CBL & Associates Properties, Inc. (CBL) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CBL & Associates Properties fourth-quarter earnings 2009 conference call. (Operator Instructions). As a reminder, this conference is being recorded today Thursday, February 4, 2010.

I would now like to turn the conference over to Mr. Stephen Lebovitz, President and Chief Executive Officer. Please go ahead, sir.

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

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

During our discussion today, references made to per-share amounts are based upon a fully diluted converted share basis. 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 discuss non-GAAP financial measures as defined by SEC Regulation G. A description of each non-GAAP measure and a reconciliation of each non-GAAP 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. In spite of the difficult environment of 2009, CBL successfully met the challenges it faced. We made significant improvements to our balance sheet and liquidity position, as well as our operational performance. The balance sheet was enhanced through the raising of $400 million of new common equity, the completion of more than $1.6 billion in financing, and the estimated annual cash savings of $160 million from dividend adjustments. Operationally we reduced operating expense by more than $40 million through our cost containment and reduction program, while at the same time making gains in occupancy throughout the year, leasing over 5 million square feet. The efforts of the entire CBL team and the resiliency of our portfolio resulted in a same center NOI decline of only 1.3%.

Now I would like to review the quarter's operational results in more detail. For the full year, we signed approximately 4.7 million square feet of leases in our operating portfolio, including 1.6 million square feet of new leases and 3.1 million square feet of renewals. We also completed 376,000 square feet of development leasing. As our earnings release indicated, we experienced pressure on rent spreads through the fourth quarter. For 2009 on a same space basis, rental rates were signed at an average decrease of 12.2% from the prior gross rent per square foot. We continued our efforts to diminish the long-term impact of these negative spreads by limiting the lease terms on certain leases. Approximately 75% of our renewals were for a term of three years or less.

As the retail environment improves, we will either replace these retailers with more productive uses or resign at market rents. We are maintaining normal lease terms for the better deals. In the fourth quarter, renewal leases that were signed for terms of five years or longer averaged a double-digit increase in the initial lease rate. Spreads were significantly impacted by a number of portfolio deals completed in the fourth quarter within certain categories. These categories included books, cards, sitdown restaurants and home goods and gifts. Together these comprise approximately 500 basis points of the decline in average rent spreads in the fourth quarter.

We are also making significant progress in the releasing of the junior boxes. Of the roughly 50 locations that vacated as a result of the 2008 bankruptcies and store closures, we have executed leases or LOIs totaling more than 1 million square feet or approximately 45% of the available square footage. The majority of these stores opened throughout 2010, which should positively impact occupancy in our community and associated center portfolio.

We were pleased that stabilized mall occupancy results were slightly better than expected with a decline of only 130 basis points to 91.6% compared with the prior year. Sequentially stabilized mall occupancy was up 130 basis points. Total portfolio occupancy increased 120 basis points sequentially to 90.4% and declined 190 basis points from the prior year. We have made significant improvements throughout the year in occupancy levels, including both small shop leasing and box locations.

Sales declines moderated over the course of the holiday season with December showing the smallest decline. For the 12 months ended December 31, 2009, sales for reporting tenants 10,000 square feet or less in stabilized malls declined 5.4% to $313 per square foot. As retailers reformulated their business plans in 2009 to focus on controlling inventory levels and reducing costs, they reported improving margins and better profitability. Despite the negative sales comps, today many of these retailers are better able to support their current occupancy costs, which bodes well for the easing of the rent pressure as we progressed through 2010.

To date in 2010 there has been no major bankruptcy filings to impact our portfolio. We are hopeful that as retailers benefit from better margins and cash flow, bankruptcy and store closure activity will be limited.

During the fourth quarter, the only bankruptcy we experienced worth noting was The Walking Company. We have seven locations totaling approximately 10,000 square feet and annual gross rent of approximately $500,000. One store has closed.

We have one ground up development that is under construction. The Pavilion at Port Orange is our open-air development project located near Daytona Beach, Florida. The 415,000 square feet project will open in March with a leased or committed rate of more than 92%. The project has already gotten off to a great start with Hollywood Theaters opening in December to a very strong reception. Additional anchors include Belk, HomeGoods, Marshall's, Michaels, Petco and ULTA. Going forward we will primarily focus our development efforts on opportunities within our existing portfolio. There continues to be significant value available through enhancing our existing shopping centers.

I will now turn it over to John for the financial review.

Thank you, Stephen. Before we begin the discussion of quarterly financial results, I would first like to congratulate Stephen on his promotion to CEO. I would also like to make note of our three new Executive Vice Presidents -- Gus Stephas, Farzana Mitchell, and Michael Lebovitz. We are confident in their new roles they will continue to make many valuable contributions to CBL.

