CBL & Associates Properties, Inc. (CBL) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by and welcome to the CBL & Associates Properties Inc. third 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)I would now like to turn the conference over to Stephen Lebovitz, President and CEO. Please go ahead.

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties Inc. conference call to discuss fourth-quarter and full-year 2010 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 be even in 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 10K and management's discussion and analysis of financial condition and results of operations included therein for a discussion of such risks and uncertainties. During our discussion today, references made to per share 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 made available for replay on the Internet through a link on our website@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 the form 8-K.

Thank You, Katie. In 2010, we made tremendous progress on a number of our major initiatives including stabilizing NOI and lowering our leverage levels. Same year NOI came in near the more favorable end of our projected range, down 1.3% for the year, and down only 0.3% for the quarter. Over the course of the year, our NOI results improved and we are focused on achieving positive NOI growth in 2011. We were pleased with our ability to improve occupancy and lease spreads and to reduce expenses.

During the second half of the year we disposed of several non-core centers at attractive pricing, generating cash to pay down variable rate recourse debt. We also raised more than $225 million through two preferred stock offerings in 2010. Altogether, these transactions, and improved cash flow, have resulted in a reduction in our debt levels by more than $430 million since the end of 2009, and by more than $880 million since the end of 2008. This progress was reflected through CBL posting an 89% total return to shareholders, one of the top total return numbers in the REIT industry. Needless to say we would love to make this a trend for 2011.

Holiday sales were solid, with November's strong spending tailing off somewhat in December. We were pleased to see several of the retailers that had been lagging last year post strong comp sales. We saw encouraging results and categories such as jewelry, apparel, gifts and house wares. For 2010, we posted a 2.5% increase in sales per square foot over the prior year period. While it is always dangerous to try to predict sales, given the improving economy, we expect to see modest positive sales increases continue through 2011. However, we anticipated that first-quarter sales will be impacted by the major winter storms that have been experienced recently.

Leasing activity was strong throughout the year as reflected in our occupancy increases. For the total portfolio at year end, we posted a 200 basis point increase over the prior year, and a 140 basis point increase sequentially to 92.4%. Stabilized malls improved 160 basis points from both the prior year and sequentially to 93.2%. For 2011, we are budgeting an additional 75 to 100 basis point improvement in our occupancy levels at year-end.

In total, during the fourth quarter, we signed approximately 1.4 million square feet of leases. This included approximately 520,000 square feet of new leases, 750,000 square feet of renewals and 100,000 square feet in the development for polio. For the full year, we signed over 4.8 million square feet of leases in our operating and development portfolios, a positive sign as the recovery by retailers. With the full year of positive sales growth, and limited new supply, we feel better about the leasing environment and are encouraged that we will begin to see positive traction in our renewal spreads.

Our strategy of signing short term deals is beginning to pay off in our new lease spreads which were 16.6% higher for the quarter than the prior average rents. However, renewal leasing spreads are still being hurt by a few disproportionately negative portfolio deals. During the quarter, we renewed on a short-term basis, 10 music stores totaling roughly 57,000 square feet, and roughly 115,000 square feet with two major teen apparel retailers. These deals contributed 700 basis points to a 13% decline in renewal spreads for the quarter. While these deals weigh on our spreads, we evaluate each deal on its merits and make the decision in certain circumstances, to preserve occupancy and rent, while we worked to replace the tenant or help their sales levels recover.

As I mentioned earlier, we were able to strengthen our balance sheet and generate equity through the disposition of several, non-core properties throughout 2010. During the fourth quarter, we conveyed ownership in phase one of our open air center, Settler's Ridge in Pittsburgh, Pennsylvania, and stalled Milford Marketplace in Milford, Connecticut and Lakeview Point in Stillwater, Oklahoma for a total consideration of $132.8 million. As part of the transaction, we paid off three construction loans totaling approximately $91 million, and generated excess cash proceeds of about $42 million. The cap rates on the centers were very strong and a 6.5% to 7% range based on income in place. While these projects were recent developments, we were able to capture near stabilized values in the three centers, with occupancy rates in the low 90s at year-end.

Construction is continuing on our Outlook Center project in Oklahoma City. We are now over 90% leased or committed, with a great lineup of retailers and continue to receive new commitments. The opening date is planned for this August. During the fourth quarter, we celebrated the opening of the first phase of the Forum at Grandview, our 110,000 square foot community center project in Madison, Mississippi. The project is 100% occupied with Dick's Sporting Goods, Best Buy and Stein Mart.

During the recession, we put our renovation program on hold to retain capital flexibility. However, we believe that it is important to reinvest in our properties in order to enhance their dominant position in the market. We recently announced our 2011 renovation program, which includes upgrades at four properties, for a total investment of approximately $25 million, of which $10 million will be funded through the support of local government. Hamilton Place in Chattanooga and Oak Park Mall in Kansas City will receive the most extensive renovations with new signage, lighting, flooring, exterior upgrades and other improvements. River Gate will receive new flooring and furniture, and Burnsville will receive new floors.

The renovations will commence over the coming months and are scheduled for completion in time for the holiday season. I will now turn it over to John for the financial review.

