CBL & Associates Properties, Inc. (CBL) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the CBL & Associates Properties second quarter 2011 conference call. (Operator Instructions). As a reminder, this conference is being recorded, Wednesday, August 3, 2011. I would now like to turn the conference over to the President and Chief Executive Officer, Mr. Stephen Lebovitz. Please go ahead, sir.

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties, Inc. conference call to discuss second quarter 2011 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 risk 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 most recent annual report on Form 10-K as amended 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 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 earning's release that is furnished on the 8-K.

Thank you, Katie. We have a great list of highlights to share with you including positive FFO growth and positive 1.4% same center NOI growth. We are turning the corner with our leasing results, achieving a 100 basis points year over year improvement in portfolio occupancy and more importantly 10% growth in lease spreads. Our sales increased 5.4% and we have been very active on the financing front with the announcement of our $1 billion-plus joint venture with TIAA-CREF and more than $1.15 billion in financing activity.

Needless to say, we have had a very productive quarter and are proud of and these results and achievements. They reflect the strength of our Company and our portfolio of market dominant centers and the hard work of the entire CBL team.

We have been busy this quarter meeting with many of our major retailers. Over a thousand people visited our booth at ICSC RECon in Las Vegas this May, a double digit increase over the prior year. We followed up ICSC with our own annual leasing connection event here in Chattanooga in June, more than 120 retailers attended and we welcomed several first-time attendees such as Tilly's, Oakley, Windsor Fashions, and Bare Escentuals. We spent three very productive days together doing deals and strengthening our relationships.

Leasing activity has been picking up with several new concepts and new retail names moving into CBL Malls. Recently we signed a lease with Cotton On, a very successful Australian retailer that has been expanding its footprint in the US. They will open at Volusia Mall in Daytona Beach and we are working to put them in several other locations. We recently opened the Foundry, JC Penney's new concept, at Oak Park Mall in Kansas City. Other new retail names we'll soon introduce to the CBL portfolio include Lego, Clark's, Armani Exchange and Von Maur's new junior fashion concept, Dry Goods.

Our leasing team has been more successful in using positive sales at higher occupancy rates in our portfolio to push rental growth and improve the terms of renewals and new leases. Our efforts to replace underperforming retailers and achieve market rates were evident in the significant improvement in our lease spreads this quarter. Overall leases for stabilized malls in the second quarter were signed at a 10% increase over the prior gross rent per square foot. Renewal leasing spreads were also positive, up 3% over the prior rents. Short term deals of three years or less also significantly declined during the quarter to 38% compared with 55% for the first quarter and 60% for the fourth quarter.

In total, we signed approximately 1.7 million square feet of leases during the second quarter, a 36% increase over the prior year period. This included approximately 700,000 square feet of new leases and 1 million square feet of renewal leases. In addition to rent growth, we have also achieved impressive occupancy gains. Portfolio occupancy improved 100 basis points from the prior year to 90.6% from 89.6%. Stabilized mall occupancy improved 40 basis points to 90.5%. We anticipate occupancy to end the year 75 to 100 basis points higher than the prior year end.

We saw strong increases in retail sales, which marks the sixth consecutive quarter of positive sales in the CBL portfolio. Same-store sales per square foot increased 5.4% over the prior year. For the trailing 12 months sales grew 3.6% to $328 per square foot.

The back to school shopping season is upon us. We have seen retailers move up the launch of their marketing campaigns to capture traffic early and take advantage of tax holidays. We have been fortunate year to date to experience limited bankruptcies. The Border's liquidation is the most significant recent announcement. We currently have three Border's superstores with gross annual rent of approximately $1 million, and an aggregate of 68,000 square feet. We also have seven Walden Books or Border's Express locations with gross rent of $800,000. We have been anticipating additional closures from Border's and are under negotiations for all three locations with retailers to backfill the space.

On Friday of this week, we'll celebrate the grand opening of The Outlet Shoppes at Oklahoma City, our first outlet center project. We are excited to open the project fully leased with a first class lineup of retailers, such as Sax Off Fifth, Michael Kors, Coach, Tommy Hilfiger, Polo, Brooks Brothers, and J. Crew. This will be a great opening and we look forward to additional projects in this category.

Stores have started opening at the second phase of Settler's Ridge in Pittsburgh, PA. The 78,000 square foot expansion is anchored by Michael's, Ross Dress for Less, Shoe Carnival, and Ulta. In just a few months we will open Alamance West, a 230,000 square foot second phase of our shopping center in Burlington, North Carolina. The project is currently 98% leased or committed, anchored by BJ's Wholesale Club, Kohl's and Dick's Sporting Goods.

The CBL portfolio is rich with opportunities to add value. A great example of that is in our success adding junior anchors, restaurants, theaters, and other venues. These improvements solidify our centers' dominance in their market. Year to date we have opened ten junior anchor stores at our centers including Ross Dress for Less at Hammock Landing in West Melbourne, Florida and Gordmans at Burnsville Center in Burnsville, Minnesota.

We have also opened seven restaurants including Chili's and BJ's Brew House at Post Oak Mall in College Station, Texas. We have two theaters under construction, a new Cinemark Theatre in Stroud Mall in Stroudsburg, Pennsylvania and Carmike at Foothills Mall in Maryville, Tennessee. We are also redeveloping a former Mervyn's location to add Dick's Sporting Goods at Layton Hills Mall in Salt Lake City, Utah.

