Good day, and welcome to the CBL Properties Fourth Quarter Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Katie Reinsmidt, CIO. Please go ahead, ma'am.

Thank you, and good morning. Joining me today are Stephen Lebovitz, CEO; and Farzana Khaleel, Executive Vice President and CFO. This conference call contains forward-looking statements within the meaning of the federal securities laws. Such statements are inherently subject to risks and uncertainties. Future events and actual results, financial and otherwise, may differ materially. We direct you to the company's various filings with the SEC for a detailed discussion of these risks. A reconciliation of supplemental non-GAAP financial measures to the comparable GAAP financial measures was included in the yesterday's earnings release and supplemental that will be furnished on Form 8-K and is available on the Invest section of the website at cblproperties.com. This call is being limited to 1 hour. [Operator Instructions]. If you have questions that were not answered during today's call, please reach out to me following the conclusion of the call. I will now turn it over to Stephen.

Thank you, Katie, and good morning, everyone. Before I talk about our results for the quarter and the year, I want to start off with some commentary on our new bank facility, which closed last week. This $1.185 billion financing, which recast our existing term loans and lines of credit, is a huge accomplishment for CBL. It provides us with the runway and flexibility to achieve our redevelopment operational goals over the next several years. 16 banks are part of the new facility, and we appreciate their support and vote of confidence. I'm also proud of everyone in the CBL organization for all their hard work and accomplishments in 2018. We have an incredible team of professionals at CBL, and I'm constantly impressed by the dedication and creativity they demonstrate every day. We are pleased to deliver results in line with expectations set forth at the beginning of the year, notwithstanding the challenges that materialized. This result was accomplished despite bankruptcy filings by 2 department store chains as well as overall pressure on several national retailers. In addition to the new credit facility, we successfully executed a number of important financial goals in 2018 with more than $340 million in financing activity. This included 2 non-recourse property-level financings at very favorable rates. We also completed more than $100 million in gross dispositions, supplementing free cash flow and contributing to lower total debt at year-end. And in January, we completed the sale of Cary Towne Center, and a deed in lieu of on Acadiana Mall, which reduced overall debt by another $160 million. As I stated, our operational results for the full year were in line with guidance and expectations. Fourth quarter same-center NOI improved from the year-to-date trend with NOI declining 4.4% and full year same-center NOI declining 6%. This…

Thank you, Stephen. We made solid headway in 2018 towards recouping occupancy loss from bankruptcy -- bankruptcies and store closings in recent years. During the quarter, we executed over 1.3 million square feet of leases, bringing 2018 leasing activity to 4.2 million square feet. Same-center mall occupancy for the fourth quarter was 92.1%, representing 130 basis point increase sequentially at a 10 basis point decline from the prior year quarter. Portfolio occupancy of 93.1% represents an increase of 110 basis points sequentially and a 10 basis point decline compared to last year. Bankruptcy-related store closures impacted fourth quarter mall occupancy by approximately 70 basis points or 128,000 square feet. Occupancy for the first quarter will be impacted by a few recent bankruptcy filings. Gymboree announced the liquidation of their namesake brand and Crazy 8 stores. We have approximately 45 locations with 106,000 square feet closing. We also have 13 Charlotte Russe stores that will close as part of their filing earlier this month, representing 82,000 square feet. Earlier this week, Things Remembered filed, we anticipate closing most of their 32 locations in our portfolio comprising approximately 39,000 square feet. On a comparable same-space basis for the fourth quarter, we signed over 600,000 square feet of new and renewal mall shop leases at an average gross rent decline of 9.1%. Spreads on new leases for stabilized malls increased 2.6% and renewal leases were signed on an average of 11.3% lower than the expiring rent. As we've seen throughout the years, certain retailers with persistent sales declines have pressured renewal spreads. We had 17 Ascena deals and 2 deals with Express this quarter that contributed 550 basis points to the overall decline on renewal leases. We anticipate negative spreads in the near term but are optimistic that the positive sales trends in…

