CBL & Associates Properties, Inc. (CBL) 2008 Q3 法說會逐字稿

Good day and welcome to the CBL & Associates Properties, Inc. Conference call. (Operator Instructions) At this time for opening remarks I would like to turn the conference over to Mr. John Foy, Chief Financial Officer. Go ahead, sir.

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties, Inc. Conference call to discuss Third Quarter Results. Joining me today is Stephen Lebovitz, President 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 condition 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. Two of our primary objectives given the continued challenges at the time in the capital markets and economy are creating liquidity and maintaining our earnings growth. We are focused on achieving these goals through a number of methods and we would like to take a few minute to walk everyone through them. I'll begin by discussing our debt maturities and capital sources. Stephen will discuss the operations and development a little later in the call and then hand it back to me for the financial review.

In September we announced the completion of $288.1 million of new financings to refinance mortgages expiring in 2008 secured by Hanes Mall, RiverGate Mall, Village at RiverGate, Hickory Hollow Mall and Courtyard at Hickory Hollow. We used a portion of the proceeds from the financing to pay off the existing $84.6 million loan secured by Meridian Mall in Okenos, Michigan, completely addressing all of our 2008 maturities.

We also entered into a commitment with Wells Fargo Bank for a new term loan of up to $82.9 million secured by Meridian Mall. We expect to initially close on $40 million within 30 days. As we bring in additional participants to this loan, we will increase the loan up to the $82.9 million.

In 2009, excluding loans with extension options, we have approximately $309 million of mortgages coming due. All of these loans are property-specific and non-recourse to the Company. All the mortgages are held by life insurance companies except for a $53 million CMBS loan that matures in December.

Based upon the existing loan amount and a conservative estimate evaluation, the current average loan to value of these mortgages are under 50%. The quality of properties is good with a long history of sound and stable NOI. We are already in the process of discussing these loans with life insurance companies, pension funds and other capital sources and we believe that we will be able to successfully refinance these loans with estimated excess financing proceeds of $10 million to $50 million.

We have one term loan on a recently opened development project, Milford Marketplace, which comes due in 2009. We will refinance or pay off this $18.8 million loan. All of our construction loans have extension options available that extend the maturity dates to 2010 and beyond. We have enhanced the disclosure in the supplemental to include this extension information.

As to our lines of credit, we have total capacity of $1.19 billion including two principal facilities that are led by Wells Fargo. The $525 million secured facility has an expiration date of 2009. We have exercised the extension option on this for a maturity date of 2010 and are in discussions for extensions beyond that.

The $560 million unsecured facility has an expiration date of August 2009 with two additional one year extension options for an outside maturity date of August 2011. We are not only in compliance but have ample room within all of our debt covenants.

Our debt to gross asset value as of September 30, 2008 was 55% well under the required maximum of 65%. We've included a list of our major covenants in the supplemental which demonstrates our sufficient coverage. We have also stress tested our covenants to assume changes in the cap rate assumptions at 100 basis point increase. We maintain adequate room within our covenants.

At September 30 we had approximately $114 million of remaining capacity on lines of credit and cash of approximately $50 million. We have a number of other potential sources of capital including asset dispositions. Year-to-date we have completed the sale of approximately $52 million of community centers and office buildings. We are in discussions on a couple of others and would hope to have announcements to make by year end. We are also exploring joint venture opportunities although it is much too early to discuss specifics.

Finally, we announced yesterday that the Board had made the decision to reduce the quarterly dividend rate to $0.37 per share from $0.545 per share. While the current dividend was sufficiently covered by cash flow, we believe that the reduction was a prudent decision based on the continued volatility in the financial markets. The market has clearly indicated that liquidity is more valuable today than maintaining a high dividend. This reduction will generate approximately $80 million in additional free cash flow on an annual basis providing us with even more flexibility.

Based on yesterday's stock price, we offer our investors a current annual dividend yield of 14.9% which we still view as highly attractive and is well covered by cash flow.

Now we'll turn the call over to Stephen.

