Good day, everyone, and welcome to the CBL and Associates Properties Second Quarter Earnings Conference Call. [Operator Instructions]. Please note that this event is being recorded. At this time, I would like to turn the conference over to Scott Brittain of Corporate Communications. Please go ahead, sir..

Thank you, and good morning. We appreciate your participation in the CBL Properties conference call to discuss second quarter results. Presenting on today's call are Stephen Lebovitz, CEO; Farzana Khaleel, Executive Vice President and CFO; and Katie Reinsmidt, Executive Vice President and CIO.

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 non-GAAP financial measures to the comparable GAAP financial measure was included in yesterday's earnings release and supplemental that will be furnished on Form 8-K and that are available in the investor section of the website at cblproperties.com. We will be limiting this call to one hour. [Operator Instructions].

I will now turn the call over to Mr. Lebovitz for his remarks, please go ahead, sir..

Thank you, Scott, and good morning, everyone. Before I review second quarter results, I want to take a minute to recognize and congratulate Michael Lebovitz on becoming President of CBL in June. This promotion recognizes the broader role Michael has been playing in the company as well as the increased importance of our redevelopment strategy.

This is an important year for CBL as we recover from the significant bankruptcy activity in 2017, transform our properties from apparel and departments toward a dominating and closed malls to mixed few centers with more diverse tenants and stabilize our financial results and balance sheet. And we are making major progress in each of these areas.

While we are looking to improve our overall results, we are pleased to again, reaffirm full year guidance with the second quarter coming in within expectations. Second quarter adjusted FFO per share was $0.46 and same center NOI declined 6.9%.

Trailing 12 month same center mall sales increased at $376 per square foot, flat from the first quarter and an increase from $375 per square foot for the prior-year period. Leasing spreads improved sequentially but remained negative in part due to renewal activity with certain retailers with high occupancy cost levels.

Bankruptcy activity has also slowed this year compared to 2017, particularly for in-line retailers with more retailers filing for reorganization rather than liquidating. Last year, we had over 800,000 square feet of store closings related to retailers in bankruptcy.

This year, we anticipate approximately 2 million square feet of store closures, however, 1.9 million square feet is represented by the Bon-Ton stores closing in August. As Katie will discuss, we are making strong progress replacing vacating Bon-Ton stores that we own and expect to have several of the new users open in 2019.

Our leasing activity reflects the success we are having in diversifying our tenant mix. Year-to-date, over 60% of our total new leasing was executed with nonapparel tenants including dining, entertainment, value and service uses.

We have executed contract NOIs or having active negotiations with 55 restaurants as well as 12 entertainment uses, eight hotels, two grocery users as well as fitness, medical office, self-storage and residential. We are expanding the types of uses we are bringing to our properties.

At West Moreland Mall, last week, we announced that we have a signed lease with the Cordish companies and Greenwood Gaming, two successful and experienced operators of casino entertainment complexes to replace the closing Bon-Ton location.

This unique addition, the first of its kind in the CBL portfolio encompasses gaming, entertainment and dining to offer an exciting experience for our customers. The casino will attract new traffic and drive sales to the entire property.

Additionally, our self-storage program is picking up momentum with one project opening in August, 1 under construction and two in the planning phase. We are replacing weaker legacy retailers to broad and stabilize our sources of income. We have signed leases with growing specialty concepts such as La Senza, [indiscernible] and Carters.

We're adding service, medical and education tenants at several centers. We are negotiating with several online retailers that are looking to open stores as a way to grow their brand presence in overall sales. This new wave of retailers is looking for more than just space to lease. They're looking to partner with us to share data and analytics.

We are in discussion with several e-tailers as well as some traditional stores to provide analytics and other services using traffic and Wi-Fi data we are collecting at our properties. As we have discussed in earlier calls, a major priority is to ensure that we have the liquidity and financial flexibility necessary to fund redevelopment activity.

We are raising attractively priced capital through refinancings and extending our debt maturity schedule by addressing future maturities well in advance.

During the quarter, we closed down the refinancing of CoolSprings Galleria with a new nonrecourse, 10 year fixed rate loan and completed five year extensions for two secured loans scheduled to mature in 2019.

As Farzana will discuss in more detail, we are working on other property level financings and having constructive discussions with our bank group with regard to recasting both our term loan and our lines of credit. In addition, we are being proactive in exploring opportunities to enhance liquidity and maximize our free cash flow.

We review every operating expense and capital expenditure so that the maximum cash flow is available to fund redevelopment debt reduction.

As we discussed last quarter, we structured several of our redevelopment using joint ventures, land sales and ground leases in a manner that minimizes our capital investment while still creating a transformative project. The casino joining Westmoreland Mall is a great example of this.

CBL's capital commitment to the project will be less than $2 million yet the addition will be a tremendous benefit to the center's long-term growth. One of our most significant uses of cash is our common dividend payment. Last year, we reduced our dividend to match our taxable income projection for 2018 to preserve $50 million of liquidity.

