CBL & Associates Properties Inc. Q4 2008 Earnings Call Transcript

| About: CBL & (CBL)

CBL & Associates Properties Inc. (NYSE:CBL)

Q4 2008 Earnings Call

February 5, 2009, 11:00 ET

Executives

Stephen Lebovitz – President and Secretary

John Foy – Vice Chairman of the Board, Chief Financial Officer, and Treasurer

Katie Reinsmidt – Director of Corporate Communications and Investor Relations

Analysts

Joseph Dazio – JPMorgan

Ryan Levinson – Private Fund

Robert Gouache – MAK Capital

Wes Goliday – Royal Bank of Canada

John Roberts – Hilliard Lyons

Nathan Isbee – Stifel Nicholaus

Operator

(Operator's Instructions) Good morning ladies and gentlemen. Thank you for standing by. Welcome to the CBL & Associates Properties Inc., conference call. During today's presentation all parties will be in a listen only mode. Following the presentation the conference will be open for questions. If you have a question please press the star followed by the one on your touchtone phone.

If you would like to withdraw your question please press the star followed by the two. If you are using speaker equipment, please lift the handset before making your selection. As a reminder, this conference is being recorded today Thursday February the 5th 2009. Now I'd like to turn the conference over to President Mr. Stephen Lebovitz. Please go ahead sir.

Stephen Lebovitz

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties conference call to discuss the year end and fourth quarter results. Joining me today is John Foy, Chief Financial Officer, and Katie Reinsmidt, Director of Corporate Communications and Investor Relations. We will begin by reading our safe harbor disclosure.

Katie Reinsmidt – Director, Corporate Communications and Investor Relations

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

During our discussion today, references made to per share are based on a fully diluted converted share. A transcript of today's comments, the earnings release and additional supplement 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 expressed written consent of CBL is strictly prohibited.

During this conference call, the company may discuss non-GAAP financial measures as defined by SEC Regulation G. A description of each non-GAAP measure and a reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure will be included in the earnings release that is furnished on Form 8-K.

Stephen Lebovitz

Thank you, Katie. As everyone knows, we are in the middle of very difficult economic conditions. While this has created challenging circumstances, we feel that our portfolio of malls has proved to be resilient. Despite the impact of the $4.1 million decline in the percentage rents, and the $7.9 million increase in bad debt increase over the prior year, our same-center analogue for the year declined 1.5%.

Stabilized mall occupancy suffered only a 70 basis point decline in the face of unprecedented bankruptcy activity due to a record number of lease signings in our operating portfolio at overall positive leasing spreads. Due revenue records were set in specialty leasing and sponsorship and we opened more than 1.7 million square feet of new developments in 2008 that are performing well.

We are seeing meaningful results with our cost containment program, today reducing expenditures by more than $26 million on an annual basis. We successfully refinanced all of our 2008 maturities and in total completed more than $1 billion of new financings and extensions in 2008. We also made the difficult decision to reduce our dividend generating an additional $80 million of free cash flow on an annual basis.

I will take a few minutes to provide additional color on operational results and then we will hand things over to John to discuss financial results and guidance. We completed more than 6.1 million square feet of new and renewal leases that positive rental spreads in 2008 and achieved a new record for lease signings in our operating portfolio with more than 4.1 million in square feet signed. Our leasing activity also included approximately 2 million square feet of development leases.

The 4.1 million square feet in our operating portfolio was comprised of 1 million square feet of new leases and 3.1 million square feet of renewal leases. Today we have completed approximately 67% of our 2009 renewals. For stabilized mall leasing in 2008, on a same space basis, we achieved an average increase of 7% over the prior gross rent per square foot.

During the fourth quarter, we experienced pressure on our renewals spread as a result of the portfolio renewal with one of our small shop retailers at overall reduced rental rate. Excluding the rental reductions from this portfolio, total leasing spreads in the fourth quarter would have increased 1.6%. Holiday sales were not strong as expected. The majority of retailers offered deep and early discounts in an effort to drive traffic and sales volume suffered as a result.

The holiday season was mixed, with the week of Christmas posting strong increases, and the other weeks posting considerable decline. Same-store sales declined 4.3% at $331 per square foot for reporting ten at 10,000 square feet or less stabilized malls for the year end at December 31. The top holiday sales season contributed to additional bankruptcy announcements as well as certain retailers already in bankruptcy being forced to liquidate rather than reorganize.