After completing more than $1.6 billion in financing activities in 2009, we were ready to begin 2010 with refinancing of the loan secured by St. Claire Square mall outside of St. Louis in Fairview Heights, Illinois. The loan was placed with a new lender and achieved excess proceeds of approximately $14 million after the pay-off of the existing $58 million mortgage. The new $72 million nonrecourse five-year loan bears interest in a floating rate of 400 basis points over LIBOR.

At the closing, we concurrently entered into a two-year LIBOR cap with a strike rate of 3%. In December we repaid the $52 million CMBS loan secured by Eastgate Mall in Cincinnati, Ohio. The property was placed in the collateral pool securing the $560 million credit facility. We also repaid two smaller revolving credit facilities in November, a $17.2 million facility and a $20 million facility. The property securing these facilities were also placed in the collateral pool for the $560 million facility.

For 2010 we have approximately $457.4 million of remaining mortgage loans maturing, including $181.5 million of CMBS loans. We will continue to execute our plan of using available borrowing capacity to repay selected loans at maturity and use the properties as collateral to secure our $560 million credit facility.

As of December 31, 2009, we had more than $430 million in availability on our lines of credit. Our financial covenants remain sound with a debt to GAV ratio at December 31, 2009 of 55% and an interest coverage ratio of 2.34 times. Improving the balance sheet is a priority for us in 2010. While we naturally reduce leverage through normal amortization of principle, we are also focusing our efforts to attract new equity sources such as joint ventures. While we are never satisfied with negative growth, we were pleased that our portfolio continued to demonstrate resilience in the fourth quarter. Total same center NOI, excluding lease termination fees, declined 1.5% for the quarter and 1.3% for the 12 months as compared with the prior year periods.

We made significant headways through 2009 in reducing expenses and controlling costs. These improvements mitigated much of the topline loss with significant reductions in property operating expenses, including bad debt. Major drivers of the decline in NOI included a year-over-year decline in occupancy, lower percentage rents and continued rent pressures, as well as lower specialty leasing and sponsorship income.

In the fourth-quarter 2009, we achieved FFO, excluding the impairment of real estate, of $118 million versus $93 million in the prior year quarter. On a per share basis, FFO was $0.62 in the fourth-quarter 2009 prior to the non-cash impairment of real estate compared with FFO of $0.80 per share for the fourth-quarter 2008. FFO, excluding the impairment of real estate in the current quarter, was diluted by $0.34 per share as a result of the 66.6 million shares issued in the June offering.

One-time items impacting FFO in the prior year quarter included the write-down of marketable securities of $5.7 million and abandoned project expense of $9.4 million. For 2009 FFO, excluding the impairment of real estate, was $397 million compared with $376 million in 2008. On a per share basis, FFO for 2009 was $2.52 prior to the non-cash impairment of real estate, compared with FFO of $3.21 per share in the prior year. FFO, excluding the impairment of real estate for the current year, was diluted by $0.75 per share as a result of the June equity offering.

2009 also included an $8.8 million impairment of investments in foreign affiliates. You may recall that this charge was primarily related to the write-down of our investment in China that we recorded in the first-quarter 2009.

FFO in the prior year period benefited from $8 million of fee income received from affiliates of central, offset by $17.2 million of marketable securities write-down and abandoned project expense of $12.4 million. While the overwhelming majority of our portfolio continues to demonstrate strength and resilience during the quarter's normal review, we determined that it was appropriate to write down the book value of three operating centers to the estimated fair value. The NOI from these three properties -- Hickory Hollow Mall in Nashville Tennessee, Pemberton Square in Vicksburg, Mississippi and Towne Mall in Franklin, Ohio -- represent less than 60 basis points of the total 2009 NOI. The resulting $115 million impairment of real estate is a non-cash item and will not impact our liquidity, financial covenants or our coverage ratios. Hickory Hollow Mall has been experiencing declining NOI for the past few years as a result of new competition and a fundamental shift in the markets immediately surrounding the center. This decline was furthered by the difficult economic conditions.

Our leasing team has been working hard to replace vacancies and explore nonretail uses for the center. However, we felt that it was prudent to take the write-down at this time. This mall is encumbered by a $33.4 million recourse loan. The loan matures in 2018 and is self-liquidating. The Company will continue to service the loan.

Pemberton Square and Towne Mall have also experienced declining property-specific market conditions. We continue to explore redevelopment plans that seek to maximize each property's cash flow. However, due to the uncertainty of the timing of these projects, we determined that a write-down was appropriate. Pemberton Square and Towne Mall are currently unencumbered. These write-downs represent a very small fraction of our properties and are not indicative of the strength of the remainder of the portfolio.