With our focus on returning shareholder value and at significant shareholders ourselves, we do not take adjustments to our dividend lightly. However, our first priority is to ensure we have sufficient liquidity to fund our capital needs. We plan to pay $0.80 per share for this year.

The dividend declared in August will be the fourth dividend tax of all in 2018. We will review preliminary projections for 2019 taxable income ahead of the November dividend declaration, which is typically payable in the following January. At that time, we will determine the appropriate payout level on a go forward basis.

We recognize the importance of consistency of our dividend level and believe that the dividend is an important component of our total return to shareholders. We also believe that is critical to ensure CBL remains on the offense with ample liquidity and financial flexibility to fund redevelopments without adding additional debt.

We will balance these considerations as we have better visibility over the next few months, I will communicate our plans when this information is available. I will now turn the call over to Katie to discuss our operating results and investment activity..

Thank you, Stephen. Even though we have not fully recovered from the bankruptcies in 2017, our leasing has picked up and we are making solid progress. For the second quarter, portfolio occupancy ended at 91.1%, down 50 basis points compared with the prior year quarter and flat sequentially.

Same center mall occupancy declined 90 basis points from the prior year to 89.5%. Bankruptcy related store closures impacted mall occupancy by approximately 91 basis points to 168,000 square feet for the quarter. Occupancy was also impacted by the closure of 34 Best Buy mobile locations representing 48,000 square feet.

During the quarter, we executed nearly 850,000 square feet of leases. On a comparable same space basis, we signed roughly 436,000 square feet of new and renewal mall shop leases, at an average growth rent decline of 8.2%.

As far as our new losses for stabilized malls declined 1.4% and renewal leases were signed at an average of 9.9% lower than the expiring rent. The decline in renewal spreads is driven by a number of higher occupancy cost leases that were renewed during the quarter.

As Stephen mentioned, we are pleased to see a sequential improvement in the leasing's spreads and are pushing hard to return to positive territory. Second quarter sales growth is mitigated from the levels generated during the first quarter, coming in relatively flat.

Trailing 12 month sales reached $376 per square foot compared with $375 per square feet in the prior year. While April returned some of the gains achieved in March from the early Easter, May has driven a solid increase and June was relatively flat.

Apparel, family shoes and cosmetics posted healthy increases in the quarter while we saw weakness in some accessory concepts and optical. We anticipate a healthy back to school and modestly positive sales for the full year. When replacing under underperforming department stores is a huge opportunity for us to transform our properties.

It helps to stabilize and grow income and achieving less that are multiples of what the vacating department stores paid and private new 0. During the quarter, we added to our redevelopment pipeline as well as opening several completed projects.

In April, we have been exporting goods in Richland Mall in Liggett Texas, taking space formerly occupied by mall shops and a Junior anchor. We also saw Marshall's in the former JCPenney location at new York Galleria in York Pennsylvania.

Quick through house, our specialty [indiscernible] operator featuring films, food and microbrews opened in June at East Towne Mall at Madison Wisconsin. Later this year, we'll open H&M and Planet Fitness in the former JCPenney space as well as Outback Steakhouse at Eastland Mall in Bloomington, Illinois.

Construction is progressing at -- on the Sears redevelopment at Brooks Square and Milwaukee Wisconsin, which was one of the stores we purchased last year to a sale leaseback. The first stage of the project includes the new beestrowplex and movie experience from Marcus Theatres or live entertainment center and two restaurants.

In July, we completed the sale of the portion of this Sears partial to the city for development of a hotel and commencement center. We are planning for our fall opening in [indiscernible] Metro Diner in the former Sears Auto Center location in blue-chip mall and Daytona Beach.

[Indiscernible] restaurant and PayBack Express are under construction here in Chattanooga at Northgate Mall in the former Sears Auto Center space. At Jefferson Mall in Louisville, Kentucky, we are under construction to add Round 1 entertainment center in the former Macy's, the opening is set for later this year.

We commenced construction on [indiscernible] that pay small investments talent and from a short phase near the Sears wing with the opening scheduled for 2019. In Greensboro, at Friendly Center, O2 Fitness is under construction replacing a former freestanding restaurant. The new 27,000 square-foot location is expected to open in late 2018.

In July, construction commenced on Cheesecake Factory at Hamilton Place here in Chattanooga. The new restaurant is locating on a portion of the Sears parking lot and is expected to open later this year. We acquired the Hamilton Sears store in surrounding parking in land in January 2017 sale lease transaction.

We are finalizing plans for the redevelopment of the Sears building, which will include an entertainment use and other misplaced components but we're able to move forward in advance for the construction of Cheesecake in the parking lot. We are often making some progress in replacing the remaining Bon-Ton's.

As a reminder, we started the year with 16 stores with 4 owned by others and 2 in mortgaged properties. We have leases executed on 3 and LOI's there are active negotiations for the remaining.

