Good morning, everyone, and welcome to the CBL Properties Third Quarter Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentations, there will be an opportunity to ask questions. [Operator Instructions] Please also note today’s event is being recorded.

At this time, I would like to turn the conference call over to Ms. Katie Reinsmidt, CIO. Mam, please go ahead..

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 measure was included in yesterday's earnings release and supplemental that will be furnished on Form 8-K and is available in the investor section of the website at cblproperties.com. This call is being limited to one hour.

In order to provider time for everyone to ask questions, we ask that each speaker limit their questions to two and then we turn to the queue to ask additional questions. If you have questions that were not answered during today's call, please reach out to me following the conclusion. I will now turn the call over to Stephen..

Thank you, Katie, and good morning everyone. 2018 is a milestone year for CBL, as we celebrate our 40th anniversary and 25th as a public company. During our Company’s history, our industry has evolved and changed, but no point compares to what we have seen this year.

But two of our major anchors, Sears and Bon-Ton to filed Chapter 11 and close over 30 of their stores representing more than 4.5 million square feet in our portfolio is unprecedented. While we anticipated these fillings and began preparing for them years in advance, the reality is nevertheless challenging.

Sears was the catalysts for the development of many of our models. As a result, they enjoy premier locations in our centers. While initially the mall specialty stores relied on department stores such as Sears to generate traffic, it has been quite some times that this has been the case.

No question, the closing of these boxes is disruptive in the short term, but because of the prime real estate they occupy, I am 100 % confident that this also presents a once in a generation opportunity to transform our properties from traditional and closed malls to suburban town centers that include fashion, value, dining, entertainment, fitness, service and other mix uses such as hotels, residential or office, the type of property that today’s customer desires.

Given the magnitude of this opportunity, we are focused on extending our debt maturity profile providing us with the runway necessary to accomplish these redevelopments both from a timing and liquidity point of view.

As Farzana will discuss shortly, we are making excellent progress on the recap of our term loans and lines of credit with our bank group and appreciate their support. We look forward to updating the market as soon as we have definitive news to report, but I can assure you that we are heading in a positive direction.

With this perspective while we are never satisfied with negative numbers, we are pleased to deliver in-line results and to reaffirm our full year 2018 guidance this quarter. As reported yesterday, third quarter adjusted FFO per share was $0.40 and same-store NOI declined 6.1%, an improvement from the year to date trend.

While our key operating metrics are still under pressure, we are making headway towards improvements. Sales have been a bright spot this year with most retailers reporting positive results. For our portfolio trailing 12 months same-center mall sales increased to $378 per square foot from $376 per square foot for the prior year period.

This trend should translate into an improved leasing environment in 2019. We are making progress on portfolio occupancy, with a sequential improvement of 90 basis points to 92%. We have experienced less specialty store filings in 2018 as compared with 2017.

However, the recent filings of Brookstone, Mattress Firm, Samuels [indiscernible] and Bevolo, contributed to the increased draw in our reserve this quarter. We are optimistic that 2019 will also be a relatively benign year for specialty store bankruptcies given the strong economy and improved retail sales environment.

As I mentioned, we have over 30 former department store boxes closing in our portfolio this year. We have been anticipating these events for years starting with our first sale leaseback with Sears in 2013 and have a realistic plan to address these closings with reasonable capital spending.

In order to help the market better understand our Sears and Bon-Ton store activity, we have included a new schedule listing each store status in this quarter's supplemental.

Katie will review projects currently under construction in a few minutes, but I also want to provide a summary of our Sears and Bon-Ton exposure as well as our plans for these boxes. First regarding Sears.

At the end of the second quarter, we had 38 Sears locations excluding Janesville that was sold in July and a property where we only have a 10% interest. Assuming all the announced store closings occur by year end, we'll be left with 21 operating locations.

Of the 17 store closings, 10 stores are leased, 4 owned by Seritage, and 4 owned by Sears or third parties. One of the Seritage stores has already been substantially redeveloped, and we understand they have plans in various stages on others.

Of our 10 leased Sears locations, three are stores repurchased last year and have active redevelopments and planning stages with two sets to commence within the next six months that brings us down to seven. We have leases to execute out for signature on two of these and LOIs are active to get discussions on the remainder.

We are in also active negotiations on a number of stores that are still operating in anticipation of future closures. We expect that some of the stores owned by Sears will be sold directly for third-party redevelopment in fact there’re couple of instances that it’s already occurred.

Novant Health recently purchased a Sears store in our Hanes Mall in Winston-Salem for future medical office. Sears is currently operating in a location on an interim basis. Our gross annual ramp for the Sears stores announces closing today is approximately $5 million.

The majority of this rack was for stores that we had recaptured in 2017 as part of our sale leaseback transactions where we had expected to proactively terminate the leases in the next few months to begin redevelopment project. As such, we do not expect any material revenue loss in 2018 related to the closures or to cotenancy.