Thank you Stephen. We are making progress in securing property specific non-recourse loans for the majority of the properties, included in our $520 million facility. Currently, we have term sheets executed on 11 assets that are currently securing approximately $480 million, on the credit facility. These financings should generate a modest level of excess proceeds. We are seeing interest rates ranging in the 5.5% to 6% range. While these rates are an increase from the current rate on our credit facility, they are attractive for long-term, fixed rate non-recourse debt. These financings will also significantly reduce our recourse debt and exposure to floating rate debt. We will announce more specific details when the loans closed, which we anticipate in the first half of this year.

As we refinance these loans with this credit facility, becomes a revolver, that could be used for retiring the 2011 and beyond maturing mortgages as well as providing additional flexibility. During the fourth quarter, we retired at $10.9 million loans secured by Wausau center in Wausau, Wisconsin. Subsequent to the quarter and, we retired the $78.7 million loan on Mid Rivers Mall in St. Charles, Missouri. At the end, we had more than $550 million available on our credit facilities. Our financial covenants remain sound, with a debt to GAV ratio of 52.7%, and an interest coverage ratio of 2.35 times for the year.

We reported FFO, excluding the loss on impairment of real estate, of $0.62 per share for the fourth quarter, flat from the prior-year period. Major variances compared with the prior-year period included $0.02 lower, lease termination fees, $0.02 lower in out parcel sales, and a $0.01 lower of straight line rents. For the year, FFO per share was $2.08, excluding the loss on impairment of real estate. For the full year, we recorded a $0.04 lower in these termination fees, $0.02 lower of straight line rents, $0.02 lower of out parcel sales and $0.04 lower of the above and below market lease and debt premium amortization. Total portfolio same center NOI, excluding lease termination fees, decline just 30 basis points, in the quarter, and 1.3% for the year, from the prior year period.

Other major variances in the earnings results included G&A as a percentage of revenue was 4% for the fourth quarter and year ended December 31, 2010 , compared with 3.4% and 3.8% respectively, in the prior-year period. The variances in G&A for the current period was related to increases in sales state taxes, consulting and lower capitalized overhead. During the fourth quarter, we recorded a bad debt reversal of $160,000. This compares with the bad debt expense of $561,000 recorded during the fourth quarter, 2009.

For the full year, bad debt expense was $2.7 million compared with $5.1 million in 2009. Our cost recovery ratio for the fourth quarter and full-year 2010 was 103.3% and 101.9% respectively. Compared with 106.8% and 102.3% respectively in the prior year periods. Variable rate debt was 16.7% of total market capitalization at year-end, versus 21.1% as of the end of the prior-year period. Variable rate debt represented 28.4% of our share of consolidated and unconsolidated debt, unchanged from last year.

Yesterday, we issued 2011 guidance in the range of $2.10 to $2.15 per share. We are assuming NOI growth in the range of a negative 50 basis points to a positive 1%. The guidance includes $0.14 per share of estimated gains from the extinguishment of debt related to our property in High Point, North Carolina. We anticipate completing the transaction in the second half of 2011.

Our goal in 2011 is to produce growth in the NOI. We are focused on executing across all lines of our business. Including further gains in occupancy and improving leasing spreads, as well as specialty leasing and branding. The past two years have been challenging for everyone, but we've positioned CBL to take advantage of new opportunities for growth, both internally and externally. We are continuing to prune our non-core properties at attractive pricing, and explore other ways to improve our portfolio and reduce leverage.

We continue to have active discussions on joint venture opportunities. We think it is important to be patient, and we would rather take our time to ensure that we have the right partner in the right deal before we move forward. CBL has emerged from the recession as a stronger company, with a bright future and we are confident that 2011 will be a productive year. Thank you for joining us today, and we appreciate your support. We will now be happy to answer any questions you may have.

Thank you. (Operator Instructions)The first question comes from the line of Christy McElroy from UBS. Please proceed your question.

Good morning guys.

Good Morning Christy.

Just thinking about your Q4 internal growth. You had a nice pick up in occupancy in the quarter, looking at that combined with a contractual rent growth plus growth and percentage rents. I guess I would've thought that your same store NOI growth would've moved into positive territory or had been a little bit higher despite that you still have negative re-leasing spreads and I think the reimbursement percentage is a little bit lower. Can you just kind of walk through the year-over-year NOI growth in the quarter and different drivers, what weighed it down?

I think the biggest factor that kept us from being flat or positive was the comps on expenses because we have made a lot of expense reductions in 2009, so we were going against that as a comparable level. Also the fourth quarter last year came in strong as well. So, just on a comparable basis, quarter to quarter, it was a tougher comparison. We are still better than we had thought we would be even at the end of the third quarter and we ended up at the higher end of the range. So, I think things really worked out well.

You're right on the occupancy and some of the specialty leasing was better and helped us out as well. Then, also some of the things that John talked about with the bad debt expense and some of those items, factored in as well to the same center line number.

Okay. And then, just thinking about the expense line on that same topic with regard to the $20 million in incremental renovation CAPEX that you expect in 2011. I know that a portion of that is eligible for CAM reimbursement over time. To what extent should that impact your expense reimbursement percentage in 2011?

