CBL & Associates Properties, Inc. (CBL) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CBL & Associates Properties first quarter 2011 conference call. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded, Friday, April 29, 2011.

I would now like to turn the conference over to Stephen Lebovitz, President and Chief Executive Officer. Please, go ahead, sir.

Thank you and good morning. We appreciate your participation in CBL & Associates Properties, Inc., conference call to discuss first quarter 2011 results. Joining me today is John Foy, CBL's Chief Financial Officer; and Katie Reinsmidt, Vice President of Corporate Communications and Investor Relations, who will begin by reading our Safe Harbor disclosure.

This conference call contains forward-looking statements within the meaning of the federal securities laws. Such statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy, and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ materially from the events and results discussed in the forward-looking statements.

We direct you to the Company's various filings with the Securities and Exchange Commission, including, without limitation, the Company's most recent annual report on form 10-K as amended, and Management's discussion and analysis of financial condition and results of operations included therein for a discussion of such risks and uncertainties.

During our discussion today, references made to per share amounts are based on a fully diluted converted share basis.

The transcript of today's comments, the earnings release and additional supplemental schedules will be furnished to the SEC on form 8-K, and will be available on our website. This call will also be available for replay on the Internet through a link on our website at CBLProperties.com. This conference call is the property of CBL & Associates Properties, Inc. Any redistribution or retransmission or rebroadcast of this call without the expressed written consent of CBL is strictly prohibited.

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

Thank you, Katie.

We are encouraged with our results for the first quarter, and the continued improvement we are seeing in our key metrics across the board. Same-center net operating income increased 50 basis points over the prior year. Leasing spreads have continued to recover and were positive for the first time in 9 quarters. Portfolio occupancy increased 150 basis points from the prior year. John will discuss in more detail later, but we have closed on more than $660 million in financing activities so far this year, at very attractive rates.

Our year is off to a great start, and we are well positioned to continue this positive momentum going forward. The improving economy continues to benefit our retailers, who experience positive sales growth, with sales per square foot for the first quarter in our portfolio improving 2.9% over the prior year. For the trailing 12 months, sales grew 2.5% to $324 per square foot.

With generally positive economic indicators and improving consumer confidence, we saw strong sales in our malls in April, leading up to Easter, and expect the upward sales trends to continue throughout the year.

These positive sales trends contributed to the continued growth in our occupancy and better leasing metrics. For the quarter, total portfolio occupancy increased 150 basis points to 90.3%, and stabilized mall occupancy improved 70 basis points to 90.4%. We are still projecting for occupancy to end the year 75 to 100 basis points over the prior-year end.

During the first quarter, we completed a tremendous amount of leasing, signing approximately 1.7 million square feet of leases. This included approximately 560,000 square feet of new leases, and 1.1 million square feet of renewals with the remainder signed in the new development portfolio.

The first quarter continued our trend of improvement in leasing spreads. Overall, leases in the first quarter were signed at a 30 basis point increase over the prior gross rent per square foot. While renewal spreads were still negative, they moved in the right direction compared with previous quarters.

We are still facing difficult renewal negotiations with a select few retailers, whose sales have not recovered from pre-recession levels. We are being proactive in replacing underperforming retailers and have used short-term leasing to keep NOI flowing while we secure replacement tenants.

As the economic and retail environment improves, we are seeing retailers boosting their expansion plans and increasing demand for space, benefiting our new leasing activity. New leases are being signed at impressive increases, more than 18% for the first quarter. As spreads turn more positive, we are pushing to lengthen the lease terms. For the quarter, 55% of leases were signed for 3 years or less, an improvement of 5% compared with last quarter.

Turning to development, we have roughly 650,000 square feet of new and expansion projects slated to open this year. Construction continues on our 350,000 square foot outlet center project in Oklahoma City. We are nearly 98% leased or committed with a great lineup of retailers such as Saks Off Fifth, Nike, Tommy Hilfiger, Polo, Brooks Brothers, and J. Crew. The strong leasing results indicate the successful reception this project is receiving in the retailer community, and we are still receiving new lease commitments. The opening date is on track for early August.

Stores have started opening at the second phase of Settlers Ridge in Pittsburgh, Pennsylvania. The 78,000 square foot expansion is currently 95% leased or committed, with Michael's, Ross Dress for Less, Shoe Carnival, and Ulta.