The major impact on us from this Sears closures will be in 2019 when we will have a full year of rent impact as well as any associated cotenancy. Based on store closings announced today, the 2019 cotenancy exposures in the range of $7 million to $10 million.

While we are hopeful that Sears will be successful in reorganizing, we believe it is smart to plan for the worst case. If we assume a Sears liquidation occurs sometime early in the year, we estimate the additional cotenancy exposure would be in the $4 million to $8 million range.

While cotenancy costs and leases are far from uniform, most are triggered by the closing of two or more anchors. As we approach our redevelopments, one of our major priorities is to limit downtime where we have more than one anchor closure.

Across our portfolio, we have 11 locations where we have Bon-Ton and Sears including locations where Sears is still operating. We have replacement activity occurring on each of these with executor out for signature leases on eight, and LOIs under negotiation for the other three.

We are also working with number of retailers to revise cotenancy language to reflect current market conditions and are having success in this effort. Shifting to Bon-Ton, in August, we had 14 locations closing our core portfolio including 10 leased and four earned by others.

Of the 10 leased locations, we’ve leased executor out for signature for six and LOIs are prospects under negotiation on the remainder. Two replacements are scheduled to open before year end. Total redevelopment spent for all six boxes is currently estimated at $10.5 million.

We are paying close attention to the capital requirement of backfilling these closing stores. I want to highlight that across our portfolio we have nine anchor replacements occurring with little or no investment by CBL and several others that are in process.

While we have certain properties where more significant investment is warranted to create higher long-term value, we are watching the total spent closely through this process.

We expect total annual redevelopment spent to remain in $75 million to $125 million range for the next three or four years to complete all the necessary redevelopments in our portfolio.

Through these projects and our general focus on diversifying our tenant mix, we are expanding the types of uses we bring to our properties positioning them for long-term success. Year-to-date over 63% of our total new leasing was executed with non-apparel tenants including dining, entertainment, value and service uses.

We have executed contract NOIs are having active negotiations with 50 restaurants as well as 14 entertainment uses, nine hotels, four multifamily, two grocery users as well as fitness, medical office and self storage.

Uses such as hotel, multifamily, and storage are generally to joint venture partnerships ground leases our pad sales, which allow us to bring these uses to our properties while also minimizing required capital. Now, I would like to discuss the reduction in the dividend which we announced yesterday in our earnings release.

Our primary financial priority is to preserve liquidity and strengthen our balance sheet. As announced last quarter, we've been evaluating an adjustment through our dividend to a level that maximizes available cash flow for investing in our properties and debt reduction.

After an analysis of projected taxable income for 2019 including assumptions of disposition transactions with lenders, we’re reducing the common dividend for 2019 to an annualized rate of $0.30 per share from $0.80 per share. The reduction will preserve an estimated $100 million of cash on an annual basis.

Based on the midpoint of 2018 guidance range, this equates to roughly $285 million of free cash flow after the dividend. This enhanced liquidity will find debt reduction as well as EBITDA generating redevelopment that is essential to stabilize income and ultimately create long-term value.

Reducing the dividends not the only measure we have taken to create additional liquidity. While we already run a lean organization we have implemented a program to create efficiencies in operations, reduce overhead, including executive compensation and reduce spending in general.

We will also continue to opportunistically dispose of assets to generate equity. While adjusting our dividend is a difficult decision, we believe it is in the best interests of the Company to do so. I'll now turn the call over to Katie to discuss our operating results and investment activity..

Thank you, Steven. Before I get into our operating performance and current redevelopment pipeline, I want to say that well we definitely are facing current challenges, our entire organization is energized by the opportunity we have in front of us.

CBL is a resilient and determined company and we have a plan to stabilize our operating results and create growth going forward. We’re optimistic about our future. Our leasing team is making solid headway toward keeping occupancy loss from bankruptcies and store closures.

Same-center mall occupancy for the third quarter was 90.8%, representing 120 basis point increase sequentially and 90 decline from the prior year quarter. Portfolio occupancy is 92%, representing an increase of 90 basis points sequentially and 110 basis points decline compared to the last prior year.

Bankruptcy related store closures impacted third quarter mall occupancy by approximately 77 basis points or 42,000 square feet. While our leasing activity continues to be strong, leasing spreads remain under pressure.

During the quarter, we executed over 830,000 square feet of leases bringing year-to-date leasing activity to nearly 3 million square feet. On a comparable same-space basis for third quarter, we sign directly 450,000 square foot of new and renewal mall shop leases to an average growth rent decline of 13%.

Spreads on new leases were stabilized malls declined 9.5% and renewal leases were signed at an average of 13.8% lower than the expiring rent. We signed three new leases this quarter where the higher rents were above market where we agreed to lower rent due to the time the space had been vacant.

