CBL & Associates Properties, Inc. Q1 2008 Earnings Call Transcript

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CBL & Associates Properties, Inc. (NYSE:CBL)

Q1 FY08 Earnings Call

May 1, 2008, 10:00 AM ET

Executives

Stephen D. Lebovitz - President and Secretary

Katie Reinsmidt - Director of IR

John N. Foy - Vice Chairman, CFO and Treasurer

Analysts

Michael Bilerman - Citigroup

Thomas Baldwin - Goldman Sachs

Louis Taylor - Deutsche Bank

Ben Yang - Green Street Advisors, Inc.

Tom Barry - Friedman, Billings, Ramsey & Co.

Richard Moore - RBC Capital Markets

Nathan Isbee - Stifel Nicolaus

Operator

Good day and welcome to the CBL & Associates Properties Incorporated Conference Call. Today's call is being recorded and will be available for replay beginning today at 12 PM Eastern Time and running through May 8 at 12 AM Eastern Time by dialing 303-590-3000 or 1-800-405-2236 and entering passcode 1110988.

At this time for opening remarks I would like to turn the call over to President, Mr. Stephen Lebovitz. Please proceed sir.

Stephen D. Lebovitz - President and Secretary

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties Inc. conference call to discuss first quarter results. Joining me today are John Foy, Chief Financial Officer, and Katie Reinsmidt, Director of Corporate Communications and Investor Relations who will begin by reading our Safe Harbor disclosure.

Katie Reinsmidt - Director of 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 results, financial and otherwise, may differ materially from the events and results discussed today in the forward-looking statements. We direct you to the company's various filings with the Securities and Exchange Commission, including without limitation, the company's annual report on Form 10-K and management's discussion and analysis of financial condition and results of operations, included therein for 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 and additional supplement schedules we 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 D. Lebovitz - President and Secretary

Thank you, Katie. In 2008 we'll celebrate CBL's 30th anniversary and our 15th anniversary as a publicly traded company. These are significant milestones and we appreciate the role that each of you have played in helping us. To celebrate this anniversary we'll have the honor of bringing the closing bell at the New York Stock exchange on June 3rd and invite each of you to join us for this event. Please contact Katie for the details.

Today we will focus on continuing the successful track record we have built over the last 30 years. While the environment has changed over the past year the fundamentals of the business have remained virtually the same. Despite the challenging economy we recorded encouraging results this quarter including increases in occupancy, positive same center NOI growth, strong leasing spreads and FFO growth. We are continuing to maximize the productivity of our core portfolio through leasing and management and through opportunistic expansion and redevelopments.

We are generating growth with the pipeline of solid new development projects that are well positioned for long term success. As a result of the tight credit markets we are seeing an increase in the number of projects since smaller developers that are unable to secure funding. Not only is this providing us with new opportunities but is also making retailers more inclined to sign on to projects with established developers like CBL.

Our largest and most important development opening in 2008 is Pearland Town Center. We will celebrate the grand opening of this outstanding project on July 30th and we invite you to join us for this exciting event. Pearland Town Center is a 1.2 million square foot mixed-used center located 20 miles south of Houston in Pearland, Texas. The project represents our first large scale mix-used development incorporating retail, hotel, office and residential components. The center will include a 718,000 square foot lifestyle center anchored by Macy's, Dillard's, Barnes & Noble and a tremendous line of specialty stores and restaurants including Hollister, American Eagle, PacSun, Charlotte Roos, Forever 21, Mimi's Cafe and BJ's Brew House. The lifestyle center will open more than 80% leased and committed. The development also includes approximate 50,000 square foot of office space and a 100 room Courtyard by Marriott that are both located above the retail shops.

We recently announced details on the residential component of the project which is called the Residences of Pearland Town Center. The residences will consist of 250 apartment units including 62 units located above the retail shops and 188 units located in two freestanding apartments building owned by a third party.

In the fall, we'll celebrate another first for our company with a grand opening of Plaza Macae in Macae, Brazil, our first international development. The 230,000 square foot project is a 60-40 joint venture with Tenco Realty of Belo Horizon Cheri. Plaza Macae is receiving very strong interest in the market from retailers and it's already more than 65% leased and committed. The lease for the final anchor location is currently wrapping up which will bring the occupancy up to 90%. The retail fundamentals in Macae and overall Brazilian market are very favorable and it is a positive that CBL is able to tap into this opportunity through our Tenco-CBL joint venture.

This afternoon, we will issue a press release on a new 700,000 square foot power center called The Promenade in D'Iberville, Mississippi near Biloxi/Gulf Port. The Promenade will feature 11 anchors and more than 80,000 square feet of specialty shops and restaurants. We have leased or committed more than 365,000 thousand square feet of the anchor and big box space. The project is an 85/15 joint venture of CBL and Forum Development. The project will benefit from tax exempt bond funding through the Go-Zone legislation which is designed to encourage development in hurricane-impacted areas. Construction will begin this month with the grand opening scheduled for fall 2009.

We announced new several new additions in redevelopment at our existing centers, during the first quarter. At Oak Park Mall in Overland Park, Kansas we announced the addition of Barnes & Noble, the new 35,000 square foot stores under construction and will open early next year. In the fourth quarter a 30,000 square foot, two level Barnes & Noble will open in the 90,000 square foot lifestyle redevelopment at West County Center in St. Louis, Missouri. Additional shops and restaurants will follow in early 2009. At Coastal Grand in Myrtle Beach, South Carolina, JC Penny's celebrated their celebrate their grand opening, the new 103,000 square foot store received a very strongly reception from the market.