In mid July we announced a series of enhancements to our Monroeville Mall in Monroeville, PA. The plans include the relocation of J.C. Penney to a new 110,000 square foot store on the upper level of the former Boscov's location. Additionally, the current J.C. Penney store will be redeveloped into the new state of the art 12-screen Cinemark Theatre. Construction on the new J.C. Penney will begin soon and is scheduled for completion in late 2012 with the opening of the new Cinemark Theatre anticipated in late 2013. Additionally, we have several other important improvements in process at our malls that will reinforce their competitive strength. I'll now turn it over to John for the financial review.

Thank you, Stephen. During the second quarter, we announced our new joint venture with TIAa-CREF, we are finalizing lender approvals and anticipate closing within the next 60 days. The $1.1 billion joint venture will be formed with three of our enclosed regional malls and one open-air center. We will contribute a 50% interest in Oak Park Mall in Kansas City, Kansas, West County Center in St Louis, Missouri, and Cool Springs Galleria in Nashville, Tennessee, and a 12% interest in Pearland Town Center in Houston, Texas.

We will receive approximately $220 million in cash of which $134 million will be used to retire the construction loan for Pearland Town Center and $21 million will be used to retire the construction loan for the West County Restaurant District. We will apply the remaining proceeds to reduce the outstanding balances on our lines of credit. As part of the transaction, Teachers will assume approximately $268 million of property-specific debt. In total, this transaction will considerably improve our balance sheet, reducing debt levels by close to $500 million. We are excited to partner with Teachers and believe our long-term goals for growing both these properties and the portfolio are aligned.

We continue to take advantage of the favorable financing environment and recently announced extensions and/or modifications of our three major credit facilities with total aggregate capacity of $1.15 billion. We reduced our borrowings cost by removing the LIBOR floor on all three facilities and reduced the spread to a range of 200 to 300 basis points over LIBOR. All in, these improvements reduce the average borrowing costs on these facilities by more than 200 basis points.

Our liquidity remains considerable with more than $960 million of borrowing capacity available on these credit facilities. Our financial covenants are sound with a debt to GAV ratio of 56% and an interest coverage ratio of 2.4 times for the quarter compared with 2.3 times in the prior year period. For the second quarter, we reported FFO of $0.49 per share which included a net impairment charge of $0.01 per share related to the second phase of Settler's Ridge in Pittsburgh. This compares with FFO per share of $0.36 in the prior year period.

Total portfolio same-center NOI, excluding lease termination fees, increased 1.4% in the quarter from the prior year period. NOI is benefiting from the increases in occupancy and the rental growth in new leasing. Bad debt expense was minimal in the quarter at approximately $120,000 versus $335,000 in the prior year. Other major items in the earnings results included G&A as a percentage of revenue was 4.3% for the second quarter compared with 4% in the prior year period. We anticipate a full year run rate in line with the second quarter. Our cost recovery ratio for the second quarter 2011 was 102.2% compared with 101.7% in the prior year period.

Variable rate debt was 13% of total market capitalization at the end of the second quarter 2011 versus 18.3% at the end of the prior year period. Variable rate debt represented 22.1% of our share of consolidated and unconsolidated debt compared with 26.8% for the prior year period. The reduction in variable rate debt is a function of the year to date financing activities where we have used new property specific non-recourse mortgages to reduce the balances on our credit facilities.

Yesterday, we reiterated our 2011 FFO guidance of $2.07 to $2.12 per share which assumes a joint venture when Teacher's closes during the third quarter. The guidance also assumes NOI growth in the range of negative 50 basis points to a positive 1%. Second quarter results placed us well on track to meet these numbers.

The improvements in our results are encouraging and we are optimistic that this progress will continue throughout the second half of the year. The strength of our financial position today provides us tremendous flexibility to invest in new growth. While recent opportunities on the acquisition front have proved to be below our return thresholds, we are activity pursuing ways to improve the growth profile of our portfolio through both external development and acquisitions and internal projects such as expansions and redevelopments. We are confident that the CBL portfolio will continue to prove the strength of our Company.

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

Thank you. (Operator instructions). One moment, please, for the first question. Our first question comes from Michael Bilerman from Citigroup. Please proceed.

Yeah, it's actually Quentin Velleley here. Just in terms of the weighting spreads -- it was great to see them -- (inaudible) the lower short term leasing. I'm just curious if you look at those spreads, were you getting tenants that were previously put on short term leases over the last couple of years? Have they been renewing on higher rents with longer lease terms or are they sort of still pushing out on shorter term leases? I'm just wondering if you can just talk a little about that.

Hey, Quentin. You know, it's really not significant in terms of the short-term renewals of the leases that were already on short term. I mean, it's more across the board where it's tenants that fell out that we're replacing. It's renewals of existing stores that had been expiring for natural course of their leases. And some of it obviously is replacing the ones that we had done the short term renewals, but it's not like that's the preponderance of what was responsible for it. It's really across the board. We looked at really the cross-section of the malls, different sales per square foot, different regions. We looked by category and it was really even which gave us some encouragement beyond just the numbers in terms of what's behind the results.