Excluding these three deals, average spreads on new deals would have been positive for the quarter and flat year-to-date, packages with certain retailers that have had prolonged sales declines weighed on renewal spreads. Third quarter sales continue the positive trend for the year.

Trailing 12 months sales reached $378 per square foot compared to $376 per square foot in the prior year. September sales of six properties were impacted by closures related to Hurricane Florence including Mayfaire Town Center in Wilmington which was closed for 10 days.

We expect October sales of these centers to rebound and are looking to end the year with a positive holiday season. For the third consecutive year, we’ll close our centers on Thanksgiving to highlight the national tradition of Black Friday.

Our customers will lineup for door busters and special permissions starting at 6 am and will be treated to events and entertainment throughout the weekend. As Steven stated, we’ve a tremendous amount of redevelopment activity occurring in our portfolio. These projects are critical in stabilizing our performance and growing income.

As we replace former department store space, we’re achieving rents that are multiples of what the vacating stores were paying as well as driving significant new sales in traffic to the whole center.

During the quarter, we started construction on the first phase of the redevelopment of the former Macy’s at Parkdale Mall, exporting goods Five Below and HomeGoods will open next summer. In June, Flix Brewhouse, a specialty theatre operator featuring film, food and microbrew opened at East Towne Mall in Madison Wisconsin.

Later this, year we’ll open H&M and Planet Fitness and Outback Steakhouse at the JCPenney at Eastland Mall in Bloomington, Illinois. Construction is progressing on the Sears development at Brookfield Square in Milwaukee, Wisconsin, which was one of the stores we purchased last year through a sale leaseback.

The first stage of the project includes the new Marcus Theater, BistroPlex dine and movie experience, WhirlyBall entertainment center and two restaurants. In July, we completed the sale of a portion of Sears partial to the citiy for development of a hotel and convention center which commenced construction in October.

We’re planning for a fall opening of Bonefish Grill and Metro Diner in the former Sears Auto Center location at Volusia Mall in Daytona Beach. Aubrey's Restaurant and Panda 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 Round1 entertainment center which will open in the November in the former Macy's. We commenced construction on Dave & Buster's at Hanes Mall in Winston-Salem in former shop space near the Sears wing with the opening scheduled for 2019.

As Steven mentioned, Novant Health recently purchased properties at Sears' location for future medical office facility. 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 later this year.

In early October, we provided Sears with notice to terminate the lease at Hamilton Place here in Chattanooga. This store was also on the closing list as Sears issued as part of their bankruptcy. While we will be announcing more details on private shortly, it will include entertainment, dining and hotel component.

Cheesecake Factory is already under construction on the path of Sears parking lot opening in early December. Construction on the remainder of the project will begin in spring 2019. We opened our first self storage facility in late September. This is a joint venture project on vacant land adjacent to Eastgate Mall in Cincinnati.

Our second project located at Midriver in St. Peters, Missouri will open in December. We’ve two other projects in planning stages that we anticipate constructing in 2019. These partnerships are great way to create value across our portfolio. We contribute land with CBL share of the equity, so there's no cash investment required.

Once stabilized, we can look for the best time to monetize. Now, I’ll turn the call over to Farzana to discuss our financial results..

Thank you, Katie. Third quarter adjusted FFO per share was $0.40, representing a decline of $0.10 per share compared with $0.50 per share for the third quarter 2017. Major variances included $0.05 per share from lower property NOI, $0.01 higher net interest expense, $0.01 per share dilution from asset sale.

$0.01 per share higher G&A primarily related to a one-time expense from the retirement of our CEO and $0.02 per share lower income tax benefit. While NOI continue to decline as anticipated, the pace has decelerated. For the third quarter same-center NOI decreased 6.1% or $10 million with $12.3 million lower revenue and lower expenses of $2.3 million.

Real estate taxes, tax recoveries declined $2.9 million, which corresponded with $2.8 million of low real estate tax expense. Property operating expense was relatively flat while maintenance repair expense increased 0.5 million.

Based on our results here to-date and current budgets for fourth quarter, we anticipate achieving 2018 adjusted FFO at the mid-to-high end of the range of $1.70 to a $1.80 per share which assumes a same-center NOI decline at the mid-to-low end of negative 6.75% to negative 5.25%.

Guidance continues to include a top line reserve to take into consideration the impact of unbudgeted bankruptcies, store closures, rent reductions and cotenancy. Based on our results year-to-date and projections for the rest of the year, we expect to utilize approximately $16 million to $18 million of the reserves.

We will provide guidance for 2019 in February which will include a comprehensive impact from Bon-Ton and Sears cotenancy as well as the benefit of the new tenants that will open throughout the year both in mall shops and replacements anchors. During the quarter, we successfully completed the refinancing secured by the Outlet Shoppes at El Paso.