We announced earlier this week that a new shop at our grocery store will take the former Bon-Ton space at start modest drop Pennsylvania, construction is expected to start later this year for a 2019 opening. We have two leases executed with value retailers to take former space at Kentucky Oaks Mall, one of our joint venture properties.

At West [indiscernible] Mall, we have a lease executed with Stadium casino. Lastly, we completed the sale of Jamesville mall which is anchored by a Bon-Ton location. We are reducing our Sears exposure with 39 remaining open in the portfolio after the sale in Jamesville. This includes 15 Leicester locations.

In addition to Brookfield Square, we are making progress on the redevelopment plans for the other four Sears we purchased in 2017 as well as lease locations that are at risk or slated to close in the near term. Sears is marketing the majority of their own stores to third-parties and we are monitoring this process closely.

We are also working with Heritage on the locations they own in their portfolio. I will now turn the call over to Farzana to discuss our financial results..

Thank you, Katie. Second quarter adjusted FFO per share was $0.46, representing a decline of $0.04 per share compared with $0.50 per share for the second quarter of 2017. Major variances included $0.07 per share from lower property NOI, $0.01 lower net interest expense, $0.01 lower G&A expense and $0.02 lower abandoned project expense.

Second quarter's same store NOI declined 6.9% or $11.5 million with $8.3 million lower revenue and expenses increasing $3.1 million. The decline was primarily due to a lower occupancy and rent reductions related to tenants and bankruptcy offset slightly by an increase in percentage rents. Property operating expense were $0.8 million higher.

Maintenance and repair expense increased $1.1 million and real estate tax expense also increased by $1.2 million. The variance in real estate tax was primarily the result of a beneficial assessment creating a negative variance from the prior-year period.

We are maintaining our 2018 guidance for adjusted FFO in the range of $1.70 to $1.80 per share, which assumes a same center NOI decline of 6.75% to 5.25%. Guidance continues to include a top line reserve to take into consideration the impact of unbudgeted bankruptcy, store closures and rent reductions.

Based on our results year-to-date and current expectation of rent loss from rent reductions, closures and cotenancy from activity year-to-date, we expect to utilize approximately $13 million to $15 million of the reserve. We will update this number as the year progresses as well as other assumptions that underlay our guidance.

We completed several important financial transactions during the quarter that locked in low buying costs and extended our maturity schedule. We closed on a new $155 million secure -- loan secured by CoolSprings Galleria at a very attractive fixed rate of 4.839%, generating approximately $30 million in excess proceeds to CBL at our 50% share.

The maturing $98 million loan carried a rate of nearly 7%. We also completed five year extensions of loans aggregating to $115 million, secured by Hammock Landing and the Pavilion Export orange in Florida. Both 50-50 joint venture assets. Subsequent to the core end, we retired $190 million of a $419 million unsecured term loan.

We are making good progress placing a new loan on the Outlet Shoppes at El Paso and anticipate closing within the next 90 days. We will utilize proceeds to reduce outstanding borrowings on our lines of credit that were used for the July term loan paydown.

As Stephen mentioned, we're in the process of refinancing our $350 million unsecured term loan, which has an outside maturity date in October 2019 as well as our major lines of credit totaling $1.1 billion in capacity, which matures in 2020.

In addition to extending the maturities, we're working with our bank group to rightsize both the term loan and the line facilities to a lower level while still maintaining adequate capacity and flexibility. Based on our preliminary discussions with the banks, there is a high likelihood of adding security.

While our preference into the discussion was to remain unsecured, the additional flexibility of terms that we're able to achieve through adding collateral will be important in allowing us to more effectively execute our strategy.

Through the negotiation process and as we identify assets, we are being mindful to ensure adequate coverage for our bonds by retaining a high-quality unencumbered pool, which will continue to provide significant support through our unsecured bond covenants. We will provide more details as the terms and properties are finalized.

Our total pro rata share of debt at quarter end was $4.7 billion, a reduction of approximately $20 million from the prior year end and $19 million from year-end. We anticipate ending the year with lower total debt as a foreclosure of the $122 million loan secured by Acadiana Mall should be finalized.

We are also discussions with the lender for the loan secured by Cary Towne Center to determine the next steps for the property. As we announced in June, IKEA made the decision to cancel plans for certain stores as their corporate strategy shifted.

Since the extended maturity date of the Cary Towne Center loan was contingent on the sale to IKEA, the loan went into default upon receipt of the cancellation notice and lender elected to accelerate the loan maturity pursuing to the loan agreement and we recorded a $52 million impairment charge in the quarter due to the shortened hold period.

We are currently finalizing forbearance agreement and we'll work with the lender to determine the best path forward over the next several months. We had approximately $113 million outstanding on our lines of credit at the end of the second quarter. At quarter end, net debt to EBITDA was 6.98x compared with 6.4x in the prior-year period.

The increase was primarily due to lower total property level NOI. Our expectation is that this metric will improve by year-end 2019 as debt levels are reduced and we benefit from lease-up and new NOI from projects coming online. I'll now turn the call over to Stephen for concluding remarks..

