CBL & Associates Properties, Inc. (CBL) 2010 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the CBL & Associates Properties, Inc., second quarter earnings conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded today, Wednesday, August 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 second quarter 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 operations included therein for a discussion of such risks and uncertainties.

During our discussion today references made to per share amounts are based on 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. Last month we welcomed over 120 retailers to our 14th Annual Connection Event in Chattanooga. We experienced a 25% increase in retailer attendance this year, including quite a few new retail names such as Cotton On, Clarks, Aerosoles, rue 21, Complete Nutrition and others. This event has been an extremely successful leasing tool over the years, providing us with a great opportunity to turn conversation started at ICSC's RECon into signed deals.

We recognize that the leasing environment remains challenging and macro economic trends have been inconsistent. However, we are encouraged by the continuation of positive sales growth, the limited retail bankruptcy activity and the retailers' ability to maintain their improved operating margins.

In part because of the strong relationships we enjoy with our retail partners, we have been able to achieve market improvement in our occupancy rates. Our portfolio occupancy advanced 160 basis points, and stabilized mall occupancy improved by 100 basis points compared with last year.

Contributing to this growth was the released box locations taking occupancy in the associated center and community center portfolio, as well as specialty stores continuing to fulfill their expansion plans and sign new deals. Our occupancy improvements this year are an indication of the demand that we are receiving from retailers and their desire to locate in our dominant properties in each market.

During the second quarter, we signed nearly 1.3 million square feet of leases, including 1.2 million square feet of leases in our operating portfolio, with the balance in new development. The leases signed in our operating portfolio included 725,000 square feet of new leases and 480,000 square feet of renewals.

While we are far from satisfied, we are encouraged that leasing spreads will improve as we move into the second half of the year. On a same-space basis, rental rates signed at an average decrease of 10.9% from the prior gross rent per square foot in the second quarter. We would point out that the expiring rents per square foot were about 7% higher on stabilized malls than the first quarter expirations.

There were a few deals that disproportionately impacted our results this quarter that we thought notable enough to mention. We signed nine leases, totaling approximately 70,000 square feet, with two national apparel retailers this quarter. These nine deals negatively impacted our mall average leasing spread by nearly 4.5%. The lease terms on these spaces are two years or less, as we intend to backfill the locations at market rents.

We are continuing to sign shorter term deals where the rents are below where we would like to see them, but with less frequency. This quarter roughly 40% of the deals had terms of three years or less compared with 60% in the first quarter and roughly 70% in 2009. We are pleased by this trend and, excluding the nine deals, feel the lease signings this quarter overall were healthier than in prior quarters. We are hopeful that lease spreads will improve through the year as retailer demand grows and sales gains continue.

Same-store sales showed improvement during the second quarter. Year-to-date we posted a 2.1% increase compared with the prior year. We are optimistic that the positive trends will be sustainable for the remainder of year, with ICSC and the NRF predicting healthy same-store gains from the back-to-school shopping season and with retailers keeping a close eye on their inventories.

Store closures due to bankruptcy have been limited year-to-date compared with historic averages. The only major retailer in our portfolio to file for bankruptcy protection this year is Trade Secret. We anticipate five stores closing as a result of their bankruptcy, representing $266,000 in annual gross rents and comprising 5,000 square feet.

During the quarter, we completed the sale of our 50.6% interest in Plaza del Sol, a 260,000 square foot shopping center in Del Rio, Texas. We are continuing to explore opportunities to dispose of non-core properties where we see attractive cap rates.

Many of you have seen the reports in the press on six grocery anchored centers that we are in the process of marketing. The centers include Settlers Ridge in Pittsburgh; Milford Marketplace in Milford, Connecticut; West Towne Crossing in Madison, Wisconsin; Oak Hollow Square in High Point, North Carolina; Westridge Square in Greensboro; and EastGate Crossing in Cincinnati.

Given the amount of recent interest and activity in the grocery anchored space, we thought it would be a good time to test the market with these six centers. They are all well located, highly productive centers with average occupancy in the mid 90s. Since the process is ongoing, it would not be appropriate to discuss any additional details related to pricing or timing, but we have received strong interest and believe prospects are promising.