Other major variances in the quarter and full-year results included bad debt expense in the fourth quarter and 12 month 2009 of approximately $393,000 and $5 million compared with $3.8 million and $9.4 million respectively for the prior year periods.

Our cost recovery ratio for the fourth quarter was 106% compared with 94% in the prior year period. For the full year, our cost recovery ratio was 102% compared with 96% in the prior year period. While tenant reimbursements have declined from prior year levels due to lower occupancies, the cost recovery ratios for 2009 was positively impacted by the expense reductions and approximately $4.4 million of lower bad debt expense.

Variable-rate debt was 21.1% of the total market capitalization as of the end of December 2009 versus 21.2% as of the end of the prior year period. As of December 31, variable-rate debt represented 28.4% of CBL's share of consolidated and nonconsolidated debt compared with 24.6% at the close of the prior year. Variable-rate debt increased from the third quarter as a result of the December 30 expiration of two interest rate swaps totaling $400 million.

We are initiating 2010 FFO per share guidance in the range of $1.82 to $1.90. Major assumptions in our guidance include out parcel sales of $3 million to $6 million, and same center NOI growth of a negative 1.5% to 3.5%. We anticipate improving retail and economic conditions throughout 2010 and are projecting herein occupancy to pick up roughly 100 basis points from the prior year end of 2009. However, our projections for moderately negative internal growth reflect our expectations that operational results will lag improvements in the overall economy.

2010 will be challenged by the cumulative effect of the roll-down in grants we experienced throughout 2009. We will be mitigated somewhat through the junior box replacements taking occupancy, as well as improvements in our specialty leasing and branding programs. The top line should also benefit from contributions from the new developments.

Given the challenges that the industry faced in 2009, we believe our operating performance was sound and demonstrated the value of our market dominant strategy. We are pleased to have made significant progress on the leasing front improving occupancies throughout the year. As we move forward in 2010, we remain focused on top-line improvements, as well as continuing to watch expenses. We are seeing a number of positive signs both in the capital markets and in the retail world, which bodes well for our performance going forward.

Thank you for joining us today, and now we will be happy to answer any questions you might have.

(Operator Instructions). Jay Habermann, Goldman Sachs.

It is actually [Jahad]. I'm here with Jay as well. Good morning.

First, on the impairments, I guess, could you give us a little more detail, I guess, on the methodology that was used on determining fair value? I mean was it a property level [DCF] that was done, or was it more of a debt coverage issue?

And then I guess, as a follow-up on the decision to go ahead with the asset redevelopments, what is the return opportunity there? How did you weigh redeveloping versus just handing the assets back to the bank?

Yes, with regard to your question, the first part is what we did is we followed the GAAP procedures with regard to that using discounted cash flows and then using cap rates, and we determined that over the period of time on a reasonable basis that there was probably insufficient appreciation or cash flows to cover that during that period of time. So that prompted us to take the appropriate action of taking this impairment.

We have not given up on any of these properties, and as pointed out in my comments, we think that there is still some life in those properties, especially in Vicksburg and Towne. It is just a matter of basically seeing the interests and also what help and assistance we can get from the municipalities on those properties.

As to the Hickory Hollow project, it is a much larger project, and we have been focused over the last six months to a year, focused on more nonretail uses, and we have some specific ideas and opportunities in mind. They are not at a level at this point in time to basically announce those or else have that type of impact. But I think what we did, we were very opportunistic -- not opportunistic, but basically conservative in following the GAAP procedures and taking these impairments.

And then just going back to how you view the balance sheet today. Clearly with the extension of the two lines and working through the mortgage debt, your balance sheet is much better positioned today as we think about the next year or two here. But, as you think about further capital sources, I guess would raising equity be more of a consideration today just given the value in your stock price in August and September of last year, or are you still fairly comfortable just assessing the joint venture opportunities on the joint venture side?

We think that what we have done and the fact that the vast majority of our debt is non-recourse basically puts us in a good position to basically make certain that the joint ventures that we go and do are the appropriate ones for the Company. We continue to pursue those joint ventures with the idea that a joint venture should not only be in existing properties, but also provide us with the source of capital to do acquisitions with our joint venture partners going forward. At the present time, we do not see that there is any need to consider additional equity. There are other opportunities that we see to do that, and we are committed and moving forward with regard to delevering the Company.

Thanks. That is helpful. And just a last really quite one. Can you give us some detail on the dividend where you stand today versus the minimum that you need to be paying out and also where you expect to be by year-end based on current guidance?

Yes, I think consistent with what we have said all along is that we continue to do our tax projections and it continues to be the intent of the Company to pay out its taxable income, and that we do on a quarterly basis with the board. And we continue to look at that and think that there are savings from the standpoint of what we have seen in the past, and that is what we will continue to do.