During the first quarter we signed a total of approximately of total 1.66 million square feet of leases, including approximate 760,000 square feet of development leases and 900,000 square feet of leases in our operating portfolio. The 900,000 square feet in our operating portfolio was comprised of 225,000 square feet of new leases and 675,000 square feet of renewal leases. This compares with a total of 2.1 million square feet of leases signed in the first quarter of 2007, including 1.2 million square feet of development leasing and 880,000 square feet completed in the operating portfolio. Of the 880,000 square feet in the operating portfolio, 375,000 square feet were new leases and 505,000 square feet were renewals.

To date we have completed approximately 80% of our 2008 renewals. For stabilized mall leasing in the first quarter on a same-space basis, we achieved an average increase of 12.8% over the prior gross rent per square foot. Total portfolio occupancy increased 60 basis points to 91.6% as of March 31 2008. Mall occupancy increased 10 basis points to 91.3% with stabilized mall occupancy declining 10 basis points to 91.4%. Occupancy in the associated centers increased to 94.9% from 92% at year end. Portfolio occupancy excluding the centers acquired in the fourth quarter 2007 was 80 basis points to 91.8%. Stabilized mall occupancy excluding centers acquired in the fourth quarter of 2007 increased 10 basis points to 91.6%.

While bankruptcy and store closures have certainly increased, the impact to date to our portfolio has been minimal. Friedman's, the Disney Store and Bombay are the major retailers that have gone into bankruptcy recently. While we are still working through the process we anticipate that the resulting store closures will comprise less than half of 1% of annual gross rents. We have 23 Freedman's stores representing 34,000 square feet and $2.3 million in annual gross rent. We are currently in negotiations for another national jeweler to take approximately 25% of the locations closing and we are lining up prospects for the remainder.

Bombay entered Chapter 11 last year and closed their stores. We had 14 locations representing 59,000 square feet and $2.1 million in annual gross rents. We have deals completed for over a third of the space and are receiving strong interest on the remainder. The operators of the Disney Store entered Chapter 11 during the quarter and Children's Place announced that they were in advanced discussions to sell the unit back to Disney. We have 15 Disney stores representing 63,000 square feet and $2.7 million in annual gross rent. While we are still on discussions we anticipate that only 9 stores will close totaling 30,000 square feet and $1.1 million in annual rents. At this time all of the stores are still open and operating and we are working on backfilling spaces that we anticipate getting back.

Linens 'N Things announced that they may seek bankruptcy protection. We currently have 11 locations representing $4.1 million of annual gross rents and 333,000 square feet. The locations are all open and operating at this time. Same store sales declined 2.7% to $341 per square foot for recording tenants 10,000 square feet or less and stabilized malls for the rolling 12 months ended March 31 2008. January sales numbers were impacted this year by the mismatched fiscal calendar. There were 4 retail weeks in January this year versus 5 weeks in January 2007. This phenomenon happens about once every 6 years. Now I will turn the call over to John for our financial review.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Thank you Stephen. We were pleased with our first quarter results achieving FFO per share of $0.80 compared with $0.78 per share in the prior year period. FFO for the first quarter 2008 included $0.04 per share of lease termination fees and out parcel sales compared with $0.06 per share for the prior year period.

FFO in the first quarter 2008 was also reduced by $1.3 million due to the benefit payments related to the retirement of our former Senior Vice President of leasing. FFO was also reduced by $1.7 million due to write offs of abandoned projects. Same center NOI growth excluding lease termination fees increased 90 basis points for the first quarter compared with the prior year period. The increase was within our guidance range. Our cost recovery ratio for the quarter ended March 31, 2008 was 96.3% compared to 98.3% in the prior year period.

Today we are about 75% converted to fixed CAM. As such the recovery ratio will fluctuate during the year as seasonal items such as snow removal impact the ratio. We anticipate that the cost recovery ratio for the full year will be close to 100%. G&A represented approximately 4.5% of total revenues in the first quarter ended March 31, 2008 compared with 4.1% of revenues for the quarter ended March 31, 2007.

Excluding the $1.3 million retirement benefits charge G&A would have been 4% of total revenue. Our debt to total market capitalization ratio was 76.8% as of the end of March compared with 46.8% as of the end of the prior year... prior quarter. The increase in our debt to market cap is primarily a result of the decline in our stock price. Using the price from March 31, 2007, our debt to market cap would have been 53.4%.

Variable rate debt was 13.6% of the total market capitalization as of the end of March versus 8.2% as of the end of the prior year. Variable debt represented 20.2% of total debt compared with 17.6% in the prior year period. Our EBITDA to interest coverage ratio for the quarter ended March 31, 2008 was 2.17 times compared with 2.45 times for the prior year period. We are maintaining our guidance for 2008 of $3.46 to $3.56 per share which represents a 6.1% to 9.2% increase over the 2007 FFO per share, excluding the impairment charge. The guidance assumes NOI growth of 0 to 2% excluding lease termination fees from both periods. The guidance also assumes that out parcel sales of $0.12 to $0.16 per share and does not include any new acquisitions.

In April, we completed the sale of five community centers located in Greensboro, North Carolina for approximately $24 million to three separate buyers. A list of these centers is included in our earnings release. The community centers were originally acquired in the fourth quarter of 2007 as part of the Starmount acquisition. As a result of the sales, we anticipate recording a $1.5 million gain on the sale of real estate and net income during the second quarter. This gain will not impact FFO.