This week we commenced construction on second phases of our centers in Burlington, North Carolina, and Pittsburgh, Pennsylvania. In 2007, we opened Alamance Crossing and have now started construction of Alamance West, the 210,000 square foot second phase. We have executed documents with the anchors, which include a wholesale club, a sporting goods store and an 80,000 square foot fashion anchor. Alamance West is scheduled to open fall 2011.

We are also starting construction on a 78,000 square foot expansion of Settlers Ridge, which we opened last year. The project will include Michaels, Ross Dress for Less, and an additional junior anchor. The project will also open next spring. The initial pro forma returns on both of these developments are very healthy, in the 9% to 11% yield range on an unleveraged basis.

Construction is also progressing on our ground-up development in Madison, Mississippi. The first phase of this 75/25 joint venture community center project includes 110,000 square feet comprised of three boxes; Dick's Sporting Goods, Best Buy and Stein Mart. The project is 100% leased and is scheduled to open later this year. I will now turn it over to John for the financial review.

Thank you, Stephen. The strength of the credit markets over the past few months has improved considerably, including the reemergence of the CMBS market. In June we announced almost $300 million of financing activity at a weighted average interest rate of 6.58%. We closed five separate nonrecourse loans, including three CMBS loans and two institutional loans. In total, these financings generated net excess proceeds of $51.5 million.

In July, we paid off Parkdale Mall and Parkdale Crossing in Beaumont, Texas, and contributed the properties to the collateral pool for our $560 million credit facility. It was encouraging to receive the more reasonable appraisal valuations on our most recent financings than what we had been experiencing a year ago.

We have three remaining permanent loans maturing this year secured by Stroud Mall in Stroudsburg, Pennsylvania, Wausau Center in Wausau, Wisconsin, and York Galleria in York, Pennsylvania. We expect that Stroud Mall and York Galleria will be paid off at maturity and contributed to the $560 million credit facility. We anticipate refinancing or paying off the Wausau Center at maturity.

Last week we completed the extension and modification of our $105 million secured line of credit due June 2012. This facility was scheduled to mature in June 2011. It has been our practice to negotiate an additional one year extension of this facility each year. The terms of the facility stayed substantially the same, maintaining the current interest rate of 300 basis points over LIBOR with a rate floor of 4.5%.

As of June 30, 2010, we had more than $550 million available on our lines of credit. Our financial covenants remain sound with a debt to GAV ratio of 54% and an interest coverage ratio of 2.3 times for the rolling 12 months. We reported FFO per share for the second quarter 2010 at $0.49, excluding the impairment of real estate.

We have previously talked about Oak Hollow Mall in High Point, North Carolina, having negotiated a cash flow mortgage with the lender. This quarter the lender indicated that they would be willing to write down the loan. As a result, we determined that it was likely that we would sell or convey the property to the lender, which resulted in an impairment charge of $25.4 million or $0.13 per share. We have entered into a contract to sell the center and the prospective buyer is currently conducting due diligence.

In connection with the sale we have reached an agreement with the lender to reduce the $39.6 million loan to equal the net sales proceeds. When we complete the disposition we expect to record a gain on the extinguishment of debt of approximately $27.6 million. When the sale is completed this would provide a $2.2 million favorable impact to FFO for the full year net of the impairment. While we are still in the early stages of the sale, we anticipate that the sale will close and we will be able to recognize a gain before the end of the year.

Total same-center NOI for the malls in the second quarter, excluding lease termination fees, declined 2.9% from the prior year period. Portfolio same-center NOI, excluding lease termination fees, declined 3.3% from the prior year. As expected NOI is experiencing pressure from the lower rents on leases signed over the last year.

As we have previously indicated, our expense reduction measures were fully implemented by the second quarter 2009, creating a more difficult comparison. We are optimistic that as traffic and sales continue to increase throughout the year we will gain traction in the lease negotiations, as well as benefit from improvements in specialty leasing, sponsorship and percentage rent.