Thank you, Farzana. We are encouraged by recent positive trends in retail in the overall industry as well as the progress we are making in redeveloping anchor locations. While these improvement have not yet benefited our financial results we are confident that we will demonstrate improvement as the year progresses and into 2019.

Our properties are well positioned in their market to attract no unique uses such as the casino at Westmoreland and the supermarket at Stroud. Our recent financing activities are encouraging and we expect continued progress for four year end on the term loan line of credit recap.

We are committed to making sure we have adequate liquidity and flexibility to execute on our redevelopments and other strategic initiatives. We are confident that these strategies will put CBL in a stronger position going forward. We appreciate your continued support and we'll now take your questions..

[Operator Instructions]. Your first question will come from Christine McElroy from Citi..

Just as I think about the moving parts into next year, with the renewals spreads on 2018, 2019 commencement still down about 15%, 20%, how do your spreads and maybe some additional fallout impact in second half translate into same-store NOI growth for 2019? And just as it relates to free cash flow projection into 2019, Stephen, in your opening remarks, it sounds like you're communicating the potential for another dividend cut in November?.

So just let me do the answer in reverse. So first, yes, on the dividend, we wanted to communicate that that is a possibility.

We don't want to surprise the market with something in November without giving a heads up that we're going to look at it over the next few months as we have better visibility into 2019 taxable income, 2019 budgets for NOI and FFO.

There are a lot of moving parts to use your terminology that go into that, including the NOI results, the recovery and leasing as we look ahead. And also, transactions that impact taxable income whether the dispositions or our lender transactions.

So we just wanted to make sure that the market realizes, we're going to look at it and also that if we can reduce the dividend and use those funds to fund the redevelopments to reduce debt, that is our most efficient source of capital and we'll take advantage of that opportunity to do so. So that was -- we wanted to be clear about that.

Then as far as lease spreads, I don't know where the 15% to 20% comes from, we are in the high single-digit 10% range year-to-date..

Even on the renewals?.

Right. But it's not 15% to 20% but anyway, let's not debate that.

I mean it's still down and -- but we did make -- we did improve from first quarter and we see continued improvement that's driven a lot by the hangover from last year, the bankruptcies and also the stores that didn't close but that we had to restructure the leases because of their higher occupancy costs.

And in general, in any quarter, there is a few deals that disproportionately impact leasing spreads where we have higher occupancy costs and we have more of those than we have higher improving leasing spreads at this point so that's driving them down overall. So we do see improvement there. We see continued improvement.

We've had good stability in sales this year there. They're flat, slightly up for the year and we see that continuing throughout the year. You look at our peers and they had -- they've had really strong sales results too. So it indicates just a better narrative, the leasing market is changing and it's getting better from our point of view.

And so we see that helping us as we get more into this year and we start working towards 2019..

Okay.

And then just a follow-up on the lender transactions, understanding that you're looking to manage your bond covenants through this process but what impacts were adding secured financing have on your credit ratings and your ability to raise new unsecured debt in the future?.

Christie, so obviously, adding secured debt as collateral or properties as collateral for the lines of credit will reduce our increase to secured debt ratio. So that's really generally, that's 1 metric that gets impacted. As to the rating agencies, generally, we have S&P that has -- we're still are typically minus with them.

I don't think that the generally speaking, the bond covenants are going to be materially impacted other than the secured ratio. They do like to see that secured ratio to be lower. So I cannot speak for what S&P will do, however, the other 2 rating agencies have downgraded us as you know.

And the other question will be, how much of the unencumbered NOI is -- will now be unencumbered because part of it will go into secured -- for security against the collateral. So currently, we have 60% of the NOI unencumbered and that's a pretty sizable number.

So we have a lot of flexibility in our bond covenants so we are very mindful of our bond covenants and we are taking that into consideration as we are negotiating on our secured line of credit with the banks..

Do you expect your interest cost to go up net-net after this transaction?.

It will slightly go up because there are couple of components that we benefit from, we are not going to have a fee on our -- big facility fee that we have today, we have $1.1 billion capacity. We pay facility fee on that but on a new transaction, it will be much less.

And therefore, there will not be a facility fee, there will be a -- what we called as a unborrowed fee so it will be quite different. So we'll mitigate some of the cost from that. But the spread will go up and between the 2 of them, it will not be a material difference but it will be higher..

The next question will be from Todd Thomas of KeyBanc Capital Markets..

First question, just about Bon-Ton so last quarter, you commented that the annual base rent there was $7.3 million and you thought there was about $3 million to $3.5 million of potential for tenancy exposure.

Any updates there? Particularly I guess on the cotenancy side? And is that the initial cotenancy exposure that may kick in upon the closures? Or is that more sort of outdated if the vacancy is not cured within a one year or some other time period?.

So the numbers have not changed. The only thing that we know with certainty is that they're closing their stores in the next few weeks. The cotenancy is not consistent, there is some that are more immediate.