I mean it really shouldn't impact it. We've gone to 90% fixed on CAM and so we factor that in when we reset the CAM reimbursement in terms of depreciation. But, we figure that gets recaptured over a long period of time. It would not really impact us in 2011. Also, $15 million is our portion of the investment for those four. It was 25 total, 10 is coming through the TDD & CID financing from government assistances helping us out.

So, would you expect that the reimbursement rate in 2011 will be roughly close to the 2010 level?

Yes. It will be, we're targeting right at 100%, hopefully a little better.

And, what are you budgeting for deferred maintenance CAPEX for 2011?

It is about $20 million again.

Okay. And just lastly, what drove the $6.4 million income tax benefit that you recorded in 2010? And how should we be thinking about that line in 2011?

It was from the management company gains there, from that standpoint. So, management company was good for us in that respect.

Okay. And Ross has a question as well.

Yes. Hello, just to follow up on that, so John, is that a recurring item? What kind of gains would've occurred in the management company?

No, it's not a recurring number, Ross, and we do projections, our taxable projections on a management company, done every year to basically see where it ends up. It has been running at a loss because out parcel sales have -- with the development slowing down, we don't do as many out parcel sales and things such as that. So, it's running at a loss. It could change, but we don't think so and we just look at those projections from the management company on a quarterly basis. We do it annually, then we look at it quarterly to see where it's going to end up.

Okay. The question I really had was on Settler's Ridge. Can you maybe walk through how the decision-making process ran in terms of conveying the ownership interest back there, this was a property that had opened up, what in late 2009, 94% leased and committed. Why the decision to hand it back as opposed to pay down the loan, refinance the loan and take this property to the next level with phase two ultimately?

There was no hand back to the bank. It was sold to an outside, third-party at a significant cap rate or it was conveyed to an outside third party through partnership interests, at a very good cap rate. So, there was no give back to the bank. I don't--

Oh I'm sorry. I read the press release and it said it conveyed the ownership interest so I didn't read that as a sale.

No. It conveyed the partnership interest.

And was that above your -- it was above your basis?

No. We did, because what happened on that was, the rental income came in, that was at the height of the downs that we've been going through. So, our rental income was down fairly substantially where it was, and some of the cost numbers because we bought our partner out of it, so that was the result of that. But the cap rate, basically on the income, in place was extremely good in that range.

Understood. Okay. Thanks John.

Thanks Ross.

Thank you very much. Our next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Please proceed with your question.

Hello Todd.

Good morning. I'm on with Jordan Sadler. Just, regarding your leasing spreads, you gave some helpful information on the renewals, but this spread, roughly $20 between gross rents for new space and for renewals nearly $10, I guess for the entire year. Can you just help me understand how the conversations are between both existing tenants compared to new leases that you are signing?

Yes, I mean it's a little hard to generalize, and what we tried to point out is that there were some portfolio deals that we did in certain categories and with certain retailers that had a big, negative impact on the renewals. It's really driven by a lot of factors. It could be a reduction in sales, for certain retailer, which creates an un-sustainable occupancy cost. Like we said in the call, if, depending on what we have as a backup for this space, we'll do a short term renewal and continue to look for another retailer versus just letting the space go vacant, if we can. So, like we said, for the past really couple of years that we've prioritized occupancy over getting the highest lease regs on renewals. But at the same time, we are starting to see better results from new leasing, both in terms of the amount of square footage and also the rent levels. We think that's going to help us over time to end up better off in the NOI levels for the centers.

We've kept the stability, kept the occupancy and kind of worked through the challenging period, but things are definitely getting better. We are seeing more open to buy by retailers. Having the retailers in the higher occupancy helps sponsorship and traffic, so it has other ancillary benefits that don't get captured in renewal spreads. Most of those renewals that are negatively impacting are less than three years, so we're not locked into these levels for long-term. Conversely, the new leases are longer-term deals. So, we are able to get the benefit of the better leasing. Hopefully that gives you a picture. There are a lot of case-by-case decisions that we have to make too.

Sure. On the renewals though, you mentioned occupancy cost. Where are occupancy costs in the year? Also, what kind of occupancy cost are the tenants sort of targeting when they come back for renewals on these portfolio deals that you executed?

It depends on the retailer, but it is in the 12% to 15% range. It just, again, depends on the category and we didn't include our occupancy cost ratio . We don't have it finalized yet, it will be in our 10K, but we think it will be better, because sales are up and the rents are flat to down a little bit. So, it should be improved from last year.

Okay. And then, moving over, back to operating expenses, you said it created a little bit of a headwind in the quarter. How do you, how will operating expenses sort of contribute to your same store NOI forecast in 2011?

I think on the operating expense side, we are seeing that it should be flat. We are going to see some weather conditions in this quarter; we are going to see weather conditions probably into the second quarter. Weather conditions have really been different this whole year. We think it is going to flatten out versus the rest of the year. I got a little chided by my fellows last year when I said well, you don't see a lot of snow in the third and fourth quarter, the third quarter at least, so hopefully we're not going to see a lot of snow in the summer.

All right. And then just lastly, how about G&A, how do you expect that to compare in 2011?