Carol Kemple, Hilliard Lyons.

On the three properties that you wrote down, when you all are going through that analysis, were there any other properties that came close that you could see impairment charges in the next year, or did those properties really stand out a lot more compared to the others?

No, the analysis, those properties were basically -- we looked at those and looked at the whole portfolio, which we do on a quarterly basis. And that is how we do it, and there was no -- we did not see any other properties that created any situations that could present a problem for us in the near term or the distant term as well.

As you look at doing a JV, are you any closer to having a partner and announcing anything than you were on the third-quarter conference call?

Well, I think we continue to get closer, and we are having discussions with two or three. We are still positioned well that we do not need to do it, so we're not going to get forced into a position where it is not the type of joint venture partner that we think we can grow with.

Quentin Velleley, Citigroup.

Just in terms of the expense recovery of 106% in the fourth quarter, which was higher than what we were expecting, was that a function mostly of lower bad debt expense, or were there some other expense savings you had come through there?

It was both, but the bad debt expense was definitely a bigger contributor than we had expected earlier in the year.

Okay. And, as we look toward to 2010 in your guidance number, what kind of expense recovery rate are you assuming in guidance?

We were figuring we will be about 100%. One other factor is in '08 we had some pretty significant severance amounts that were not the case this year as well. So that was a factor.

Okay. And just the last question, as we look through Hickory Hollow and then across the portfolio, obviously on that asset the debt service coverage ratio was less than 1. Are there any other assets across the portfolio where the debt service coverage ratio is close to 1 or below 1 that you have some concern with?

I think we look at that and we focus on making certain that those debt service coverage ratios and taking the necessary adjustments or measures to cover those situations. So no, we feel very good with what we have done, and we continue to do that on a quarterly basis, and we want to be very vigilant with regard to this type of situation.

Paul Morgan, Morgan Stanley.

Your operating expenses have continued to be held down pretty impressively, and I'm just wondering, as you looked into 2010, a couple of things. Can you sustain the declines, or as we anniversary them are we going to expect some leveling out? And also really where are the drivers, and should we -- how should we think about the kind of deferred maintenance that might be potentially piling up as you're trying to save on expenses?

Sure. Well, a couple of things just to answer the last one. On the deferred maintenance, we have not let that pile up. We have stayed on top of that. Where we did cut back was the renovations, and we did not do any renovations last year. But we had done roughly 75% of the portfolio renovations in the past seven or eight years. So we did not feel the need to do that. But we have made sure to keep up on deferred maintenance because that is basic operations, and that is not something that we felt like we could let suffer at all.

As far as the expenses, we definitely feel like we can hold what we achieved, and when you're put under pressure, it is amazing what you can achieve. And also, our people were really creative in coming up with a lot of great ideas, and we challenged them and they responded. And the things that they came up with and that we have in place now are areas that were not one time. We feel like we can continue at those levels.

It will definitely be harder to have the same kind of reductions, but we still have new ideas we are working on. We are looking really hard at utilities, and there's a lot of ideas that we are just getting a grasp on that we feel like we can make further progress. Water consumption is an area that we're applying some of the same lessons we learned on utilities, and looking at our energy management systems and upgrading them, which will result in dramatic reductions in cost and then just operating the properties as efficiently as possible, and we have ideas that we are still putting in place. So we do not feel like we are done, but it is going to be hard to achieve the level of reductions like we had last year.

Okay. Thanks. And then on the leasing side, for the 75% of leases that are being done on a short-term basis, what percentage of those are percentage rent deals are fixed over a short time period?

We don't separate that out, but for the most part, they are fixed. We have just done shorter terms. So we're not locked in at the lower rates, and we will have a chance as the sales improve. It was encouraging to see the results today that came out for January, and some of the specialty retailers that have really suffered in the past year showed some good results. I mean Abercrombie being up 8% was really terrific and Gap and Limited and some of our major tenants.

The other thing that we do is we adjust the breakpoint down to the current sales level. So, as sales pick up, then we will benefit from percentage rent as well. But in terms of just pure percentage rent deals, that is not a big percentage of the leasing transactions.

Okay. And then the last thing, on the impairments there is obviously low sales productivity malls. If you look at the other dozen or so malls that are under $250 a foot, are there recourse loans on those assets as well?

No. Basically the vast majority of our portfolio was basically nonrecourse, and basically sales per square foot are not indicative of what these malls can do and make money for us and cash flow for us as well. And in today's world, it is amazing how the retailers have been able to likewise see -- cut expenses, cut their costs and so on so they can operate, and their margins are still holding.