Construction is progressing on Alamance West, the 230,000 square foot second phase of our center in Burlington, North Carolina. The project is currently 98% leased or committed, anchored by BJ's Wholesale Club, Kohl's and Dick's Sporting Goods and will open this fall. We have also commenced renovation projects at 4 of our malls, including Hamilton Place here in Chattanooga, Oak Park Mall in Kansas City, RiverGate Mall in Nashville, and Burnsville Center in Minneapolis. The projects are scheduled for completion ahead of the holiday season.

I will now turn it over to John for the financial review.

Thank you, Stephen.

Since our last call in February, we have closed 11 loans totaling over $660 million. The financings were completed at very favorable rates with the weighted average interest rate for all 11 loans at 5.42%. The loans include 6 CMBS loans for 10-year terms, 4 bank loans for 5-year terms, and one institutional loan for a 10-year term.

We generated significant excess proceeds of more than $115 million. 8 of the properties were previously used as collateral to secure our $520 million line of credit. As we pull properties out of this facility, it has become a revolver that can be used for retiring loans that are maturing at 2011 and beyond, as well as providing additional flexibility.

At the end of the quarter, we had more than $820 million available on all of our credit facilities. Our financial covenants remain sound with a debt-to-GAV ratio of 52.7%, and an interest rate coverage ratio of 2.38 times for the quarter compared with 2.2 times in the prior year period.

For the first quarter, we reported FFO of $0.63 per share, which included a net impact related to the sale of Oak Hollow Mall of approximately $0.15. The net impact included a gain on extinguishment of debt and a loss of real estate, which are reflected in discontinued operations.

Total portfolio same-center NOI, excluding lease termination fees, increased 50 basis points in the quarter from the prior-year period. NOI has benefited from the increase in occupancy which has improved our rental stream.

Bad debt expense was virtually flat over the prior year in the quarter at $1.4 million compared with $1.3 million.

Other major items in the earnings results included, G&A as a percentage of revenue was 4.4% for the first quarter compared with 4.2% in the prior-year period. Our cost recovery ratio for the first quarter 2011 was 95.6% compared with 101% in the prior-year period. Variable rate debt was 14.6% of total market capitalization at the end of the first quarter 2011, versus 18.9% as of the end of the prior-year period. Variable rate debt represented 24.6% of consolidated and unconsolidated debt, compared with 28.4% for the prior-year period.

Yesterday, we reiterated our 2011 FFO guidance of $2.10 to $2.15 per share. The guidance assumes NOI growth in the range of negative 50 basis points to a positive of 1%.

We are pleased to start the year on the right track with improving metrics across the board. The entire Company is focused on continuing these improvements throughout the year. We are also moving forward with potential joint venture activity. We are hopeful that we will be able to announce a transaction in the near future.

We look forward to visiting with you at the ICSC RECon in Las Vegas as well as NAREIT in June.

Thank you for joining us today, and we appreciate your continued support. We are now happy to answer any questions you may have.

Thank you. (Operator Instructions) Our first question coming from the line of Todd Thomas from KeyBanc Capital Markets.

Hi, good morning, I am on with Jordan. Just circling back in your prepared remarks, you mentioned that there were a select few retailers that continue to underperform. I was just wondering, which categories those are, and what type of replacement tenants you think are fit to go into those spaces.

Sure. In terms of categories, the weaker results we saw were in some of the athletic apparel and casual apparel. Some of the renewals we did with greeting cards and with gift and novelty category, that was an area of weakness. Some of the juniors, although some juniors were doing really well, but it is uneven just given the competition in that category. So that was an area where we experienced some difficult negotiations. Those were the main ones.

And then, as far as where we are doing replacements, that is across the board also. Some of the teen retailers are active, Justice and Crazy 8, and stores like that. Some of the other juniors are active in terms of doing new deals, Buckle, Forever 21, people like that.

And then, we are doing a lot with the cosmetics, Sephora, Ulta, you know - is a small box but we are doing a lot of deals with them. Then in shoes, Shoe Department Encore and Finish Line are doing really well. The whole athletic shoe category had a real strong rebound over the last six months.

So hopefully that gives you a little more color.

Okay, certainly.

Then just looking at the tenant lists, it looked like there were a number of Gaps and Abercrombies that you lost during the quarter. I was just wondering, I know that they have announced plans to reduce their overall store counts and shrink their store formats. I was wondering if you had a sense of where that is in terms of your portfolio, and if you expect there to be more to come still?