The new $75 million nonrecourse, 10 year loan was completed at an attractive rate of 5.103%, compared with the approximately 7% rate on the previous loan. We generated nearly $65 million in net proceeds to CBL.

Coupled with a $30 million in excess proceeds to CBL from the CoolSprings Galleria refinancing earlier this year and the nearly $90 million in proceeds from dispositions closed year to date, we have substantially funded the $190 million paid down of our unsecured term loan completed in July.

In October, we closed on the construction loan to fund the redevelopment of Sears at Brookfield Square. The loan has a total capacity of $29.4 million, with a three-year initial term and one year extension option. The interest rate is variable at LIBOR plus 290 basis points.

We anticipate securing similar construction financing for our larger redevelopment projects to help minimize our cash outlay.

As Steven mentioned, we are making excellent progress towards completing the refinancing of our $350 million dollar unsecured term loan, which was extended to October 2019, as well as our major lines of credit tolling 1.1 billion in capacity which matured in 2020.

We anticipate rolling all of our tem loans and credit facilities into one secured facility with a term loan component and a line of credit. We will extend the maturity of this new facility for several years, providing us sufficient time liquidity and flexibility to execute our strategy.

While we know you all are eager to hear about the sizing and other details since this is a work in progress, we’re not able to discuss specific until we close. However, we assure you that through this process we’re focused on balancing the quality and integrity of the property supporting both the bond and the new facility.

Our total pro rata share of debt at quarter end was 4.69 billion, a reduction of approximately 78 million from year end 2017. We have been waiting for the quarter to finalize the full closure of mall. Based on the most recent update we now anticipate this will occur in 2019. We have entered into a forbearance agreement with a land of Cary Towne Center.

The property is currently being marketed for sale on behalf of the lender. Any disposition proceeds from a successful transaction would apply towards the loan balance of approximately 43 million with any deficit being pro given. While were early in the process, we expect to close on this transaction in 2019.

With 201 million outstanding on our lines of credit at the end of the third quarter, we have over 409 million of liquidity available. At quarter, end net debt to EBITDA was 7.1 times compared with 6.7 times at the year-end 2017. The increase was primarily due to lower total property level NOI.

Our expectation is this metric will improve by year-end 2019 at debt are reduced and we benefit from lease and new NOI from projects coming online. I will now turn the call over to Steven for concluding remarks..

Thank you, Farzana. CBL has an incredible team of experienced professionals fully committed to navigating the challenges we face in implementing our strategic priorities. I want to recognize and thank our entire organization both home office and in the field for all they do on behalf of CBL, we truly appreciate you.

As I said earlier, while we have a lot of work to do, we’re confident in our plan and our future. We are receiving a tremendous amount of demand for the former department store spaces across our portfolio, which demonstrates the versatility and value of this prime real estate.

The transformation of our portfolio to this process will put CBL in a position to drive. We will no longer be a traditional in closed mall company instead we will be a company with a portfolio of retail focus suburban town center mixed-use properties that are dominant in their market.

As we demonstrated with reduction to the dividend and measures taken to reduce expenses, we are committed to ensuring CBL is adequate liquidity and flexibility to execute our redevelopment and other strategic initiatives without the pressure of near term maturities. Thank you for your time today. We appreciate your continued support.

We will now open the call to questions..

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] Our first question today comes from Todd Thomas from KeyBanc Capital Markets. Please go ahead with your question..

First question, I appreciate the Sears and Bon-Ton disclosure.

The associated cotenancy exposure that you talked about, I was just wondering if you could run through the mechanics of that typical cure period, how long you have to cure the vacancy, and how long tenants have before they're faced with either terminating the lease or reverting back to fore rent?.

So like I said during my remarks, cotenancy varied significantly across our portfolio, it varies by property, it varies by retailer, it varies even within the same retailer because properties we acquired over time, we inherited different language.

So the short answer is, it's really impossible to answer that question, but what we've done is we’ve gone through states by states, property by property and done a projection of where we see the cotenancy. Like I said, it's typically triggered by more than one anchor closing.

So two or more anchors closed before cotenancy is triggering, and that's why we’re focused on the 11 properties where we have overlap in terms of exposure with Sears and Bon-Ton. Usually, there’s a cure period, it can be 12 months, 18 months, during that period, the tenant goes to reduce rent and then they can stay or they can leave.

And sometimes, there’s named anchors, sometimes there isn’t, sometimes replacement language give us flexibility.

But like I said, we’re working with retailers to really respond to the replacement language so it's acknowledges current market conditions and the types of anchors that we’re bringing in food, entertainment, service, value all these anchors that today are different than traditional department stores.

So there’s a lot to it, we try to give with the numbers just the range that we see for next year like we said earlier in the year the Bon-Ton exposure was 3 million to 5 million, the Sears numbers we gave in the call and also if the rest of stores closed. So, we tried to disclose to give everyone as sense of where the exposure lies..