So on a sales per square foot basis, it is the metrics that we have used in the past, but I'm not so sure that it is totally indicative of what is going on today or in the future. So no, we are comfortable with where we are on the impairment that we have taken and the fact those sales per square foot on looking at each of those models. So --

David Wiggington, Macquarie.

Can we maybe just talk a little bit about just the lease spread trends that we have seen over the last couple of quarters? It seems like the declines have accelerated. Is that trend continuing in the current quarter and you expect that to abate at any point in time, or is that going to remain at current levels or maybe even a little lower than where it has been?

Well, it is really too early to say for this quarter. But we do expect it to abate as we go into this year. And one of the things that drove the lease spreads last year was we did a number of portfolio deals where we looked out at renewals going through 2011, and we had worked with the retailers and locations where they needed help. We would give them help, which was reflected in the lease spreads. But then we would take other leases and either extend the term or improve the breakpoint or do other things that might not show up in the lease spreads but will help us long term and also working with them on potential new locations.

So these portfolio deals were definitely a factor in the lease spreads as the year went on, and they were a bigger factor in the fourth quarter because a lot of them came to completion at that point than they had been earlier in the year.

But it is something that we go in with our eyes open in these negotiations with retailers. It was definitely an unprecedented difficult economy, and we made the priority to be to hold occupancy and to hold income. And that reflected with our same center NOI numbers, and we feel good about that decision, and we think we are positioned with the retailers that because of the partnership that we have that going forward we will be able to achieve better lease spreads with new leases that come up and also get our share of the new deals as they start doing them, and we are already seeing that happening. Because the way retailers work, they get past the crisis and they start focusing on topline growth. And we are already starting to hear retailers opening up their expansion programs on a selective basis, and they are calling us and saying they want to come and sit down and talk about where they can work with us. And so we feel a lot better as we are sitting here in early February of 2010 than we did last year.

So is it fair to say then that for a lot of these deals, maybe you're signing shorter lease terms and lower rents that you are getting something in return whether it is a lower breakpoint or some other concession from the retailer?

Yes, I mean that -- I mean we try to make it a win-win, and it is -- I mean there's lots of different provisions in the lease that we look at. We have a checklist of about 20 different items, and it might be for them to approve a cart location that they had not approved before or improving the percentage rent, improving the breakpoint. There is just a whole host of different areas that we look at, and those are part of the trade-offs for the shorter term and the lower renewal.

Okay. And moving onto the next question, you have a fair amount of exposures to jewelers, I mean Zales and Signet. How are they holding up in your portfolio, and do you have any indication at this point of how many stores they may end up closing in your portfolio?

Signet actually had a really good year, and they are strong. I don't remember off the top of my head, but I know their comp store sales in the US especially were almost breakeven as we head into the end of the year, and they started turning it around really like in March/April. So they had good results. We have 117 stores with them.

Zales, their struggles have been documented. We've got 135 stores with them. So no question they are an important tenant to us, and that was a factor in the lease spreads. We work with them on the renewals for last year and had to adjust down the rents on a number of locations because their sales had decreased so much. But we feel like we are trying to work more with local jewelers because that's an important component of the tenant mix, and also there has been so much attrition in jewelry that if Zales can get their act together and they have a new management team and we talked to them and we feel good about them being a survivor, then they should be able to grab more market share because we lost a whole host of jewelers in this cycle -- Helzberg -- not Helzberg, Friedmans, and there are others that do not come to mind immediately. But there's a good half-dozen that were in our portfolio a year and a half ago that are not in there today.

Okay. And do you anticipate having further negotiations with Zales at this point, or do you feel like you have touched all of the maybe pressure points within that exposure?

We actually -- we have done the renewals. We did 35 locations through January 2011 with them last year. So, like I said, that was a factor in our lease spreads, and we wanted to be proactive and take care of that now.

Okay. I guess all I'm trying to get, did that represent the weaker stores that they have in your portfolio, or do you anticipate more negotiations with them going forward all else equal?

You know, it is about a third of their stores with us, so those were the ones that were up over the next couple of years. We did not want to get into going out further than that. I mean their sales were down, but there were a couple of stores where we negotiated buyouts with them that were the weakest stores. And so those we did let them buy out of, and we are working on replacing them, and it was, like I said, a couple of locations, and those were the weakest. Beyond those, the others they wanted to keep, and the sales are good.

Okay. And then just one final question with respect to the guidance. It seems pretty achievable given the numbers that you have laid out. Your same-store NOI growth is similar to last year's, which you actually ended up beating. I recognize you mentioned that you are taking into account lease rolldowns and leases that you signed last year, but I mean is it possible that year 2010 guidance is overly conservative?