Thank you, John. As John mentioned, we are focused on maintaining our NOI and earnings despite weakness in the general economy. In late 2007 we saw signs of weakness in retail sales and began reducing our capital spending to offset the anticipated rent loss. We have focused on reducing operating costs at the properties and have been successful in lowering expenses and taking advantage of economies of scale. Given that the majority of our portfolio is on fixed CAM, the benefits of these reductions fall directly to the bottom line.

We have also taken measures to control overhead expense at all levels of the Company including compensation adjustments. We anticipate G&A to be around $45 million for 2008.

On the capital expenditure side we are focused on reducing three areas - renovations, tenant allowances and deferred maintenance. The vast majority of our properties have been renovated within the last ten years contributing to our decision to delay any future renovations.

This year we have wrapped up two renovations that began in 2007. We anticipate 2008 capital expenditures of $90 million for the full year which is a reduction of more than $50 million from 2007. In 2009 we anticipate spending approximately $75 million for capital expenditures.

On the development front we have four major projects under construction today that are scheduled to open in 2009. We have construction loans committed and have funded the equity on these projects requiring no additional capital. While the leasing environment is certainly more difficult, we are making steady progress and anticipate healthy openings in 2009.

We have taken measures to limit exposure on these projects by phasing the small shop portion or converting a portion of the small shops to junior anchor space. While the initial yields have compressed, as the second and third phases on these projects open the yields will improve since all of the land and fixed costs are included in the first phase returns.

As we look forward on the development front we have decided to hold all major new projects in pre-development until we can see a more favorable environment. We will still maintain a pipeline of new opportunities but until we feel that the leasing environment has improved, we will take a more conservative approach to development.

We previously commenced site work on an associated center adjacent to our very successful Imperial Valley Mall in El Centro, California. We have recently decided to delay construction of the project due to the economic environment and have eliminated this project from the listing in the supplemental.

We opened our first project in Brazil last month, Plaza Macae. The project opened 92% leased and committed and has been generating very strong traffic and sales with initial yields in the mid-teens. We are pleased with the result of this first project but will be judicious in committing additional capital to Brazil in this environment.

The leasing environment continued to be challenging but we were pleased to sign over 1.9 million square feet of new and renewal leases this quarter at strong spreads. Our leasing activity in the quarter included approximately 525,000 square feet of development leases and 1.4 million square feet of leases in our operating portfolio. The 1.4 million square feet in our operating portfolio was comprised of 294,000 square feet of new leases and 1.1 million square feet of renewal leases. Today we have completed approximately 50% of our 2009 renewals.

For stabilized mall leasing year-to-date on a same space basis, we achieved an average increase of 10.6% over the prior gross rent per square foot. Portfolio occupancy excluding the centers acquired in 2007 was flat year-over-year at 92.4%. Stabilized mall occupancy excluding centers acquired in 2007 declined 90 basis points to 92.3%.

Retailers are no doubt feeling the pressure of reduced traffic and sales. Fortunately, the majority of our retailers continue to operate with strong balance sheet and cash positions. We are realistic and believe that we will continue to see some bankruptcy and store closure activity through 2009.

While the Steve & Barry's reorganization is ongoing we have additional information to share since last quarter's call. We originally started with 21 Steve & Barry's locations comprising 813,000 square feet and $7.3 million in gross annual rents. Three leases have been rejected and there are four additional stores currently running going out of business sales. These seven stores comprise $1.9 million of rents and 192,000 square feet. We are in the process of backfilling the available spaces and already are working on a couple of letters of intent.

Linens 'N Things recently announced its liquidation. We have nine remaining Linens 'N Things representing 280,000 square feet and $3.4 million of gross annual rents. At this time, all the remaining stores are open and operational. We anticipate those stores closing in the fourth quarter and have solid backfill prospects for several of the locations.

Circuit City issued a store closure list this week. We have eight stores comprising 256,000 square feet and $1.9 billion in gross annual rent. We have two stores on the closure list, one store is owned and the other is ground leased comprising 61,000 square feet and $182,000 in gross annual rents.