Other major variances this quarter included a $1.4 million decline in bad debt expense from the prior year period; a $5.1 million decline in depreciation and amortization expense, which was primarily the result of the decline in tenant allowance write-offs. Our cost recovery ratio for the second quarter was 100.5% compared with 105.8% in the prior year period.

Variable rate debt was 18.3% of total market capitalization at June 30, 2010, versus 17.6% at the end of the prior year period. As of June 30, 2010, variable rate debt represented 26.8% of our share of consolidated and unconsolidated debt, compared with 21.2% at the close of the prior year quarter. Our variable rate debt has increased over the prior year as a result of the expiration of $400 million of swaps that were in place in the prior year, as well as borrowings under our $560 million line of credit to pay off certain CMBS mortgages.

We have increased our 2010 FFO guidance by $0.05 per share to the range of $1.87 to $1.95 per share. The guidance incorporates the net $2.2 million favorable impact of the impairment of real estate on Oak Hollow Mall this quarter, offset by the anticipated gain on the extinguishment of debt later this year. We also adjusted our guidance to reflect savings from the continued favorable interest rate environment.

Other major assumptions include estimated gains on out parcel sales of $3 million to $5 million, and same-center NOI growth of negative 1.5% to negative 3.5%. While we are never satisfied with negative same-center NOI, second quarter results were in line with our expectations.

We have an optimistic outlook for the remainder of the year and are focused on returning to positive internal growth by maximizing opportunities within our portfolio. As the economy slowly moves forward, retailers are beginning to unveil expansion plans, and we are confident that our portfolio will be an important source to satisfy those plans.

The stability of our markets and profitability of the stores in our malls is an attractive prospect for retailers as evidenced by our occupancy improvements year-over-year. We expect that to continue, and as the supply demand dynamics moves back in our direction over time, we anticipate our results will benefit from improved leasing metrics.

Thank you for joining us today, and we appreciate your continued support. We will now be happy to answer any questions you may have.

Thank you. (Operator Instructions). Our first question is from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Hey, Todd.

Hi. Good morning. I'm on with Jordan Sadler as well. A couple of questions. Have you noticed a change in the behavior or willingness of retailers to sign leases in recent weeks, given some of the soft economic data recently?

We actually haven't noticed any change in the mentality of retailers about signing leases, or any indications. I think over the course of the year retailers have gotten more comfortable that the economy has kind of hit bottom, and that it doesn't have further downside, and so they have been more willing to lock in for longer terms, like I said in my comments. And we have been doing fewer short-term leases, and also have been thinking more about expansion going forward and how to grow their topline.

Okay. We heard from one retail landlord that tenants were delaying their lease signings, though. Are you seeing that or hearing that at all in any of your conversations today?

No, no. We haven't experienced that.

Okay. And then with regard to some of the short-term leases that you signed over the last several quarters, I was wondering if you could just comment on how the discussions are going with those retailers that are now starting to come up for renewals today and what your expectations for rents and new lease terms with those retailers look like?

Yes, I mean it is hard to generalize. Some of them -- it really depends on how the sales are going for the retailers. And a lot of the reason we did shorter term renewals is because sales had been soft during the downturn, and we wanted to keep the retailers open, and they wanted to keep open and see how things were going.

So where we have seen improvement in sales there is more of a willingness to invest money and remodel the stores and do longer term extensions. And then some of the other cases where sales have stayed soft for whatever reason, because of the category being soft or the economy or whatever, then there is continuing to be more short-term extensions.

Okay. And then just lastly, you mentioned -- John, you mentioned $550 million of availability on your lines. Do you have full availability to that amount? I guess how much actual capacity do you have available on the lines today?

We have full availability of that, Todd.

Okay.

There is no controls or restraints on that.

Okay. All right. Thank you.

Thank you, Todd.

Thanks.

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

Hi, Jay.

Hi, Jay.

Good morning. Question, Stephen, just back to leasing spreads, you mentioned possibly seeing a pickup in the second half of the year. I'm just curious, can you give some specifics on what drives that? Is it you are seeing fewer of the shorter term deals, which obviously puts less of a depressed -- depresses the leasing spread somewhat? Is that what is driving it?