I think it depends upon when the recovery hits, and we have given ourselves some room in that guidance, and we hope that the results for 2010 will be as good as the results or better than they were in 2009. But I think based upon where the budgets are and being conservative in the approach to those budgets, that is where we see ourselves today. And, as we said, as the quarters go by, will continue to update that.

Christy McElroy, UBS.

I just want to make sure that I'm clear. On the 75% of leasing signed for less than -- with less than three-year terms, that included the renewals and the portfolio deals? So this is on total leasing, not just new leasing?

That was the renewals. The renewals in the fourth quarter, and it is three years or less that was approximately 75%.

Okay. So --

The new leasing is a lot more in the seven to 10-year timeframe. So the terms are longer on those.

Got you. So were some of these retailers threatening to move out, and the strategy there is that you're sort of undercutting the market to keep them in this space? Is this a reflection of market rents, and are you betting on an increase in market rents to capture upside down the road with those same retailers, or is the intention to replace them? I'm just trying to get a sense for, is this representative of market?

It is really a function of the economy and not the market. When you look at the -- if we lose a store versus retaining it, than we've got down time. Sometimes we have additional investment to refit the space. So even though we don't like the fact that we have negative lease spreads, when you look at most of these situations, we are a lot better off working to retain the tenant just given the circumstances, and it is a reflection of the economy.

The new leasing, even though the lease spreads are still negative, it is a lot less negative. It was negative 6%. So not that that is a great number, but it is significantly better than renewals. And the market rents have held. Our average rents have held. So we feel like, as the economy improves, that we will be able to get back to where we were or even better with the retailers, and they were just in this difficult position given the pressures that they were under last year. The leverage in the negotiations was more in their favor.

Going forward there is really virtually no new development happening. With all the improvements we have made to the malls with the boxes and the restaurants and theaters and our continued efforts to do that, the malls are positioned to grab market share, and that will be reflected in the economics of the negotiations as we go forward, and the landlords will be in a better position. But '09 that just was not the case.

So is your hope to retain these retailers and bet that market rents improve in the next three years? (multiple speakers) Is it your intention to replace them?

I think it depends on who we are talking about, but for the most part, we want to retain them. Most of these retailers are strong companies that we think have a good future. Really it is a function of sales. Sales need to start increasing, and that was also the retailers control that with the way they cut back inventories last year. And we are not seeing that in 2010. Most of the retailers are planning for slightly better inventory levels. So we should see that reflected in their sales. Hopefully with the results over Christmas, when the discounting was not as rampant, then the pricing will move more in their favor. Their margins were certainly stronger than anyone predicted. So we are going -- we're expecting to see better topline results, and that will result in better rents for us.

Okay. And then what was your taxable income in 2009 for the purposes of calculating your minimum dividend payout, and were you anticipating the impairment charges that you took in Q4 when you were setting your anticipated dividends in the back half of the year?

The dividend basically for 2009 was a proxy for what the taxable income was. There was minimal return of capital, if any, in our numbers. So it was zero.

It was zero, and that taxable income I assume includes the impairment charges that you took?

The impairment charges are a GAAP treatment. They have nothing to do with tax.

Got you. And is it safe to assume that net of -- is it safe to assume that taxable income will not be materially different in 2010?

I think we do those projections and try to keep on top of those and look at the depreciation and the other costs and things. So it will vary from quarter to quarter, and that is why we will update our guidance from quarter to quarter.

Okay. And then Ross is on the line with me. I believe he has a question.

I have got two questions. Stephen, the first is now that you have the CEO title -- by the way, congratulations -- how do you think about from a managerial perspective Boston versus Chattanooga, and does anything change with respect to where you are located?

First, thank you for the congratulations, and like I've said or like we announced back in December, I am spending the majority, the vast majority of my time here in Chattanooga. I really work out of Chattanooga. My family lives in Boston, and I go back there to be with them for the weekends. But I'm working in Chattanooga, and this is where CBL is headquartered, and this is where I'm based.

The second question, John, this one is probably for you. I'm looking at page 15 of your supplemental and in particular the tenant allowances for the three months and the full year, which the full year was about $40 million. Can you help me understand that number dividing it out between the TIs that are paid out on new leases and renewals, how does that roughly break out? Is it almost all on new leases?

A lot of it was -- two things, Ross, that needs to be kept in mind. One is it lags, so you cannot really use that as an indicator, number one. Number two is that the boxes are basically a big impact on that as well since you're redoing a lot of Linens 'n Things and such as that. So we do not think that those kind of allowances are any significantly greater than what they have been in the past. So I mean we think that we are not paying money to keep occupancy. We are basically working with these tenants to keep the occupancy in these centers. So I think that is an important thing to remember.