Flat to slightly up. We were slightly up this quarter because of some additional stuff. State taxes hit a little and we did some outside consulting work that we hired some people to look at some stuff for. Those were the two biggest thing that impacted us. So, we think it's going to be slightly up next year.

All right. Thank you.

Thanks Todd.

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

Hi Jay.

Good morning. Stephen or John, on the -- you mentioned the debt reduction since the end of 2008, close to $900 million and obviously the strong share total return performance last year as well. As you think about the next couple of years, can you, I guess, put into context a bit, how you think debt reduction could trend? I mean is that a reasonable number to shoot for? Today, you're sitting at about 8.8 times debt to EBITDA, perhaps getting to a mid-seven. Is that the right level?

Well, I think we don't necessarily look at it that way. We look at it to see -- one of the things we really focus on is recourse versus non-recourse debt. We think that is essential and therefore, we focus on returns on equity which is important. We said this to a number of our friends in the industry. We built a shopping center in South Haven, Mississippi where there was basically-- we were able to finance out a 100%. In fact take some money out, and we still have an extremely good, positive cash flow of over $700,000 on a non-recourse loan.

So, we look at return on equity versus the risks involved. We are focused on looking at the balance sheet making certain that we take care all of those maturities as they come due. So, we don't want to break our arms patting ourselves on the back, but I think we did pretty good over the last couple of years of reducing that debt and we are focused on that as well to make certain that is something we are very cognizant of.

I guess, just in the context of an environment where NOI might be slightly challenged, modestly negative to modestly positive, so roughly flat for a period of time. Wouldn't it make sense in this environment while the credit markets are still pretty favorable that you could actually go out and reduce leverage at this point?

Yes, I think we have looked at that and we continue to explore that in every way. As I said in my comments, we continue to explore joint ventures. We want to do a joint venture with the best person in the industry and we want to do it if it's a reasonable thing for us, that associates us with a great opportunity for our partners as well of ourselves. I think joint venture are definitely something that we explore and as we pointed out, we did prune our portfolio somewhat this year. As we see cap rates on some of our assets look extremely good, then, we will take advantage of that as well. We don't see that we need to-- equity is not on our radar screen at this time but as opportunities prevail, everything is available at our beck and call to take advantage of.

Okay. And just switching back to the guidance. Can you give specifics on what you're expecting in terms of further increases, occupancy or where you think spreads could trend this year? Sorry, if I missed that earlier.

Sure. Well, on occupancy, we are saying 75 to 100 basis points of additional improvement. So, that's in our guidance numbers. For the spreads, we are looking to improve over where we are and we didn't give any guidance on that, but we are hopeful that we will be able to get progress in the renewals so we get closer to flat and to continue to have the positive numbers on the new leasing. I mean,

Do have an assumption for term fees this year?

Say it again Jay?

On lease term fees?

No. We don't build that into our numbers, but this year was down a lot from last year and we wouldn't expect it to ramp back up. I mean, there is definitely borders out there as a risk but they are more bankruptcy risk and we don't anticipate getting lease termination fees from them. For the most part the retailers are in a healthy position and they've closed the stores that they want to close and they've figured out a way to be profitable. So, we think it's a lot more stable environment which will translate into lower term fees.

And just last question. What percent of the portfolio at this point, or percent of NOI is represented by music or books? I guess what still remains in the portfolio?

Well, I think it's probably 2% or something in that range. It's still a decent number, but it is down a lot from what it was. We're trying to reduce that as well and replace those stores with better categories and better rent payers. Okay. Thanks guys.

Thank you. Our next question comes from the line at Jim Sullivan from Cowen Group. Please proceed with your question.

Thank you. Good morning. A couple of questions, first of all I may have missed this, but in terms of the three community centers, the two sold and the one conveyed, were there separate buyers or was it one buyer?

There were two buyers -- one buyer for Milford and Settlers Ridge, and a separate buyer for our project in Stillwater, Oklahoma.

Where are those marketed? I know there was a partnership, a relationship on Settlers Ridge, were those markets through a broker or was it just an off market transaction?

No. Holliday Fenoglio did the marking on those assets, Jim.

Okay.

I'm sorry on two of those assets, they did. The third one was basically-- a broker approached us on the third one which was Stillwater, Oklahoma.

Okay. John, you talked about JVs and Europe and I think he used the word - - patiently exploring. It kind of suggest that either the financing market and/or the cap rate trends are moving in your favor. I'm just curious if you could share with us you know, number one whether the JV discussions are entirely focused on the malls or not? And number two, what your sense is for cap rate and appetite by institutional investors if that's the way to characterize the potential JV partner today versus where they might have been say, a year ago.

I think that the institutional investors today are very focused. I think a lot of them have put a lot of office in major metro market areas. I think that today they are seeing that retail is coming back fairly significantly and that it's going to trend in the right direction. And, I think what's really come out of this downturn in the economy, is that a lot of these institutional investors are seeing that the middle markets in the downturn economy have performed better than some of the major metro market areas.

As an example if you look in Chattanooga, Tennessee, with the new Volkswagon plant, Amazon is building 2 million square feet of distribution here, you can see that we are seeing a robust economy. Hamilton Place Mall is up 10%, I think, for the year. If you go to Madison, Wisconsin where the University of Wisconsin is, and you see the research that is going on there and income levels.