I think that is part of it. There is a lag because, sales had gone down starting in late '07, '08, '09, and so then that translates into the lease renewals. And in some cases, some retailers, as you know, adjusted better to the changed economy than others and were able to hold on to their market share and their sales, and even gain market share, and others didn't.

And so the ones where we have gotten hit the hardest are retailers who were just slower to respond, who didn't cut prices and didn't address what the consumer was looking for. So now they are looking at their cost of occupancy, and it is a tough negotiation, because it has gotten higher than they are comfortable with.

And so from our point of view we are looking at do we keep them short term while we find someone to replace them, and the market is starting to come back in terms of new deals and expansion, so that gives us more options to replace tenants. So we are doing more of that. But it is not an overnight process, unfortunately, it just takes time.

And I guess just trying to get to what level in terms of leasing spreads to expect in the second half. You mentioned the nine leases where it had that negative impact, but you mentioned positive 7% for stabilized malls, I guess stripping out those leases you mentioned. Is that a level that you see continuing for some of your centers, that 7% spread?

Well, no, no. The 7% was comparing expiring leases in the first quarter, the base rent compared to the base rent of expiring leases in the second quarter. So we had a tougher comp in the second quarter, because the expiring base rent was higher.

So we had roughly negative 11% average. The couple of retailers that we referred to was 4.5%, so that would have put us into the kind of 6% to 7% range. So we will -- I can't quote a number, but we are hoping -- obviously we want it to turn positive, but I'm not sure it will turn that quickly this year. But probably somewhere in the single digits is hopefully where we'll go.

Okay. And just a question on the non-stabilized assets, still hovering around 76%. Can you just give us some sense of how leasing is progressing, and when you see that moving more in line with your mall average, around 90%?

I mean it's coming. We have some leases that are out for signature for all those projects. So we expect to make progress over the course of this year, and I think a year from now we will definitely be comfortably into the 80s on that.

Okay. And just lastly, the gap in terms of recoveries. If you look at the change year-over-year, is that purely due to the shorter term leases? Is that affecting the recovery rate, or is it anything else in terms of new leases being struck without the recapture?

No, you hit the nail right on the head. It is what you basically said, Jay.

Okay. Thanks, guys.

Sure.

Thank you. Our next question comes from the line of Paul Morgan with Morgan Stanley. Please proceed with your question.

Hi, Paul.

Hey, good morning.

Good morning.

So on your leasing metrics, I mean you said you did about 725,000 of new leases. On the spread data I can see the metrics for like 200,000 of those in the quarter. So kind of what are the other 500,000? I mean, is that stuff that is somehow categorized as not same space, or is it all kind of junior anchor and anchor space?

It's both. It's boxes. We have got a fair amount of box leasing activity going on. It is spaces over 10,000 square feet. So it is kind of mini-anchors. And then some is noncomp space.

And just kind of refresh me what you categorize as noncomp space? If there is some redemising of the walls type thing, that is noncomp?

Yes, where the space changed, where we had to take a couple of spaces and create a totally different sized retailers from them. So -- I mean we are pretty much, if it's close we will include it. But if it is something where it is just a total different configuration, a lot of times we will take storage space and some of the deals involve capturing -- we will go out into like a loading dock or things like that where it is just taking space that hadn't been used before and now it is being converted to rentable space.

Could you talk about some of the bigger boxes that you signed maybe this year that are -- where you are getting some of that absorption?

Sure. I mean we have continued to do a lot of activity with certain boxes like Encore Shoes is one that has taken some of the former Steve & Barry's spaces. We have done Jo-Ann Fabrics in a number of the malls where they have taken spaces that were previously occupied. Goldman's is a retailer that we just did a new deal with in replacing a vacant box.

So it has been a real combination of retailers that we have been working with. So it is hard to generalize.

We just opened a Jillian's. I don't know if you are familiar with them. They are a more kind of like a Dave & Buster's where they have got games and entertainment, and that is the first one in our portfolio. We opened a Best Buy this quarter. We opened some of the boxes in some of the new projects. So it is really a combination, a couple furniture stores -- and so that I guess that is a good sampling of it.