Steve & Barry's, Goodies, and Circuit City recently announced a liquidation of their stores. In total we had 21 Steve & Barry stores comprising 813,000 square feet and $7.3 million in annual gross rents. We have eight Circuit City stores, three of which are owned by Circuit City comprising 256,000 square feet at $1.9 million in gross annual rent.

We have four remaining Goodies stores in operation and comprising 121,000 square feet at approximately $690, 000 in annual gross rent. B Moss entered into bankruptcy in December and liquidated. We have 17 stores totaling 63,000 square feet at $1.3 million in annual gross rents. KB Toys also entered into bankruptcy in the fourth quarter. We have 23 stores representing 88,000 square feet at $1.7 million of annual gross rent.

Construction continues on our four major development projects and we are making good progress on the leasing front. We recently announced more than a dozen new retailers joining the pavilion at Fort Orange in Fort Orange, Florida. In total, phase one of the projects is over 85% leasing committed. Hollywood Theaters will open at the pavilion in the fall and additional stores and restaurants will in 2010.

We will soon open the first phase of Hammock Landing, a 750,000 square foot power center located in West Melbourne, Florida. Cole's, Michael's, Pepco, Marshall's, and other retailers will join us to celebrate the grand opening of the project at April. The first phase is more than 84% leasing committed. Settlers Ridge in Pittsburgh, Pennsylvania and the promenade in Dargaville, Mississippi will also celebrate grand openings later this year with a great selection of Anchor and Junior Anchor stores. [Seller's Ridge] is currently 80% leasing committed. The promenade is 78% leasing committed.

We are also enhancing existing centers where we should see a positive effect for the overall property. For example, Barnes and Noble opened at West County Mall in St. Louis, Missouri and will soon be joined by McCormick and Schnucks and [Bravo]. Two additional Barnes and Noble stores will be opening this year at O Park Mall in Kansas City and Asheville Mall in Asheville, North Carolina.

Also, we will be opening two Carmike Cinemas and a Regal Theater in our portfolio this year. Beyond the current slate of construction projects, we are not pursuing any additional new developments. I will now turn the call over to John.

John FoyChief Financial Officer, Treasurer

Thank you, Stephen. FFO per share in the fourth quarter was $0.80 per share compared with $0.83 per share in the prior year period. FFO per share for the year increased 3.9% to $3.22 compared with $3.10 in the prior year period. FFO in the quarter end year were impacted y $0.20 and $0.33 per share, respectively related to a rate down of marketable securities, abandoned projects, expense and bad debt expense compared with $0.17 and $0.19 per share, respectively in the prior year period.

Except for these items, FFO share for the quarter would have been flat over the prior year period and would have increased 8.3% over the prior year. I will take a minute to provide additional detail. FFO in the quarter was impacted by approximately $11.4 million related to the decline in value of marketable securities the company holds. The fair market value at December 31, 2008 was $4.2 million.

As we have indicated previously, these are real estate equity securities and as the market has experienced pressure, these securities have experienced significant price declines. At this time, these losses are non-cash and have not been realized and when the market recovers we will have the opportunity to recover some of these losses, for the year the write-down off-total $17.2 million compared with $18.5 million in the prior year.

As we continue to focus on the continuing portfolio development pipeline, we have made the decision to be even more judicious with our capital and not pursue a number of projects in the pre-development stages. As a result, we incurred a write-off of abandoned project costs of $9.4 million in the fourth quarter, an increase of $8.1 million over the prior year period. These write-offs involved a number of projects in various stages of pre-development but did not impact any projects that are currently under construction.

For the year abandoned project expense was $12.4 million compared with $2.2 million in the prior year. [Abandoned] expense as a result of store closures and bankruptcies which was approximately $3.8 million in the quarter and $9.4 million for the year. This compares with $1.5 million for all of 2007. Other major variances in our results included: a $2.1 million decline in percentage rents for the quarter, and a $4.1 million decline for the year resulting from continued pressure on sales.

FFO included gains on outparcel sales of $0.01 per share compared to $0.05 per share in the prior year period. For the year, gains on outparcel sales were flat at $0.14 per share. G&A in the quarter included approximately $1.1 million of additional severage expenses related to staff reductions in development and other areas of the company. For the year, G&A included $3 million of severage expenses.