They're -- for the most part though, it is longer-term and we do have a period to replace them before the cotenancy kicks in and like Katie said, we've made a lot of good headway with the replacement of the Bon-Ton's. We have several that are going to open next year.

The 2 we've announced because of having signed leases, supermarket and the casino will take the whole building. And so those will be good replacements. And we have others that will announce as we sign leases that will cure cotenancy as well.

So it's ongoing discussion that not only us but our peers are having with the retailers about cotenancy and about the flexibility to change because we're all adding new uses to replace department stores and it's not just conventional department stores and retail, it's a lot of mixed use.

And that's a big part of our redevelopment program and I know you've heard that from others as well.

So cotenancy is hard to underwrite because there's just a lot of changes happening in the discussions with retailers as far as how that -- and we're trying to be conservative in terms of underwriting it but we also have good relationships and discussions with retailers about the replacements coming in and giving us the relief from that..

Okay. And then Farzana, sorry if I missed this, I think you said you expect to use or kind of fall in the $13 million to $15 million range of that unbudgeted rent loss reserve.

How much of that actually sort of been announced? Or is incurred I guess at this point versus what's still being forecasted?.

That's hard to give you that number. The whole guidance takes into consideration the updated forecast that we have on our NOI and FFO. And then, we of course, look at the reserve and some of it has been utilized and some expected to be utilized. So based on that combined information, we're giving you this update that's about $13 million to $15 million.

Again, this is our best estimate at this time..

Okay. Got it. And then just lastly, Stephen, if -- appreciate the comments about the dividend. It sounds like you're looking to maximize retained earnings to fund the redevelopments and some re-merchandising initiatives.

Would you consider or recommend or delaying dividend distributions throughout the year, in 2019 may be assessing where you're at the end of the year with regard to taxable net income and making a distribution at year-end? Or are you committed to a quarterly dividend? And would you also consider paying a stock dividend in lieu of cash just to preserve more capital to fund some of those initiatives?.

Sure. I think we're -- we think consistency is important and so we don't intend to change from a quarterly dividend. We'll -- the board will declare the dividend in August that's the timing for that and that would be the fourth dividend payment for 2018. And so that's the plan for the rest of this year.

And then like I said, in November, we'll announce what '19 is going to be. We're not -- we always look at stock dividends and other options as far as how to retain cash but those do have a lot of complexity to them and in other issues.

So for now, it's our primary focus is just working with the amount of dividend and looking at taxable income and looking at the other considerations to see what the right level of that is. And so that's probably what the best thing is to plan for..

The next question will be from Rachel of Morgan Stanley..

Why don't you go back to some of your redevelopments on some of your big boxes? I was particularly interested in the casino and how little capital that you're putting into that.

How many similar opportunities do you see across your portfolio to bring in a very significant alternative use? Like a casino where you can actually partner with and put some amounts of money in.

Do you think that's light spread? Or have you sort of targeted all the levelheaded fruit at this point in time?.

No. I think, like we said, we've been looking at how do we preserve capital and not have as intensive use of capital through the redevelopment.

It's not something we can do everywhere but in the casino, it's a great case where the operator is basically spending their capital to renovate the building and to fit it up, and to put in restaurants and put in gaming and put in all the other users. The supermarket is a very similar transaction where it's basically ground lease.

So we had minimal capital invested, they'll come in, they'll do all the setup and all the investment. So that's an example. In Brookfield Square, we have the theater and the entertainment you've involved in ground leasing to restaurants and we sold land to the city to do the convention center and the hotel so that brought down the basis.

So there's the self-storage program, we're doing on a joint venture basis, we're contributing land and again, that allows us to minimize our equity investment. We've done that with residential projects. So it's definitely something where it's a priority and where we can do it, we'll do it.

We can't do it everywhere, in certain cases, it will be investment. But given the magnitude of the redevelopment, it's important for us to manage the spend as much as we can because capitals precious..

Got it. And Farzana, maybe this is for you and I'm sorry for a technical question. The default interests, I recognized -- I think it's backed out of FFO but it is impacting cash flow.

Two questions, do you expect that default interest to sort of runoff now that some of those loans have been resolved? And then number two, my understanding with default interest is its fairly negotiable, have you found the special servicers unwilling to negotiate with you on this default interest payments and maybe waive them?.

Okay. So the default interest that you see on our financial statement is really related to Acadiana Mall. And we -- they have all the cash flow on that property, it's with the receiver. We don't receive any cash on that.

So therefore, we show it because technically speaking and based on GAAP, we have to show it in our financial statements but we add it back to FFO because we're not paying it. So I don't even think there is a negotiation that needs to be had, they have the property and once the property is closed, it will be gone.

And it does not impact the cash flow because we don't have the cash..

Our next question will be from Caitlin Burrows of Goldman Sachs..

I guess you starting on the same-store NOI outlook for the rest of the year, it looks like guidance could assume some pickup in the second half.

So I was just wondering if there is anything you're seeing now in terms of lease first occupied? Or something else that's making you comfortable with that outlook?.