We've received a strong interest for selling other office and community centre properties and anticipate providing update on any subsequent sales when we announce second quarter results. As we previously indicated, we are taking our time with these sales to ensure that we are able to maximize the value. Despite the difficulties in the credit markets we are pleased to have completed more than $383 million in financing year-to-date including a new unsecured term facility of $228 million. Our joint venture partnership completed a $100 million interest only non-recourse 5 year loans secured by Friendly Center at 6 adjacent office buildings in Greensboro, North Carolina. The loan has a fixed interest rate of 5.33%. The joint venture also completed a $15.7 million interest only non-recourse 5 year loans secured by Renaissance Center in Durham, North Carolina. The loan has a fixed interest rate of 5.22%.

CBL entered into a separate one year extension of the $39.6 million non-recourse loans secured by Oak Hollow Mall in High Point, North Carolina. The extension maintains the interest rate of 7.3%. We also have the option to extend the maturity an additional 5 years. These financings demonstrate the strong relationships and confidence we share with our financial partners. Even in this capital constrained environment, we are still able to borrow at very attractive rates. We have remaining maturities of approximately $340 million of non-recourse loans coming due in 2008 and are making good progress towards financing these assets. We currently have $744 million listed on the development schedule for projects under construction. We have construction loans for each of these projects totaling $591 million and we have funded all of the required equity for these development projects.

We are pleased with our first quarter results and are focused on continuing to meet and exceed expectations through the balance of the year. Despite the fickle credit markets and lower consumer confidence levels we believe that we will have a successful 2008. We are looking forward to visiting with many of you at the ICSC convention in May and anticipate a strong convention for our company. We appreciate your joining us today and with that I will be happy to answer any questions you might have

Question And Answer

Operator

Thank you sir. Ladies and gentlemen, at this time we will begin the question and answer session. [Operator Instructions]. And our first question comes from the line of Michael Bilerman with Citi, please go ahead

Michael Bilerman - Citigroup

Hi Good morning guys

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Hey Michael

Michael Bilerman - Citigroup

John, you talked a little about the asset sales you completed in the quarter of the $25 million. You had $160 million held for sale on the balance sheet, what's the remaining piece there?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Those are the Starmount portfolio office buildings and the community centers that when we acquired the portfolio, we anticipated selling those. We have a strong interest in negotiating letters of intent on a significant portion of those and I think we will make very good progress with those.

Michael Bilerman - Citigroup

And so you anticipate that's more of a 2Q, 3Q event.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Yes, I think that's probably third to fourth quarter events.

Michael Bilerman - Citigroup

And have you evaluated the potential sale of any malls?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Yes Michael we have. We continually look at that and we have a lot of interest in people who want to acquire some of our malls, and we are focused on that as well.

Michael Bilerman - Citigroup

Are you in active discussions on any sales or joint ventures, to raise capital or is that not... I mean you are actively pursuing?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

I think we are actively pursuing all financial aspects of the company, so as to those debt ratios. In fact I made a mistake. I think in my comments I said 76%, it's really 67% debt to market capitalization. So, we are focused on reducing that. As you'll recall when we bought the Jacob's portfolio in 2001, our debt to market capitalization numbers crept up to about 63%. We brought those down fairly quickly and we would anticipate bringing these down as well.

Michael Bilerman - Citigroup

And it sounds like for the office, the other office assets, you have marketing materials at your negotiations but I am just trying to understand if these other things if you are really deep in negotiations in terms of having marketing materials, having brokers, outselling the assets.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Well I think we haven't basically made any disclosure on that but when we do something we'll really actively pursue it and normally see excellent results so.

Michael Bilerman - Citigroup

Okay and John you talked a little about the refinancings that you did in the quarter and that you have $340 million coming due in the back half of the year. What's your targeted plan in terms of raising those proceeds? Is it going out and just doing more secured loans on those assets or are you going to try to pursue some other strategy in terms of those repayments?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

I think it depends upon the asset as well but basically we have terms sheets for approximately $280 million of those refinancing. As you know we basically use non-recourse loans and we like to have at least a 5 year term on those. In turn we would explore other alternatives as well. Some of those assets could possibly be sold or whatever but there are opportunities with regard to the refinancings on those as well and we are comfortable and confident that we can achieve what we are doing on those assets.

Michael Bilerman - Citigroup

And the $280 million that's a 5 year term, what sort of rate do you have?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Those are basically 5 term loans as what we would pursue and the rates basically vary from... and we are just looking at those term sheets to negotiate those now but we have other alternatives to those term sheets. So that's not to say that we are going to accept those term sheets. And so the rates are fairly favorable in today's market. We are not seeing any tremendous escalation in those rates, and I think what we were able to achieve on our unsecured term loan that we just completed was really an excellent interest rate, versus what we are hearing is going on in the market today with some other term loans that are being negotiated.

Michael Bilerman - Citigroup

And then pro forma for the financings you did in the quarter, where does your... and post quarter, how much of the availability do you have on your lines of credit if you decide not to pursue the secured loans of 280? I mean can you fund the 340 off of your line or you don't have that capacity?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

We have that capacity with other capacities lined up as well so... and all of these loans that we have that are coming up this year are non-recourse loans as well. So if the assets are not to... that's not putting pressure on us from the standpoint of creating any defaults under any other credit agreements and so on. We are comfortable and confident with where we are as far as the progress we are making on refinancing these loans.

Michael Bilerman - Citigroup

Okay and my last question, just on your abandoned project expense, the $1.7 million, can you just give a little bit more color of what that related to and --

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

There were few projects that we had... at this point in time based upon what the capital markets are and the returns that we saw on those projects, we elected not to go forward with those projects. We probably will get some... it helps us from a negotiating standpoint possibly with property owners and other people who were interested in those projects, but we felt that taking the conservative approach and writing those off at this time, was the best approach to take. Our returns weren't where they should be and we felt that in order to do so, we needed to just go ahead and recognize this at this time.