Yes, that's helpful. On the shorter term leases, I guess you're probably getting up to the point where you're rolling some of the ones that would have been done in '08 and early '09. And I mean what is the experience so far in terms of whether you can comp those possibly as they either sign for longer term or just roll over the renewal again?

I mean is it kind of flat? Is it better than your average? Or is it worse than your average, or about the same?

It is about the same. It is just different cases. Some are better, some are worse, but on average it is about the same as we had been.

As the overall portfolio average metrics? Or actually flat?

Say that again, Paul?

Yes, it is about average. Because you can see our rents have held up. I mean there has been some decrease, but not as much as the lease spreads would have indicated.

Okay. Okay. And then last question on Oak Hollow. Are any other malls where you have similar type of conversations with the lenders for short sale type things?

No, there are no more Hollows out there.

Okay, thanks.

Thank you. Our next question comes from the line of Jim Sullivan with Cowen & Company. Please proceed with your question.

Hi, Jim.

Good morning. Just wanted to follow up on the operating cost recovery ratio and the decline. Last year in the second quarter was exceptionally high. And I'm just curious -- and I know this number this year seems to be a little closer to what I will call the historical trend line.

But the question I have is what percentage of your tenants are now on fixed CAM, and is that number rising or not, and do you expect in the future that this will be a better than 100% number?

Yes, it is about 85% to 90% today, Jim, and we don't see that rising with certain of those tenants. So I think as their leases come up, those that haven't converted, we'll probably get the conversion on those. So we are basically where we are today.

Okay. And just to revisit the issue of the assets that have been written down, at the end of last year when you wrote down a couple of the other assets there was discussion about possibly redeveloping two of the assets, and then with the respect to the third there was a plan or you would consider a plan to retenant the asset with nonretail uses.

I just wonder if you can update us on the progress and whatever you have reached on those three assets.

With the center that we are retenanting, the Hickory Hollow Mall in Nashville, Tennessee. Unfortunate situation occurred with regard to the flood there. We have been able to lease I think 120,000 square feet to FEMA on a three month lease, and they have continued to extend that. So that is going forward.

We are also moving forward with some other uses for that project, which hopefully will come to fruition within the next 90 to 120 days where we can announce something, so we are making good progress there.

On the other two assets we are continuing to explore the redevelopment, and there is some interest from outside parties in that as well as to possibly acquiring those assets. So we are making progress on these three assets that we took the impairment on at the end of the first -- at the end of last year.

And in the case of Oak Hollow, is the buyer likely to maintain the asset as a mall or will it be converted to different use?

I think that we don't know exactly what his plans are, but I think that the city would love to see it stay, at least a portion of it, as retail so I think that is what he is pursuing, and there's possibly other uses, but we don't -- he has not given us a definitive answer as to what he intends to do with it. But we think that these negotiations went on very quickly, and so I think he is very positive with his ideas of what to do with that project.

Okay. And just to -- not to beat a dead horse here, but maybe to let's treat it as a post mortem. But in the case of Oak Hollow, I think this asset was developed as I recall about 1995, and I know you displaced another asset in the market that was Westchester at that time.

And I'm just curious if you look back as to why this development didn't succeed, would you attribute it to changes in that market, or was it just that the market didn't grow as you projected it to when you built the asset initially?

I mean, Jim, the market just totally changed. I mean the furniture industry just disappeared from that whole part of the country and moved overseas. And when we developed that mall, the furniture industry was very viable and dynamic in that area, and it actually had a real good opening and a good start.

But when the job losses hit and the economy went south, and they really haven't been able to recover. The Merchandise Mart that Vornado bought is -- they have given it back to the lender, and that is another impact from just the furniture business leaving High Point and leaving the Triad.

So you wouldn't attribute any of it to any material competition from a lifestyle center or some other product on the market that took the -- increased its share of the retail sales?

No, that -- no, not in that case.

Not at all?

No.

Okay. Great. Thanks very much.