Same-store sales declined 3% to $339 per square foot for reporting tenants 10,000 square feet or less in stabilized malls for the rolling 12 months ending September 30.

Overall, North Carolina showed relative strength and the border markets continued to do well. The Midwest and South were mixed with some markets holding up better than others.

There's no doubt that these are challenging times. We are confident in our organization, our properties and our strategy. We believe that we have the quality relationships with retailers in place to move forward effectively. We have taken steps to control G&A and variable costs. We believe we have ample liquidity and will continue to be disciplined with capital allocation weighing each opportunity with the costs and the risks. We feel that this is the right approach to dealing with the challenges that everyone is facing in the markets today.

Now we'll turn the call back over to John for our financial review.

Thank you, Stephen. This quarter we achieved a 7.8% increase in FFO per share to $0.82 compared with $0.76 per share in the prior year period. During the third quarter we recorded a non-cash loss on the impairment of marketable securities of $5.8 million related to the further decline in market value of equity securities the Company holds. These securities were written down from $21.3 million to the September 30th value of $15.5 million. This write-down was partially offset by fee income of $8 million received from affiliates of Centro related to the Galileo transaction in 2005.

FFO per share in the quarter included lease termination fees and out parcel sales of $0.09 per share or $0.06 higher in the third quarter 2008 than in the prior year period. This was offset by an increase in the income tax provision of $0.05 as well as a $0.01 decline in the net below market lease amortization. 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 1.6% for the quarter and declined 1% for the nine months ended September 30, 2008 compared with the prior year. Same center NOI continues to experience pressure from the ongoing bankruptcies and store closures.

Our cost recovery ratio for the quarter ended September 30, 2008 was 97% compared with 105% in the prior year period. G&A represented approximately 3.4% of total revenues in the third quarter ended September 30, 2008 compared with 3.3% of revenues for the quarter ended September 30, 2007. An increase in state taxes contributed to the rise in G&A during the quarter.

Our debt to market capitalization ratio was 71.2% as of the end of September 30 compared with 54.3% as of the end of the prior year period. The increase in our debt to market capital is primarily a result of the decline in our stock price.

Variable rate debt was 17.9% of the total market capitalization as of the end of September versus 10.9% as of the end of the prior year period. Variable rate debt represented 25.2% of CBL's share of consolidated and unconsolidated debt compared with 20.1% for the prior year period.

Our EBITDA to interest coverage ratio for the quarter ended September 30, 2008 was 2.39 times compared with 2.27 times for the prior year period. We are maintaining our FFO guidance for 2008 at the lower end of $3.46 to $3.56 per share. The guidance assumes NOI growth of a negative 1% to 2% which is revised from our original projections of flat to 2%. The guidance also assumes out parcel sales of $0.12 to $0.16 per share and does not include any unannounced acquisitions or dispositions.

Last quarter we spoke to you about the importance of maintaining strong relationships and the recent events in the marketplace have continued to reinforce this importance. We have spent a great deal of time fostering strong and positive relationships and believe that this will be an important differentiator as we move forward in the difficult environment. We are taking proper steps to insure the long-term strength of CBL including the dividend reduction, an even more cautious approach to our pipeline and new developments and focus on improving results in our core portfolio. Management continues to own more than 20% of the Company and we are committed to maximizing long-term value.

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

Thank you, sir. And ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions) David Fick, Stifel Nicolaus.

Can you walk us through the dividend calculation? Did you just take it to what you estimate to be the minimum payout under the REIT rules?

Yes.

That's the answer. That's your estimate for this year. And what do you think about next year?

There is some cushion in there, David. Not a significant amount of cushion but there is a little.

And how about next year?

The same computation went into determining next year's, as well.

What is your educated guess right now on same-store guidance? Can you just walk through how you're getting there given all the moving pieces in Linens, Steve & Barry's and so forth?