And then maybe if you could just a little bit, was it sort of consistent leasing across asset in terms of sales productivity? So with the better assets are you getting much better leasing in those assets still or have the bottom tier of assets that you've picked up leasing in those assets and improved spreads there as well?

No, it really is consistent across the different layers of the portfolio and we looked at the leasing spreads by sales per square foot. And the malls doing sales under $300 a foot had good, positive increases. And likewise for the malls that we have in the $400 to $500 a foot range. So it was consistent across the portfolio where we're getting positive results on leasing spreads.

Okay. That's good. And just lastly, you spoke about some of the CapEx that you have got coming on and potentially some acquisitions. I'm just sort of curious as to what volume of CapEx or acquisitions you think you could do and I know you've got liquidity, but what sort of volumes could you do without raising additional equity?

Well, for the year, we've budgeted in total CapEx in the $80 million to $90 million range and that includes roughly $20 million of renovations of properties at four malls that are underway and that'll be completed by November for the holiday season. And, you know, we don't anticipate needing any additional equity or any additional funding for that. We have that paid out of our cash flow. So we're still generating free and clear cash flow beyond that. So that's something that we plan for.

As far as any acquisitions, we have looked at acquisitions with potential joint venture partners and the funding levels vary depending on the acquisition. So that's something that we think we have capacity under our lines if we wanted to do that. And we also have the Teacher's joint venture and a big reason that we did that was to give us a strong financial partner to pursue acquisitions going forward. So we're really pleased with the progress we have made on our balance sheet. We wouldn't want to do anything to undermine it, but we think it also gives us capacity for external growth.

Got it. okay, thank you.

Thanks.

Our next question comes from Christine McElroy from UBS. Please proceed.

Good morning. I just wanted to follow up on your -- on the acquisitions comments. At ICSC NAREIT you talked about your interest in a portfolio of the malls that Westfield has listed for sale. Can you give us sort of an update on that process and your remaining interest at this point?

Yeah, Christine, it is John. Good morning. We continue to look at everything that comes on the market. We think that the markets become very frothy and basically we looked at the Westfield portfolio and based upon our numbers, the cap rates were extremely, extremely positive from the standpoint of valuations that would apply to our portfolio. So nothing has been announced but we basically know that what we did on the portfolio was extremely aggressive because we had a partner in that transaction who wanted to become aggressive and we did not make even the second round.

As to the other asset that was extremely sensitive to price, we got -- had a partner for that one as well. And when it got below the 5.5 range that's when our partner and we basically decided it wasn't where we needed to be. So we think the markets are extremely hot and sensitive today.

Okay. Then you had also talked about potential acquisition opportunities within the Teacher's JV. Would that fall into the same category as your prior comment, sort of pricing below the 5.5 that you were uncomfortable with?

Well, I think where we are with the Teacher's joint venture is we'll close it up this quarter and then I think we'll really start focusing on acquisitions in a more aggressive way with our partners at Teacher's. The product type they're interested in is the product type we're interested in as well. I think with our partner we can be very aggressive with regard to those, but we're looking for growth in those assets as well as the ability to add additional management capabilities to those. I think that we'll continue to be aggressive with regard to this, but it just goes to prove that many of our assets have incredibly good cap rates that we could be sensitive to in the markets today.

Okay. Then just following up on Quentin's question about specialty leasing, what percentage of your executed leasing year to date is still sort of short term or between one to three years?

The percentage for the quarter was 38%, that was three years or less. Is there something beyond that that you're looking for?

No, I'm trying to get a sense for year to date. I think some of the numbers I had gotten for Q1 were around 50% so I'm wondering what the trend was.

Right. So the first quarter was 55%. So it's -- you know, it's come down a lot and I mean, that's not by accident. We have been pushing hard to bring down that percentage and to do more long-term leases and when we look at our lease spreads by lease term, once they get to five years and more the lease spreads are significantly better. The short term under three-year lease spreads are really the ones that have dragged us down over the past year or so.

So we have made a real effort to try to bring that percentage down and our leasing team has been able to capitalize on the occupancy gains that we have made and then also just the market's better. Retailers are more active. There are new retailers that are coming into the market, international and then some new domestic, some new concepts domestically and then we have retailers that haven't been part of our portfolio. They're doing more deals. So it's just a better climate, notwithstanding kind of the questions about the economy in the past couple of weeks. We felt like things are definitely improving on a macro level and that's helping us.

What percentage of your portfolio as it stands today has leases between one and three years? Is it still around 40%?

We don't have that right now, but it's probably that at the most. Probably lower. I mean, I think our average lease term is still in the seven to eight-year range.

And then just lastly, on the income tax benefit, how much of that was attributable to the impairments in the quarter and to what extent should we expect a recurring positive tax benefit in the quarter?

It was about 1.7 and we look at those projections that basically we think that those net operating losses or tax benefits based upon what we're doing should roll off fairly quickly.

So for the back half of the year, is there anything we should anticipate for a run rate?

No, I don't think so. I think that the Teacher's transaction has already been accounted for in our projections, so no, I wouldn't foresee that -- anything extraordinary. Thanks, Christy.

Thanks, guys.

Our next question comes from Todd Thomas from KeyBanc Capital Markets. Please proceed.