Most of the closings that are going to occur are going to happen in the first quarter, because the majority of our lease expirations are in January. So this is the time of year when we will see the majority of that.

As far as Abercrombie and Gap, it is really a combination of factors. We had some that expired, and a couple where we did terminations to replace them, because of their sales performance; and it was a mutual decision. But of the seven Abercrombies that we lost or closed during the first quarter, we have replacements for five of those, and then prospects working for the others. So in those cases, we had a good sense that they were going to be closing, and we've had time to work on the leasing and be proactive to replace them.

With Gap, it is similar. A couple of the Gap situations, they just consolidated their Gap and Gap Kids stores, so one of the stores in those was part of that closing. Then one was the center that we sold. And then the others were just where the lease expiration had occurred and we have replacements for them.

With Gap, of the eight, we have six of those where we have replacements. So again we have known it's coming with them.

We've got great relationships with both companies. We're in constant communications as far as stores that are doing well and aren't doing so well. We watch the occupancy cost ratios carefully so we can be ahead of the curve with them.

Okay, great. And then just lastly, looking at development at Alamance and the Oklahoma City outlet shops, slight uptick in the expected yields. I was wondering if that is related to better rent economics or is it related to cost or the fee structure?

It is really the rents are coming in better. Oklahoma City, we are exceeding pro forma on the rent levels, and given the occupancy that we are at and pre-leasing we're able to take advantage of that and negotiate better deals.

Alamance is really a combination. We had a little bit of cost savings there, and then the income has improved a little bit.

Okay, thank you.

Thank you. Our next question coming from the line of Jay Habermann from Goldman Sachs. Please, proceed with your question.

Good morning. John, you had mentioned on the joint venture front that obviously you were hoping to announce something soon. I'm just curious, given that values in real estate have appreciated in the last year so, are your phone calls starting to pick up? And are you getting closer to announcing something? Just curious where you guys are in that process at this point in the cycle.

You also mentioned obviously that the refinancing market was improving as well on the CMBS front. But again, just tying it back to the joint ventures and your thoughts there.

Thank you. We've had a lot of calls with regard to joint venture partners. We have been very selective in who we want to create this joint venture with. When we do, we want to do it with the best of the best; and that's what we're focused on.

I think you'll see some results from us in the very near future on that, so I think things are moving along on that front very well. So we are excited about the prospects there.

Granted, the value of properties have gone up and there's been more recognition by the market of the middle markets and what these malls can do. So we are very excited about it and think that the joint venture that we are working on that we will announce in the near future will be a very excited one for us and our shareholders as well.

Great, I look forward to that.

And then you mentioned as well, Stephen, that renewal is still a challenge. Can you just discuss that a little bit? I know the pace of leasing continues to be very strong, but perhaps can you talk about some of your better performing assets versus perhaps some of the weaker assets? Or is it, really as you said earlier, just a few specific tenants that are holding back the renewals?

It's more just certain tenants where we did renewals on a portfolio basis, so we did packages; and some of those have been more difficult in terms of the shorter term and the results that we've experienced.

When we look across the regions, I will say that Texas has really been the strongest in terms of spreads, and the weakest has still been in the upper Midwest, so where we have the Wisconsin and Michigan malls. And then it's been pretty steady across the Southeast and the lower Midwest and the other regions.

So there is some discrepancy by region, but unfortunately there are a couple of really tough deals that we've decided to do, because we felt like it was in the best interest of the center or the NOI, but they put a big weight on spreads; and we are making progress, and the numbers are better, and we are really pleased to be in positive territory on a blended basis because we haven't been there in a long time, but we also feel like we're going to continue to make progress and see better results because we are getting through the worst of it and we are definitely seeing things improve.

Okay, and as you look toward the end of the year, where do you think spreads could move versus that positive 30 basis points that you just recorded? And maybe asking a different way, if you strip out some of those more challenging deals, where are spreads on average today?

First of all, I can't give you a number for where things are going to be at the end of the year. We are hoping better, but I can't tell you exactly what the number would be. We report signed leases, so we have got a pretty good pipeline; and we are pushing hard to improve the terms of the deals. So we definitely want to get everything in positive territory.

And then, just looking -- the longer terms are definitely producing the better results. So as we said, the new leasing is up in the high teens, and those for the most part are seven- to ten-year deals. So that is really where our biggest priority is, is pushing out the terms, getting a long-term commitment from the retailers, and realizing the value in those spaces.