Well, we've taken that into account and what we came out with -- the reduced same-store of minus 1% to minus 2% for the year so that takes into account what we know now in terms of Steve & Barry's and Linens 'N Things which is where we expected to end up although in this environment you never know what can happen.

What are you assuming about seasonal retailers' leasing?

We reduced our internal projections by about -- a little more than $1 million at this point and now we've got -- most of those are November, December, terms that they sign up for so we have a pretty good feel for it at this point.

I think Nate has one other question.

Can you talk a little bit about the renegotiated term loan and what might have caused your new lender to back out on the full commitment?

They didn't back out. We basically didn't see the need to take down the full $82.9 million at this time so we basically said let's structure it in a way that basically is more cost efficient and cost effective for us. So there's no back down or back out of the $82.9 million.

I think we had previously announced it at $85 million so there was a little reduction basically in that loan but that's the thought process is that we basically attempt to use our lowest cost of funds. Same thing applies with regard to our lines of credit. We use those versus using construction loans although we have construction loans in place so that we always have that flexibility and we're always focused on trying to use the lowest cost of funds.

And the recourse levels remain the same?

Yes. That remains the same on that loan.

Thank you.

Thanks, Nate.

Thank you, gentlemen. Michael Mueller, JPMorgan Chase & Company.

What is the best guess when you start to look out to 2009 and think about occupancy? I know you guys don't have budgets out but it sounds like you've made progress on '09 leasing. How much do you think occupancy erodes over the next year or so based on what you see today?

Well, we had said that we would end this year probably about 100 basis points below where we were at the end of '07 and we're maybe going to be closer to 150 basis points below, we're not sure. And so going into next year we expect to see probably another 100 basis points to 150 basis points of reduction in occupancy.

So theoretically you'd have comparable same-store numbers to what you're putting up now, it seems like?

Well, I wouldn't just -- really, the same-store numbers this year were driven by the store closures. If we didn't have the Steve & Barry's and Linens 'N Things and some of those store closures then we would have been on track with our original range of 0% to 2%.

So now next year we're going to be coming off that lower level so it -- and we had budgeted the 100 basis point decrease in this year so some of the -- because of the way occupancy is based on the retailers under 20,000 square feet, some of the bigger boxes that hit us this year weren't included in that occupancy calculation.

But when you said for '09 you were expecting another 100, 150 basis points, is that below the ending '08 level?

Yes. But we also will have the re-leasing of the boxes. Hopefully some of those will kick in and we'll have other sources that we'll use to compensate that. Plus the other thing that I talked about was we've been reducing our expenses because we anticipated that we're going to have this fall off on the revenue side so we're really focused on trying to end up with positive same-store NOI growth.

And then on the office asset sales, is that still active in terms of trying to market those or is that kind of on hold at this point? Any comments on pricing in terms of what you're seeing in the market?

It's still active. Most of those are transactions that are in the $5 million to $20 million range and they are local buyers and we haven't seen an impact on pricing. There are probably fewer buyers out there and buyers are having a tough time getting financing but we haven't seen an impact on pricing. We're still marketing just as we have been all year.

Thank you.

Thank you, sir. Paul Morgan, Friedman, Billings, Ramsey Group.

You mentioned the stress test when you were looking at the covenant for debt to gross asset value. Does that -- plus 100 basis points in cap rate, where does that take the absolute cap rate to?

It's conservative from where we are today. The cap rates that the banks use basically were higher than what we would normally see in the market today. So at the request of the banks we don't put out the cap rate that they use but I can assure you that the banks are very conservative in using the initial cap rate and we wanted to be even more conservative to stress that to make certain that our lines were fine.

And then was it also -- did you also stress the NOI?

Yes.

Or was it based on in place NOI?

Yes. We did that also. I think that both of those and then we did both of those to just check to make certain because there's nothing more important than making certain that those bank covenants don't cause us any problems anywhere.

In addition to the big box closings that you mentioned, could you talk about any traditional department stores or anchors that are being closed or that Dillard's and others have made announcements about closings starting next year. Maybe exposure or risk there?