So I think that is what's happening. I think the institutional guys are looking at these markets with a different pair of glasses and seeing more positive results out of them. So, I think that's the direction that we are seeing the institutional guys. I think likewise, they are wanting to spread out their investments and not have them all in major office buildings in major metropolitan areas. So, I think it's having a definite impact.

I likewise think that the retail sector in regional malls are an area where they are really focused as well. Granted, we are in conversations with people, basically on our malls, is the greatest interest, although there is some interest in some of the other assets, possibly in joint ventures. We're not as aggressive with regard to that as we are making certain that we've got the best of the best as an institutional partner. So, that's where we are.

Okay. John, you also touched on discussions on some secured borrowing and gave some rate ranges. I wonder if you could share with us what the loan to value range is for that paper?

They are in the range anywhere from 55% to 65%, probably closer to the 60% to 65%.

So, those market terms continue to ease, get more attractive for you?

Yes, I think that what's happening in the credit markets today is that the quality of the borrower is essential. I think the underwriting and the ability to perform is basically very important to them as well. Everybody's gotten more aggressive with regard to this and I think they are doing a better job of underwriting. So, yes, I think that the market has eased from the standpoint of the basically how they underwrite and who they are doing business with.

So, John, when you think about the joint venture transactions on malls, would it be more likely to include some of those assets for which you might put to bed some of the secured, long-term fixed rate non-recourse debt, or not?

Well, I think, you know, it depends upon the partner and the partners appetite is to the percentage of debt that they want on the asset. I think that the partners today want a modest amount of debt, so, I think that plays into which assets go into it as well.

Okay. Then a final question for me, for Steve. Stephen, you provided, I guess, what would be kind of conservative same-store guidance for the next year and you've outlined what the reasons are for that. I'm curious as you think beyond that, if indeed we are going to have a recovery in the economy that might be a little bit lower than it usually is, but maybe pick up pace as we move into 2012.

If you think about the potential for same property NOI growth in that part of the cycle and maybe look back as an analog with what happened after 2002, 2003. Is there any reason in your mind why the growth rate in same-store NOI should be slower going forward in this cycle than it was in last cycle, or do you think that you should have just as strong of a rebound?

I think, Jim, there is a lag just with the renewals spreads and that working through the system. So, we would have better NOI projections for next year if our renewals spreads for this past year had been better. We feel, we're being more conservative going out into 2011 and 2012 and occupancy has helped us to make up for the renewals spreads and then some of the other areas, revenue areas, such as specialty leasing and sponsorship. We clearly need to make progress on our lease spreads, because occupancy is not going to be able to grow as quickly. Next year were saying 75 to 100 basis points as opposed to this year where it was closer to 200 basis points. So, we are continuing to make progress there, but we need to get better lease spread results to have the same-store NOI growth that we are all expecting.

Okay. And then, I guess, as a final point by way of comment, tying together with the two of you said. If it is an ROE objective here, putting that kind of financing in place at this point in the cycle, very attractive, a year ahead of what should be stronger same-store NOI growth. You'd be looking at pretty impressive return on equity in 2012 and beyond. Is that the right way to look at it John?

Yes I think that's definitely the case and we are, in today's market, locking down interest rates as far out as we can. When I was talking about ranges in my comments, we are talking about 10 year loans. So, we think that the interest rate factors today are very beneficial to us and to lock them down, especially on the non-recourse basis, makes a tremendous amount of sense.

Okay. Good. Thanks.

Thank you Jim.

Our next question comes from the line of Craig Schmidt from Bank of America Merrill Lynch. Please proceed with your question.

Just for clarification, what would the renewal leasing spreads be, absent the 10 music stores in the two major teen retailers?

It would be about 5% down.

Okay. So, I'm assuming, and correct me if I'm wrong, but your at least coming to the end of the sort of maintain occupancy but, somewhat troubled companies that need some sort of lower renewals that we may be looking at the spreads coming closer to that minus 5% in 2011?

You know, it crystal balling, but we have definitely worked through the bulk of it. I would say there is still some to go that we know with some retailers, where the lease expirations are coming up in 2011 and 2012 that are going to be some headwinds. I think like you say, we've worked through the bulk of it with the music and some of those other categories that will help our results going forward. And, you know, we -- even though our numbers are still negative, we did make progress over the course of the year. So, things have gotten better and so we look for that trend to continue.

Are the ones that remain sort of in the dis-intermediated class or are they just retailers that have not done as well through the past couple of quarters?

Yes, we are not going to name any names, but some retailers have just had on a relative basis, disappointing sales results. Even though the retailers for the most part have focused on profitability and learned to be profitable at lower sales levels during the recession, a lot of the lease negotiation discussions focus on occupancy cost, health ratio, that type of thing. So, when sales haven't recovered it hurts our ability on the rents that we renegotiate.

Okay, thank you.

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

Hello. Good morning.

Good morning.