Michael Bilerman - Citigroup

This was land that you own that you are planning developments on or...

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Absolutely not. We never buy land unless we are ready to start a project. So, we would have not changed that since we started the company over thirty years ago. We don't think that land basically doesn't pay any interest or doesn't pay any return to us. So we will not buy land unless we are ready to start a project.

Michael Bilerman - Citigroup

But this is just costs you incurred in going after certain development deals.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

That's correct. It's engineering, option fees, legal fees etcetera.

Michael Bilerman - Citigroup

Wasn't acquisition, it was development?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

No, it's totally development.

Michael Bilerman - Citigroup

Okay, all right, thank you

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Thanks Michael.

Operator

Thank you. Our next question comes from the line of Thomas Baldwin with Goldman Sachs. Please go ahead.

Thomas Baldwin - Goldman Sachs

Morning guys

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Hey Thomas.

Thomas Baldwin - Goldman Sachs

You have a couple of pretty large developments going on right now in Florida, Hammock Landing and the Pavilion at Port Orange. Given how challenged that market is right now and how severe the decline in single family home sits in there, just curious how leasing is going if there has been any delays on the development front and if you still plan on delivering those projects in the spring and fall of 2009 respectively?

Stephen D. Lebovitz - President and Secretary

Hi Thomas, yes we are still on track. The good news on both those projects is that we had all our anchor commitment signed at the time we started construction. And so that gave us a good start on the pre-leasing and they are on schedule from a delivery point of view. The small shop leasing is definitely more challenging today than it was a year ago but we are confident that we'll get it done, Hammock Landing is really more of a power center then... that's a kind of project it is and so that leasing is going really well and is in good shape. That's the first one to come online and then the other project in Port Orange is more lifestyle oriented. And we've had some tenants that have put it on hold but by the time that comes online we anticipate that their business will come back and that the leasing will be in good shape.

Thomas Baldwin - Goldman Sachs

Okay, thanks a lot guys. And then as the follow-up I appreciate all the detail you provided with respect to what you're experiencing in terms store closings and tenant bankruptcies. Can you elaborate a little bit on your expectations regarding your ability to extract lease termination fees from those tenants? I know in particular Bombay is under Chapter 11 protection right now. So I mean is there going to be some trouble in terms of extracting some remuneration from those guys?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

We can't really get lease termination fees at once a tenant its files bankruptcy. The only time we are really able to negotiate that is when the retailers don't want to file bankruptcy and will work lease termination fees to look at a certain stores were we feel like we can release them and... so that's where that comes into play, not once they file Chapter 11.

Thomas Baldwin - Goldman Sachs

Okay, thanks a lot and then I think if I am not mistaken you mentioned $0.04 combined from out parcel sales and lease termination fees this quarter. Can you break out what portion of that $0.04 was out parcel sales and how far along you are this year in achieving the $0.12 to $0.16 that you guided?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

$0.03 was out parcel sales, $0.01 was lease termination. I think that's in the supplemental.

Thomas Baldwin - Goldman Sachs

Okay, thanks a lot for that color guys. I really appreciate it.

Stephen D. Lebovitz - President and Secretary

Thanks Thomas.

Operator

Thank you. Our next question from the line of Lou Taylor with Deutsche Bank. Please go ahead.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Hi Lou.

Louis Taylor - Deutsche Bank

Hey John good morning thanks. John, in terms of the asset held for sale, what's your expected average cap rate on those assets?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Lou we haven't disclosed the cap rate on those but I think we are seeing very favorable responses to these... these are not huge, huge projects and therefore the availability of buyers is much more available to us. So in that regard we're selling to a lot of local people and so on. And as you will note we did make a gain of about $1.5 million on those assets that we've already sold. So we would anticipate that we will at least break even or make some money off those continued sales.

Louis Taylor - Deutsche Bank

Okay. But is it fair to assume that the cap rate is probably going to be higher than your short term cost to debt, your cost to your line so that when the assets do get sold there will be a little bit of dilution from the sale?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

I would say... we have very favorable rates with regard to our lines of credit and interest rates are moderately priced today and cap rates would be a little higher than that. I think that's a fair statement.

Louis Taylor - Deutsche Bank

Okay, can you also just clarify in terms of your construction pipeline do you have construction loans on all the projects?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

We have construction loans on all the projects except the renovations and developments and expansion. So if the project we're starting from construction we basically put a construction loan in place and what we do because we're able to negotiate more favorable terms. We put our equity in on the front end and then the construction when it starts to fund.

Louis Taylor - Deutsche Bank

Okay and then in terms of the... you are going to open Pearland this summer but you're not going to put a permanent mortgage on that till what maybe stabilization sometime in '09.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Yes I think that's a fair statement. I think depending upon what happens in the capital markets and so on we would rather be safe than sorry and if we saw favorable loans coming in and so on, we would do that. But I think stabilization should occur in late '09 and that's probably a more favorable time to do it. And our construction loan that's in place today has I think approximately 3 to 4 years left on the term. So we're very comfortable with that and think that we're going to have success there as well.