Well, we've got the two Mervyn's that we have that we had announced, neither of which we own, and both of those are being handled by the owner. One Boscov Store had announced that -- has closed and, again, we don't own that but we are talking to the owner which it was sold by the company as part of the sale lease-back. And then Dillard's had announced a closing of two stores, one in Nashville, Hickory Hollow, and Columbia Place in Columbia, South Carolina and those are the only two that we had any notice from them about so far this year.

And you don't have any indications yet about anything they have planned for 2009?

That's correct. We haven't gotten any indications and we're talking to them all the time and so we haven't heard anything else on that.

Last question on the lease negotiation landscape. Tenants are being pretty vocal about going back to landlords in this environment and asking for rent relief and percentage rent only deals and we want to get some color on what you're seeing and what maybe share of your leases have moved to percentage rent only on rent renewal or during the term.

I can't give you any specifics. I will say we've had in some cases percent in lieu of rent deals. Over the past years even in good times and bad times, if the retailer is struggling whether it's the music category or the book category or the card category when they were having problems, in some cases we would work with them on a short-term basis, usually a one or two year renewal and they were percent in lieu.

Are retailers being more aggressive today? Yes, absolutely. But we're also fighting back to preserve our rent streams and it's a negotiation and I can't tell you that the percentages are any different today in terms of that percent in lieu than they have been in the past because they really aren't.

Thank you.

Thank you, sir. Christine McElroy, Banc of America Securities.

I just wanted to follow-up on Nate's question. I'm a little confused. You originally had an $85 million loan from Wells Fargo. It looks like now that's $40 million with Wells Fargo and you're waiting for additional participants to increase the size of the loan. Does that mean that Wells backed out of the additional $45 million? Wasn't the original $85 million with them?

Absolutely they did not back out of the $85 million. We basically made the decision that where we were in our cost of funds, that we were better off to take the $40 million today and basically increase that as we brought participants in to these loans. So they are fully committed. If we wanted to close the loan for the $82.9 million, they would have closed the loan for $82.9 million. We found it much more cost effective not to do so and that's why we pursued this avenue that we've done with them in the $40 million.

Why do it with other participants? Why not do the whole thing with Wells?

I think what we like to do is keep availability with Wells. They've been a great bank for us and we like to participate with them and we like to bring other banking relationships in to those transactions. So that's why we didn't close the entire loan with Wells. And it gives us the opportunity to be more cost effective and efficient with regard to the use of those funds.

And then Sumit [Prague] had a question or two, as well.

The $1.9 million of the Steve & Barry's rent that you were expecting to lose from the closings, how much of that was already reflected in the third quarter?

They closed those stores, we believe, at the end of -- the middle of -- way into September. So it really wasn't -- not much of it was reflected in the third quarter. We're going to feel most of it in the fourth quarter for the rest of the year.

Michael Bilerman, Citigroup.

It's [Quentin Mulolly] here. I'm with Michael. Just going back to the covenant, and I might have missed it, but can you just let us know exactly how the cap rate is determined on the debt to JAV covenants?

Yes. It's a negotiated number. The banks basically through their credit guys want to make certain that the cap rate that is used is at a minimum market. And what they want to do is make certain that they have a comfort level in that cap rate and so the negotiations between us and the line banks is to establish a fixed cap rate at that time that everybody thought was reasonable and fair and we know that that cap rate at that time was higher than market.

So do they have the opportunity to review the cap rate?

No. They did not under the line agreements. They cannot review the cap rate until the lines expire.

Thanks. Just quickly, with your development pipeline can you just give us an update on where all the leasing is at with that and what tenants, whether they've increased their requirements in terms of capital incentives or rent freeze in terms of getting those tenants over the line?

Well, we have the four major projects - Hammock Landing which is in Melbourne, Florida, that's about 465,000 square feet, and the anchors - and in all these projects, the anchors are committed and leases were signed before we started construction so that -- and there aren't other conditions that we have to make to have the anchors open. So that's the case for all of these.