Same-center NOI declined 4% for the quarter and declined 1.5% for the 12 months in the December 31, 2008 compared with the prior year. This was within our previously issue guidance range. Same-center NOI growths for the quarter and year were impacted by increases in bad debt expense of $2.9 million and $8.1 million, respectively. Excluding the impact of bad debt expense from both periods, same-center NOI declined 2.5% and 0.8% respectively from the prior year periods.

Our costs recovery ratio for the fourth quarter and year end at December 31, 2008 was 94.4% and 95.8% respectively compared with 98.3% and 101.15 respectively in the prior year period. The costs recovery ratio for the fourth quarter and year were impacted by the increase in bad debt expense. G&A represented approximately 4% of total revenues in both the fourth quarter and year end at December 31, 2008 compared with 3% and 3.6%, respectively of revenues for the prior year periods.

The fourth quarter and year included severance expenses of $1.1 million and $3 million, respectively, excluding the severance expense, G&A was 3.5% and 3.7%, respectively of total revenues. Our debt to total market capitalization ration was 86.3% as of the end of December compared with 64% as of the end of the prior year. The increase in our debt to market cap is primarily a result of the decline in our stock price. Variable rate debt was 21.2% of total market capitalization as of the end of December versus 14.1% as of the end of the prior year.

Variable rate debt represented 24.6% of CBL's share of consolidated and unconsolidated debt, compared with 22% in the prior year. Our EBITDA interest coverage ratio for the year end at December 31, 2008 was flat at 2.4 times. We are initiating FFO guidance for 2009 in the range of $3.10 to $3.25 per share. The guidance assumes NOI growth of -1.5% to -3.5%. The guidance also assumes outparcel sales of $0.08 to $0.11 per share and does not include any acquisitions or dispositions.

Given the high level of uncertainty in 2009, we have taken a more conservative approach to our guidance allowing for a $0.15 range. We will continue to update our guidance quarterly as necessary. In 2008, we completed more than $1 billion of new financings, including eight new constructions loans with total capacity of approximately $331 million. More than $360 million of refinancing are extensions on maturing mortgages and approximately $344 million of new term facilities.

In 2009, we have only $309 million of mortgages maturing excluding loans with extension options. All these loans are property specific and non-recourse to the company. All the mortgages are held by life insurance companies except for $53 million CMBS loan matures in December. We have only one additional loan secure by Oak Hallow Mall that is reflected on the debt schedule as a February maturity. We previously obtained an option to extend that loan to February 2013 but have gone back to the lender to renegotiate the loan to more favorable terms to the company.

We have two loans that mature in March secured by Cary Town Center in Volusia Mall. We have signed a commitment letter to refinance Cary with a current lender and expect to close within the next 60 days. The loans secured by Volusia Mall, Honey Creek and [Vaniga Lakes] are all with the same lender. We are executing a short-term extension on the Volusia Mall loan to provide additional time to complete our negotiations and close along with the loans secured by Honey Creek Mall and [Vaniga Lakes]. We are in active negotiations to refinance the loan on Saint Claire which matures in April. We are still negotiating the new loan will announce terms when they are finalized.

In January, we completed the extension of $17.5 million term loan on Milford Market Place. The loan was extended for three years with an additional one year extension option. As to our lines of credit, we have total capacity of $1.19 billion including two principle facilities that are lead by Wells Fargo. The $525 million secured facility has an original maturity date of February 2009. We exercised the extension option on this facility, which was recognized by Wells Fargo for maturity date of February 2010 and are in discussions for extensions beyond that.

The $560 million unsecured facility has an expiration date of August 2009 with two additional one year extension options for an outside maturity date of August 2011. Our debt to gross our set value in December 31, 2008 was 56.5% well under the required maximum of 65%. We have included a list of our major covenants in the supplemental which demonstrates our sufficient coverage. At December 31, we had approximately $156 million of remaining capacity on our lines. We have construction loans for all of our projects and all of our major developments are currently under construction.

We believe that our sources and uses are adequately matched to continue our business but will continue to enhance our liquidity position. In December, we held a bank meeting in Atlanta with the majority of the 20 banks participating in our lines of credit to provide an update on the company's operations. We are currently working through the secured facility extensions but at this time it is too early in the process to provide any color on the terms. These are unprecedented times that demand more than ever a dedicated and creative team to overcome the obstacles that challenge us all today.