Good morning. Back to acquisitions quickly. I was wondering whether you could just provide -- regarding the deals that you're looking at and sort of the financing environment, I was wondering if the discussions have changed at all in the last week or so given some of the negative headlines we have seen in the CMBS market, if there's been any change to lender's appetite for B malls in terms of underwriting?

No, I don't think so. I think there's sort of a bump in the road right now with CMBS. What we have seen is that spreads have widened, but swap rates have come down. We don't anticipate that the financing market is going to basically create any significant problems in that regard or have an adverse effect with regard to acquisitions. I think there's still a tremendous amount of built-up capital that are pursuing acquisitions, and I think that that will continue to do.

We basically have put -- continue to put in place our back stop with the $520 million line so if the CMBS markets do freeze up, we've got that capacity on that. We plan for the best -- we plan for the worst and hope for the best, so that's what we're attempting to do and that's how we have structured our financial and our balance sheets. So we think we're in good shape to do that going forward.

Okay. On the portfolio of properties from Westfield, what was the financing package that you were looking at sort of -- how was that structured with your partner that you had taken a run at those properties with?

Well, we really never got to that point, because when we threw out the first number which we thought was incredibly aggressive, they didn't even open the door to us. That was based upon our partner with tremendous capital and tremendous desire to get it out. But still in turn, when you look at the financing side of the equation it wasn't a significant portion of it. So it's hard to say and I don't know that we actually got that far.

Okay. And then in your prepared remarks, it sounded like you had some other outlet projects in the works, which makes sense given the success of the outlet shops in Oklahoma City. I was just wondering are you contemplating new developments today and if so, would they be with Horizon or would you look to start some new outlet projects on your own?

Horizon has been a great partner for us. They have done an exceptionally good job on Oklahoma City. They are very aggressive with regard to their outlet program. Got great relationships with those retailers, and they have opened a number of doors for us with those outlet retailers to basically go full line as well as to develop other projects with them.

Horizon is not an exclusive with us, nor are we exclusive with them. So as we see other opportunities, we can jump into those as well. But Oklahoma City is going to be a great, great project. It's going to open almost 100% leased. In fact, probably 100% leased and we see nothing but great opportunities and I think that type of success will breed additional success for us in the outlet business basically, on our own as well as with Horizon. But I think the Horizon guys have done a great job and we enjoy that relationship very much so.

Okay. Is there any room for expansion at that site?

I think there's some additional land we don't control at this time, which we could look at. But I think we feel very good that the square footage that we built is really great for the market area and that should just drive rents as well as drive sales. So I think we're very positive about that. I think it's been sized properly.

Okay, great. All right. Thank you.

Our next question comes from Craig Schmidt from Bank of America Merrill Lynch. Please proceed.

Thank you. I guess sticking with the outlet centers, I wondered if you could categorize the type of market you're looking at for other opportunities and, you know, on a rough scale, what do you think you can build in the next five years in terms of other centers?

Hey, Craig. Well, we're not into giving projection to numbers as far as how many projects we're going to build. We have never done that in terms of budgets of either acquisitions or dispositions or new developments and so we think that there's really good opportunity for us to do more outlet centers like John said. We've got a great relationship with Horizon. And they have got a number of projects that they're working on and we're hoping to be a part of them. And then like John said also, there's other things that have come to us that we're looking at as well as other opportunities.

So we're not planning on stopping by any means with Oklahoma City. Oklahoma City is a good prototype, for the kind of project we're looking at. It's a market where the trade area has over a million people. There's a strong tourist base. And it's a middle market, so it's consistent with our portfolio strategy in general. And so I think that's kind of similar type of market.

You've got to have both the scale and the population in the trade area and the tourist traffic to really make these things work. But we have learned a lot. And we're not going to do crazy deals or anything like that. But we see good opportunities for us out there notwithstanding the fact that a lot of other companies have jumped into the space as well.

Great, it does seem like you're hitting the mark slightly different than most of the other people are focused on. So that seems to be an opportunity. I'm just wondering finally, Abercrombie & Fitch, it's gone from 96 stores to 88 stores fourth quarter to second quarter. Is that transition with Abercrombie & Fitch over pretty much at this point?

That was really just a result of renewals. You know, a lot of malls where we have Abercrombie & Fitch and then Abercrombie Kid's store and Hollister, we're working with them to right size their square footage. We think they'll continue to decrease their number of stores in our portfolio, maybe not that dramatically. But there's going to still be some further replacement on certain stores with them.

Their sales have come back strongly. So it's a lot less than they were looking at a few years ago. But I think just in some situations they just have too much square footage, and the good news is that they're in good locations. And we have had good interest in their spaces. And we also have the time to work with them to work on other alternatives and we have a great relationship with them, so it's a good partnership that will continue to maintain them and I'm sure they'll continue to be in our top ten of base going forward, but probably not to the same extent.

Okay. Thank you. Bye.

Our next question comes from Jay Habermann, Goldman Sachs. Please go ahead.

John, you mentioned the market being frothy and clearly you mentioned as well bidding and being aggressive and still being out there and not making it to the second round in certain circumstances. I'm just curious, I know you formed the JV with TIA, are you looking at other asset sales just given pricing in the market continues to be pretty robust? Is this a good opportunity for you to sell assets and deleverage the balance sheet further without incurring a lot of FFO dilution as you did with that original venture?