The Hammock Landing project is roughly 82% leased. Settlers Ridge which is in Pittsburg is 390,000 square feet. That's a project where we phased the project so the first phase is what I was talking about and that's roughly 85% leased.

The Port Orange, Florida which is another one where we -- we're just going forward with phase one now and we delayed part of the project to create a phase two, that's about 450,000 square feet and that's a little -- sits at 70% leased. And then the one in Mississippi, the Iberville, is about mid-60% leased at this point.

In terms of incentives that -- are you seeing any changes there?

I'm sorry?

In terms of incentives, are tenants asking for more to get leases signed on the remainder?

There were a number of deals where we have negotiations going on and there's always, in the middle of negotiations, they are always looking for lower rent and more incentives. But, again, it's typical of what we always encounter with projects. And in this environment we had taken into account in our pro formas, we've been a little more conservative because of the environment that we knew we were operating in. And what we've done with these projects is we've taken some of the smaller shop space and are leasing it to value oriented retailers because those are the ones that are having stronger results in this economy. And with costs where they are, the costs have actually come down because of lower demand. So that's helping the overall economics of the projects.

Thank you.

Thank you, sir. Jay Habermann, Goldman Sachs.

I'm here with Johan, as well. John, as you think about 2010 maturities, can you just give us a sense at this point, are you thinking of increasing asset sales as you move into 2009 or are you really much more focused on refinancing activity? And you mentioned, obviously, life insurance as well as pension fund.

What we have, Jay, is in 2010 we're in really good shape from the standpoint of negotiating on those. We have 11 properties that come up for renewal or for refinancing. Of those, four are with life insurance companies and on a combined basis it's less than 50% LTV on those NOIs that are in place today and some of the better properties that we have coming up. The other interesting thing is that only two of those 11 loans are in excess of $100 million so it gives us a tremendous amount of flexibility to basically do that, to refinance those.

We'll continue to look at joint venture opportunities. We don't have our back up against the wall where we're forced to do any joint ventures unless we think it makes good economic sense for our shareholders and so as a result of that we're cautiously approaching joint ventures and discussing those so we'll continue to do that.

And as far as sales of centers, we will continue to look at those, as well. And, assuming we can make a good profit on those or make a positive impact on our total overall portfolio, we'll do that as well. So I don't think anything -- we have not ruled out anything in this environment and I think that we're going to be as creative as anybody in this market today.

And with regard to guidance, I just want to clarify, if you hit the lower end of your NOI growth assumption and also your out parcel sales just remain flat versus what you've accomplished year-to-date, can you still hit the lower end of your expectation? Has that been factored in?

Yes.

I think Johan has a question, as well.

You had mentioned that at this point you have 50% through your 2009 leasing requirements and just could you remind us where you stood at the same point back in '07 for your '08 requirements?

It's about the same. At the end of the third quarter that's usually where we are. And as you saw, our renewal leasing activity is very strong and I think retailers are focused on renewals probably more so today than on the new deals and they want to maintain their presence in their existing stores.

Thank you.

Thank you. John Robert, Hilliard Lyons.

I want to go back to David's question on the dividend. Once we get through the current environment and the current credit crunch, what's your thought on dividend increases going forward? I have to think given that you're probably up against or pretty close to the minimum dividend, increases are probably going to have to be pretty significant beyond '09, wouldn't you expect?

Well, I think it all depends upon what the growth of the Company is on an NOI basis and the use of that capital. So I think it's probably, at this stage, we're optimistic but cautious about what's going on in the economy today and I think the capital market is the big thing that's got to shake out to determine where we are.

And a lot of it because of the net taxable income thing, a lot of it depends upon what the government does with regard to the tax structure. But I think REITs in general and real estate is a good solid sound investment and I think that we should continue to see dividends being safe and sound and the ability to grow those is something that we're focused on, as well. But we're going to make certain that the Company is run in a sound and efficient way and that the dividend is completely safe.

On another front you're obviously saving $80 million in cash flow here going forward and the stock, I would have to think, would be a pretty good investment at this point given its current level. Any thought about using some of that to buy back a little stock?