Great, thank you.

Thank you. Our next question coming from the line of Christy McElroy from UBS.

Hi, good morning, everyone.

Stephen, just following up on your prior comment, you mentioned that the new leasing was primarily 7- to 10-year deals? Can you break out the proportion of those between what was the longer-term leasing versus what was three years or less? I think last quarter you said that the spread was influenced by a few music stores that were shorter-term deals, so I'm just trying to distinguish between the two quarters.

Well, there were a few music deals in this quarter, but actually, those were pretty much flat. So that wasn't as much of a challenge this year. There were a couple of other deals more in the junior apparel category that were big negatives and that hurt us.

And then as far as your first question, Christy, the 7- to 10-year deals was roughly 40%. And that is where we are getting the real positive spreads, the high teens, 18%. And then, 55% was less than three years. So that is where we are still trying to improve and bring that number down. We did bring it down somewhat, 5%, from where it had been, but we want to get that number down even lower from where it is. And we will hopefully make progress there.

What was the average duration of the new leases signed in the quarter versus the renewal leases?

I don't know specifically what the number is, but the range is in that seven to ten -- seven years plus.

Okay. Then just on the 900,000 square feet of space that is over 10,000 square feet that you re-leased in the operating portfolio, can you give us a sense for what kind of cash spreads you saw in that space? So what is not represented in the table here.

Could you just repeat that again? I'm sorry.

Sure. In terms of the 900,000 square feet of space that you leased in your operating portfolio, that is not represented in this table - so it's over 10,000 square feet, can you give us a sense for what kind of cash spreads you saw on that space?

It was probably in the flat range. We don't have it at our fingertips, but some of it was renewals of anchors, and in those cases, those are pretty flat. Every once in a little while we get a little bit of a bump, but they're part of the leases.

And then the other is where we are bringing in boxes, and that is hard to measure because we combined existing spaces and vacant spaces, and sometimes it is even common area or storage space to create for the boxes. So we usually look at it more on a return on investment, and target double digit returns on those. So that is more the way we look at that kind of leasing.

Okay. I'm wondering if you could weigh in on the discussion of the extent to which Apple and Apple Store influences sales and sales growth over the last year at malls on average?

We'd like to have a few more of those to weigh in on our sales. Their volumes are amazing. They are doing over $25 million, $30 million, just incredible volumes. So they are a great boost for a mall.

We have four in our portfolio. We are talking to them about more. We actually have a couple of licensed Apple Stores, one is in Chattanooga, one is in Nashville, and those do well. They don't do as much as the standard Apple, but they are a huge success. We would love to have more. They definitely drive your sales per square foot up, and it can be almost a 10% impact on the mall's sales per square foot.

The other thing is just that whole category of electronics, with Best Buy Mobile. We have done a lot of Best Buy Mobile deals and they are doing really well. Just having that category in the mall I think is really important. A few years ago everyone was buying electronics off the mall, and now for them to be able to buy them inside the mall is a real improvement. We are pleased with that.

For the malls that you have an Apple Store, to what extent has that store contributed to year-over-year sales growth, at those malls that they're in, over the last year?

It's not that much for us, because we just don't have that many of them, so when you look at our sales growth, it is coming across the board. And Apple isn't big enough in our portfolio to really make that much of an impact.

Right. I'm just thinking about the particular malls that they're in. So just as you look at that mall, how much has the Apple Store contributed to the growth?

I don't know. We would have to get that for you. We can get it and talk to you later about it, but it is probably 1% to 2%. I don't think it's swayed it that much.

Thank you.

Thank you. Our next question coming from the line of Nathan Isbee from Stifel Nicolaus. Please, proceed with your question.

Hi. Hope you guys are doing well even with all those storms down there.

Just going back to the JV issue. Over the last few months, there has been a number of middle-market malls that have come to market or are about to come to market. Can you just talk about how your discussions with potential partners might have changed to where the venture would go out and possibly purchase some of those malls that are coming to market, leveraging your platform?

Nate, we from the get-go have basically said that we think there are two different types of joint venture partners. One is the one that is more driven to the institutional type of approach, which we have worked on that side of it. And that partner, we likewise want it to be in a position to continue to make acquisitions with us as well on that same type of format that they are interested in. So we think that is one joint venture partner.