Stephen, last year you reported the negative 10% leasing spreads for your stabilized malls, and you had about, I think 15% of arrear rents that were rolling during the year, but then the average rent number was pretty much flat in 2010. I mean can it be the built-in increases on the other part of the portfolio that completely offsets that negative leasing decline? And, I know you mentioned a handful of deals, the music stores, etc. that hurt the leasing spread, but wouldn't that also show up in the average rent number? I'm kind of curious why the math doesn't necessarily jive the way I would've expected.

Well, some of it is fallout, some of the retailers that fell out were at rents that were lower than the average so, that offset somewhat. And then, the gross rents, We've been able to hold those for other parts of the portfolio where CAM increases or like you say, rent increases are in place so that offsets it as well. But, you're right, it's not as dramatic of a decrease as you would expect given the lease spreads because of some of these other factors.

It sound like a little bit of non-, you can't really compare the two I guess? Is that a fair statement?

Yes, that's correct, Ben, you can't really compare, because these things are changing your expense numbers, et cetera. So, it's harder, almost impossible, to basically figure it out.

Well it is not a perfect comparison, but I think the trends are there.

Okay. So just a little too much noise, then I guess. Then just final question, the impairment that you recorded during the fourth quarter, was a bit higher than what you had guided to just a month ago. Was that also related to the community center sale or was there something else, maybe teeing up for another property sale in the next few months?

There was one project that we started, it was in Imperial Valley, California where we sold land to Kohls and they started on the comments and that's the first phase. That allowed us to kick that project off and on that specific sale, there was some impairment, about $1 million which was in the total. But, we felt like from a strategic point of view that they're such a great anchor and they'll really allow us to hopefully make some headway on the rest of that project.

So, obviously a positive signal despite the impairment because it will show up on the development schedule at some point? Is that a good way look at that then?

Well, this wasn't going to show up because they are going to build their own store. But, at some point, hopefully, we will be able to have that project teed up into the development schedule once we get the pre-leasing to the level it needs to be at.

All right. Thank you.

Thanks Ben.

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

Good morning guys.

Hello Quentin.

Just following on from the leasing spreads versus the average base rents. I assume it's mostly because you're quoting the leasing spreads as gross rents but they're average base rent. I don't know if you have an average gross rent and how that's changed between 2009 and 2010?

We don't record it and we don't have it, but I think it would be pretty comparable because, the CAM is mostly fixed and it's fluctuating with the expenses which have been mostly fixed.

Okay. And, just in terms of the short term renewals, Stephen, I think you said earlier that there was still a number of short term renewals occurring, I don't know if you have the proportion that were short term renewals that are in those leasing stats?

Yes, it's between 50% and 60%, so it's about where it has been for earlier this year.

The are you expecting that to sort of drop off through this year?

Yes, we are hoping that it will drop off.

Then, just in terms of the renovations, the four renovations for 2011, $50 million is your share. How should we think about renovations going forward, sort of how many malls do you want to do on an annual basis and what kind of capital spend would your share be?

Yes, we haven't really projected forward, but, I think that the level we're at is probably something we will see for the next couple of years. And some of it depends on the scope and the needs of the mall and like I said, you know, the two malls are getting more extensive renovations than others. We are also working with a lot of the local municipalities to help us out with the renovations and we are getting a good level of receptivity to that. So, hopefully that will help us keep our investment down on these renovations going forward.

Okay. And then maybe just one for John, in terms of the floating rate debt which is about -- I think it's about 28% and you've spoken about terming out a lot of the debt. Do you have a target for what the floating-rate proportion should be going forward?

I think a lot of it depends upon, you know, developments and things such as that which is construction loans which are probably not going to be, you know, fixed rate loans. So, that is a lot of it. Then, we look at caps and swaps and the pricing on those as well.

The craziness of GAAP accounting is that the cap doesn't help you take it off of your balance sheet but in turn, it's a much better way for us to look at cutting back our risks from that standpoint. So, I would see us looking into exploring caps a lot more than we are swaps, but in turn that won't help us from a GAP standpoint on floating-rate debt. But, we are very focused on that floating-rate because of what's happening in the markets today.

Okay. Thank you.

Thanks.

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

Good morning.

Hello Carol.

I just had a question about leasing. If you all sign, say a short-term lease in 2009 with a tenant and they want to sign a longer-term lease at this point, does that count as a renewal or does that count in the new leases?

Yes, if they are taking the same space, that's a renewal.

Okay.

Thank you.

So, are you seeing any increase in those kinds of renewals? Like, are you seeing -- the renewal rate, I know, is down overall, leasing rate. Are you seeing a larger increase in the short terms or a less negative or is there a difference?

Yes, as sales improve, we are definitely seeing-- we did some short term renewals with some retailers and there were some stores on the bubble and now they are looking to extend those longer-term so, we are definitely seeing that. In a lot of cases, we are encouraging that.We don't like the short term leases and we kind of do them as a necessary evil. So, we are always pushing to get longer terms and get more stability and it does prevent some downtime, doing the short term renewals and gives us flexibility with the space if we see that the retailer isn't going to extend long-term to try to bring someone else in.

Okay. And then, at this point, do you all have any thoughts on your 2011 dividend or when will you have some thoughts that you can share?

We have a board call at the end of February and so that will be announced after the call, I think it's February 28.

Okay. Great. Thank you.

Thanks.

Thanks.