Well, I think we look at that as well and I think liquidity is the main focus in today's market. I can tell you that Charles and I continue to take our salary increases and our bonuses in the stock so we personally are totally committed and just recently bought some stock in the Company, as well. We would have bought more if we hadn't been in a blackout period.

But I think what we're doing is looking to see the proper utilization of capital and making certain that we have the liquidity. We think that there's going to be many opportunities in this market to achieve some excellent opportunities for growing our Company. So I think that preserving capital and creating that liquidity is the main focus at this point in time.

Thanks, John.

Thank you. Jeff Donnelly, Wachovia Securities.

I know you said earlier that you wouldn't give us cap rates lenders are using but I'm curious, can you talk about the spread between cap rates on say an A Mall in a top tier market versus a B Mall in the same market or even a second tier market?

I don't think that there's been many sales that have gone on in today's market and what we're seeing is is that I'm not so sure there is a tremendous movement in cap rates on regional malls today. But there's no really marketplace to basically give you the basis for that statement. But I know that if we were to sell some of our assets, we've got some preconceived ideas of cap rates and we would hold to those cap rates because there's no huge demand and there's no pressure for us to sell assets at this time. So I don't think the market is helping any of us determine what cap rates are.

I know when we did our initial negotiations with the bank the cap rates were what we thought were pretty high and by stress testing them we go back to feeling very, very comfortable and confident.

And I might add, also, with regard to our line of credit that comes up, it is a secured line of credit. So in this world today where banks are basically very leery of unsecured lines of credit we still have good capable assets that qualify for that secured line of credit. So we're very positive with regard to the ability to continue to -- that secured line of credit even though it expires in about a year or so.

I guess on the cap rate piece I'm curious more -- less on the market transaction side and more so on what lenders are looking at. I'm curious, do they hit second tier markets or called B Malls in good markets by 25 to 50 to 100 basis points over what maybe they would do in an A Mall in an A market? Do you have a feel for that?

Well, I think we just refinanced our Hanes Mall in the Winston Salem last quarter and we didn't see that. We think that a quality mall in a quality market area today is very safe and solid and we didn't see any differential between the cap rates on that versus what that same would have been in the market area.

I think one thing that we have seen is that what they are focused on to a certain extent is the size of that loan and therefore the number of institutions that can go over $100 million is much more limited. So in turn, we have a benefit of basically having so many of our assets that are not $1 million assets from a cap rate standpoint so that the financial capability of refinancing those is even better, as well.

On the loan size, where is their sensitivity around cash flow covers of the loans?

I think it depends upon the lender and I think it depends upon basically I think a lot of them are waiting to see what their allocations are for next year and so I'm not so sure I can give you much color on that as well but I think they are probably about the same as in the past. I think that they are viewing these opportunities that they are seeing today and that -- I think the track record and the history of those projects is very important to them as well as the economy in those market areas.

I think in Chattanooga, Tennessee where we just announced the new Volkswagen plant which will have a tremendous impact upon the economy, I think we'll see some good competition for our Hamilton Place Mall loan which comes due in three or four years out so I think it's a crazy market and hard to define what's going on.

One last question, then. Have you had any recent discussions with -- I guess, private equity capital providers around whether it's selling stabilized mall assets in the joint ventures. I'm curious if you have any color that's somewhat more recent on return requirements or deal structures that folks are looking for?

I think it depends on who you're talking to and what drives their fund demands. And I think it runs the gamut. We've had some conversations with people who are yield sensitive. We've had conversations with people who are growth sensitive and willing to take more risks so I think there's capital out there for specific projects with people who they have good relationships with and feel that they can put together a good product and they are going to be around and they also have some skin in the game, as well.

Thanks, guys.

Thank you, sir. Ben Yang, Green Street Advisors.

Stephen, earlier in the call you spoke about plans to cut the property expenses given the pressures on rent. What type of costs can you cut that don't affect the competitive profile of your properties?