Thank you, Katie. In January, we closed on our new $1.185 billion credit facility with the maturity date of July 2023. This financing achieved a number of important goals for us. With this closing, we've addressed all of our unsecured maturities until 2023. We have also simplified our covenants. Going forward, we have one set of covenants calculated in a consistent manner with the unsecured notes. We have also right sized our facility, eliminating a large unused fee, but still providing more than adequate capacity. At closing, we utilized our new line of credit to reduce our outstanding term loan -- loans by $195 million to a total of $500 million. As a result, at closing, we had $420 million outstanding on our lines of credit leaving $265 million of remaining borrowing capacity. We anticipate utilizing disposition proceeds and excess cash flow to reduce this balance over time. We have a release provision under the new facility to unencumbered properties as we make amortization payments on the term loan as well as release provisions for disposition or long-term property-level financings. Using the midpoint of guidance, we estimate $220 million in cash flow after common dividends for 2019. This is more than sufficient to fund our redevelopment and maintenance Capex as well as a term loan amortization of $35 million per year. We will also continue to be active in the disposition market, and to the extent we complete transactions, this will serve to supplement our free cash flow. We have provided pro forma covenants for the new credit facility in the supplemental as well as the metrics on the unencumbered pool that will support the covenants going forward. The conversion of the line of credit and term loans to a secured facility increased the secured debt ratio to 34.9%. The…

Thank you, Farzana. As I said earlier, we have made tremendous progress on our strategic priorities and are well positioned to succeed despite the challenges we face. Our new credit facility removes short-term financial pressure and allows us to focus on achieving longer-term goals. We are actively elevating our assets, generating new income streams and seeking out partnerships that supplement our capital resources and broaden our asset base. We are watching our capital allocation to ensure we are investing the right amounts in the right projects and making tough decisions when they are necessary. Our goal, as we move through 2019, is to position the portfolio for stabilization in 2020 and return CBL to growth. And I'm confident that we have the strategies in place to achieve this goal. Thank you for your time today. We'll now open the call to questions.

[Operator Instructions]. And our first question comes from Todd Thomas with KeyBanc Capital Markets.

Just a little bit of clarification around some of the different buckets and same-store guidance. I was just curious, Farzana, so you mentioned that there is $5.5 million in gross annual rent from the Charlotte Russe stores that are not currently closing. How is that factored into the guidance? Would that hit the reserve? Or is that factored into one of the other buckets?

Todd, some of it is in the -- embedded in the numbers, but some of it will come off from the reserve. So approximately $3 million will be in the reserve, the $5 million to $15 million reserve that we have established.

Okay. So some of the bankruptcy impacted tenants if they close stores that are in addition to what's already known, that would basically flow through the reserves of the $5 million to $15 million?

That's correct. That's correct.

Okay. And, Farzana, so you talked about some additional dispositions throughout 2019 to supplement cash flow. Are you currently marketing any assets for sale today? And are there any dispositions embedded in the 2019 guidance?

Well, no. Dispositions are not embedded. However, what we say is that we will supplement our cash flow, the free cash flow for investments and reduction in debt. So we generally, every year, have about $30 million to $35 million in proceeds from our parcel sales, so that's one component. And then the other component is certain opportunistic asset sales that we will explore as we go forward. And we are working on some smaller ones, and we will let you know when we are able to accomplish those results.

Yes, and we don't like to comment on what we might be marketing, because there's so many different ways you could market assets, whether it's through brokers or privately. So -- and a lot of times they're also expiratory just to get a sense for the market. So I think like Farzana said, it's -- we don't included it in guidance, and as something happens, then we announce it, then we would make the adjustment.

And our next question comes from Craig Schmidt with Bank of America.

I wonder if you knew the number of assets in Tier 1 out of the 18, they're unencumbered? And then how many of the 33 assets in Tier 2 are unencumbered as well?