Thank you.

Thanks, Jim.

Thank you. Our next question is from the line of Ben Yang with Keefe Bruyette & Woods. Please proceed with your question.

Hi, good morning.

Hi, Ben.

Given the short-term leases you've been doing over the past year or so, I assume you face some pretty sizeable expirations in 2011 and 2012. And since you don't update your expiration schedule every quarter, can you tell us what that number looks like today? I mean, do you -- does 40% of your GLA expire over the next two years possibly?

No, it doesn't. And I think what we focused on Ben is that we are very focused on that because of the refinancing and so on. And so we are cognizant of that and we feel okay with where we are. Needless to say we would like it to be better, but we are very, very comfortable with where it is today.

It will continue to somewhat come down as the economy improves, and as Stephen has alluded to, gaining traction with regard to leasing. But we are comfortable with where it is, and our refinancings basically show that it has no impact on what we have seen today. So we are comfortable.

I mean, what is that number today? Because at the end the last year it was about 25% of your expirations, and curious -- at what point do you actually start to get concerned that maybe you do have too much near-term releasing risk, and that maybe it makes more sense to sign some of your tenants to longer term deals, even if you think that those rents might be below market?

It just hasn't changed that much, Ben. I mean, there is a fair number of deals, but in the grand scheme of the total GLA of the Company, it just doesn't move the needle that much. So I think you are just making something an issue that really isn't an issue.

Okay. And then switching gears, Grandview, the development, is there anything in particular that is driving that lower yield on that project?

Yes, we had some changes to the plans and specs that resulted in some change orders, and these should help with regard to the phase two, like some electrical lines that were pulled, et cetera. So that is what impacted it was some change orders and in order to make the timing schedules.

So overall you are still expecting about a 10% yield for the entire project?

Yes, it is in that 9% to 10% range on the total overall project.

Okay. And then just final question, Stephen, I think in your prepared remarks you said that you saw continued positive sales growth in the portfolio. What was the same-store sales number for the quarter? Because looking at the trends it looks like your sales actually fell during the second quarter.

Yes, sales were -- they were down a little bit for the second quarter. With Easter being early this year, April sales were down. But May and June were up, and so we have seen a good trend. Overall quarter, because of April, was down a little bit. But sales, especially June and going forward are -- we are really encouraged by what we are seeing.

Okay. So during the quarter it actually wasn't negative, I guess, because of the positive growth you reported during the latter half of the quarter?

For the whole quarter it was negative. At the end of the first quarter we were up a little more than 4.5%. Now we are up about a little more than 2% for the six months, so it was negative on a combined basis.

Great. Thank you.

Thanks, Ben.

Thanks, Ben.

Thank you. Our next question comes from the line of Carol Kemple with Hilliard Lyons. Please proceed with your question.

Good morning.

Hi, Carol.

Are you starting to see any seasonal shops for the holiday season sign leases in the mall? And how does that traffic compare to last year at this point?

Yes, that's actually -- we are up in our specialty leasing in the high single digit range, so we are encouraged by the trend. And that is really driven by traffic being up, so we have gotten off to a good start on that for the year. We are starting to see some -- the Halloween stores are going to be opening really soon, and that has become a real strong business for the temporaries in the September, October time frame.

Toys 'R Us has opened some stores, some of their pop-up stores that they are starting to do. And so we are getting some of those in our portfolio this year. And a number of retailers are kind of experimenting with the pop-up store concept. And we have had a couple that opened last year that have been wanting to convert to permanent deals. So that has worked well as an incubator type program for us.

Okay. And on your extinguishment of debt gain that you are expected to take, for modeling purposes is that more likely to be in the third or fourth quarter of this year?

We think it is probably more likely for the year end.

Okay, fourth quarter, okay. Thank you.

Thanks.

Thank you. Our next question comes from the line of Quentin Velleley with Citi. Please proceed with your question.

Good morning.

Hi, Quentin.

How are you?

Good.

Just in terms of the selling those two weaker assets, which is obviously a positive. Stephen, I know earlier on in your prepared remarks you spoke about selling other noncore assets, and know some of that is the grocery anchored portfolio.