Sure..

It's a full year outlook. Definitely, we expect the second half to be better than the first. We actually mentioned that beginning of this year that the first 2 quarters is going to be heavier on having the rent reductions all play into it.

And as we improve our leasing and what we see ahead, our third and fourth quarter will mitigate what we have experienced in the first and second quarter. So we are comfortable at this point in time given we have taken our reserves into consideration as well..

All right. That's okay.

And then on the redevelopment side I guess more kind of big picture when you think about the Bon-Ton and Sears, is there others that could have been overtime? And I know you've been talking about this kind of capital right strategy in the past, you guys have been spending -- I know you mentioned close to $100 million per year and then you've mentioned that this year might be more in the $55 million to $75 million range.

So when you think about the boxes that may need to be addressed over the next 3 to 5 years, do you think that $55 million to $75 million range will end up being a good annual run rate?.

Yes. I mean we're looking at $75 million to $125 million is a range. I think this year was lower because some of the Sears projects got delayed and pushed into next year. And also, we have reevaluated and tried to figure out how we can do with less capital.

We are -- we're also looking at construction loans as a source for some of the projects where they're larger as a way not to draw on our lines of credit and as a way to fund those. It's not significant enough, it's going to impact any of the credit ratios for unsecured but it does provide us another source to limit our equity. So that's something.

And we'll update obviously, every quarter. And we are looking at different strategies on how to mitigate and like I said, how to manage the capital spend..

Okay. And then just one more on the accounting changes coming next year. I know you guys are so pretty straightforward in your supplement deferred leasing cost that you capitalized.

So I was just wondering that going forward, do you expect all of that or 50% or something in between to essentially move into G&A next year?.

Caitlin, I'll try to answer that question. We will begin of course the lease -- the accounting for leasing starting 2019, however, we don't expect the G&A impact would be somewhere between $1 million to $2 million not significant enough to really have a big change in our financial statement.

So I don't expect that it will be a material difference for us..

The next question will be from Craig Schmidt from Bank of America..

I'm just wondering what you think needs to happen to move CBL sales to a more positive trend? Whether it's the retrended bankers or special shopping you're leasing? But clearly with a 41 GDP, the consumer is out there..

The sales are really a factor of several different considerations that come in. We have our largest retailer is [indiscernible] and bath and body works is doing well but Victoria's Secret is continuing to be in the prior range. So that's held us back somewhat. There are couple of properties that impacted our sales.

We had an Apple that moved out of one of our properties and that -- they're such a driver of sales that they move the needle pretty significantly at the property and we're replacing them and bringing some of the stores but they don't have the productivity that Apple does several thousand dollars per square foot. So that's an outliner.

Certain areas of the country, especially Texas [indiscernible] had been strong. The North Dakota board still hasn't bounced back as much. So it's not so much GDP or macro, it is more regional and specific in terms of certain retailers that are -- that are driving our sales. We -- the first quarter was positive, second quarter was flat.

Having Easter move from April to March hurt the second quarter and we've seen good progress from back-to-school. So we expect the rest of the year to be good as well..

Great. And then just regarding the sequential improvement in the renewals. I just wonder how many of the high occupancy situations have you dealt with? And how many more do you think you still need to address..

So I mean we dealt with a lot, I can't give you a percentage but seen as a company that has announced that they're working through a lot of their renewals and their auction costs have been higher. They've seen some progress with justice, which is a big part of our casino presence. So that's encouraging to see.

And then, I'd say that's -- that's why the first and second quarter have been weaker and lower and as far as Farzana said, we're going to see headways as we move further into the year. So we're working through it, we're not done but I think we're definitely heading for a better trend as we look forward..

The next question will be from Michael Mueller of JPMorgan..

I want to go back to the stock dividend for a second. Stephen you talked about complexities and just a complicated decision.

Can you walk through some of the complexities that you were talking about because you obviously did this during the financial crisis and it worked in terms of retaining capital? Because it seems like with the dividend yield where it is, you're just not getting credit for anything really? So why not just keep cash?.

Sure. I mean there is -- I mean, I think eventually because you say we don't get credit but on the other hand when we did cut the dividend last year, the stock moved pretty much hand-in-hand with it. So from I think certain investors point of view, the dividend is really an important part of their investment thesis.

And so we don't take it lightly like I said at all, any considerations with the dividend and in the perfect world, we keep it consistent, we grow it. Because I think from an equity investors point of view, that's a big reason that they invest in CBL.

That being said, we look at everything and the stock dividend, there is a minimum cash component that you still have to pay.

It's dilutive, I mean it's dilutive in the same portion to everyone but it's just something that for now, we're not putting as the top priority in terms of how we look at the dividend and we're looking more at the cash component as we move over the next couple of months..

Right. And when you say complexity, does it mean complexity that you actually had to pay out more in cash now compared to the downturn.

Is that what you're referring to?.

That's part of it. Yes..

Got it. Okay.

And then on the discussion about collateral for the facility is coming up, was that just for the term loan or was that for the credit line as well?.