And on the other side of the equation, we think there is another type of joint venture partner who is more interested in the middle markets and what you can drive as far as dividends, and so we are basically looking at both of those and working on those. So, yes, I think that there is that possibility, and we have had discussions with both partners. Maybe the one -- (multiple speakers)

I'm sorry, go ahead.

No, I think one - that we are probably further along with regards to this discussion of an institutional type of partner that would like to go out and acquire more market dominant malls in those specific areas. So that I think we've made a lot of progress on.

We've had discussions and we are pretty far along on the other side of the equation as well, because as you alluded to the fact that there are a number of portfolios that are coming up that basically fit our cup of tea as far as their middle market and our ability to add the management expertise to those to see the growth potential there as well.

Thank you for commenting on our weather; it has been very severe. In the Chattanooga area alone there's been 47 deaths and still a bunch of unknown people have not been found, et cetera. So we still - I think there is 60,000 homes without electricity, but Hamilton Place has electricity, and we think that that should bode well for the sales here. Thank you for your expression on that.

Sure. And just going back to the JVs for a second, have you spoken to the sellers yet? Or are you underwriting any of that stuff yet?

We look at everything. We continue to I guess involve some type of underwriting as well. So yes, we do look at it. We do work on those numbers to see if it makes sense for us or for our prospective partners.

All right, thanks.

Thank you. Our next question coming from the line of Craig Schmidt from Bank of America. Please, proceed with your question.

Good morning, thanks. Could you tell me what drove the strong same-store NOI in the community centers this quarter?

Occupancy increases in those areas were the big motivating factor there. As an example here in Chattanooga, The Terrace, we put in an Ulta and we put in DSW Shoes, and so that helped tremendously; and we put in an Academy, took over an old Circuit City store, so that came online. That was basically one of the big things. They're doing extremely well in this location. And I think that just bodes well of our ability to develop not only regional malls but the associated centers that surround the malls so we can meet all retailers' needs. So I think we are going to continue to see some good results on that.

There was a 600 basis point increase in occupancy in Q1 versus the prior year, so that drove it as well.

Was that the mini anchors or junior anchors primarily?

Yes, it was the junior anchors, like the Ultas and the Academy Sports, which is doing phenomenal business in this market area.

Okay. I know in the past you have stressed locations in your state capitals. I just wonder, coming on the GDP news, the biggest drag was a plunge in government expenditures down 5.2%. Have you seen any of that translate to the sales of those malls that are near the state capitals?

No, I don't think so. I think what we are seeing in those market areas is that they continue to attract additional people to those market areas.

A lot of these areas, like for instance Madison, Wisconsin, is a big university town. So even though you're seeing tuitions rise in those universities, you're also seeing their enrollments go up as well. So I think that bodes well for those towns as well.

I think in Nashville, Tennessee, it's a health and university town as well. So you've seen that mix there. And there is stability still, notwithstanding the fact that these states are going through a lot of turmoil and budget constraints. But I don't think it has impacted that as well, and I think if you look at Meridian Mall in Lansing, Michigan, with Michigan State being there, et cetera, you've got a stability in jobs and hopefully you're seeing some job growth occurring, but not necessarily of the state levels, but like in Huntsville, Alabama, where the military cut back, then you saw the incubation of a lot of private enterprise going into various companies, such as Intergraph who started as a result of the cutback from government. So I think that the market areas where we are, are extremely good.

To sum up, you're not worried about maybe an extended contraction of the state government in those markets.

No, I think you watch it and you're careful with regard to it, but it has not been a problem, but we're focused on that ability to watch that and see and work to overcome any setbacks that occur there.

Okay, thank you.

Thank you. Our next question coming from the line of Michael Mueller from JPMorgan. Please, proceed with your question.

Hi, how are you? Couple questions here.

First of all John, going back to your comments on the different JV types. You mentioned one going after market-dominant centers, the one going after middle market centers. Are these discussions you're having with the same partner about different strategies and you're going to pick one? Or could we see you come out with two different announcements with two different strategies? How should we be thinking about that?

I think you identified it pretty well, Michael. I think there are two different strategies. I think that there'll be two different types of approaches.

I think we have discussions at the same time with both parties, but one is more focused on the institutional side of it versus the other who was focused on our ability to add value to those properties as well. That's not to say that we can't add value to the institutional properties, because we've got that ability as well. So I think that it is two different partners.

Got it, and both of them theoretically we could see you seed those JVs with existing assets to get it going?