We are focused on overcoming these challenges and will continue to make the tough but necessary decisions that are facing us. Our dominant retail properties are crucial to the local economies they serve and we are continuing to work with the cities to create additional enhancements. While 2009 will no doubt be a difficult year we are confident in the resiliency of our portfolio and know that we have the right team in place. We appreciate your joining us today and will now answer any questions you may have.

Question and Answer Session

Operator

(Operator instructions) Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. As a reminder if you do have a question, please press the star followed by the one on your touchtone phone. If you would like to withdraw your question please press the star followed by the two. If you are using speaker equipment, you will need to lift the handset before making your selection.

Our first question comes from the line of Michael Billerman with Citi please go ahead.

Michael Billerman- Citi

Hey, Patrick Manning here with Michael. I had a question for you guys on the way you disclose occupancy. It looks like at the end of 4Q '07 you had occupancy of 94% in that earnings release and now I think that number fell to 93.2%. Could you just discuss why that changes in reporting?

Stephen Lebovitz

In '07, we disclosed it both including and excluding acquisitions we had made that year. This year it just disclosed it one way so it includes everything so it is not exactly apples to apples.

Michael Billerman- Citi

Going forward it can be comparable to [inaudible]?

Stephen Lebovitz

That is right.

Michael Billerman- Citi

Ok. Then I think I caught the number before 67% of 2009 leasing completed. We have heard from some tenants that they are renegotiating leases signed before the holiday season. Have you seen any of that?

Stephen Lebovitz

No, we have not seen that. I think we are talking to tenants when the leases come up for renewal- those are the renegotiations going on but if something is signed, it is signed. Everyone lives with that.

Michael Billerman- Citi

Finally, in your guidance, what are you assuming for LIBOR rates?

Stephen Lebovitz

3%

Michael Billerman- Citi

3%, thank you very much.

Stephen Lebovitz

You are welcome.

Operator

Thank you, sir. Our next question comes from the line of Jay Haberman with Goldman Sachs. Please go ahead sir.

Jay Haberman- Goldman Sachs

Hi, this is Ika filling in for Jay and Johanne, the first question is could you please comment on your NOI assumptions for '09 -1.5% and -3.5%. Is that a best case scenario and what would it give us- what would it take to get there?

John FoyChief Financial Officer, Treasurer

I think our best case is based upon our estimates and using the NOI budget so we put together for the year. It took into consideration what we see in the market today, what we envision as a current in '09, the bankruptcies and things such as that occurring so that is based upon where we are today. We feel comfortable with those numbers and in discussions with retailers etc.

Stephen Lebovitz

It includes about 100 basis point decrease in occupancy from where we ended this year.

Jay Haberman- Goldman Sachs

Ok, thank you and could you give us a base on re-tenanting your Steve & Barry's and Linen's source?

Stephen Lebovitz

Right now we are working on it. We have [letters of intent] on five of those boxes and we are not budgeting for anything to open this year.

Jay Haberman- Goldman Sachs

Thank you and finally, on your G&A what should we expect in terms of severance expenses that is going forward in '09?

John FoyChief Financial Officer, Treasurer

I think we basically have done most of the severances that will occur at this point in time and I would assume that what we have done is the correct going rate.

Jay Haberman- Goldman Sachs

Ok, thank you very much.

John FoyChief Financial Officer, Treasurer

Thank you.

Operator

Thank you, ma’am. Our next question comes from the line of Ben Yang with Green Street Advisors. Please go ahead.

Ben Yang - Green Street Advisors

Stephen, earlier in the call you commented on an ample of bankruptcies and foreclosures in your portfolio. Do you have any thoughts on how far into bankruptcy, Stephen that we are in? I am wondering if there might be a slew of retailers who announce other bankruptcy or foreclosures in the coming months, specifically names that we might not have heard about in the media?

Stephen Lebovitz

Sure, we are watching. I think one of the things we have seen is because the debtor in possession financing is so impossible to find that retailers are a lot more hesitant to go into chapter 11 and because basically if they go into chapter 11 they are going to be forced to liquidate like what happened at the end of last year while in the past there was not the same disincentive for them. I know retailers like Borders who have been mentioned pretty much out there by a lot of people have been doing everything they can probably to avoid Chapter 11.