But how do you think about your other noncore assets? Are they some of these malls with productivity below $200 a foot, or is it some of the other community centers? I'm curious what you might intend to sell as noncore assets.

We have some office buildings that we had bought as part of the Starmount acquisition. That is something that we would consider. That is something that we could consider noncore. We over the years sold the community centers when they stabilized, and that has been a source of equity that we have used to redeploy into other investments.

And then with Del Rio, that was an asset that we were able to sell this quarter, and with the low sales per square foot we still got a good cap rate for it. And so if we can get the right pricing for some of the lower sales productivity malls, then that is something that we would go forward with as well.

Is there a market starting to emerge for those really low productivity malls? And who was the purchaser of Del Rio?

It is -- mostly the purchaser for those kind of assets are local buyers, and so it takes a lot of work to kind of comb through and find the types of investors. It is not institutional quality, but we have got people in the Company dedicated to finding the right buyers for those kind of assets.

Okay. And with Oak Hollow, I know it was a big positive having a nonrecourse loan on that property. That wasn't the case with Hickory Hollow, which had recourse. Of your $400 million or $500 million of debt that has recourse, how much of that is in the lower quartile of the mall portfolio in terms of quality?

On RiverGate, we bought that -- we acquired that mall, and at the time of the acquisition it was cross defaulted with RiverGate, so that is the reason why it didn't work from that standpoint. And so RiverGate is basically showing some great turnaround as a result of that, and so we refinanced RiverGate, and we had to pay or do this with regard to Hickory Hollow.

We have very few of those that basically are in place today. And so we look at that, and we think that the nonrecourse nature of these loans is a very important thing to us.

Okay. So very few of your weaker assets have recourse?

That's --

Yes, mostly it is some of the newer properties that are on construction loans that we haven't placed longer term debt on. That is where the recourse comes into play.

Okay. Thank you.

Thanks, Quentin.

Thanks.

Thank you. Our next question comes from the line of Christy McElroy with UBS. Please proceed with your question.

Hey, good morning, guys.

Hi, Christy.

You have been talking a lot about signing more shorter term leases. Can you talk a little bit about signing the shorter term leases in the context of your TIs trending higher, in terms of how much you're spending on TIs per lease year?

I think the TIs really come from the boxes, Christy. For the renewals we hardly ever -- I would say never, but I'm sure there is a couple that slipped through -- do any kind of TI on renewals. And so the TIs are really because of the higher box activity and backfilling those boxes that we have done in some of the larger spaces.

Also some of the restaurants. We have gotten good activity with our restaurant additions this year, and I mean that is a business that has come back. And we are really pleased with the results, just being able to add a number of restaurants to the portfolio, but those typically involve some kind of tenant allowance and that is in there as well.

So is it fair to say that you are spending less TI dollars on the shorter team leases that you are signing?

Yes.

Okay. And then regarding the extension and modification of the secured credit facility. What other modifications were made? Any changes to covenants or the cap rate used to calculate the borrowing base, or are the lenders requiring any additional pledge collateral?

Not on the one that we just recently did.

No other changes? Okay. What percentage of your in-line space is currently occupied by temporary tenants with leases under a year?

It is not that a significant. Probably 100 to 150 basis points.

Okay. And I would imagine that would go up in the second half?

Yes, it goes up for the fourth quarter somewhat. So it probably ends up 2% to 3%.

Okay. And then, John, you walked through the $0.05 increase in guidance. On top of the $0.01 impact because of the debt extinguishment net of the impairment, you said that the other change was the favorable interest rate environment. Does that account for the other $0.04, or is there something else there? Is doesn't seem like any other assumptions have changed.

I think just the interest expense number has basically been the focus as well.

Okay. So $0.04 of favorable interest expense impact.

Right around that number, yes.

Okay. And then just really quick lastly, given some of the changes at some of your malls, Oak Hollow, Hickory Hollow, can you remind us which malls are being stripped out of your releasing spread calculations and your same-store portfolio for the purposes of calculating NOI growth and sales growth?