Well, the asset category has changed a little bit since we closed the loan. So when we did close the loan, we had 3 assets that were Tier 1. And now since we have changed the sales per square, they have 4 assets. So it's just -- and some asset -- one of the asset has moved on to Tier 2 and one has moved on to Tier 3. So it's sort of a mixed bag in terms of what's in Tier 1 and Tier 2 for the Wells Fargo credit -- lines of credit versus what's bond. But like I mentioned, for the bonds portfolio, the unencumbered piece that's left, we have a number of community centers and a number of associated centers and a big portion is our Tier 2 properties. I don't have a count right now to give you, but the total count for the Wells Fargo line is about 17 properties in total.

Okay. And then you currently have 1 of your 7 redevelopment projects under development from Tier 3. I just wondered how active will you be in future redevelopments with Tier 3 projects.

Yes, Craig, it -- I mean, for the most part, the redevelopments are focused on the higher sales per square centers. Although, in the case of Brookfield Square, it's misleading just because of the quality of the location and the market. And the project that we're redeveloping, the Sears, is outward facing theater, entertainment, restaurants, hotel, conference center. And so we are creating value even on a freestanding stand-alone basis with that type of project. And that mall, over time, will continue to transition and have redevelopment opportunities. It's a great location, tons of traffic on the roads and great visibility and its growing market. So we evaluate each one individually. But that's the circumstances there.

And our next question comes from Rich Hill with Morgan Stanley.

Maybe I can just start off with talking about other income. It looks like that increased, at least compared to our estimates, rather significantly compared to the prior quarter. Farzana, could you maybe walk through what was included in that?

Yes, there is a reclassification going on, and I think you probably have seen that from other companies reporting that as well. So they are certain income components that used to be included in the base rent, some of them were in that tenant reimbursements. So we have moved reclassified from tenant reimbursements to the other line -- to the other category, and also some lease income from other rent to other income, which is like some of the branding and sponsorship type income.

Got it. I'll probably follow-up off-line just to get a little bit more detail, to make sure it makes sense. But I did want to talk about your -- just a quick separate question, your NOI unencumbered assets. Just to make sure we're thinking about it correctly. I see around $160 million of -- $168.5 million of unencumbered NOI, is that right?

Yes. The total unencumbered NOI is approximately $365 million. So it's now divided. It's split in half, half of it went to the new credit facility and half of it is still in the unencumbered pool.

Got it. And so that unencumbered NOI, I know you give negative 7% same-store NOI growth overall. Do you have any thoughts on how that unencumbered same-store NOI is trending compared to the overall guidance?

No. I don't have that information, Richard.

And our next question comes from Caitlin Burrows with Goldman Sachs.

Maybe just in terms of the same-store NOI. In 2018, that came in right at the midpoint of your guidance. So I was just wondering for 2019? And how you think about that reserve, which is slightly smaller. Would you say this reflects a smaller watch list? Or how would you think about how you arrived at that reserve amount?

Yes. Most of the bankruptcies that we know about now is all baked into our top line number. So what we have left is a smaller watch list. And so we -- obviously, the reserve has been lowered because of that. So this is all unknown from now on, whatever we -- that comes up, so we've provided for the $5 million to $15 million bankruptcy reserve for that.

Okay. And then also, I was wondering if you could just remind us in terms of same-store NOI, those settings would be impact of your anchor redevelopments, and if it does, do you how much of a positive kind of benefit that had in 2018? And what you expect for 2019?

Caitlin, we actually include some benefit if there is a redevelopment, but we also deduct the lost anchors that you can see on our same-store NOI reconciliation that we provided to get to the midpoint, we have that $1.8 million deduction from the anchor closures that's occurring. There is some benefit, but it's kind of all recycled in together. I mean, hopefully, you're -- we're doing accretive redevelopments that benefit NOI over the long term. So ultimately, it should improve the growth rate. But there is not a material uplift in 2019 relative to what we're seeing on the anchor closure side.

Got it. Just because -- there is a little offset from the improvement that you are getting?

Yes. Exactly.

And our next question comes from Christy McElroy with Citi.

Understanding from Todd's question that you're not giving disposition estimate. But just as we think about the $220 million of free cash flow expectation, can you sort of give us the CapEx breakout for 2019 in terms of what you expect to spend this year on development and redevelopment? And then sort of the leasing CapEx bucket and the R&M CapEx bucket? And then sort of what's left over for the line of credit pay down?