So just to clarify, so you had said, 7 million to 10 million based on what you see today, but if Sears were to liquidate earlier in the year, it would be 11 million to 18 million.

Is that for the portfolio overall including Bon-Ton and all centers where there's essential overlap? Or was that just the Sears exposure?.

It’s for the total, so everything together.

And then, Stephen, you talked about prospects for 2019 to be a little bit better, more favorable here, more benign in terms of the unexpected store closures and bankruptcies.

Can you just comment on the traditional apparel retailers and other tenants in the portfolio which are seeing sales rebound here, but might still be looking to rationalize your footprints or talking about store rationalization program is a bit still? I am just curious, how far through the 2019 expirations you are in lease negotiations at this point, and if you could provide some commentary around some of those retailers?.

Well, I think you make a good point that there has been recovery with a lot of the legacy retailers. And that's one of the reasons for that optimism and we started to see the sales bumps and improved this year, and that definitely creates a more favorable backdrop.

And you just look at our largest retailers, L Brands, Foot Locker, Signet, and American Eagle and companies like that -- they've had improvement in their results. Ascena has had improvement during the course of the year which is encouraging. And no question, 2017 and 2018 have been tough.

A lot of retailers have high occupancy cost and so we've had to address those through renewal discussions when they're in a struggling position financially. So, it's been bankruptcies and also some of those rent adjustments that really contribute to our numbers, but we do feel like we've worked through the worst part of that.

And as we head to ‘19, we've got a more favorable environment with the legacy retailers since the same time the strategies of replacing them with new users, more regionals, more locals and just different types of users. The 63% of non apparel like I quoted those strategies now are kicking in and are going to have an impact.

So, I'm not saying we're out of the woods and we still have to deal with contingency and not all retailers are thriving, but I think we're headed in a more positive direction as we look ahead..

And how far through the 2019 explorations are you? And what sort of renewal percentage you know do you think is reasonable to assume for 2019?.

Yes I'd say we're probably 60% to 70% are ready, we have a lot of the renewals happened in the first quarter. And so, those have been addressed and if they haven't been signed, they're well along in the process..

Our next question comes from Christine McElroy from Citi. Please go ahead with your question..

I'm just and thinking about setting the new dividend level at the $0.30 or $60 million. I'm assuming that payout ratio is now seemed to be a 100% of taxable income in 2019.

I'm wondering if you can sort of walk us through the pieces of that reduction and how we should think about you know the level of taxable income? And you mentioned you know potential dispositions next year, I'm assuming that some of those are losses that are going against the taxable income.

Can you sort of walk us through the pieces of how much of that is sort of same-store NOI decline increase in interest expense and sort of those you know losses on sale?.

Hi, Christine, I'll try to address your question, but I cannot really walk you through all the different steps as you are requesting. But suffice to say that Cary Towne Center and Acadiana Mall that we’re projecting to be sold in 2019 are returned to the lender. Those two transactions will generate significant losses.

So it's a balancing with balance of what we know today in terms of the impact, fully impact of bankruptcies in 2019 as well as the significant losses that we would be incurring from these two transactions, that surely is where we have determined that $0.30 to be. That's our best estimate now.

And as time goes on we’ll look at it in the -- as we get into 2019, but that's where we have set the dividend based on what we know today.

Okay and just a follow-up on Todd question on cotenancy, and I want to eco his comments that I really appreciate the disclosure in the back of the supplemental.

Just for clarification, does the two or more anchor will trigger in the cotenancy? Is that regardless of whether or not you own the box? So, I counted 27 of the Sears boxes that are not owned by CBL whether it's owned by Sears currently or Seritage or a third party.

I’m wondering just how to get a handle on maybe the recurring nature of that cotenancy, if you’re not in control over the re-tenant being in that box, does it make sense?.

Yes, now it makes sense. They really is coloration, we have Sears that we don't have own, that have zero cotenancy impact on any retailers because of where the Sears is located in the shopping center. So whether we lease it or own, it isn't really the determining factor.

We made a concerted effort, I'll say over the past five years to take Sears out of cotenancy where we can. So we limited it and the range that we're giving you, we feel is conservative and also we are working with the retailers to restructure where we can, but we just wanted to get a sense of where those numbers are.

But really that the fact that we on the Sears, we don't view as a negative at all because someone else wants to come in buy it then they'll work with us because of the RAs and the ownership and their one flexibility what they can do with that.

And if no one else comes and advise it then we will be -- the price will be a lot lower for us to eventually control it. So, we don't see that as an urgent driving factor at all..

Is it potentially gaining controls some of those boxes inherent in your 75 million to 125 million annual spend?.

Yes..

Our next question comes from Richard Hill from Morgan Stanley. Please go ahead with your question..

I'm sorry if you mention this previously.