It's for the combined. They'll be -- it will be 1 collateral pool that was served a term loan as well as the lines of credit. But the combined number will be lower, not what it is today, in terms of the total term loan and the total lines of credit capacity that we have today, that will be substantially less.

So therefore, the collateral pool is not going to be that significant, not -- it will be significant but not huge..

Got it. And one last one on the operating side. Prank bridge got better in Q2 versus Q1. Do you expect that trend to stay that lower level for the balance of the year? I now you said you'd like to get the positive about can't imagine your positive next quarter.

But do you think it progressively gets better from here throughout the rest of the year?.

Yes. I mean it's good but like we said. No.

I would not say that we're going to hit positive in 2018 and likely, we'll still see some decreases in 2019, although it's early to say but I think it's not going to be a insignificant in terms of being high single digit, even low double-digit type impacts because we work through most of the bankruptcies and the restructurings that we face in 2017 and despite the books announcement today, the special in-store bankruptcies for 2018 have been pretty benign and most of those have involved companies that are restructuring and those that have been factored in already at this point..

The next question will be from Jeff Donnelly of Wells Fargo..

Just maybe a few odds and ends.

First for Farzana, on the balance sheet recast, do you expect that the collateral pool that you just mentioned will provide you with some flexibility to sell assets may be such as like release pricing for assets? Or do you envision that the assets that are put into that collateral pool are locked in for the duration if you will?.

That is a good question, Jeff. Definitely, not locked in. We will have the flexibility to release collateral whether we -- we could refinance on a stand-alone basis or we can dispose or we can use free cash flow to pay down the term loan if we decide to do that. Any of those, any of that such activity will allow us to release the property.

So we do have that flexibility for sure and that's a good question you asked..

That's good news. I guess on the casino, congratulations on that addition.

Do you guys expect Westmoreland overtime to evolve in the of a more leisure and entertainment complex and may be less of an April baseball? I'm just curious if you think that could happen and do you think that flip, I guess if it does happen, be cashflow accretive at that asset?.

I mean that Westmoreland is -- even though it's part of the Pittsburgh market, it's really a discrete trade area. And so I think the casino, which is not just gaming, they're going to add several restaurants and a lot of other specialty entertainment as part of it. So it's adding entertainment and dining, which is really important.

I think Westmoreland will still continue to have a strong apparel presence but it will be right sized by only having 1 fashion department store with Macy's, JCPenney does really well there, they're kind of more of a value proposition for the customer. We have a Sears that Sears owns so we'll see what happens with that over time.

But the property is solid, market dominant property and going forward. Consistent with what we're seeing across the portfolio, we'll have less apparel, we'll have more entertainment, we'll have more food, we'll have more service, we'll have more value. And -- but we'll still have apparel as part of the mix..

Good.

And then guide us on the year, it seems like NOI there is trending towards like high 6% decline, year-to-date, I'm just curious, but specifically have you seen in the back half of '18 that maybe can push you to the high end of the same-store NOI decline? Or the low point with you want to put it sort of the low 5% decline? Is there something you could see that could accelerate your same-store NOI growth in the back half of the year?.

We were definitely hoping it will improve for what we have today. So there are several things that we expect percentage rent could be as one of the component and then we have some stores that will open up so a lot of different things will happen.

But definitely our -- not trying to tell you exactly where it's exactly going to be but I hope it's not going to be at the high end. Somewhere in the middle to high. And that remains. So that's really where we are expecting, and FFO of course is trending on the higher end. So again, that's sort of what we see..

Okay.

And maybe just one last question is I'm not sure you've estimated, but the leasing spread as always been a little bit of a challenge and you guys are obviously not where you are signing rents, where your expiring rents are, if market rents don't move anywhere from here, let's just say, is there a moment when we can expect that your initial leasing spreads will begin to move from a decline towards just flat in that -- because I would imagine as you move further and further and your expiration schedule, you're probably going to get to a point where you begin to see sort of natural improvement in your leasing spreads.

I'm just curious if you kind of think there's 2019 or 2020 event?.

I mean I can't say for sure when but we're doing a lot of the leasing with new concepts or different types of stores than we've done in the past. So we are reducing our exposure with some of the legacy retailers that are struggling and we've opened altered state in a couple of locations.

Their new universal like to mention Carter's, which is open have been John mar, BoxLunch, which is Hot Topic. And yes, some of these -- and they're more beyond that and so I mean that's going to help the lease spread. And also, we are reducing the amount of small shops and a lot of our properties as part of that redevelopments.

We're putting in value leather Tom Gertz or T.J. Maxx or Marshalls or some other boxes and that's replacing some of the small shops that were creating these boxes. So yes, there is a lot that we're doing to help with the supply demand dynamics that will help our lease spreads..

The next question will be from Linda Tsai of Barclays..

I know the trend has been to offer short leases but do you think that this is a reflection of the dislocation incurring in retail or shorter lease terms of -- is it going to become a permanent facet of physical retail?.