I think we'll still continue to look at certain assets, to sell those assets. But our lowest tier assets are basically like anything that's $200 a -- $250 and below is only about 10% of our NOI. So it's not a significant number in our total overall NOI.

In addition to that, we are seeing growth in those assets as well. But that doesn't preclude us from basically looking at disposing of some of those assets, but in turn, it gives us the ability to show that even on assets of $250 and below, there's growth in those assets and maybe abilities for the magic that we can perform on some of these assets to buy those assets at good numbers and basically see some growth there that will generate additional income and FFO growth to us.

So I don't think we're precluded from buying any asset in any size or any sales per square foot number. We do have a discipline in place that we'll continue to pursue and we think that the relationships with our Teacher's partner and with other partners gives us that flexibility. We'll continue to look at everything, Jay, and if we see some growth in it and the ability to grow it, we'll definitely pursue it and be aggressive.

Okay. Maybe just final question. Can you talk about what sort of demand you're seeing, is it too early in terms of what you're seeing for the holiday season for Q4?

Yeah, I think it's early and the headlines in the last week or so probably aren't going to help consumer confidence. So it's just early to say. We have with the renovations that we think that's going to be -- that's going to help in those malls. You know, June and July have been good. And so in general, we're encouraged but we'll see if the macro economy slows things down.

Okay. Thank you.

Thanks, Jay.

Our next question comes from RJ Milligan from Raymond James. Please proceed.

Hi, RJ.

Good morning, John. Just wondering if you guys on Stephen's comments just before are seeing any hesitation or pause from retailers over the past couple weeks looking to open new stores given all the macro uncertainty going on?

No, we really haven't seen anything like that. And if anything, the retailers are looking to grow more aggressively and have ramped up their expansion plans and some of the international retailers like I mentioned are coming in and they have got -- the dollar is weaker, so that gives them opportunity.

Like I mentioned we had this great leasing event here in Chattanooga that we have every year where we had a terrific turnout and you also -- there's just no new development happening. So in terms of where the retailers are looking, it helps our properties as well because we have got the best properties in the market and that's where the strength is consolidating. So we haven't seen anything and we really don't anticipate anything in terms of the retailers slowing down.

Okay. And a follow-up on Quentin's question, you guys said that spreads were consistent across the portfolio. Were sales also consistent or was there any difference between asset types?

Actually, the sales were consistent too. I mean, there's a few malls in certain markets that had stronger results than others. But it's more market-specific or property-specific factors that might have come into play. Where like Joplin, Missouri, our mall there has had a short term benefit because of the relief funds and the rebuilding and all that because of the tornado. So things like that happen on an individual basis. Some of the malls where there's a military presence, the sales go up when the military are there and when they get deployed then the sales are impacted a little bit. But again, that's specific. It was interesting because the sales geographically and by category had increases pretty consistently.

Okay. Great. Thank you.

Thanks.

Our next question comes from Michael Mueller from JPMorgan. Please proceed.

Good morning. Couple questions. First of all, Stephen, when you were talking about year-end occupancy guidance of up 75% to 100%, was that stabilized mall shop occupancy, total portfolio? What were you talking about there specifically?

Total portfolio.

Okay. What about the stabilized mall shops?

We don't really give guidance on -- to break it down that way. But it's going to be fairly consistent with what we have been showing so far. So that should help you.

Okay. Great. And then with respect to the renewals turning positive this quarter, what are you seeing so far in third quarter? Does that feel sticky? Do you see that as an anomaly. Obviously it has been trending stronger but I guess staying in positive territory.

You know, we haven't looked that closely at the third quarter. But we feel like the trend is heading in the right direction. And like you pointed out in your report, if you look back over the past year we have made really good progress and it's had consistent momentum and we don't feel like this quarter was an aberration. We feel like that momentum is going to continue.

Okay, and then, John, on the guidance front, I guess the financing costs on the credit line are obviously lower. Guidance has been adjusted some for the joint venture. But did the financing not -- was that contemplated in prior guidance before the financings in the lower line rates?

Yes, somewhat it was projected. But also keep in mind that some of that will be offset by higher interest rates when we fix these loans because some of these loans like Apparel Land are on LIBOR floating and as we go and refinance those that will impact that adversely from that standpoint. But overall, you know, we have been able to take advantage of that.

And the other thing that helps us is that we have a very low amount outstanding on our lines of credit. So that helps as well. We think that where we brought the balance sheet and where we continue to improve it will just solidify us and give us that tremendous flexibility that we want and that will help us going forward.

Okay. Great. Last question. I think, Stephen, you mentioned $80 million to $90 million of CapEx this year, I think you said $20 million of it was renovation dollars. Can you categorize the balance of it, the rest of it, just real rough expectations for TI's for just other capital improvements?

Sure. About $50 million is TI, and then about $20 million is for deferred maintenance and then $20 million for the renovations. There's another like $5 million or so in the categories that we're just waiting to see what happens over the rest of the year.

Okay. Great. Thank you.

Thanks, Michael.

Our next question comes from Rich Moore, RBC Capital Markets. Please proceed.

Hello, good morning, guys.

Hi, Rich.

On the tenant allowances on the tenant improvement dollars, those seem to go up in the quarter. I'm wondering do you have to spend more you think at this point to get tenants in. Is that part of what's going on or is that just a --- maybe a second-quarter anomaly this year?