But of the dividend cut, how much of that was driven by taxable income?.

I did not give you the precise number because it is not an easy calculation to lay it all out. But like I said, the driving factor is Acadian Mall and Cary Towne Center. Those are the dispositions that we have projected and that will really generate the biggest portion of the taxable losses..

And recognize that you want to go into details about the extensions of the line of credit, but Steve and I think you did mention last call that that maybe would have to be secured.

Can you maybe comment about how you're thinking about the covenants relative to maybe having to secure that line?.

Yes, I will answer that question. Like I said, we cannot give out more detail on it right now, but we’re getting close to wrapping this up hopefully either by year end or in January.

But as I mentioned we’re very cognizant of the bond convenience as well as the bank connivance, and they will be we’re working through those and it will be become flexible where we will make sure that the bond governance are well taken care of and give us ample room for any changes, like dispositions of properties or anything like that.

So, we can’t give you the -- really the details, so if you can be patient and wait till the end of the year or first part of next year, you’ll see what we’ve done is really a very good strategy for us to operate in a flexible environment..

And then maybe just one more quick question then a modeling question on my end, but when in your covenants when you think -- when you -- when your encumbered asset value.

Is that based upon book? Or is there any way we should be thinking about that?.

Yes it is based on book, on the book of bond side..

Our next question comes from Caitlin Burrows from Goldman Sachs. Please go ahead with your question..

I guess I was wondering maybe as it relates to G&A, I know you said that in the quarter there was a slight impact to the severance but it does look like even excluding that G&A would have been up year-over-year while obviously so it’s down significantly.

So I was wondering, if you could just comment on whether you’re losing any ability to scale or just kind of what’s causing the difference in direction of FFO or same store NOI versus G&A?.

Yes I mean you do get some quarterly distortions and we definitely expect G&A overall to be down next year because of some of the steps that we’ve taken that I mentioned, some efficiencies that we have developed through our management, and through others in the Company executive compensation reductions and just other opportunities that we created to cut costs, so that’ll reduce G&A for 2019.

There’s living parts during the year, we’ve had some higher legal expenses that contributed this year that’s probably the biggest contributor for this quarter..

And then just maybe in terms of occupancy, you guys improved sequentially in the third quarter but has been down year-over-year for a little while now.

So just, what’s your outlook in terms of the potential to stabilize occupancy based on the maybe leases that you’ve executed by now, but not actually opened?.

I mean we’re crawling back from the bankruptcies in 2017. We wish it was faster, but it is taking time and we should see more headway in 2019..

And then one quick one if I could on the cotenancy just wondering, is the numbers that you gave is that assuming that none of the -- is that kind of a worst case scenario? Or is that assuming that some of the activity you already have in process that you expect to happen call it maybe year 2019 actually does open into some of the potential negative side?.

Hi, Caitlin, it's Katie. It does assume if we haven’t executed lease like for several of the Bon-Ton’s that they will open as scheduled. We’ve a couple that are listed at the end of this year. So it does assume taking into consideration that we actually have executed. It does not assume we’ve additional back leasing that occurs though..

Our next question comes from Craig Schmidt from Bank of America. Please go ahead with your question..

Looking at renewals I see that as kind of key in turning your same store NOI.

I am wondering in 2019, if you still have a number of tenants that need to right size rents due to declining sales?.

Like I said, we’ve been working through that process. It’s really driven by retailers that didn't formally file for Chapter 11 but are struggling, and they've been well publicized, and we've worked with them to restructure to avoid that. And like I said, I don't think we're done, but we think we're done with the majority of that.

So, we should see some improvement in 2019 given sales, the better sales environment that we have this year and the strength of the economy..

So in terms of some leases that you amended, that might take care of people that would be rolling in this case that you've already dealt with it?.

That's correct..

Our next question comes from James Sullivan from BTIG. Please go ahead with your question..

Just a point of clarification on the cotenancy and do appreciate the additional guidance here, but when we think about the model for 2019.

Is the cotenancy, the negative cotenancy impact is that in addition to what we built into the model for leasing spreads? In other words, if you, if you do have a cotenance impact that leased to a new lease or you envision in the lease, does that also show up in those leasing spreads? Or is there some overlap there or no?.

The cotenancy is a one-time adjustment that occurs and typically it only is in place for a finite period of time. So, that's a 2019 impact, the real spreads are in separate situations where the lease has new negotiation. We are working as part of the renewals to clean up cotenancy.

Like I said, so that could help but we want to be conservative in what we provided you today..

And second question and this is for Farzana, in terms of the renegotiation.

In terms of the new facility that you expect to put into place and I guess over term sheet by the end of the year, do you expect that there'll be substitution rates?.

Meaning replacing taking tenant properties out and adding properties, is that your question?.

Yes, I'm just looking about the liquidity the ability to sell assets that might otherwise be securing the new line..