It's really hard to answer your question. There are a lot of names out there on watch lists, as far as the retailer watch list, and we are watching it carefully as well and talking to the retailers all the time. It's tough times in the retail world out there, no question. When we look at our top 25 portfolio I think we feel pretty good about the stability of the balance sheets of those retailers and their ability to weather the storm. That is really where we stand. The kind of world out there, nothing shocks us anymore after what has happened. But we are pleased, we are in February and we have not had any major bankruptcies announced this year and what we had as of last year.

Ben Yang - Green Street Advisors

So given your discussions with retailers, you think the worse is behind us at this point? Is that what you are sensing at this point?

Stephen Lebovitz

I wish, but I do not think we can be that positive, and as you saw in your renewal spreads for leasing, on lease renewals, the retailers are pushing to get their cost in line with the lower sales environment, and that is going to continue. The retailers are aggressively doing what they can to manage their costs, because their sales are down, and their margins are under so much pressure in the fourth quarter and ’09 is going to be a tough year. We are braced for it, and that is why we have been managing the expense side of our budget to compensate for what we anticipate will be more revenues down.

Ben Wang - Green Street Advisors

Given the closures that you have had to date, are there any co-tenancy issues that concern you, how much of a typical mall might have certain co-tenancy clause in them?

Stephen Lebovitz

At this time, we do not have any in the malls, the malls typically have cushion in terms of any anchor closings, and we are not facing anything there that concerns us at this point. In a couple of the associated centers we have had, between Linens-N-Things and Circuit City we have a couple of centers where bare anchors, and we are dealing with co-tenancy issues there and that is really the impact that we felt from that.

Ben Wang – Green Street Advisors

Within a mall, could you see two dark anchors and not have any type of co-tenancy issues for the rest of your tenants there, is that possible?

Stephen Lebovitz

It depends on the mall, if a mall has three anchors and two go dark then that is a problem, if it has five and two go dark then we are okay. We have been working over the past four or five years to replace anchors in a lot of malls where there was duplication with the same retailer and bring in people like Dick’s Sporting Goods and strong boxes into them.

Ben Wang - Green Street Advisors

Can you tell us how far sales fell during the quarter, you gave that number for the year, but I am wondering what the sales decline was during the fourth quarter.

Stephen Lebovitz

We just gave the annual, the 4%, that is really the way we are releasing it at this point.

Ben Wang - Green Street Advisors

For John, I was wondering why your depreciation expense increased significantly during the fourth quarter given that your portfolio was pretty much the same size it was a year ago, is there any reason for that large expense increase?

John Foy

Yes Ben, it was the write-off of those TIs and expenses in conjunction with those bankruptcies.

Ben Wang - Green Street Advisors

Last question, can you tell us what the marketable securities were that you invested in?

Stephen Lebovitz

We continue to say that they were in a company that we desire to, that we thought was a good company. If they wanted to merge with us at some point in time we thought it was a good investment, but we have not revealed that name.

Ben Wang - Green Street Advisors

Great, thank you.

Stephen Lebovitz

Thank you Ben.

Operator

Thank you sir, our next question comes from the line of Joseph Dazio with JPMorgan, please go ahead.

John Foy

Hi Joseph.

Joseph Dazio – JPMorgan

Hi John, how are you? Stephen, I think you mentioned in response to a prior question that your budgeting a 100 basis point decrease in occupancy this year, is that including the impact of the bankruptcies you talked about earlier in the call, or is it on top of that?

Stephen Lebovitz

That is on top of, and that is in shop occupancy, which is less than 10,000 square feet, so the boxes do not show up in the small shop occupancy number.

Joseph Dazio – JPMorgan

One other question, with respect to the unsecured credit facility, I guess you have two one-year extension options, if you, or when you do extend those, does anything happen, for example, does the Cap rate increase on the asset tests with respect to the coverage’s or is it just a matter of you signing up for the increase and that is it?

John Foy

As long as we are in compliance with the covenants there is an obligation to continue those extensions.

Joseph Dazio – JPMorgan

Great, thank you.

Operator

Thank you sir, our next question comes from the line of Ryan Levinson with Private Fund, please go ahead.

Ryan Levinson – Private Fund

Hi, thank you for taking my question, what was drawn on the unsecured revolving loan?