Our next question comes from line of Rich Moore from RBC Capital Markets. Please proceed with your question.

Hello Rich.

Good morning. A question first on percentage rents. They were very strong in the quarter and I'm trying to figure out-- they're kind of where they were a couple years ago. So, I'm wondering, is this more short-term leases that hit breakpoints or is this a return to where we were in the past?

Yes, it's really because we lowered breakpoints in a lot of cases where we did some of the concessions on rents, so we are seeing the benefit of that as sales improve.

Okay, does that, is that continue Steve?

What we are trying to do is where the situation is getting healthier, roll them into fixed rents. So, we'd rather it go into a fixed minimum rent instead of percentage rent.

Okay. I guess for the rest of the year, though, it's probably hard to get too much of that done right?

That's probably true. I mean, depending on how sales go, percentage rents should hopefully improve more.

Okay. All right. Good. Thank you. And then, you know, we've had this whole conversation going about Dillards in the industry. I'm wondering, are you doing anything with them in terms of thinking about buying some of their boxes that they may own and either renting them back to them, leasing them back to them or possibly doing something different with the box?

No, they haven't indicated in the interest in doing anything like that. We haven't had any conversations. They announced their restructuring of their real estate informing the REIT, but there hasn't been any conversation about selling any buildings or leasing any buildings and, you know, their sales have been strong, they were up 6% in January and so their business has been great.

They outperformed the other department stores and our conversations with them are operating conversations and not really focused on any types of financing. A couple of stores that they might have closed over the past couple of years, where they own them, we are working to replace them and bring in some new users, kind of on a partnership basis. But, that doesn't really have anything to do I think with the REIT or the type of thing you were talking about.

Okay. All right. Good thank you. Then, John, I want to make sure I understand if I could the secured line that you have, the $520 million secured line you're essentially going to eliminate the balance on that by June? Is that kind of what I'm understanding with the secured financings you want to do?

Yes. It was always anticipated that it would be a revolver and what we are doing now is that we are cleaning it up so that we've got more capacity and more room to basically revolve. And as other loans come due or if the credit markets tighten up, we can cover all of those maturities going forward.

Okay so that one will be pretty empty, the other one's already pretty empty, so you're expecting those to really be back up type facilities by summertime.

Yes. Yes, that's correct.

Okay.

We want the maximum flexibility for anything that could occur to freeze up the capital market. We don't see that occurring, but we want the flexibility of knowing that we've got that capacity and the relationships with these banks is really proving to be incredibly successful for us.

All right. Great. Thank you guys.

Thanks Rich.

Our next question comes from the line of Cedrick Lachance from Green Street Advisors. Please proceed with your question.

Hello, Cedrick.

John, I just want to follow up perhaps on the secured line of credit just so I understand that well. So once it freed of the current properties that are on it, if you want to use the line again, do you have to commit a property to the line or does it become an unsecured line of credit?

No, at this stage we basically have made the decision that we want to keep it secured, the covenants are much better so, as we have other mortgages come due, et cetera, we would put those in and the banks would underwrite those in the typical way.

Okay. In terms of the source of the financing for the 11 properties here, are you most looking at CMBS or are there other alternatives?

Yes it's a mixed bag. I think we've got some institutional money coming into it. We've got a significant amount of CMBS and then we've got a number of banks today are basically doing non-recourse term loans. So the capital markets, and maybe it's just because of our special relationships, it's very competitive and our ability to take advantage-- not take advantage, but to get in a situation whereby it's profitable for both the banks as well as ourselves.

And in terms of pricing, on the loans, do you see any difference between the CMBS and the banks?

Just a little, but not much. It's pretty close. The institutional side is a little better than the CMBS market.

Okay. Stephen, you've talked a lot about I guess short-term leases and I think often the assumption is a short-term lease has a lower rate than you would achieve on a longer-term lease. Could you quantify the difference there? So, if you sign a short-term lease on a renewal, where is it versus where you would've expected doing the long-term lease? Is it 50% of what you could have achieved, is it 80%?

I don't think I can quantify it the way you are asking, because, it's too hypothetical. But just when you look at the comparison this year, for our renewals, being down 13 and then the new leases being up16, you can see there's a pretty decent gap. It's definitely 20% or 25% improvement there that we get what we are doing a longer-term leases. Hopefully that's kind of a close enough proxy for you.

Okay.In terms of going back to the gross rent versus base rent conversation, when we look at, let's say in 2008 we look at the revenues that you are able to achieve from tenant reimbursement and we look at the expenses. Then, if we look at the same two numbers in 2010, your expenses obviously have declined dramatically but you tenant reimbursement have declined also by quite a fair bit. So, it seems to me that when it comes to lease renewals, you may have to re-set the basis for tenant reimbursements which might be driving the decline in reimbursement there, am I right?

Yes, I mean it --, some of it is just decreases and in real estate taxes that we've worked to achieve just given the economy and then with the conversion of the pro rata leases to gross leases. We go through an exercise really every year of figuring out what the pro rata CAM and expenses is for each mall, and then if we are signing new leases at a fixed rate, we will set it at that level. So, it's constantly being evaluated and looked at. We are making sure that we come as close to 100% reimbursement as possible. Another factor probably is, some of the percentage rents, some stores, the gross leases have just been at lower levels over the past couple of years so that has impacted that.