No, I think that is fair, right, because I looked at the 2008 number, and it was basically identical to what you would get in 2009. I think the question from my standpoint is, if the bulk of the leasing is now shorter term than it was historically, if I think about those tenant allowance dollars on a per square foot, per year basis, have they gone up even if the gross number has not changed?

No, they have not, and those tenants on a short-term basis are not getting any 2010 allowance basically by and large. They are basically there, they are doing business, and they basically, as Stephen pointed out, they had the pricing power on their side of the equation, and we think by the end -- I think personally by the end of this year, first part of next year pricing power is going to switch. You can only continue to grow as a retailer by cutting expenses and pressing your vendors, and you ultimately have got to start growing your topline. And, therefore, as Stephen has pointed out, the fact is that there's not a lot of new development. We are the dominant properties in those malls that we serve, and if they want to keep their distribution network on a nation basis, they have got to serve the middle markets as well as the others. And if you look at the unemployment numbers, the middle markets have not suffered as much as some of the major markets have. So our dominant malls in these market areas and the ability to be the producer of sales tax revenue for the cities and states is really productive for us.

So if I had to guesstimate what percentage of the tenant allowance number was big-box junior anchor releasing, it is a significant majority?

We did not pay that much of it last year, Ross, because a lot of those came online later in the year or are coming in this year. So maybe 20%, 25% at the most.

Michael Mueller, JPMorgan.

A few things. First of all, can you just tie together the fourth-quarter number, the full-year results compared to the guidance you put out back in November, and just where the delta was, because it was pretty sizable? I cannot imagine it was all, you know, percentage rents came in better than you expected.

Percentage rents did come in a little better than what we expected and the expenses we were able to do that. And then the bad debt was a huge part of that number.

Okay. So you basically just budgeted for a lot of bad debts that did not materialize?

Yes, that is it. And also, the occupancies were up, but more than what we thought as well. So those two, bad debt and occupancy, really were the biggest driving factors as such.

Okay. Stephen, going to your comments when you were talking about leasing spreads and I guess the number this year was down about 12% or so, you said you thought it would get better in 2010. What does your gut tell you in terms of how much that improves in 2010? Do you have it, and you are back in the mid-single digits on the downside, and when you get to 2011, do you think you're closer to breakeven?

Mike, I wish I had that crystal ball. But I just cannot answer that question. I mean I will say that I think the economy seems to be improving, and so we are hopeful that rent spreads will get back to breakeven as quickly as possible. And it is a priority. But occupancy is a priority, too, and we made headway on occupancy. And, like John said, we think we will end up this year with another 100 basis points of improvement in occupancy and then continue to fill the big boxes. So that is at this point still a higher priority than lease spreads.

And when you end the year, you talked about ending the year I think it was 100 basis points up next year. I mean is that second-half weighted, first-half weighted? I guess when we look at this quarter's results, stabilized mall occupancy, you noted it picked up 130 basis points. I mean how would you carve that up to the normal mall seasonality where it goes up in the fourth quarter as opposed to something that is a little more permanent that will flow through into Q1 and Q2?

It is more in the second-half typically because the retailers want to get open for the holidays. So we see most of the gain like we did this year in the third and fourth quarters in terms of the sequential occupancy.

Okay. And last question on Hickory Hollow. I mean was there any consideration to giving the keys back to that asset, or was it just not a consideration?

It is a recourse loan, and we are working to see if we can turn that around. But some considerations and discussions were had, and we continue to work with the state and the city Metro Nashville definitely wants to see this improve. So hopefully there is a recognition on that. So that is where we are, and we have not given up on it. But we just recognized the GAAP loss on this asset.

Ben Yang, Keefe, Bruyette & Woods.

Stephen, just really quick, I was wondering if you could provide a few more details underlying the same store NOI guidance. I guess specifically your expectation is that occupancy will be up about 100 basis points. Is that number for malls only or for the total portfolio?

Total portfolio.

Do you have an assumption for just the malls?

No, we don't. I mean we have that in our budgets, but we don't have that prepared for this call.

Okay. And then in terms of the occupancy increase, is that primarily the junior anchor leasings that you have done so far, the 45% number that you referred to earlier, or are there other retailers that really have an appetite for expanding in your portfolio this year?

It is both. We have got a decent amount of new leasing factored in that will come online next year. The boxes is definitely a contributor with the associated and community centers. But we have done some deals with Coach that will come online this year. We did some deals with Charming Charlie's, which their sales results were really strong over the holidays, and so we have got another four stores that we have done with them. And then, like I said, some of the retailers now are just calling and saying that they want to get some stores open this year. And so we are hopeful we will be able to -- I mean we can definitely accommodate that at this time of the year, and that will go into the occupancy gains as well.