John Foy

On the total availability that we have at the end of year was about $155 million.

Ryan Levinson – Private Fund

Is that all on the unsecured line?

John Foy

What we do is with regard to our lines is we draw down under the least costly expensive line, so the unsecured lines today are priced at about 10 basis points higher than the secured line, so I would say that most of that, the availability is probably under the unsecured lines.

Ryan Levinson – Private Fund

I think, just on my estimate, the $560 million revolving facility that actually got paid down, a little bit in the quarter.

John Foy

Yes, it was paid down about 37.5, it depends upon what we cut with the funds and what we think we are going to use etcetera.

Ryan Levinson – Private Fund

I am assuming that the covenants that are in your supplemental, applied to that facility, correct?

John Foy

It basically applies to all of our facilities.

Ryan Levinson – Private Fund

Can you walk me through the debt service coverage ratio, just the mechanics of how that works?

John Foy

We can do that offline if you would like. I think we can give you some examples or walk you through that.

Ryan Levinson – Private Fund

I think I understand, it kind of segways into my next question, I just wanted to confirm that I am understanding it correctly, LTM EBITDA, to divide it by interest expense plus principle repayment?

John Foy

That is correct.

Ryan Levinson – Private Fund

Is that principle payment over the next 12 months?

Stephen Lebovitz

So would the past 12 months.

Ryan Levinson – Private Fund

Over the past 12 months? I do not really understand something. If I look out 12 months and assume that your EBITDA is going to be roughly flat, I think that is probably within the right number according to your guidance, then interest expense plus, even if you are able to get all of the extensions you want to get, interest expense plus principle repayment is going to be $684 million, which takes you below the covenant line, does it not?

John Foy

That is amortization, and it is basically interest into the EBITDA number.

Ryan Levinson – Private Fund

I am sorry, pardon my ignorance, I do not follow what you just said.

Katie Reinsmidt

Ryan, this is Katie, it is strictly just the amortization payment. It does not include repayment of the loans; I think you are probably adding that on top.

Ryan Levinson – Private Fund

It does not include maturities.

Katie Reinsmidt

Yes.

Ryan Levinson – Private Fund

What are the amortization payments other than the maturities?

Katie Reinsmidt

It is about $70 to $75 million.

Ryan Levinson – Private Fund

I think that that is right at that covenant line assuming your guidance. Are we at risk of blowing a covenant here?

John Foy

No. I think we need to just walk you through these covenants later, but we have plenty of capacity with regard to these covenants.

Ryan Levinson – Private Fund

Are there any, because it seems like it is so tight, even in the most recent quarter, are there any other cash preservation maneuvers you would consider taking?

John Foy

I think we look at all the preservation and the liquidity studies we do constantly, and that is definitely something that we look and take into consideration.

Ryan Levinson – Private Fund

The roughly $150 million that you could save by paying, or a little less than that, by paying your dividends not entirely in cash, is that not on the table?

John Foy

I think everything is on the table, and everything is looked at quarter by quarter and month by month. The best way to make the company grow and to preserve every aspect of the company is what we focus on, so everything would be considered and everything is considered. We do not preclude anything.

Ryan Levinson – Private Fund

Thank you for your time.

John Foy

Thank you.

Operator

Thank you sir, our next question comes from the line of [Robert Gouache] with MAK Capital, please go ahead.

Robert Gouache – MAK Capital

Thank you for taking my questions, the first, on your leases coming up for renewal in 2009, what is your assumption regarding rent compression if any?

Stephen Lebovitz

We are not, it is case by case basis, but I think on the renewals that we are going to see results probably in the flat to down 5%, consistent with what we had over the past year. The one thing that I would add to that I would add to that, the renewals were impacted in the fourth quarter, like I said in the script, we had one retailer that had about 94,000 square feet that we did a portfolio review of renewals and that actually impacted our renewals pretty significantly. If you took that out, we would have been up about 1.5% on the renewals, so I think to use something in that flat range is probably safe.

Robert Gouache – MAK Capital

I know you addressed this before, and I want to try to be clear on this, it sounded what you were saying with respect to GOFO, would bankruptcy with regards to say a lack of a [dipped] financing, that retailers have been holding off in your belief. Is that into your assumptions with respect to the GOFO with occupancy that such an environment continues?