Yes. We've noted that we have approximately $220 million in free cash flow after dividend payments. And we are expecting similar CapEx as we had in 2019, around $70 million, $75 million. And if you also add in some outparcels sales that we have typically done every year, our cash flow should more than cover the amortization, not only the property-level amortization, but also the term loan amortization. And also have sufficient funds between $75 million to $125 million as we noted to spend on developments. So it should pretty much balance out.

Okay. And then anything sort of in terms of line of credit pay down from where the balance is today? Anything sort of left over? Is there anything left over, do you go to that? Or is that sort of any dispositions that you do with the line of credit pay down?

Yes. Well, generally speaking, the disposition proceeds have reduced our line of credit over the years. And even last year, we had a considerable decline in our debt -- total debt balance by $100 million, and largely it came from disposition proceeds. So that will continue as we have dispositions that will bring our lines of credit down. And also, the term loan will keep coming down because we are making amortization payments.

Christy, I'd also mention, the $75 million to $125 million that Farzana talked about, we do get construction loans on some of our construction, our major projects like Brookfield. So we wouldn't -- we would be using construction sources. It's a debt-for-debt swap, but that goes into that calculation as well.

Okay. Got you. And then just as you think about the dividend level and maintaining sort of within the REIT rules, your payout. Maybe if you could just walk us through sort of a taxable income cancellation, now that you've got your budgeting done in terms of you've got the NOI decline, it sounds like interest expense is flat-to-up, but then to the extent that you expect to generate or use NOLs to offset taxable income.

We just don't generally walk you through a taxable income calculation because it is a complex one, and I don't think it would be appropriate for us to do that. But I will tell you that as we looked ahead in 2019 and adjusted our dividends, it is to pretty much follow the taxable income that we expect to have in 2019. It will have some losses like for Acadiana Mall that will be part of it and Cary Towne Center. so we -- that's really where it will be. This is where we are projecting. But we watch it every quarter and we review it and we will make adjustments if we feel that, that's appropriate. But at this time, our dividend is set for the next quarter, or this quarter at $0.175 -- $0.075, sorry.

And our next question comes from Tayo Okusanya with Jefferies.

First of all, just congrats on all the progress with the debt refinancing and as well as retenanting space, that's good information and good progress there. In regards to your loss provisions of rents, the $5 million to $15 million. Just from your initial comments about the 3 bankruptcies so far this year, that kind of eats up about half of it at this point. If you end up in a situation where you do have a liquidation of 1 or more of the 3 tenants, and then you continue to kind of have store closures from some of your weaker tenants and your top 20 like Ascena, or H&M. You're talking about closing stores, Forever 21 is doing some rent modifications. I guess how comfortable are you just with that $5 million to $15 million range? And is there any risk it could get bigger?

We have baked in all the bankruptcies that I just mentioned in my prepared remarks. So the $5 million $15 million is pretty much open right now for us to use if we have not budgeted them and we have some new information that comes up. But so far, all of the bankruptcies that I mentioned, they are already baked into our numbers, top line numbers.

So the $5 million to $15 million is an additional provision?

That's correct.

And we -- the only one that's outstanding is the Charlotte Russe where we mentioned that we had that $5 million annual gross rent exposure, but obviously, it would be prorated for -- if they happen to liquidate, it would be prorated for whenever their liquidation will occur. And we do also budget tenant-by-tenant or space-by-space. So some the stores are already budgeted to have rent declines or closures within our base budget. So it wouldn't be that full $5 million impact coming out of that reserve.

Okay. But if you do have the liquidation of any of those bankruptcies, that's nodding your numbers. You just kind of have of the stores you expect to close right now, a liquidation will eat into the loss reserves, correct?

Well, most of is -- I mean, Gymboree was pretty much all the store closed any way, except for, I think, 3 of 4 Janie and Jack locations that we had. And Things Remembered, right, expect them to close almost all, if not all of their locations. So that was already factored in.