Then, you have to take into consideration that even on the fixed CAM, there's a percentage increase every year that's basically negotiated in those leases as well, so as to offset some of that.

Right. Okay. Great. Thank you.

Thank you.

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

Hello Nate.

Good morning. Just focusing on the positive new lease spreads you've generated this quarter. If you take a look at what was signed in fourth quarter can you just talk about anything specific in mix perhaps in the space or retailers, what might have set that apart, just looking at the wild swing that it took from earlier in the year?

Yes, I mean there's definitely been some categories that have helped us, like the shoes, and some other apparel categories have definitely been positive. Some of the kids stores, electronics, we did a fair number of deals with Best Buy Mobile, for example. Those were favorable and some of the replacements there have been better as traffic has recovered. So, it's been a little more broad-based. Then, some of the categories, like I said, that have hurt us have been the same as the ones over the past couple years.

But how about in terms of geographies and sales productivity in the malls?

You know, it's hard to generalize, I would say it's been pretty spread out. Certain of the areas in the Midwest have definitely held up better, from a sales point of view, and the southwest. So, that's helped us in terms of the lease negotiations. Dallas region had and St. Louis region had the best results. Then some of the Southeast areas where the unemployment has been sticky and it stayed at higher levels has been tougher, so we see that in our lease spreads.

Okay and I'm sorry if I missed this before, but any progress this quarter on Oklahoma?

Oh yes, definitely. We've gone over 90% leased and committed and the leasing is going really well. We are on track to open in August and we are making some headway with the phase 2 and hopefully we will be able to get that kicked off so it's going really well.

Okay. Great thanks.

Thank you Nate.

Our next question comes from line of RJ Milligan from Raymond James. Please proceed with your question.

Hello, RJ.

Hello. Just to clarify on Carol's question about the short-term leases, what percent of the leases signed in the quarter were short-term deals rolling off versus the normal lease roll and so you're seeing positive spreads on those short-term rolls?

Yes, we haven't broken it out that way, we could, but I don't think it's that higher percentage at this time. It is something that we are trying to do more of.

So, I guess what is your outlook for the year going forward in terms of those short-term leases rolling off? Because you know, in theory, in the downturn those drag down a leasing spread. So, as we go work through this recovery those short-term rolls should be up nicely, correct? Is that what you're seeing?

Yes we are definitely seeing improvement and where we took the hit on the short-term renewals, then as sells have improved we are going to see some progress. So, we're expecting to see better results there. And, we think that will work in our favor.

Okay. Great thanks guys.

Thanks RJ.

And our last question comes from Stuart Seeley from Morgan Stanley. Please proceed with your question.

Good morning.

Good morning, nice quarter, looks very good. I'd like to follow up on this question though of gross rent versus net rent and actually as this come up in the call, I just sort of looked at the supplemental and tried to think about it. I guess I'm surprised by the response that, if you look at it on a gross basis, it's about the same. And I just did the very simple thing of looking at 2009 minimum rents plus recoveries for both 2009 and 2010 and there are no disc ops. It looks like $1.009 billion versus $996 million so that's like down 1.3% and your occupancy is way up. Even if you did add back to those two numbers, just the NOI number for the non-comparable NOI which is on page 4, you get a difference of down 2% so, I guess I'm surprised by that. I'm surprised that the gross rents aren't down some significant percent rather than being flat like the reported basic rents are.

I think you're right. I think in my initial response I was talking about the trend and we didn't have the information at our fingertips. We are holding the base rents on the renewals but we are giving up on the reimbursements and that's what's being reflected in the numbers that you talk about.

Okay. I guess perhaps the more important thing is sort of what you do with the information. As I think about your internal growth guidance for next year, and then in particular your occupancy guidance of up 75 to 100 basis points, and let's call it on average for the year. That's like 35 to 50, compared to 10 if we start with the ending NOI for 2010. I guess we're talking about $760 million or so of NOI, less the lease term fee, so minus 50 basis points down on same-store NOI is about down $3.5 million versus up, maybe if it's up 1% like $7.5 million. How do you get down $3.5 million of NOI when you are going to have something like 35 basis points pick up in occupancy? Then, in particular, should we think about the occupancy as being something different than space that is $29.40 space?

It's really the lagging impact of the lease spreads, having two years of negative, almost high single digit lease spreads, because when we factor it into the budgets that takes a lot to overcome with more occupancy. You know, I think we'd be happy, off-line or in a further conversation, to discuss this further, but I don't know if we can get into any more detail right now on it.

Very good. Well, thank you very much for that response. I will follow up with you later. Bye.

Thank you Stuart.

We have no further questions from the phone lines. At this time, I'd like to turn the conference back to you Mr. Lebovitz for closing remarks.

We would just like to thank everyone for taking the time and for your support of CBL. Like we said, we are looking for 2011 to continue the positive trends that we saw in 2010 and we appreciate everyone's support and we will hopefully see you all soon. Thanks.

Thank you, ladies and gentlemen. That does conclude the conference call for today. We thank you all for your participation and we ask that you please disconnect your line. Thank you and have a good day.