No, it's going to be influenced by the boxes primarily where we're backfilling. And then the other thing that happens -- the tenant allowances that we're spending, it's not the same universe of tenants that go into our lease spreads. So we're paying tenant allowances usually after a store is open and paying rent. We have an estoppel, so that's 30 to 60 days after and the tenants now -- this quarter is usually heavy because tenants are trying to get open for the second half of the year for back to school and for the holidays. So it's not something that we view as an anomaly. It's consistent with what we see in pretty much every year.

Okay. All right, good, thank you. And then back to the tenant environment, you guys also being a mall company have I'm guessing pretty good feel for the traffic at your centers. I mean, are you seeing any changes again given that the world is getting a little more difficult? Are you seeing any changes in traffic by consumers broadly across your portfolio?

I mean, we haven't seen -- we have seen good results. The gas prices are down which -- because oil is down. So that actually helps us. And we've done a bunch of property reviews in the past month or so. We have been out to roughly half of our malls and it's encouraging. Unemployment is down significantly from where it was a year and a half, two years ago and there's a lot of new jobs being created.

And so we're -- so I think we're encouraged with just the trends in our markets and maybe in some of the major metro markets it's different. But for the markets that we're in, we're seeing some encouraging signs and we don't see that changing in the past week or two and we see it continuing as this year progresses and into next year.

All right, okay, good. Thank you. And the thing I had is the impairment charge, John, remind me again what that was?

We have the second phase of Settler's Ridge, we anticipate closing that sale and looking at the numbers what we had invested. It's -- that was a slight impairment about -- I think it was a couple million bucks, something like that, less than that.

Okay. Great. Thank you, guys.

Thanks, Rich.

Our next question comes from Cedric Lachance from Green Street Advisors. Please proceed.

Hi, Cedric.

Just going back to the frothy market environment that you discussed earlier, given that your partner I guess was, perhaps, frustrated by the outcome of the Westfield negotiation, given that perhaps other partners out there have had the same outcome with their own negotiations, have you been approached by anyone, either existing or new partners, to actually JV some of your properties?

I think we have had discussions with joint venture partners about our existing properties and portfolio. It's something that we continue to explore. When we originally started our negotiations and discussions on the other joint venture front it didn't preclude us from (inaudible) joint ventures on another group of projects.

So granted, we are constantly talking with these folks and it does give us that opportunity in light of what's happening in the market. It also will give us the opportunity to create that joint venture and pursue additional properties if we [go in that]. I think not to pat ourselves on the back, but I think we're probably the best operators in these middle market areas and that's where we see a tremendous amount of opportunities to basically buy assets at a reasonable number that make a lot of sense in today's financing market.

So I think our leasing guys know how to operate these --- to lease to those tenants. We think as Stephen pointed out that the retail tenants have to have a distribution network in these market areas and we can definitely provide that for them. So we are continuing to look at those joint ventures and considering also bringing some of our properties and put into that joint venture as well.

But it's -- but there's no evidence that's something that you would do in the near term? It's just something that you keep on the back burner at all times?

Yeah. Yeah. I think back burner maybe is a good, appropriate statement. So we'll continue to look at it and explore it.

Okay. And just going back to some of the lease terms. So you now have about just a third of your new leases that are short term in nature versus 55%, 60% not too long ago. If you could characterize the kind of tenants that you have been able to sign on those longer term leases, have you basically taken tenants that used to be on short term leases and been able to negotiate seven to ten year contracts with them or is it really a function of at this point you're changing the nature of the tenants that you're dealing with and it's resulting in a longer lease term on average?

Yes, Cedric, it's really both. In some cases we have had a short term situation with the retailer and we have been able to work out a longer term lease, you know, seven to ten years. And we're definitely pushing for that. And we have -- you know, we have said where there's a short term situation we want to replace that with a longer term, either with the existing or with a new retailer and we're pushing back hard on that.

But then there are situations too where we brought in new retailers and we have done a good amount of business with stores like rue21 and Maurices and Zumiez and Best Buy Mobile. We continue to do a lot of business with Aeropostale and American Eagle and Buckle and stores like that that are kind of our bread and butter in a lot of our malls. So I can't say that it's really one versus the other that is responsible for the improvement.

Okay. And in terms of productivity in the centers where you're doing some of these deals, do you see any differences in terms of the appetite for longer term deals and say the centers that have more than $400 a foot in sales versus those that are perhaps below $300? Would you be able to quantify that for us?

I don't think we can quantify that. But we looked at the different strata of the malls per square foot and the sales and we looked at both the lease terms and the spreads and it was across the board progress in the portfolio. And some of the malls over $400 a foot had great results and then others -- every quarter there's a couple of deals that can influence one property one way or another. It's a pretty short term window to look at lease spreads, so we had malls that are doing $250 a foot that had really good spreads and malls over $400 a foot that were maybe not as high as the overall average.

Okay. All right. Thank you.

Our next question comes from Nathan Isbee from Stifel Nicolaus. Please proceed.

Good morning. John, going back to your comments on the Westfield portfolio, was your bid for the whole portfolio and, from your understanding, were the bids you lost to for the whole portfolio?

No, we bid on the whole portfolio and then bid on pieces of it as well.

From your understanding of where it's going now, it's a whole portfolio deal or it's going to be broken up?