Into the numbers. Okay. That is helpful. And then just in regards to -- I know this is a very popular question, but within your markets, can you just talk a little bit about, again, retailers who historically have not really had stores in your markets, who you are starting to attract with some of your redevelopment projects?

Yes, no. Thanks, Tayo, and thanks for your congrats on the loan recast and the development. So like I've said in my remarks, we've got a lot of different kind of uses, non-apparel uses that we're adding. And it's really a combination coming from all different types of areas. And we're working with a number of alternative uses, mixed-use, like I said, hotels and multifamily. But also, within retail, there is a lot of transaction, there is new names that are e-tailers that we are in active discussions with and that we're meeting with, and hopefully, we'll be able to announce those in the not-so-distant future. And then the entertainment users that we're adding are new to the market. Dave & Buster's will be new, Winston-Salem or Chattanooga, when they open. So really almost everyone we're working with is new to the market and that's -- our goal is to use the closed department stores to transition these properties into different types of open-air and more entertainment and food and mixed-use based projects.

And our next question comes from Linda Tsai with Barclays.

When you discussed the multiple anchor closures that resulted in impairments to Honey Creek, and is there other models in your portfolio that could see a similar situation in '19?

This -- the impairment is a quarter-by-quarter process. We don't know at this point that we will have any other properties that will meet that criteria. But these two properties that I mentioned were significantly impacted because they had multiple anchors that left the center. So at this moment, these 2 other ones that we have taken impairment on.

Okay. And then on Page 5, in terms of the reconciliation to same-store NOI, there is a couple of categories where you lump in 2 item. Can you give us like a breakdown of like the contribution, so for example, lease modifications and cotenancy that has a negative 1.4% impact, like 4 percentage of that is lease modifications versus cotenancy.

Yes, we're not going to be able to break it down to you any further than that, Linda, because that's our best estimate from each one of those larger categories. Obviously, it's all little bit frangible, but we kind of bucketed those together because they made sense.

Yes. Linda, also, just back to your first question. I mean, we do have clarity now on Sears, which is good. So, I mean, we know department stores that are closing. We know which are staying open at least in the near term. So I think that gives us some comfort when we're looking. And we've also, like I said, had a lot of success in backfilling these different department stores. And we have several that are opening, a couple that have opened, so a lot that are opening this year. And so that will all counter any pressure on the properties from an impairment point of view.

And then just finally, like, looking at Page 37 to 38 in terms of the redevelopment plans for Sears and Bon-Ton, it seems like you guys are going to be really busy. Are there any plans to do more hiring to help support these projects?

Well, the short answer is no. But we had, over the years, a pretty active new development program. And so we've redeployed that expertise and that team to the redevelopments. And also within leasing, we set up redevelopment specialists, and it's working well. And yes, there is a lot out there and everyone's really busy. But we feel like it's manageable, and we're -- as Farzana said, we're very cognizant of our G&A and managing expenses and we've taken steps to reduce it for this year, which we feel like is what we need to do because, like I said, our goal is really to get back on track from stability in our NOI and FFO and return the company to growth.

And our next question comes from Michael Mueller with JPMorgan.

I think it was about $9 million of rent tied to the 3 bankruptcies that you mentioned. Was that $9 million amount, was that a calendar year amount? Was that an annualized amount? And what's currently in the run rate as you start 2019 that hasn't gone away?

Yes, it was an annual number, gross annual rent, so it's not prorated for the impact to the Sears. And it's really -- we'll have to see when the stores close for what that final impact will be. But we have included those numbers in our base guidance outside of the reserve.

So more conservative than not. That's what we have done.

And the next question is a follow up from Christy McElroy with Citi.

Just a couple of quick follow up. Just on Honey Creek and Volusia, I think, Farzana, you said that you're coming to a resolution with the lender, and I realized you wrote down Honey Creek. Can you just give us a little bit more color on, will that involve a reduction in the coupon and extension of those loans? Or maybe just some more color on that.

I'd like to finish our negotiations before I give you any information. So it is underway. We hope to conclude it in next 60 to 90 days, and we'll obviously let you know.

Okay. And then can you say what the debt yields were on Acadiana and Cary Towne Center?