Louis Taylor - Deutsche Bank

Okay and then last question just pertains to the term loan proceeds, how do you anticipate utilization them? Will they go to development? Are you going to repay the line, is it going to go to possibly debt maturities this year? I mean how do you anticipate using that?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Yes we took the $228 million term loan and we used that to pay down the existing lines of credit. And our refinancing progress on the existing loans that are coming due is really coming along very, very favorably to us. We would not anticipate that our lines would need to be used for any of that. And our lines as we mentioned we have all of our equity in all the projects that we have under construction. So the line availability is there for opportunities that we see that we can show good returns to our shareholders. But we are also focused on trying to lower our debt as well at those ratios. So we hope that we will have excess cash from those existing financings as well. So I think from our perspective not withstanding what we are seeing in the capital markets, we were extremely pleased with our ability to execute the term loan and what we are seeing as far as favorable response from our existing lenders on these existing properties really gives us a great deal of confidence in our ability to continue the financial flexibility of the company.

Louis Taylor - Deutsche Bank

Okay, thank you.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Thanks Lou.

Operator

Thank you. Your next question comes from the line of Ben Yang with Green Street Advisors, Inc. Please go ahead.

Stephen D. Lebovitz - President and Secretary

Hey Ben.

Ben Yang - Green Street Advisors, Inc.

Hey good morning. Steven, just going back to the Hammock Landing and Port Orange projects, both are recent additions to your development pipeline. And it looks like the yields that you are garnering here are much lower than what you've historically achieved. And then when you even look at Settlers Ridge, another recent addition, it looks like you dropped the yield there by a pretty large amount. Can you talk a little about what's happening? Is it something specific to the project? Is it the tough retail environment that's really weighing on these results or these returns?

Stephen D. Lebovitz - President and Secretary

Sure Ben. Those are good questions. Let me take them separately. On Settlers Ridge there is a change in the project pro forma where we had initially had two hotels that we are going to be part of the project. And now we're just including one in our project. So that actually lowered the yield somewhat and there were some public financing tied to that, that we didn't think we didn't think we could count on the pro forma at this point. So that lowered those returns.

On the other two, I think those returns are definitely a little bit lower than we would like. One of the things going on is that we are conservative on our rents and we are hoping that the construction costs will come in lower than what we budgeted because of the economy down there. So hopefully we'll have some upside as those go forward. Also on Hammock Landing, we're carrying the land costs of phase two and phase one, and what we're showing here is phase one. So that depresses the phase one return when you do the blended including phase two which should be an ... what '010 project then. Then it comes in a lot closer to the 9% level which we are targeting as a minimum going forward.

Ben Yang - Green Street Advisors, Inc.

It sounds like the difficulties there are more project specific and doesn't really provide insight into what's happening maybe, say for the demand of lifestyle type centers?

Stephen D. Lebovitz - President and Secretary

I think that's right and both Hammock and Port Orange have phase twos and so when you blend those together the returns do get better. And yes I think they are specific and we haven't seen... I mean we are conservative upfront in terms of the rents that we budget. And we've been successful so far in holding the pro forma on those rents. So I think that we feel like we'll be okay on these projects and obviously looking forward, we're probably being even more conservative. Also we include our development fees and leasing fees and all that in the pro formas in these returns as well. So they're not just a return on pure costs.

Ben Yang - Green Street Advisors, Inc.

Okay and then just last question. I know you guys have had some difficulties in the past getting tenants open at your lifestyle centers on time and you have about half dozen projects opening in the next year or so. Have you guys taken any steps or measures to prevent this from happening again?

Stephen D. Lebovitz - President and Secretary

Absolutely we're a lot more focused on making the schedule. Pearland is opening this year, and we've just been a lot more proactive. We've added additional tenant coordinators to work with each retailer and make sure that they're getting their plans done, ahead of schedule and that the construction stays on track. And so that's something that we're really pushing and similarly with the Florida projects and Settlers for next year. We don't like at all what happened last year with the delays that we experienced.

Ben Yang - Green Street Advisors, Inc.

And that's helpful. Thank you.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Thanks Ben.

Stephen D. Lebovitz - President and Secretary

Thanks Ben.

Operator

Thank you and your next question comes from the line of Andrew Board with Fenmore [ph]. Please go ahead.

Stephen D. Lebovitz - President and Secretary

Hey Andrew.

Unidentified Analyst

Steve, thanks for taking my question, first of all. I'm curious about the Nashville portfolio that has August maturity date. Do you have the ability to extend the maturity on those two if you seek to and how long if possible?

Stephen D. Lebovitz - President and Secretary

I think where we are today those are CMBS loans but there are three specific lenders on those. It's not a widely traded CMBS transaction and those lenders have indicated to us the fact that they're willing to work on extensions if necessary. And we are also working with these guys, they are institutional lenders and therefore they understand the business much better than all the securities type trades in the CMBS. So it's really an institutional loan and we are in deep discussions with them. Nashville is a great market area and I think they recognize that and I think they will see opportunities there as well

Unidentified Analyst

Okay and if I may another quick question. You extended Ocala, I think it was right and the Hanes Mall has similar interest rate and maturities and that might not be the same lender. Can you just talk about why that one was not extended?

Stephen D. Lebovitz - President and Secretary

Yes. Hanes Mall was coming up I think in February or March, so we extended that one and the Hanes Mall is basically later in the year and they are two separate lenders on those. The Hanes Mall is a large institutional lender who basically knows the real estate business and is focused on regional mall financings. So we are comfortable and confident there as well as the fact that we have other people who have expressed interest in giving us loans on that project. So we are very comfortable with what will happen on Hanes and in fact, there is a significant amount of refinancing proceeds, excess financing proceeds when we complete that mall.

Unidentified Analyst

Oh great. I look forward to seeing that.

Stephen D. Lebovitz - President and Secretary

Thanks Andy.