I mean the lease terms over time still for doing new leases, they're in the 7 to 10 year timeframe. The renewals are 3 to 5 years. There's really not that much of a change. The shorter leases are primarily is part of the restructurings. And that's intentional on our part, intentional on the retailers part.

So I don't really see any change that's occurred there..

And the next question will be a follow-up from Christy McElroy of Citi..

Michael Bohlman hear from Christy.

Farzana, the $190 million paydown of the term loan, where were those proceeds? Was that just all rolled of the line, in July?.

Yes. It all rolled on the line, however, if you would call, we have been paying down the lines of credit prior to its ruling on the line. We paid down by James Rommel, we recently sold that. We have our El Paso financing that's coming up. We have some additional non-core property sales that will bring it down.

So yes, that's really where we -- and we also paid it down by the CoolSprings Galleria loan that we recently completed..

Right. And that was the CoolSprings was into school. I was just trying to get a sense of the date the unsecured lines of credit from the term loan have about $1 billion outstanding against the $1.8 billion plus capacity. And you've talked about resizing that capacity.

Can you give us a little bit of hope where that downsizing is going to go towards, especially relative to the $1 billion of outstanding that you have today?.

We don't have really have $1 billion of outstanding. That's our capacity. Outstanding on the lines of credit is only at the end of the quarter was $115 million. Now, we added, I'll get to your answer. So you add another $190 million to $300 million.

So if you look in our supplemental, it shows you that our capacity is around $650 million based on the calculation for the borrowings because of the loan to value for unsecured level borrowing, however, because that's our limitation, however, our new capacity will give us more flexibility based on the collateral that we will add so there will not be a limitation.

I would not tell you today what the new capacity will be but that capacity that we will be able to work with it and it will give us ample flexibility to move around in that capacity. So it will be less, however, I guess let us finish of our negotiation then we can share that information.

And it will give us the maximum flexibility to renegotiate the term loan and the lines of credit..

Right.

In totality today, you have $1 billion between the lines of credit and the term loans? That's how much we have drawn in terms of either drawn as a term loan or drawn on your lines of credit? You've got to come up with at least $1 billion to cover that $1 billion and beginning potential sales, right? I just want to make sure that you're going to be at least at that level..

I think you're mixing the two. The term loan is separate. The term loan is fully funded. You're going to see it as two separate components. The term loan is separate and the lines of credit is separate. We draw on the lines of credit up and down based on our needs. So that's the way you have to look at it.

So we are negotiating the term loan as a separate component of the big facility..

You're going to refinance the term loan you just paid down, you've got to refinance that amount of capital too, right? You're not going to let that hang out and 1 matures and -- this year, the other 1 matures in '20 with our extension.

So with the extended dates, all of that is happening now, right? Or is it not?.

Well, when we complete our renegotiation, there will be 1 term loan and there will be 1 line of credit. I believe there will be 2 because there is a fresh tendency line, which are smaller part of the line but the Wells Fargo led thank line of credit will be one and they will be a term loan that's one. And they will be two separate components.

It will be clear once we give you all the information in the next few couple of months or so, 3 months when we sign a definitive term sheet we'll be able to articulate to you more clearly what that will look like..

Right.

I'm just trying to get a sense in the discussions you're havening, whether you're going to be provided $1 billion of capacity that cover the $1 billion of capital that you have outstanding, whether it's on the line of credit or under the term loan?.

Yes. It will be pretty close..

And the next question will be from Mark Streeter of JPMorgan..

So Stephen and Farzana, clearly on the news of you're going to go secured in the back was anticipating to some degree S&P will mostly be down. You're going to be operating as a double B high yield company now.

So I'm just sort of wondering if you can talk to the role of the unsecured bonds going forward? You're clearly going to be sort of moving towards bumping up against the covenants, I want to make sure you're not envisioning changing any of the unsecured bond covenants? I'm just sort of wondering if it's your goal to eventually when it comes time for those bonds to come due, are going to let you going to be a regular high yield issuer? Do you want to maintain access to the unsecured bond market? I think there is confusion about the statements today about going secured on the bank debt, what the plans are with the bonds?.

Thank you, Mark for that question, clearly, we are making sure that the bond covenants are well covered. Okay? And we have tremendous capacity today based on how much progress we have made on paying off the secured debt and giving us a long lead way on the unencumbered NOI.

So our goal is to continue to serve the bond even though we are trading at a BB+ as you stated. And our goal is to really honestly, get back into where we pay off our -- reduce our term loans and get back to releasing some of the security and getting that unencumbered NOI back up again.

So that's really our plan and I think you'll see that the flexibility we will maintain and our bond covenants will serve well to the bondholders and to our bonds that are trading in the market. So yes, we wanted to remain -- have the flexibility to go back to the bond market, that goal has not changed..

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back to Stephen Lebovitz for his closing remarks..

Thank you, everyone for your time today and enjoy the rest of your summer..

Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. You may now disconnect your lines..