Yes, yes, we will have that flexibility, because we should be able to you know if we -- they will have an allocated loan amount. So based on that we should be able to if we go out and get financing for that property on a longer term, we should be able to pay that off and put a 10 year money loan on it.

So, yes, that -- we will have those types of flexibility and that what we are excited about..

Our next question comes from Jeff Donnelly from Wells Fargo. Please go ahead with your question..

Actually, if I can maybe continue Jim's questioning about that what's you already on Farzana.

I'm just curious, do you foresee this package maybe having features in it where maybe you guys are mandated to pay down debt over a particular timeframe or lenders are going to try and capture some portion of the cash flows that you know in terms of that being considered?.

Yes, can you be patient. We’ll be putting that out, hopefully soon. So I don't want to you know give out all the information because obviously we’re in the process and getting close and it would be imprudent for me to say anything right now, because if I said something and it doesn’t happen then you will hold me to it so..

Understood, but I try. I guess switching gears maybe just going back on Craig's question. It sounds like you've been sort of working through a bunch of more challenging retailers.

Does that mean that you do you think your renewal leasing spreads in 2019 could actually slip positive because the way down by handful of tenants you’re working with this year? Or is it really more realistic to assume that renewal spreads might remain under pressure next year, but they will be sort of far smaller declines then you've seen year-to-date in 18?.

I think it's too early to say. We’re optimistic and there's a lot of reasons, we think it's going to be better, but there is still pressure and certain categories, certain retailers are switching that pressure and negotiating are as far as renewal. So I just can't give you an answer right now..

And just concerning the anchor retenanting that you've already put in place in the past few years, you know, one that is already taken occupancy.

I’m just curious, do you have any statistics on those initiatives where that frankly might be being obscured by the portfolio metrics you provide where the new anchors open then you seeing discernible improvement in traffic or mall sales or shop tenant occupancy or retention or rent? But like I said, obscured as a portfolio level because benefits to extend beyond the walls of the box that you replace itself, so have you guys compile any metrics like that I’m just curious not a lot of the land we got there really highlighted the improvement in the mall or the potential for improvement outside of the actual box replacement?.

We have definitely seen how the improvement the replacement of the former Sears hotel the rest from all CoolSprings, Galleria in Nashville the year after we replaced Sears we have 18% increase in sales for the entire center.

We’re able to add Cheesecake Factory and more recently California Pizza Kitchen to the mall, so that other retailers such as offered stay where their first beautiful soul stores have opened.

So, we have had just -- it's really helped the property and it helps the area where the Sears was, we had Sears, we’re doing roughly five times the amount of business and sales out of that box and Sears is doing the income is up significantly.

We replaced them with an entertainment user Kings, Ulta Beauty, two restaurants H&M, American Girl and Outdoor Outfitter and Outdoor Outfitters. So, I mean we I mean -- it really is transformative and we're under construction here in Hamilton Place in Chattanooga with Cheesecake Factory.

In itself, they are going to do as much business as Sears did in and they're right in the parking lot, and then we are hopefully can be able to announce the rest of that project in the next two months. And again, it'll transform the property and it will benefit.

I can't tell you it's going to be 18% in this case, but we're looking at it in each property and we have better ways to measure that now through Wi-Fi and tracks camera, counters and aspects like that. So, it's something that we’re definitely going to continue to quantify as we go forward, but no question it is a big positive..

And just maybe one last question, I think you guys said you’d be at the mid-to-high end of 2018 FFO, but I think on some of the operating metrics year-to-date you’re at sort of the weaker end of NOI guidance in the bankruptcy reserve.

Is there maybe you’d mentioned in the call and I missed it, is there something else that I guess I'm not seeing that’s going to -- that leads you think it’d be to towards the higher end of FFO? Is it gains on sales, I am just curious if what that is?.

Yes, it's mostly going to be outparcels sales. We’ve already reached the higher level of that outparcels sales. We had 11 million or so year-to-date.

We expect that to be a little bit go up even higher in next maybe another $2 million or so, that’s part of the reason, and others are just different -- interest expense -- even though it has gone up a little bit we’ve some other savings so that’s really where we end up with a little bit higher on the FFO side..

Our next question comes from Michael Mueller from JP Morgan. Please go ahead with your question..

Just going back to the two things one the dividend, I guess I know you're not quantifying or breaking everything down, but you mentioned a couple losses that are going to weigh impact next year that’s going to enable you to have a much lower dividend.

So should we think of that as that $0.30 dividend level as being kind of a one shot deal for one year because in 2020 you’re not certainly going to bank on having couple of sizeable losses to weigh down taxable net, is that how we should think of it?.

I mean all we’re looking at is 2019 and given where we’re keeping the liquidity in the Company the dividends to cheapest sources of income, so we felt like this was the right level for 2019 and 2020 is a long way off at this point..

