of credit by that amount.

Okay, I got you. Very good. Thank you for that, I appreciate it.

And then one more finance question, if I could, John. On the FFO, I'm just curious -- why did we add back that tax item this time on the sales of the assets?

It's a non-cash item, and the reason, Rich, is because that is income that the management company has basically earned, and for GAAP purposes you've got to pay taxes on it. But we have enough carry-forward losses in the management company to cover that.

Okay, okay, good, I got you. And then now turning to concessions, are you guys seeing the environment for concessions with retailers, is that increasing? Are they looking for -- I'm sure they're looking for more, but are you having to give more concessions at this point?

I think the only areas where we've gotten pressure is some higher tenant allowances on some of the development projects, and that's from some of the retailers who have, like, the moderate -- the women's specialty retailers, where they've just really been struggling and have cut back on their expansion, and they've requested higher allowances as a way to bridge the gap and make the numbers work. But other than that, we haven't seen that.

Okay, very good -- thanks, Steve.

And then last question I have is you guys have a lot of community centers and open air centers in the development pipeline, and I'm curious -- would any of those become merchant building type assets, where you might just turn around and sell them?

Well, I think what we would do there is we would see what the market would want to do with regard to those, and we think that there will be opportunities to sell those and we can generate a significant profit for those as well. As you know, in the past that's what we've done, and I think we'll look at that and examine that.

Okay. All right, great -- thanks, guys.

Thanks, Rich.

Thank you. Our next question is a follow-up question from the line of Paul Morgan with FBR. Please go ahead.

Hi, just a quick follow-up. Stephen, if I heard you right, the leased and committed and open numbers for Pearland are including the anchors?

No, no, they don't include the anchors. That's just the non-anchor space.

Okay, I thought you were saying when you were talking about how the occupancy was getting from 70% to 85% or whatever, that it was Dillard's that it was making the count.

No, what was saying is that Dillard's isn't opening until October, so some of the specialty stores that were in that 15% between 70% and 85% are opening between now and when Dillard's opens in October.

Okay, so they're down by Dillard's or something.

Yes.

Okay, thanks.

Thanks, Paul.

Thank you. Our next question is a follow-up question from the line of Nathan Isbee with Stiefel Nicolaus. Please go ahead.

Hi, it's actually Dave Fick here with Nate. I know you guys don't like to comment beforehand on what your dividend policy is going to be, but given that your track record over the last few years has been sort of 13%, 10%, and then last year 8% dividend increases in December, given where you are in the capital markets and so forth right now and acknowledging that it's a board level decision again, where do you think you all might be coming out in terms of recommending an increase to the board?

I think it's too early in the process to really see where we're going to be on that, David, but we have had a history of increasing that dividend every year since being a public company. But I think what we're really focused on is the safety and security of that dividend where it is today, and we feel very comfortable and confident that it's safe and secure for our shareholders.

And then after taking that into consideration as well as the other capital needs, I think the board will come to a conclusion as to what they want to do on that. I think that as we pointed out, the debt to market capitalization number is more of a street-driven number versus our banks and financials. So we'll take that into consideration as well as other things and capital needs, but we do have the financial flexibility to do what we need to do, and all of those things will be taken into consideration.

Thank you.

Thanks, David.

Thank you. Our next question is a follow-up question from the line of Jeff Donnelly with Wachovia Securities. Please go ahead.

Hey, guys. This might just be a presentation issue from Q1 to Q2 in your supplemental, but on two of the community open air centers, I think it's Heming Landing and Pavilion in Orange, your projected total cost pretty much halved itself, but in both quarters there were still a 50-50 JV. Is it just a presentation difference, or did you somehow scale back your expectations of costs there?

It's just presentation. The projects are the same costs and the same size. We just adjusted for the 50-50 JV.

Okay, thank you.

Okay.

Thank you. And there are no further questions at this time. I would like to turn the call back over to Mr. Lebovitz for any closing remarks.

I'd like to thank everyone for joining us this morning. As John said, this is a difficult economy but it's not the first one that we've seen, and we're very confident that with our management team and our experience and our properties, that we're going to get through this and show everyone that CBL stock is very much undervalued and we're going to have a solid rest of the year and that our program going forward is going to really show the investors that CBL is a company that they want to own and be a part of. Thank you.

Thank you. Ladies and gentlemen, this does conclude the CBL & Associates Properties, Inc. conference call. Thank you for your participation, you may now disconnect.