I think it's hard to be specific but the main -- I mean there's a lot of different areas where we've had success in cutting our costs. We've gone back to every vendor and every supplier and asked for double digit cuts in expenses there and have had success in doing that.

We've gone back and we've worked to minimize our energy usage as much as possible and that's been a little difficult because earlier in the year we were having higher rates so we weren't seeing the results but now we're starting to see some results there.

And then in terms of people just asking people to work harder and be more efficient and taking advantage of some market areas where we've got multiple properties and we probably didn't initially didn't take advantage of the economy but there are opportunities to do so and we think we're not going to see a hit in terms of productivity from the cutbacks that we've made. So hopefully that gives you a good picture of that.

And it sounds like you've been able to implement some of these in the current year?

We've been implementing them in the fall and I think we'll see more of the impact in '09 just in terms of once everything kicks in.

Great. Thank you.

Thank you. [Anar Ismala], Jim Realty.

Just want to make sure, the extensions you have on the mortgages and the facility, are there any conditions?

The line of credit basically has the covenant conditions but other than that that's the only condition is covenant compliance which is a normal thing we go through today.

Thank you.

Thank you. Rich Moore, RBC Capital Markets.

Are you doing any staff reductions as a result of this or not really?

Yes. We've done some staff reductions at both the properties and the home office.

And is that more just thinning out each area or are there certain areas where you're -- acquisitions maybe, that kind of thing, where you just don't need that area anymore? Or as much of an area, I guess.

No. It's been more across the board and just asking each different part of the Company to tighten it up and see what they can do. We never had a big acquisition staff even when we were doing all the properties. And we've got a lot of other integration and asset management work that still has to be done. Development, we've got our program that's under construction for '09 so those groups are busy.

And then the other thing that we've been able to do is we just haven't filled any vacancies. We put a hiring freeze in place and so that's created some savings versus our budgets.

Great. Thanks. And then remind me again what the higher income tax provision was?

Yes. The higher income tax was a result, excuse me. The fee income goes through the taxable REIT subsidiary. So for GAAP purposes you've got to (inaudible - multiple speakers) taxes.

Right. Great. Thanks.

Michael Bilerman, Citigroup.

It's Quentin here. Just another quick one. Given that liquidity is your main focus, I'm just wondering whether you've sold the securities that you've written down this quarter?

We continue to hold those securities. We think that our initial investment makes sense and that there's nothing that's changed our direction or thoughts on that, as well.

And what exactly, can you just clarify what they are?

We basically have said that because of some relationships, etc., that we weren't revealing what those securities were.

Thank you.

Thank you, sir. David Fick, Stifel Nicolaus.

One additional point of clarity on the dividend. You had a minimum dividend to the Jacobs units and I don't recall what that is. Can you tell us what that is and whether or not that would become operative again if there were a dividend cut below that level?

There is a provision in the unit deals that basically provide that if you cut your common dividend below a certain dollar number for four consecutive quarters, theirs can be cut as well. But there's basically a lot of different unit structures that we've done so we're still in good shape on those, as well.

So you haven't triggered any of those and you don't think you're going to?

We have not triggered any of those and we're focused on that to make certain that we do the right thing when it comes to those.

Did that factor in to your decision as to where to put the new dividend?

No. I think what factors into our dividend decision was, is it the right thing for all of our shareholders and partners and that's what went into the decision and the decision of basically creating that $80 million of liquidity and just dealing the liquidity factor to watch out for all of our shareholders and partners.

We clearly think it was the right call. Thanks.

Thank you. And ladies and gentlemen, that does conclude the question and answer session. I'd now like to turn it back to management for any closing remarks.

We appreciate everybody joining us today and, as I think you can tell by our conversation and our discussion, that we are focused on maintaining the growth of the Company in a sound solid way. We look forward to meeting many people at the NAREIT Conference in San Diego coming up. And, again, thank you for being with us today.

Thank you, sir. Ladies and gentlemen, this concludes the CBL & Associates Properties, Inc. Conference call. Thank you for your participation. You may now disconnect. Have a pleasant day.