John Foy

I think we would envision that the bankruptcy situation is a case by case type of approach by each retailer and they measure it against their sales and they measure it against what their credit facilities are etcetera, I think what’s happening is that in the retail businesses is that just like landlords are getting squeezed, everybody is getting squeezed in that line. I think a lot of it depends on the retailer and their availability of getting not only credit but their vendors shipping to them as well. It is hard and it is really impossible to generalize as to what forces companies to either go into bankruptcy or put off bankruptcy, but are in times that I do not think any of us have ever seen, but I think that we are focused on that ability to cope with that, and really have the ability to overcome these challenges.

Robert Gouache – MAK Capital

One way that the retailers are dealing with it, and you said that this has not been your experiences coming pre-lease expiration to the landlords and requesting relief and you have not been seeing that. Going forward, do you anticipate any of that?

John Foy

We have seen that, and we will constantly see that, not just from those tenants who are going into bankruptcy, but every tenant basically is trying to pressure and squeeze everything out of it so that they can hold their margins and so on. Likewise, we in turn are doing the same thing with regard to our vendors and our ability to cut back in those areas, not only from the standpoint with utility companies, but insurance premiums etcetera, so I think everyone is on the table in this environment and everyone understands and everyone, I think, is cooperating and working together to try to make the best of a difficult situation. I do not think it is the retailers pressing down on the landlords, I think it is the landlords pressing down on all of their vendors as well.

Robert Gouache – MAK Capital

Right, but at least in two sales and (inaudible) you have been holding firm.

John Foy

We have had some, like Stephen mentioned, is as one portfolio was a significant cut and it was our thought process to hold occupancy even though it was going to cost us something in rental spreads, made a lot more sense for a number of reasons. It continued to hold the traffic in the mall versus vacancies in a mall is not a good thing.

We did work with the tenants and we will continue to work with tenants to hold up that occupancy even though it might cost us a little on the short run in our spreads. I think that is our business, and as we build traffic and as we show to the cities and the municipalities how important this is to them from a sales tax standpoint that hopefully they, in turn, will come along and help us as well, and in certain situations they are, and I think we will continue to see that.

As we build traffic and as we do other things we can bring in non-retail users, our sponsorship income increases and thing such as that. It is hard to generalize and focus on rents that you might have to cut with these tenants versus a fact that it is a total overall project that really benefits from the standpoint of full occupancy.

There is a push and a shove on all aspects of this business today and I do not think it is just in the retail business, I just do not think it is in the shopping center business as well.

Sorry for the lecture.

Robert Gouache – MAK Capital

I appreciate it, thank you for addressing my questions.

John Foy

Thank you.

Operator

Thank you sir, our next question comes from the line of [Wes Goliday] with the Royal Bank of Canada, please go ahead.

Wes Goliday – Royal Bank of Canada

John, in your recent discussions with the loan officers, have you noticed an improvement versus the beginning of the fourth quarter?

John Foy

I’m not sure that we have seen much of an improvement. I think everyone is very realistic, I think it is a flight to quality. As one of the major banks said to me, it is not as much about loan to value as it is coverage ratios, so I think that is what we are focused on, the ability to show that coverage ratio. We are also going to see a decline in sales from these tenants, and it is going to happen because of the overall economy.

What I think we are looking at is the help of the retailers and the help of the communities where we are, and I think we are in some really good communities where we have not been impacted.

The middle markets, I think, have been less impacted today than some of the major metro areas. As a result of that, I think we are enjoying some encouragement from out lenders and it is totally a relationship driven business to a certain extent today, its quality of relationships and the ability to work together. That is what we are focused on, and hopefully the people that we have had great relationships with are focused on the same thing.

Wes Goliday – Royal Bank of Canada

In regard to the Meridian loan, do you see that going to 80 million in the near future?

John Foy

I think we are comfortable with where it is today, what is going on in Michigan. I think the lower debt levels and the ability to deleverage that asset is where it should be, and I think we are comfortable with it. We do still have the flexibility on that, so we want to preserve that to a certain extent, but if our partners who have loaned us the money on this would like it on that level we are fine with that as well. It is a cooperative attitude, and how we look at each property.

Wes Goliday – Royal Bank of Canada

On the store opening front, can you comment on retailers that are opening stores?