Yes, I think so. I think that is definitely a potential, but it is easier if you basically go out and buy additional properties for that guy who is focused on bigger returns.

Okay, got it. And secondly, John, you mentioned -- sticking with you just for a second -- you said recoveries. Just looking at the recoveries down year-over-year. If we're thinking about full year '11 versus '10, do you expect any dramatic change in recoveries?

We think it will be down just a little from the prior year's, just because we have seen some utility increases that are costing you a little bit, but this quarter is probably -- we hope that this quarter is off a little, but the 100% maybe is a little high, so we want to come in a little around that area. So the fixed CAM is continuing to be the direction that we are going. I think we're 85% there and 90% there. So as we can convert all of those, it helps us as well.

Okay, great.

Last question, I think you said the mix of leases as of the first quarter that were less than 3 years is about 55%. If you go back to pre-downturn, what's the normal mix of that sub 3-year lease?

We actually didn't really measure it. We didn't keep track of it as much because it wasn't much of an issue.

So it was pretty nominal, it sounds like then.

That's correct.

Great, thank you.

Our next question coming from the line of Rich Moore from RBC Capital Markets.

Morning, guys. John, on the Fayette Mall, did the extra $100 million of excess proceeds, did that go to pay down the line of credit further?

Yes, it did. And as of today we've probably got on our lines of credit an availability in the range of almost, I think it's about, $980 million. So it gives us tremendous flexibility, and so we continue to watch that.

Fayette is just a good example of what we've been able to accomplish with that property since we bought it from Jacobs. Great re-leasing there. The institutional partner who put the mortgage on it had it before and wanted to keep the asset as well. It's a great market area; it is a great asset; and we think that the fact that we were able to finance in excess of $115 million in proceeds speaks well of our portfolio because today's world is that everybody is underwriting in a much more difficult way, with more care. And so I think we were pleased that we were able to finance over $115 million and bring down those interest rates.

Okay, good, thank you. And then so basically with $1 billion of free capacity, you could pretty much put anything coming due on the line of credit while you wait to see if you can finance it with a mortgage.

Exactly. That is the beauty of what we did with that $520 million line, was to create it as a revolver so that we can take care of those opportunities as they come up. If the markets lock down on us, we've got that availability as well. So from the standpoint of flexibility and the ability to run the Company going forward, we've got maximum flexibility and we feel very, very comfortable and confident as to where we are.

Okay, thanks. And then, I have a couple more, if I could, guys. On the disposition front, everybody else's selling properties. Have you guys got anymore that you want to sell?

We have been marketing some of the community centers and we sold some stuff last year, and we have a couple of other things that we are working on. So we have always got a few things that we are talking about.

We are not taking a big portfolio and listing it or anything like that. We feel like our best strategy for selling things is to do it on more of a targeted basis with local buyers or regional buyers, and we get the best pricing. So we've been doing it in more of a low-profile way. But we are always looking at dispositions as a way to upgrade the portfolio. And certain properties for various reasons like the community centers, we've sold them as a source of equity and that has worked well for us and we'll continue to do that.

Any lower-end regional malls that you might sell?

There is a couple of malls that we think are good targets for disposition. We sold a few; we sold a couple last year that are in the lower sales-per-square-foot range, and also we didn't see any growth opportunities because they were maxed out. So those, we felt, made sense, and we are not just limiting to the community centers. There are a couple of malls as well that might make sense to sell.

Okay, thank you.

Last thing I have, help me understand this short-term lease situation. I would have thought -- and maybe this is just naive, but I would've thought as the economy got better here that the volume of short-term leases would've shrunk very quickly in conjunction with an improving economy. And it seems to be going down. But going down very slowly. What is the strategy behind so many short-term leases?

It is getting better, and there is just a lag that takes time for it to get it to the level that we want it to be. So it is fewer now than it was a year ago, and these are signed leases, so the negotiations occurred probably three to six months ago in a lot of cases. So as things get better, as sales get better, just in general, that is going to improve.

We want it to happen faster also but unfortunately it just doesn't turn on a dime. So it is a big push for us to get down that percentage. Like I said, the lease spreads are the worst for the shortest term leases. So the better we can do in terms of lease term, the better our lease spreads will be. And it will translate into NOI growth. And that is really our goal. So we are on the same page with you on that.

So by year-end, would you be 25% or lower or is that unrealistic?