I don't know. All we know is that we're not part of the process anymore.

Okay. Thank you. And can you comment on the same store NOI in the office portfolio this quarter and what you're doing there in terms of -- you have been trying to sell it, if there's been any progress on that front?

Yeah, I mean, it's down a little. It's a really small percentage. We haven't actively been marketing the office buildings, but we are seeing some improvement there. And over time it's not something we would anticipate keeping, but it is a really small percentage of the overall.

Okay, thank you.

Our next question comes from Ben Yang from Keefe, Bruyette & Woods.

Hi, good morning. Stephen, you guys are the leaders in the B quality mall space; John just mentioned being the best operators of these middle market type assets. So I was hoping you guys could talk about maybe how you guys might operate differently if say your portfolio totaled only 30 malls with average sales of about $250 to $300 a foot.

And I know that John mentioned these malls having some type of growth, you commented on having some good spreads recently but it's only a small percentage of total NOI. So I just wondered if having an entire portfolio with those characteristics is too much of a challenge for an experienced operator like CBL.

Yeah, we'll give you credit for the way you phrased that question. That was really clever, and --

Thank you.

You know, I have to say I don't think we're really comfortable answering that question and I don't think it's really appropriate for us to do so. You know, we don't really know in detail the characteristics of the properties in that portfolio.

You know, I can tell you that with a mall that's dominant in a middle market there's so many factors that play into its long term success. And clearly reinvesting is a big part of it. And that's something that we believed in and we felt has always been important. When we bought the Jacobs malls, we planned to do renovations and we spent roughly $200 million in renovating them and making them attractive to the markets and also investing in retailers.

So it's -- you have to be competitive and -- but each property stands on its own and at the end of the day you've got to have properties that are attractive to retailers, attractive to the customers and that have a long-term place in their markets. If you -- it doesn't matter if it's ten malls or 30 malls, if you don't have those fundamental characteristics then you don't have a viable base for a company.

Maybe if you could talk more generally, is there kind of a tipping point in the mall space where the low level of sales just don't justify the mall's existence, even if it is the only mall in town?

I mean, we have Frontier Mall in Cheyenne, Wyoming does roughly $250 a foot, but sales are up over 13% this year. Occupancy is the highest it's been in ten years. I mean, it's -- you know, that's got a great position in the market. It's growing. We have been able to do like 30,000-40,000 square foot of new leasing, we have added boxes. So we don't generalize based on sales per square foot. That hasn't been our strategy and that just hasn't been the way we operate.

Other companies clearly do and they have made a big deal about putting their portfolio and all that. But for us, it's about generating profitability and cash flow and we have been able to make money over the years in malls that do under $200 a foot. So it's -- we I guess fundamentally disagree with that theory that the lower sales per square foot malls can't be viable and can't make money in the future.

Okay. Appreciate the color, Stephen. Thank you.

Thanks for the question too.

Our next question comes from Carol Kemple from Hilliard Lyons. Please proceed.

Good morning. Earlier in the call, you all mentioned some new concepts from J.C. Penney and Von Maurs. Are those going to be shops listed as store concept or are those going to take additional small shop space in your malls?

Those are actually small shop space in the malls. J.C. Penney has a concept called the Foundry that's big and tall men's clothes and they opened in Oak Park Mall, the first one with us, but we're working on others with them. Then Von Maur, Dry Goods is the name of their concept there and that's opening in West Town in Madison. It's an in-line small stop space they're using as a potential growth vehicle.

So with the Von Maurs concept, are they looking to put that in the same malls where they already have an anchor store or would the products in that store compete with products in the larger anchor?

I think they're looking to do it in malls where they don't have an anchor store and open up some new markets for them. So that's what we understand so far.

Okay. So the J.C. Penney's one, it could be in the same mall, correct? It would be reaching a different consumer?

It is -- right. It is in the same mall. I mean, they're in Oak Park, so definitely. J.C. Penney has done a lot of concepts within their stores too. That's worked out well. So I think they're just looking and seeing how they can come up with some new growth vehicles.

Okay. And then on your all's occupancy, the only area I saw that went down was the associated centers. Was there any reason for that, anything specific?

There were just a couple of boxes that went out and that -- you know, it's not a huge number so it can be impacted when we lose a couple of boxes and that's really short term and we have had really good success replacing boxes over the past couple of years and we have a good pipeline. It just takes some time to replace them.

Okay. Thank you all.

Thank you.

We have a follow-up question from Michael Bilerman from Citigroup. Please proceed.

Good morning. John or Stephen, I want to come back to this --- the CBL magic comment and just trying to think about what sort of magic do you put on -- you have been doing it for years, right, these assets that are sort of alone in their market and sort of dominant more middle market. And generally you talked about the sales productively may not be high, but you can make a lot of money.

What sort of magic are you putting on those assets relative -- because you also do have a number of assets that do produce over $400 a foot which I assume that's a little bit more competitive in their marketplace. So what sort of different strategies are you using for those assets relative to the others?

Well, maybe I'll live to regret using the word magic, but I think maybe it's just basically fundamentally managing those properties, working with the governmental authorities in those market areas. Our marketing team has a lot of experience that requires different approaches to those market areas. Our leasing team knows what these retailers need so that we can match those to the specific properties in the areas where they want to increase their distribution network.