Unidentified Analyst

Thank guys.

Stephen D. Lebovitz - President and Secretary

Thank you.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Thank you.

Operator

Thank you. Your next question comes from the line of Paul Morgan with Friedman Billings Ramsey. Please go ahead.

Stephen D. Lebovitz - President and Secretary

Hey Paul.

Tom Barry - Friedman, Billings, Ramsey & Co.

Hi, this is actually Tom Barry here.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Hey Tom.

Tom Barry - Friedman, Billings, Ramsey & Co.

Hi. Can you provide some additional color on your current leasing environment? Specifically can you talk about trends you're seeing with the cart and kiosk programs given the shorter lease duration?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

I would say the specialty leasing program is actually continuing to go up this year. We budgeted about a 10% increase through the year and we are... we are tracking our budget not to say that it's easy, but we are on track on that. The other area that we are actually making some real good headway is we talk sponsorship which is the in mall advertising and a lot of the non... it's non-retail type leasing, where we've seen good increases there, greater than double digit and that's an area where we've got fully in making some headway. So, we're still seeing good results in those areas.

Stephen D. Lebovitz - President and Secretary

And then... and the other thing that we're seeing is there is a lot of developments at retailers had anticipated, coming on line for them or not coming on line because of equity needs, so the retailers are going to want to fill up those empty barrels that they originally anticipated occurring. So, I think that's speaking well for us too.

Tom Barry - Friedman, Billings, Ramsey & Co.

And what percentage of NOI does specialty leasing comprise?

Stephen D. Lebovitz - President and Secretary

I'll have to get back to you on that one.

Tom Barry - Friedman, Billings, Ramsey & Co.

All right. Can you help me understand the structure of the 60:40 JVs, that's developing in Imperial Valley and Statesboro?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Those are outside joint ventures with various developer parties who brought those transactions to us in Statesboro, Georgia. This was a project that a local developer out of Atlanta had put together. Statesboro is a 50:50 joint venture, whereas Imperial Valley I think is a 60:40 venture and both of those...

Tom Barry - Friedman, Billings, Ramsey & Co.

Sorry I meant, Settlers Ridge.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Oh Settlers Ridge. Settlers Ridge likewise was a joint venture brought to us by the phase-in [ph] organization. So that's the same thing. They basically had the property under control for quite a period of time and they in turn wanted an equity partners, so we stepped in and took that over.

Tom Barry - Friedman, Billings, Ramsey & Co.

Got you. All right. And this might just be a typo, but the Imperial Valley total cost versus cost to date... cost to date's more than doubled total expected costs?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

There were reimbursements from tenants who basically were paying us for... reimbursing us for cost that we have expended.

Tom Barry - Friedman, Billings, Ramsey & Co.

Got you, okay, and also finally could you quantify downside risk that you are anticipating from further store closures this year or what you guys have modeled?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

We... I mean now we cant really quantify that, we are anticipating that at the end of the year, our occupancy will be flat to slightly down. So we've tried to be conservative in our budgeting for this year, because given just the challenging environment out there and about the bankruptcies that I mentioned in my comments, so really... all we are seeing out there for now. Just to also say that the specialty income and sponsorship is about 7% to 8% of total revenue.

Tom Barry - Friedman, Billings, Ramsey & Co.

Got it, Alright great thank you.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Thank you.

Operator

Thank you. Your next question comes from the line of Rich Moore with RBC Capital Markets. Please go ahead

Richard Moore - RBC Capital Markets

Good morning guys

Stephen D. Lebovitz - President and Secretary

Hey Rich. Good morning.

Richard Moore - RBC Capital Markets

Have you guys talked at all about the concession environment? What are retailers saying at this point, do you sense that they are more looking for lower rents, looking for deals, that kind of thing?

Stephen D. Lebovitz - President and Secretary

I think certain retailers are definitely looking for better deals and that's not surprising given what's happened in the market with sales out there and that impacts the negotiations when we have new leasing or renewals. But that's really where we see it the most and you could see our leasing spreads were positive this quarter. And we've have really talked about how we focused on that over the past year or two and improving that. And I think we are starting to see the results form that. So despite what the difficulties are out there, we are pleased with the results that we were able to present on that front.

Richard Moore - RBC Capital Markets

You don't I think Steven that there is anything special in terms of reduced expectations based on retailers somewhat feeling stressed and going to want to see a lower amount of rent going up?

Stephen D. Lebovitz - President and Secretary

I mean I always want a see a lower amount going out. And I think there... where sales are under pressure they are using that as negotiating. And I think that what's happened is retailers have some of them at least have slowed down their expansion plans but also ... they still, they're public companies and they have to grow. And so expansion is part of their business, they are more cautious. But like John said a lot of projects are falling out also. So they are still going to need new locations. And we negotiate back, we leverage back and in turn take the good locations that we have and the strong locations and work with them to try to make things work. So there is a certain amount of partnership that we enjoy with the retailers that comes into play in this type of environment.

Richard Moore - RBC Capital Markets

Okay. And then as you guys look around are there any assets or any situations you are seeing out there that might be good real estate that's kind of gotten into trouble because they don't have the capital and the depth to take on the some of the challenges that are going on in the economic environment? I mean outside your portfolio.

Stephen D. Lebovitz - President and Secretary

I mentioned in my comment that there is a project that we are going to announce later today, it's a development project in D'Iberville, Mississippi that was... an opportunity that came to us. It was originally brought to us by one the anchors that had been working with the developer. And they were having financing problems and so we were able to step in and take that over. And that's going to be a real attractive project for us and the financings in place and we are really excited about that one.