Stephen Lebovitz

There are still a number of retailers that are expanding and they are doing well, we just opened a Anthropology and a William Sonoma at Friendly Center, with Apple opening in the next couple of weeks. Forever 21 and XXI is probably one of the most expansion minded retailers out there. The boxes that we are working with, Khol’s, Bed Bath & Beyond, their Christmas tree division, are still doing new stores. Dick’s Sporting Goods has slowed down, but they are still doing new stores.

In the malls, we are doing the theaters like I mentioned in three locations this year. Some of the Juniors’, Buckle, and Aeropostale had good results had good results over the holiday season. Gymboree had good results, Vanity, so there is still expansion going on among a number of retailers.

It slowed down, they are more selective, and there is no question about that, and everything is more of a challenge, but the business goes on. For us to give the impression that it is not is just not the case.

Wes Goliday – Royal Bank of Canada

In regards to the dividends, do you anticipate that still being a cash dividend going forward, or a combination of cash and stock?

John Foy

That is a board decision, and we meet with our board and we do a liquidity study for them and keep them up to date on our liquidity picture every quarter and take all of those things into consideration, so that is a board decision. As the board makes that decision we will faithfully announce it.

Wes Goliday – Royal Bank of Canada

Thank you very much.

Operator

Thank you sir, our next call question comes from the line of John Roberts with Hilliard Lyons, please go ahead.

John Roberts – Hilliard Lyons

Pretty much all of my questions have been answered, but John, can you address the dividend issue? First, when are you going to meet with the board, and when is the announcement expected?

John Foy

We just finished the board meeting yesterday, to be exact, and the next board meeting is in about three months. It is late February, when we have our next board meeting so that will be a topic of discussion as well, and when we look at all of the numbers, liquidity, etcetera, that is when that decision will be made as to what we are doing with that dividend.

John Roberts – Hilliard Lyons

Can you comment a little, we sitting on our side of the table have our opinions on the whole dividend question at this point. In light of Simon’s move, and the fact that a lot of, particularly our investors, retail investors, have bought securities in the sector for the income component. What do you see going forward as dividends investments, but also what you are hearing from investors that you talk to on the subject?

John Foy

You hear all different voices on that particular question, which one speaks the loudest is probably the one you are talking to at that time. I think there is no question that the retail investors are looking at the cash type dividends versus the stock dividends, on the other hand liquidity and safety on that dividend is paramount important to the companies as well.

It is a balancing act between those two constituencies, it is hard to say in any particular situation, and just because you give stock does not necessarily mean that the company is having a liquidity crunch, maybe it is just an idea or concept that they had some things in mind with some maturities coming up versus not having those extensions in place.

It is really difficult, John, to say which way to go, and I understand from a retail analyst standpoint that cash is king, and likewise cash is king to those companies who want to preserve it as well.

John Roberts – Hilliard Lyons

John, thank you very much.

John Foy

Thank you.

Operator

Thank you sir, our next question comes from the like of Nathan Isbee with Stifel Nicholaus, Please go ahead sir.

Nathan Isbee – Stifel Nicholaus

I hate to beat this dividend question to death, but can you please give some detail on how Jacob’s [family shares] might impact any further cuts or the decision to pay the stock dividend?

John Foy

When we negotiated the transaction by issuing these SCUs, to a certain extent they were looking at the fact that it was going to be an income source for them, and under our Jacob’s transaction, there is a small cut we could still make, not much of a significance, but they are not a huge, they own 20% of the company, or approximately so. It is a portion, but we can cut that dividend if we have cut it for four straight quarters on the [Calvin].

Stephen Lebovitz

We can also offer then a stock dividend if the board decides to do that, but they have the option of electing cash or stock.

Nathan Isbee – Stifel Nicholaus

Thank you.

Operator

At this time we have no further questions, I would like to turn the conference back to Mr. Lebovitz for any closing remarks. Please go ahead sir.

Stephen Lebovitz

We would like to thank everyone for coming in this morning. As John said, and I said, these are unprecedented times but we are definitely up for the challenge and focused to work together with our partners, our lenders, our retailers, to work through this. Thank you all for your support. We will see you shortly.

Operator

Thank you sir, ladies and gentleman, this does conclude the CBL & Associates Properties Inc. conference call. You may now disconnect. Thank you for using AT&T teleconferencing, have a pleasant day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!