We don't strip any malls out. Everything is in there. Hickory Hollow, Oak Hollow; they are all in the same-store NOI and the releasing spread numbers.

Okay. That's helpful. Thank you.

Thank you. Our next question comes from the line of Ross Nussbaum with UBS. Please proceed with your question.

Hey, Ross.

Hey, Ross.

Yes, on what Christy asked. On the Starmount portfolio I know the debt there doesn't mature until 2013, and it is in a JV. Is there any reasonable equity value left to the extent that if you did sell those properties -- maybe that is the question. Given the decline in values there and you bought in '07, is there any equity left in those buildings?

Yes, I mean there is actually pretty strong equity value. A couple of the centers that we bought in that portfolio that aren't in the JV are part of the six supermarket anchored centers that we have got on the market, and like we said, we have gotten real good interest in those. The NOIs have held up or grown, sales for the Friendly Center are up really healthy this year. So we feel comfortable with our ability to repay that line of credit.

And from a capital planning standpoint, in terms of the remaining maturities that you have this year and looking ahead into next year, how much have you budgeted, if any, for paydowns on any refinancings?

We have significant amortization in the range of $70 million to $80 million a year just on our normal amortization, and in our plans we have anticipated that we will have some paydowns, and we will have sufficient cash flows as well to more than cover anything that needs to be covered.

Do you have a number on roughly what that amounts to?

It is basically going to be flat.

Okay. Thank you.

Thanks.

Thank you. Our next question comes from the line of Nathan Isbee with Stifel Nicolaus. Please proceed with your question.

Hi, Nathan.

Good morning. Just getting back to the latter half of 2010 and the rent spreads, you had pointed to the expiring rents in 2Q being higher than 1Q. Can you talk a little bit about the expiring rents in the second part of 2010?

I think the leases that are expiring there are more in the normalized level, closer to where they were in the first quarter.

Okay. And a few times over the last year and a half or so you have talked about a specific batch of leases that have weighed on your releasing spreads. Looking ahead to the second half, are you comfortable that there are no of those, quote, unquote, specific batches that are going to weigh on the lease spreads?

There is always going to be a few. And the reason we point that out is because it is a disproportionate influence. There is a couple retailers that we are continuing to have negotiations with for leases, either expiring later in the year or next year, that we know are going to have negative spreads. And so what we are doing is planning for that, working on replacements aggressively so we can hold up -- hold those rents, and also talking to the retailer and working with them to try to preserve the income on a basis that is most favorable to us.

No, I mean you had mentioned 70,000 square feet out of 1.2 million impacting your lease spreads by 4%. Those would have had to have been pretty significantly down in order to impact that much, so I'm just trying to gauge. Do you see anything with that dire an outlook in terms of the releasing spreads in there?

Nate, it wasn't out of the whole 1.2 million. It was only out of the 500,000, so it was about 12% of that number that was those leases. So that is why it had an impact. But, yes, there were some retailers that had sales down 20%, 30% over the '08, '09 period. And as those leases come up, then we are being impacted.

All right. And just one final question. You had talked in, I think, the last call with the expectation once the GGP issue was resolved that potential institutional buyers would be more willing to talk. Have you had more substantive conversations with the institutional buyers? Would you say that there has been any progress towards getting a deal done?

We have really focused a lot on these last sales, like the Del Rio one and then this grocery anchor. So we have been focused on that. But we have had one or two institutional folks come to Chattanooga and visit with us and outline their thoughts and proposals, and we are outlining back to them our thoughts and proposals.

And there's different groups that we continue to talk to that have different horizons as to how they want to invest their money. So that's what -- we are in the process of continuing those negotiations or discussions with those folks.

All right. Thank you.

Thanks, Nate.

Thank you, Nate.

Thank you. There appear to be no further questions at this time. Mr. Lebovitz, I will now turn the conference back over to you for closing remarks.

Well, we would just like to thank everyone for joining us this morning. And we appreciate your time and also your support of CBL, and we are looking forward to continuing good results and having an even stronger second half of this year. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and we ask that you disconnect your lines. Thank you.