As far as existing assets, I mean we've gotten different... I guess dealers from lenders of our properties that they might be getting back over the next couple of years. And we've always looked at opportunities like that... nothing that really has gotten us to excited but I think we'll be seeing more of that in the future as well. And that's one of the reasons we wanted to give ourselves some more flexibility on the balance sheet. And we feel like we have achieved that this quarter and that there is additional things that we are going to be doing as well that will help us be able to take advantage of those opportunities.

Richard Moore - RBC Capital Markets

Okay, good thank you. And then on the two management contracts you talked about in the press release, is there anything special there as in... are those two properties you might look at potentially purchasing over time? Or is it just more kind of something you are doing for the income?

Stephen D. Lebovitz - President and Secretary

They are really more we are doing for the income. I don't think they are the properties that we would look at for an acquisition opportunity. But there is redevelopment opportunity which will generate additional fees and upside for the projects and for the owner. And I think that's a business opportunity for us as well, is to pursue more fee generating and third party type activities.

Richard Moore - RBC Capital Markets

Okay, good. Thank you and then on the other comprehensive income John is there any reason to that fell so substantially? It fell about 12 million bucks and I'm wondering is that hedging activity or what's in there?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Yes Rich we did some hedging to eliminate some of the interest rate risks and that's the biggest portion of it.

Richard Moore - RBC Capital Markets

Okay, good, thank you and the last thing from me is, anything special on the CapEx front, the maintenance CapEx front, I mean do you fell like this year or next have any unusually high needs for maintenance type CapEx?

Stephen D. Lebovitz - President and Secretary

I mean we've really... I guess tightened up is the best way to put on that, just given the current environment. And we estimate roughly $50 million in total TIs for the year and total CapEx of $87 million. And we're looking at everything very closely.

Richard Moore - RBC Capital Markets

Great, thank you guys.

Stephen D. Lebovitz - President and Secretary

Thanks Rich.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Thanks Rich.

Operator

Thank you. Our next question comes from Nathan Isbee with Stifel Nicolaus. Please go ahead.

Stephen D. Lebovitz - President and Secretary

Hey Nate.

Nathan Isbee - Stifel Nicolaus

Good morning, how are you doing?

Stephen D. Lebovitz - President and Secretary

Good.

Nathan Isbee - Stifel Nicolaus

Two quick question, the recent acquisitions in St. Louis and North Carolina, obviously are not in the comp sales numbers. Can you just talk about sales trends in those two portfolios?

Stephen D. Lebovitz - President and Secretary

Those are actually... are in the numbers. We put then in this quarters so they are included.

Nathan Isbee - Stifel Nicolaus

There you did okay.

Stephen D. Lebovitz - President and Secretary

They are included Nathan and the sales are good and St. Louis is... that's doing well, that the malls are performing well and holding up and Friendly Center has had good sales increases as well on the leasing that we projected is even coming in better than we had anticipated. And so we will have some real good announcements on that front in the next month or so hopefully.

Nathan Isbee - Stifel Nicolaus

Okay, so sales were positive in both?

Stephen D. Lebovitz - President and Secretary

Yes.

Nathan Isbee - Stifel Nicolaus

Okay, thanks. Any other areas of particular strength in your portfolio?

Stephen D. Lebovitz - President and Secretary

I think the border on the Mexican border, Laredo and the Imperial Valley and Brownsville, that's been very strong in terms of increases as well.

Nathan Isbee - Stifel Nicolaus

Okay and just one quick detail. Are you showing mall same store NOI with negative 1.2%, what would that have been without lease term fees?

Stephen D. Lebovitz - President and Secretary

It would have been close plus 0.3%.

Nathan Isbee - Stifel Nicolaus

Okay, thank you.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Thanks Nate.

Operator

Thank you. [Operator instructions]. And our next question is a follow up from the line of Thomas Baldwin with Goldman Sachs, please go ahead

Stephen D. Lebovitz - President and Secretary

Hey Thomas.

Thomas Baldwin - Goldman Sachs

Hey guys. Last call you discussed a little bit... your interest in participating in developments within developers who as a result of the credit crunch haven't been able to take their developments to completion and might be looking for capital. Can you elaborate a little bit on what former shape your participation in those projects might take whether you participate as core developer or whether it just means you serve as a provider of capital?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Well I think it can take all types of approaches. Stephen alluded earlier to that, the D'Iberville, Mississippi, which is a project that is a joint venture with the developer who couldn't bring the necessary equity to the project and it did two things for us. One it gave us the ability to get a project with some excellent going in returns, number one. And number two it has solidified an even stronger relationship with the major tenant who really brought it to us. And that was... in that situation we're basically doing all the development... initial developer had done the permitting et cetera but we are basically take over and managed the project and did the leasing. So, but most... I think in today's world, we would focus more on projects where we are not providing just capital, but we are providing expertise and can generate fee income as well. So, I don't think we look at our selves as just a capital provider and we are always looking at the downside and measuring the upside against that as well.

Thomas Baldwin - Goldman Sachs

Okay, thanks a lot.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Thanks Thomas.

Thomas Baldwin - Goldman Sachs

And then just as a follow-up, do you have any sense for what the dollar spend over the course of the next couple of years couple of years could be, on these distressed opportunities or is it really too early to get a good sense for what that figure might be going forward?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Yes I think it's really too early to see and I think as these opportunities arise, we can evaluate those at that time and also depending upon the pressures, the returns should get better as well.

Thomas Baldwin - Goldman Sachs

Thanks a lot John.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Thanks Thomas.