I think we have talked about it in the past about situations whereby one retailer has thought they had to be in every store in Atlanta, Georgia, but now they have come to the realization that they're a brand unto itself. They can cover it with three stores. But they have to have a store in Chattanooga to get the distribution there. So I think that's part of the approach. And I think it's just a combination of factors. Stephen, you might want to comment on it as well.

Yeah, Michael, we don't differentiate internally between the properties. We have one leasing division, we have one management division. We're organized by regions, but we'll have the same leasing person that would be leasing a $400 a foot mall and a $250 a foot mall in certain circumstances and we're really hands on.

I think you know over the years that between my dad and me and our senior management we spend a lot of time at the properties. And we're really involved in the details and we have worked hard at some of the lower sales per square foot malls. We have added boxes to soak up some of the vacancy in the end zones and the entrance corridors, which has helped also to bring traffic and broaden the uses there. So each property has a different leasing strategy.

We're not -- I mean, the stores that we want to bring into Fayette Mall in Lexington are obviously different than the malls -- the stores we're going to bring into Cheyenne. But I think our focus is just being really hands on at the properties, and having experienced people who understand what it takes and also relationships with the retailers. And you can't minimize how important that is and it's something that we work hard to establish and we work hard to maintain and I think that retailers appreciate working with CBL and that helps us to get the most out of each property.

And when you think about -- that is helpful. But when you think about the capital side, both human capital but also the financial capital, when you look across the portfolio over a long duration, a long time frame, have you been able to tease out sort of the capital, the percentage of NOI that the different sales productivity assets have required, understanding that you've probably got to work some of the lower ones a little bit harder from a capital perspective. I just don't know how you view that as impacting your returns.

I don't think we have done that analysis. In terms of looking at where we have invested capital and how it's impacted the growth. I do know that in certain circumstances we have invested capital and for whatever reason the mall has been challenged. We renovated Hickory Hollow, we all know how that ended up. Then in other malls we haven't had to put in a lot of capital and the malls have done really well. It's something we can look at, it's a good question. We are always looking to get a return on the capital when we invest it and we're disciplined with our capital and that's something that's important to us. So we'll continue to do that.

And do you think just from I guess financial capital, you --obviously had done the deal with Teacher's which were on higher more higher quality assets or higher productivity assets within your portfolio, and you talked about sort of if you were to step down into the lower productivity assets that that's more on the back burner.

I'm curious if you're able to change some the of the -- with this whole Westfield transaction that there are going to be people that that money is not going to be put out, that whether there's the potential for this to go from back burner to front burner in a short period of time where you're able to monetize and extract some of the value from the bottom rung of your portfolio and highlight to the Street the valuation gap that may be there. And how aggressively you're trying to pursue that now that you have bailed out of the Westfield process and say, you know what? We got a lot of the same assets, why don't you come to us?

Well, I think we didn't bail out. We just -- we just weren't aggressive enough maybe to suit the sellers' desires. So we didn't bail out on that. I think what we look at is what can we do with that property, is there still growth in that property? Is it stable and can we see some growth in that property and what kind of returns on capital can we see? I think that's what we're doing.

And I think as we discussed earlier on in the call with someone else, it's not out of the question that we couldn't take some of those assets and form a joint venture with those because that's something that some of these capital partners would like to see and your returns are going to be greater in those specific assets assuming that you buy them at the right numbers.

That was our problem with regard to the Westfield portfolio. We just didn't see the returns. They're good assets. They're good, solid assets and in the hands of the right people they'll continue to grow. We just looked at it from the standpoint of return on capital and the ability to buy it at the right price and you know, can we -- was there going to be growth in those assets? So I think that's -- there's a combination of factors that go into it.

But I don't think we've precluded anything. I think we have kept everything on the table as far as the ability to grow this Company and to show growth to our shareholders. I mean, our dividend is an exceptionally good dividend. And the stock price should basically catch up to that dividend. It's a safe, solid dividend and we should -- the market ultimately has to come to the realization that our properties are solid.

Is there -- just one last one. As you sort of examine the Westfield portfolio as a whole, but also the individual geographic portfolios in terms of your analysis, when you're looking at your sort of IRR, do you think your pricing of the assets, you put in more capital over time and therefore -- while you may have gone in at the same price, your ongoing capital needs may have been different and therefore you had to pay a lower price upfront? I'm trying to just get a perspective of how you think about these assets.

We look at the occupancy costs and that was higher than our portfolio. And we have experience and know kind of where the occupancy cost is going to end up. So that made growth challenging. Then actually in the Westfield malls, they had spent considerable capital in most of them and they were in good shape. So there was definitely capital required, but for the most part those were in good shape. So I wouldn't say that was as much of a factor as just growth that we saw in the rents or the lack of it.

I think investors see that this specific sales per square foot is not a criteria to show what makes good sense for investment.

Okay. Thank you.

Thanks, Michael.

Our last question comes from the line of Todd Thomas from KeyBanc Capital Markets. Please proceed.

Hey, Todd.

My follow-up question has been answered. I'm fine, thank you.

Okay. Thanks. Well, thank you, everyone. We appreciate you taking the time and your questions and we're really pleased like we said with the results we're able to report and look forward to continuing it as each year moves on. Thank you. Have a good day.

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