Not really, because they -- we haven't been managing Acadiana for a number of months, almost over a year, so I don't know what the NOI is today or when it went back to the -- it was -- there was a note purchase on it. The lender sold the note and the note purchaser -- we ended up giving a deed in lieu of foreclosure to the note holder. So we are not aware what the NOI -- generally, what the NOI was. So I'm not so sure what they bought it for as well. But our debt, of course, was pretty high, so I want to say that debt yield is -- was very low.

Okay. And then just lastly on the -- in terms of the 2019 commencement spreads that are in there, the negative 11.6%. Would you expect, based on the leasing, that you continue to do for 2019 commencement? Would you expect that to hold as we kind of go through the year and you fill out that leasing?

Yes. We think it's going to get better. I mean, the sales have stabilized and we had an increase. A lot of the leasing that we did, involved high occupancy cost of renewals. And so that was impacting the negative 11%. And we feel like the environment has improved. It's -- I think it's probably too optimistic to say it'll go positive, but we definitely think there'll be progress.

And the next question is a follow up from Caitlin Burrows with Goldman Sachs.

I guess, I was just wondering, since somebody else asked about it and I was wondering, rather than have to have multiple conversations, on the idea of the tenant reimbursement income amounts and other income, could you give a little more detail on what that shift is? And when you net it together, is it both included in same-store? So when you consider same store, there is not really an impact?

Yes. From a same-store basis, there will not be an impact. It's still in the revenue line item. If you can think of it that way, it's in the top line. So apples-to-apples, same-center NOI, and the aggregate is comparable. Only the shift in the category, it's shifted from tenant reimbursements and minimum rents to other.

And any straightforward details or reasoning on why that is? Or it's just the way it is now?

This is a new accounting rule change, standards that change, and that's the reason for the reclassification.

Caitlin, it's revenue that's related non-leased revenue. So it's like for locations that are owned by the...

Others. Yes.

And they pay us CAM, you have to pull out the tenant reimbursement and move them into other. And then for branding income, that's like advertising and things like that, that's not related to leases. That comes out of other rents and moves into other income. [Indiscernible] if the offers change.

And the next question comes from Haendel St. Juste with Mizuho.

A couple of quick ones for me. Steve, I guess, I was hoping you could elaborate on some comment you made earlier of expected stabilization in 2020. Does that statement reflect an expectation for improved store closures, leasing spreads, same-store NOI? Maybe some color on that. And if so, what gives you the confidence to make that statement?

Sure. I'd say it's a couple of things. First of all, it is early in the year, so I don't want to be overly optimistic. But we do go through a process of budgeting out. And just looking at where we've been from cotenancy impact, that will burn off, backfilling of department stores, leasing progress that we'll continue to make, and then the -- just the general discussions we'll have with retailers, we do feel like we're going to be in a better position in 2020. And there is a lot of wildcards and variables that can come into play between now and then and, obviously, we won't be doing 2020 guidance until a year from now, but we're to talk about it and it is really the combination that drives that sense of optimism.

Got it. Got it. Okay. And then I'm curious, how your higher cost of capital might be impacting underwriting hurdles for your redevelopment projects? I'm wondering, first, I guess, do you have higher return hurdles these days? And has that caused you to postpone or delay any projects you're considering starting?

Yes. We've definitely looked hard at our redevelopment projects. Like I said, we have a dozen that -- where we're spending little or no money. So we've looked to be creative as to the strategy, so we can backfill without using capital. And we're limiting the investment to ones where we see it's accretive to the asset or the value. And we've gone back and challenged our redevelopment team to reduce cost where possible. We do -- there is pressure on construction cost that has been a challenge and the rent levels, we want to make sure that we're setting up the users for success. So that's important to be realistic in our performance. But it's something that is definitely -- is very top of mind for us as we look at just how precious every dollar is.

And this concludes the question-and-answer session. I would like to turn the conference back over to Stephen Lebovitz for any closing remarks.

Thank you everyone for your participation today, and we look forward to talking to you in the future or seeing you shortly. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.