I don't think it's going to go to that extent. There is always a certain percentage of it. It's not 25%. There's probably always going to be a third that we want to be short because we want to move people around, we want to give ourselves flexibility. Our definition of the value of the space is different than the retailers'. So we want to keep the space occupied while we find someone else.

So I think even when things are booming, there is still a pretty good percentage that is going to be shorter term, just not as high as it is now.

Okay, very good. Thank you, guys.

Thank you. Our next question coming from the line of Ben Yang of Keefe, Bruyette & Woods. Please, proceed with your question.

Good morning. You guys were the first mall REIT without an outlook platform to announce plans to develop an outlet. You have about six months under your belt. You're about to open up your first project in a few months, and that looks like that's going to be very successful.

So I was wondering if you could maybe talk about your expectations for additional outlet opportunities in the coming year? Maybe how many developments you see CBL participating in, and whether Canada might also be a part of the game plan?

We are not looking at Canada, so I can tell you that. And as far as other projects, our way of doing any announcement of a new project is we don't announce it until it is real. So I can't give you any definitive numbers on that.

We are looking at other projects in the outlet space, and as a lot of people have commented, it's become a more crowded space, more competitive. But we do think there will be opportunities for us.

We have Horizon who is active in the outlet space as our partner in Oklahoma City, so there are things that we can look at with them, or we can look at things separate. We have good opportunities and we have a lot of good relationships that we've been able to develop through Oklahoma City with the outlet retailers.

Then there is just a lot of convergence; and in a number of cases it is the same people that are doing conventional retail and outlet retail at the retailers.

So we have started talking more -- we've gotten calls from property owners and other people that have projects, just in light of Oklahoma City and how well that's done, so I guess it is a long way of saying I can't tell you exactly how much, but it's something we're committed to. We expect to continue to generate some more projects.

And when you say you won't announce until that opportunity is real, does that mean that you have optioned the land or that you have actually begun construction somewhere?

We don't announce until we are either about to start construction or starting construction. And that has just been our practice over the years.

Even when you option land, there is a lot of hurdles to get over in terms of pre-leasing, So we don't want to announce something unless we're confident that it's going to go forward. And we don't buy the land until the project is ready to go either. So the option is only one part of the equation.

Okay. And then you did comment on the space being a little crowded. We are obviously starting to see some of your peers basically compete to build in the same sub market, and just trying to understand what CBL brings to the table and how you might be successful in competing with some of your peers? Is it going to be the conversions that you think you have an upper hand on? Or is the Horizon venture strong enough to go head-to-head with like a Simon or a Tanger?

I think there is -- different people focus on different markets. So we are going to be more focused on the middle markets like Oklahoma City and not as focused on a Phoenix or a Houston or some areas where some of the other companies are competing. So that's been our strategy with most of our projects and our malls over the years, and I think we'll be consistent with that with the outlet centers.

As far as what we bring to the table, the outlet center business is fragmented with -- other than Simon and Tanger, a lot of small companies that have not a ton of projects and don't have -- are private, don't have access to capital, so I think we bring a stronger balance sheet to the equation. That helps us.

Then our relationships with retailers help a lot, and retailers have always over the years pointed us to opportunities and helped us, and I think that will help us as well here. So it's those same core strengths, the relationships and the financial strength, that have helped us in our underlying business will help us in the outlet centers.

Okay, great, thanks, guys.

Thank you. Our next question coming from the line of Quentin Velleley from Citi. Please, proceed with your question.

Hi, good morning. Michael Bilerman is on as well.

Just talking about the leasing spreads again, I know you have had 2.5 years where you have had negative renewal spreads and a lot of short term renewals. So I assume given that it's 2.5 years that you have some of those rents that you'd have cut and signed on shorter term leases, they're coming back into the renewal spreads.

So for the quarter, can you just talk a little bit about any tenants you had that were on shorter term leases that you resigned, whether you were able to increase the rent? Whether you were able to extend the terms or whether those tenants are leaving the mall?

We don't track the short-term leases, where we're renewing them; and we don't know what percentages of the short-term have already been on short term, but it has to be that a pretty good amount is, although I think the spreads are always going to be better once we've taken that hit on the short term renewal.

But really, the strategy is to replace those and it just takes time. We have had some success. We had a Gap deal where we split the space into a couple of retailers at one of our malls in Texas, and we got a positive 24% increase there. We had another Gap deal in one of the malls in the Midwest where we replaced with another juniors retailer, but we got a positive double-digit spread there. So where we are replacing them, we are getting the results and worse case, it's flat, but most cases we are getting some improvement there.