Okay. Great. And then going back to the 50 vacant junior boxes that you mentioned, you said you done about 45% of those leases, which means I guess you have about two dozen sites that are still vacant, and I guess they have been vacant for over a year at this point. Will co-tenancy be an issue for you guys at these centers because I assume that a lot of those vacant anchors are located in the associated and community centers, or is that not a concern?

We only have one center that is on co-tenancy and that we have got a store under construction. It is here in Chattanooga. It is Academy Sports. It will open in June, and that will take care of that.

But really the others, it is some of them in the malls, former Steve & Barry's, those don't have an impact. And then the others are for the most part in larger centers where co-tenancy is met through other anchors that are in place.

So it is spread out pretty evenly. We are working with a lot of different prospects. In a couple of cases, we have done temporary deals for those spaces, so they are generating some income while we can find someone on a longer-term basis. And so there's a lot of different things that we have got going on to get those filled up.

Okay. And then just finally, it looks like you lost about four JCPenney's during the fourth quarter. I guess last quarter you had about 79. The current quarter you show about 75 in your supplemental. Anything unusual going on there?

Well, first of all, good job digging into the supplemental. But there were four of those that were salons there were separate spaces there we reclassified that we just had incorrectly previously. So we did not lose any JCPenney stores, and we were just at their offices last week going through the portfolio. Their business, they came through last year in really good shape. They have got a lot of cash, and we've got a great relationship with them. They are a great partner, and their future is very bright with all the improvements that they have made. Plus, they have got a lot of new exciting ideas that are just going to continue to breathe new life into their stores.

Have they committed to opening up any new centers in your malls this year or next year, or any other department stores that have talked to you about maybe opening up some new spaces this year beyond the 45% that you referred to earlier?

We are talking about a couple with them. They have not committed yet, but we are in talks with them.

Rich Moore, RBC Capital Markets.

On the short-term leases, Stephen, are there any options to renew on those, or do they just take a straight three-year lease with at the end of the lease I have to leave kind of thing?

No. We don't -- if we're doing a short-term lease, it defeats the purpose to give an option. So we just do the short-term renewal, and then we continue to stay in touch with them. If something allows us to do a longer-term renewal maybe as part of another negotiation, then we will talk about it then. But we don't give options as part of that.

Okay. So, at the end of the short-term lease, they are essentially out, or they renew at some kind of market rent?

That is true, that is true.

Okay. And then, John, on Hickory Hollow, is the lender okay with you just continuing to pay the monthly payments for the next eight years, or is there at some point where they say if this is not working you have to pay the entire thing off?

The loan is a self-liquidating loan. There's no coverage ratios, etc.

Okay. So you just keep paying?

Yes.

Okay. And then have you guys set the dividend for the first quarter?

No, we have --

Is it $0.05? (multiple speakers) So you haven't set it?

No, we have not set it. It will be the end of February.

Okay. Good. Thank you. And then how do you think about what is going on in the debt markets? Have they essentially for mortgages I'm thinking pretty much stabilized and you guys have access to capital if you want to do individual mortgages as opposed to using the lines of credit?

Okay. Of course, John and I just got back from visiting a number of life insurance companies over the last week or so, and we found that there is a lot of interest by these life insurance companies to get back in the market. We are also hearing that the DDR transaction basically was a signal to open up those capital markets. So there is tremendous interest from those people, and a lot of the foreign banks are back in the business as well.

So yes, I think the capital markets have definitely opened up, and they like the stability of the products, and they like the stability of the markets where we are, which have broad-based economies so that they feel very, very good about that.

So yes, I think we feel very good about the capital markets. I think it is pretty indicative of what we did on St. Claire where we were able to finance and take out an excess $14 million in that, and then basically put a cap in place to basically hold that rate down in the 7% range.

Right. So we could see some more of those kind of loans possibly as we go forward here with the 2010 and 2011 maturities you think?

Yes, I think what we have done and we said this is, I think part of the plan that we put in place where we can cover all those CMBS loans really gives us a tremendous amount of flexibility and a tremendous amount of ability to renegotiate and do these deals. We only have I think two malls this year that are with life insurance companies that we have had discussions with, and we have already set the rate with one of those. And that one because we wanted to have more flexibility with it we have elected to pay that one down by a little bit of money. But it is one of our best malls, and we are happy with the fact that we have set the rate and we will have full committee approval within the next two weeks. And that is the biggest loan that we have to refinance next year. This year rather, in 2010.

Mr. Lebovitz, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Thank you all for listening this morning. We appreciate your ongoing support. We are looking forward to 2010 and following up this year's strong results with another good year. Thank you and good-bye.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day.