And then going to cotenancy the 7 million to 10 million base case before a serious liquidation just want to confirm you said that’s for everything that’s not just Sears that’s for any other boxes as well?.

That’s correct..

And just as a follow-up to that so if we’re going to average $2 million a quarter.

If we look at Q3 earnings, how much of that $2 million is already in the runway versus how much is incremental to come next year?.

I mean not much of it is kicked in for this year. Really, we have, the Bon-Ton is closed in August, so hardly any of that, it was in Q3 there’ll be a little in Q4, but we’re really looking at this impact for 2019..

Our next question comes from Spenser Allaway from Green Street Advisors. Please go ahead with your question..

Can you guys talk a little about how you’re thinking about your exposure to JCPenney kind of given the headwind of the department store industry continues to face? Have you guys looked at what the cotenancy impact would be in the event that JCPenney actually announced store closures early next year?.

We’ve looked at JCPenney but not in a level of detail that we’ve with Sears and with Bon-Ton, and we communicated with JCPenney regularly. We have a sense of what stores might be on the watch list, we feel really good about our portfolio with them. I mean they're going to benefit from Sears closing.

From Bon-Ton closing, they're going to pick up sales from both of those. There'll be an immediate short term hit from going out of business with Sears, but we look for the stores are closing. But then that should translate into helping JCPenney sales and they've added appliances and more home and more areas that will capture some of that market share.

So, we feel good about JCPenney and their future and they stay perform well in our portfolio. it's their customer. So that's not something that we're losing sleep on it about right now..

And then I know you guys have a capital budget as it relates to kind of back selling these tenants are so as these anchor boxes that they kind of come back to you.

But as you look forward into next year and get ready to set guidance we will be including a cushion for additional closures particularly on with the cotenancy aspect?.

We will, we'll have a reserve but we don't know the amount right now, and the good thing about between now and February, we'll know a lot more so when we give guidance, we'll have a lot better sense than if we tried to do it now..

Our next question comes from Tayo Okusanya from Jefferies. Please go ahead with your question..

Farzana, just going back to Jeff's line of questioning, I understand all the recasting going on with the line of credit and the term loan, but how do we think about mortgage debt because you do have still a decent amount of mortgage debt that will be maturing in ‘19 and ’20?.

Hi, Tayo. Yes, happy to answer that question. 2019 is really a benign year. If you think about we have two loans Volusia and Honey Creek, they are about $60 million, and they in discussions with a lender on that. And the $350 million term loan is really the term loan we've been recasting. So, if you take that out, it's not a big year for 2019.

So generally speaking, if we get this recast done and put it over a longer term maturity, all we have to do is pretty much deal with the secured loans that are coming up. 2020 we have approximately $250 million in secured loans that’s coming up, 270 based on the current maturity date.

Current loan balance, but assuming it's financed at the maturity date, it's going to amortize down to $250 million. We have a couple of bigger loans there Bonneville and Valley View and Greenbrier, we will work on those ahead of time, but it is not until 2020 and in midyear of 2020 and some towards the end of 2020.

So, we expect that we have markets are going to be better and hopefully we can get these financing done. So I really feel pretty comfortable with where the secured maturities are..

And our last question today comes from Jim Sullivan from BTIG. Please go ahead with your follow-up..

This is also a question for Farzana and really follows on from tails question.

Farzana, do you have any sense in terms of CMBS origination to what extent the recent disruption in the space caused by Sears and Bon-Ton is resulting in any material change in terms that are being offered? To what extend is the market much tougher than it was in your sense?.

Well, market has been tough, CMBS is very cautious on retail just like everybody else is, but the good news is that there are other pockets of money that you can tap and are some of the dispositions that we have done. People have tapped the pockets of money, not necessary CMBS.

But CMBS is still available on better property meaning property with higher sales per square foot and also depends on the level of the loan to value ratio, the debt yield, the debt you have generally moved up. So, it's just property by property, you cannot generalize it.

But at the same time I would say that it is a little tougher environment for CMBS for property retail real estate. The bigger ones are harder to do, the smaller ones are generally easier to do..

And you mentioned sales preferred, is there kind of redline where it's just almost impossible to get CMBS financing at a certain productivity level..

Well, we haven’t been out getting financing on where we've been very selective, we did close CoolSprings and we did El Paso. They both had great sales per square foot. So, I don’t know of a red line, but at the same time I would say 400 plus is a better place to get the CMBS financing..

Ladies and gentlemen, we have reached the end of our allotted time for today's question-and-answer session. I would like to turn the conference call back over to Stephen Lebovitz for any concluding remarks..

Thank you again for your time today. Like I said, we appreciate your support and see many of you at NAREIT next week. Thank you and have a good day..

Ladies and gentlemen, that does conclude today’s conference call. Thank you for attending. You may now disconnect your lines..