Operator

Thank you, our next question is a follow-up from the line of Michael Bilerman with Citi, please go ahead.

Michael Bilerman - Citigroup

Yeah John, can you just review on the credit lines, I know you have multiple credit lines. Can you just tell me? What the total capacity is and how much is drawn, on each of the... your big facilities?

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Michael we cant... I think like... what we originally started out doing and really feel that it has been the right thing that we did was to have a lot of different and separate credit facilities and they go across geographical boundaries as well as international boundaries so that we are not stuck in anyone area so that we can maintain that flexibility. So it basically is the total overall credit facilities we can get to you offline or whatever and we can tell you what's on each of those but we have basically around $300 million or a little more than that available under those credit facilities with the closing of this $228 million plus whatever we had available on to the existing lines. That does not take into play the construction loans and the other facilities that we have availability to as well. So I think we are focused the fact that cash is came today to a certain extent I want to maintain that flexibility.

Michael Bilerman - Citigroup

Of 300 million taking into account 228 million term loan and then separate from that you have the construction facilities to be able to do the development.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

That's correct.

Michael Bilerman - Citigroup

And do you have new upsides in any of these credit facilities and I know you would have done that last year I did notice that yet other upsize options.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

We do have accordion features in one or two of those lines that we could upsize those as well and then we also have the availability to do more term loans as such. So it's a business where relationships not only on the retail side really are important to us but also on the financial side as well and we have recognized that from the inception of the company that it's a two way street and we need to work and make sure that are financial partners are kept up today and that we are on very friendly terms with them as well and I think what we have done recently is proven that so far we have been successful in that regard.

Michael Bilerman - Citigroup

Right. Steven you talked a little about Settlers Ridge and yield going down a bit because you are not doing the hotel and up on you'll be able to get some public financing. On Pearland your yield went up 40 basis points can you talk about what showed that and where your sort of pre leasing is with the opening coming up with the summer.

Stephen D. Lebovitz - President and Secretary

It's a combination of... we had some good results on the buyout on the cost side and then in the leasing has come in better than we originally budgeted in the red numbers and the out parcel proceeds are coming in above budget. So I think just, we try to be conservative upfront and so that this performance improve over time and start to go in the other way.

Michael Bilerman - Citigroup

And where do you think you're going to open some from a lease percent... percentage?

Stephen D. Lebovitz - President and Secretary

We're going to open in the 80% range leased and committed, we've got the grand opening is July 30th and then we got the dealers is opening in October so, we'll probably have about 65% of the stores open in the grand opening in July and then by the dealers opening we will be at that 80% level

Michael Bilerman - Citigroup

And you talked a little bit about the store closures that are coming up what's your... what's going to happen to occupancy as you move the second, third and again the year end if you wanted it to be flat to slightly down just from a sequential aspect, where do you think you're going to be?

Stephen D. Lebovitz - President and Secretary

I don't know, I think we're... I think we're going to see pretty much, we thought the first quarter which was we had on the stabilized portfolio was flat to down a little and I think that typically most of leasing happens in the fourth quarter. So I think we'll probably be around the slight level or down slightly over the second, third quarter as well.

Michael Bilerman - Citigroup

Okay thanks guys.

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Thanks Michael.

Stephen D. Lebovitz - President and Secretary

Thank you

Operator

Thank you. Your next question comes from the line of David Rickensen [ph] with Merrill Lynch. Please go ahead

Unidentified Analyst

Hi

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Good, how are you doing?

Unidentified Analyst

Doing well thanks. Just a quick question with respect to the negative sales growth for the quarter, And I am sure these spreads, they take up on in the quarter but are you seeing any pressure on and with negotiations for future leases based in the negative sales turn at this point or do you foresee anything like that in the coming... upcoming months?

Stephen D. Lebovitz - President and Secretary

I think David it's Steven. I mean we are seeing from the retailers, they are using that as excuse, if you will to try to make tougher deals. And we are pushing back and saying you had decreases but it's only been a month or two and so it's part of the negotiating dynamic. And I think we just all have to wait and see where the sales environment goes over the rest of this year. So that's what our... that's really where we are experiencing and I think retailers love to cry the blues and they are great negotiators. And so we just have to push back.

Unidentified Analyst

Okay, now given that the majority of leasing firms that takes place in the fourth quarter where do you guys... do you have any expectations on sales at this point? Do you think that sales are going to stabilize at the level they are at now in your portfolio? Will they decrease more or they kind of tick back up to where they were say in the fourth quarter?

Stephen D. Lebovitz - President and Secretary

I think it's probably early to say what... we've heard that April has been better for a lot of the retailers just because the weather is finally warmed out and so sales have been better. We got the tax rebate coming out and who knows how much of that will filter into us. That will be a positive stimulus for the economy. So we cant... I can't really predict their crystal ball where things are going to go but I think we are hopeful that things will get better as the year goes on.

Unidentified Analyst

Okay. Great thanks

John N. Foy - Vice Chairman, Chief Financial Officer and Treasurer

Thank you.

Stephen D. Lebovitz - President and Secretary

Thank you.

Operator

Thank you. And management there are no further questions, we will turn it back to you for closing comments.

Stephen D. Lebovitz - President and Secretary

Right. Again we look forward to seeing everyone at the ICSC Recon convention in May and NAREIT in June and remind you that we are going to be closing the New York stock exchange with the closing bell on June 3. So we hope you can join us for that, Thank you all.

Operator

Thank you. Ladies and gentlemen that will conclude today's teleconference. We do thank you again for your participation and thank you for using ACT conferencing. You may now disconnect.

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