We are also looking to expand some adjacent stores into some of these spaces, so because of the timing, we'll do a shorter term renewal to give that expansion time to play out.

So it is frustrating how long it takes for us and how slow things are in terms of really getting the progress, but we are encouraged that we are moving in the right direction, and 30 basis points is positive. We feel like that is a good thing compared to where we've been. We see it continuing to improve, we have some good momentum, and our markets, the sales are better despite some of the headwinds with gas prices and food inflation. Still, the economies are better.

We have been doing a lot of mall tours the past month or so, and unemployment has come down 200, 300, 400 basis points in a lot of the markets because of just stabilizing the economy. The job growth really takes precedent over some of these other factors, and we feel like things are definitely improved and are going to continue to help us in our leasing activity.

We did a lot of leasing, like I said we did 1.8, million square feet. So there was a big volume of leasing in the first quarter because so many of our renewals happen this time of year.

But I guess, in coming quarters, what we should expect to see in the leasing spread batteries a moderate improvement in renewal spreads, but sort of strong positive spreads in the new leases as you replace some of those short-term leases that come off? Is that fair to assume?

Yes, that is fair. That's the way we see it going and that's what we're looking for.

Okay. Just secondly, just some comments on replacing Abercrombie and some of the Gap stores. I assume they occupy some of the better space in some of your malls. Have you been replacing those spaces with existing tenants in the mall? Or are you able to get external or new tenants into the space?

For the most part, it is new retailers coming in to the mall. A couple of them were expanding existing retailers, but I would say primarily, it is new retailers.

One of them we replaced -- when we did the Apple at Fayette Mall, it was part of an old Gap space, and Gap relocated and consolidated into the Gap Kids, so there is just a lot of moving pieces always.

But Gap has done a lot to refine their strategy over the past few years. They have been very public with the fact that they are shrinking their US fleet of Gap stores, and they have too much square footage, and we have some malls that have Abercrombie, they have an Abercrombie Kids, and they have a Hollister. And they have got 15,000, 20,000 feet of square footage and we don't expect them to operate that amount of square footage in the future.

So we're being proactive and working with them and talking to them about situations where it makes sense to consolidate or replace certain stores. So that has always been part of the business, and it's going to continue to be like it was this quarter.

Stephen, this is Michael speaking. Has the mix shifted between the national, regional and local over the last three years?

Hi, Michael. I don't think it has shifted that much. We are still over 80% nationals and large regionals. And that's been pretty consistent.

We were more aggressive in late '08, '09, bringing in some local retailers and being more aggressive on rents because we wanted to keep occupancy levels at a higher level, so we had more locals at that time. And we view having locals as a good important part of the mix, although mostly the locals end up being the temporaries, and that's stayed pretty consistent as far as the percent of mall space that they occupy.

Okay, and then just on the joint venture where you are selling assets to a partner, can you just give us -- size wise, what are we talking about in terms of gross asset value and effective equity proceeds that you are trying to dry out?

I think that those are the things that we continue to discuss with our partners, and we sort it out to meet each other's needs and do it the best way possible. So as far as the ability to define that or tell you that, I think it is so much driven by what we think is best for us and what we think is best for our partner and what we think we can do going forward together as partners.

So there is no fit criteria, there is no set idea. We think that what we are attempting to do and what they are attempting to do, we can meet in the middle and basically come out in a best position for both of us so that we can see growth in those joint venture opportunities.

There's no sense of whether this is a $250 million, $500 million or $1 billion, just so we get a sense of what to expect as these things unfold.

I think, Michael, where we are on that is that we are discontinuing to discuss and sort through those various questions that you raised, and it's something that we address and continue to have conversations with our partners. When the opportunity to present itself and present ourselves to the market, there will be some identification at that time.

But I think where we are is that we are focused on the outstanding partner who basically shares our same vision as to what we want to accomplish. We are having great discussions and we think we are getting closer with the best of the best.

Thank you.

Thank you.

Mr. Lebovitz, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Okay, we would like to thank everyone, and again we appreciate your support. We look forward to seeing you at the RECon in Vegas and NAREIT in New York over the course of the next few weeks. Thank you.

Ladies and gentlemen, that does conclude the conference call for today.