CBL & Associates Properties, Inc. (CBL) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the CBL & Associates fourth quarter 2011 conference call. (Operator Instructions) As a reminder, this conference is being recorded, Thursday February 9, 2012. I would now like to turn the conference over to Mr. Stephen Lebovitz, President and Chief Executive Officer.

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

This conference call contains forward-looking statements, within the meanings 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 from the events and results discussed in the forward-looking statements.

We direct you to the Company's various filings at the Securities and Exchange Commission including, without limitation, the Company's most recent annual report on Form 10-K. During our discussion today, references made to per share amounts are based on a fully diluted converted share basis. During this call, the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of each non-GAAP financial measure to a comparable GAAP measure will be included in the earnings release that is furnished on form 8-K, along with a transcript of today's comments and additional supplemental schedules. This call will be available for replay on the Internet through a link on our website, CBLproperties.com.

Thank you, Katie. During the fourth quarter, we continued our string of improving results. We achieved growth in occupancy of 120 basis points, a 60 basis point increase in same center NOI, positive leasing spreads in the high single-digits, and our eighth consecutive quarter of sales growth. We are encouraged by the over 38% increase in our stock price in the fourth quarter, and sustained share price gain so far in 2012, that reflect these continued improvements.

2011 was also a very productive year for improving our balance sheet. In total, we ended the year with nearly $500,000 less in debt than 2010, with proceeds generated by asset sales and the TIAA joint venture. At the end of the fourth quarter, we have more than $1.1 billion in availability on our credit lines, providing us with tremendous financial flexibility.

We have kept our focus on reducing our overall leverage, and have been successful at selling off non-core properties at attractive pricing. For 2012, we expect to see more attractive growth opportunities while remaining focused on strengthening our balance sheet.

We recently announced that we are partnering with Horizon Group to develop our second Outlet Center, the Outlet Shoppes at Atlanta. The project is located in the affluent suburb of Woodstock, north of the city. We plan to begin construction on the Center this spring. The 370,000 square-foot project is already 70% leased or committed, with the first class line-up of retailers including Saks 5th Avenue Off 5th, Nike, Michael Kors, J. Crew, Puma, and Under Armour.

Similar to the Outlet Shops at Oklahoma City, this project will be developed in a 75/25 joint venture with Horizon Group, with an initial unleveraged yield above 10%. Our new venture with Horizon builds on the outstanding results being generated by our project in Oklahoma City, which continues to exceed all projections. Based on current results, the Center is on track to generate an unleveraged 11% return, and sales are trending over $400 per square-foot for the first year.

In December, we closed a $60 million, 10-year nonrecourse CNBS loan secured by the Outlet Shoppes at Oklahoma City. Another strong avenue of growth for us is the expansion and redevelopment opportunities within our existing portfolio. These projects enhance the Center's increasing traffic and solidifying the mall's dominant position in the market.

One of our most recent projects, a new 12-screen Cinemark Theater at Stroud Mall in Stroudsburg, Pennsylvania, opened during the fourth quarter, and soon we will open a new 12-screen Carmike Theatre at Foothills Mall in Maryville, Tennessee. In total, in 2011, we opened 7 anchor locations, 34 new junior anchor locations, and added 14 restaurants to our Centers.

We recently announced our renovation program for 2012. We'll renovate four malls, including Cross Creek Mall in Fayetteville, NC, Mall Del Norte in Laredo, TX, Post Oak Mall in College Station, TX, and Turtle Creek Mall in Hattiesburg, MS. The aggregate expenditure for the renovations is estimated at approximately $20 million.

These renovations are important to the continued growth of the Centers, helping to attract new retailers, and driving traffic and sales. Overall, it was a solid holiday sales season. Given the generally mild weather across most of our portfolio. Department stores posted healthy increases, with Macy's leading the pack. We generated a 3.5% increase in our malls during the fourth quarter. For the full year, sales increased 3.3% to $336 per square foot.

The ongoing improvement in sales has translated into steady demand from retailers, which is reflected in our positive leasing spreads. Fourth quarter spreads showed progress in renewal leasing, and new leasing spreads continue to be very strong. Overall leases for stabilized malls, signed during the quarter, produced an 8% increase over the prior gross rent per square foot. Renewal leasing spreads were positive, up 4.5% over the prior rents, and new leases were signed at a 23% increase over prior rents.

Short-term deals were similar to third quarter at roughly 44% of total leasing, excluding a package of short-term packs and renewals we signed in the quarter. This compares favorably to 60% for the fourth quarter 2010. Our leasing volume has increased significantly, as well. In total, we signed almost 1.7 million square feet of leases during the fourth quarter, a 20% increase over the prior year period.

Leases signed during the quarter included approximately 400,000 square feet of new leases, and 1.3 million square feet of renewal leases. For all of 2011, we signed more than 7.1 million square feet of leases, achieving the strongest year of leasing in our company's history. We experienced a limited level of new bankruptcy and store closure activity during the quarter. We had two anchor closure announcements, both impacting Hickory Hollow Mall in Nashville. The buildings are owned by the anchors, Sears and Macy's, so there was no direct revenue impact resulting from the closures.

You may recall that we recorded an impairment related to Hickory Hollow in 2010, and we have been pursuing opportunities to reposition the Center with non-retail uses. This quarter, we sold the former J.C Penny building to Metro Government of Nashville in Davidson County. They have plans to use the space for a library and community center. We are also working with the owners of the other anchors on plans for repurposing their stores.

With the recent attention on Sears, we wanted to spend a few minutes reviewing our portfolio. We have 71 Sears stores. Sears owns 52 of those stores and leases 19. In total, Sears contributes approximately $6.7 million, or 65 basis points of total rents, so we have minimal revenue exposure. The stores are profitable with extremely low occupancy cost at the leased locations in the 2% to 3% range, and gross rents averaging $2 to $4 per square foot.

For upcoming lease expirations, we've completed a number of renewals. We have been successful in working with Sears on several of their own locations to explore opportunities including joint developments and other options. We have worked with them [inaudible] to add restaurants on former parking fields. At our Friendly Center in Greensboro, North Carolina, Sears subleased a portion of their store to Whole Foods, which should be well-received by the Centers' shoppers.

We have a strong relationship with the Sears real estate team, and will continue to work with them to improve their real estate. In most of our Centers, the Sears store is very well located with good visibility and prime parking fields. We are confident that in most of these locations, there would be demand from alternative users for the space, such as a nontraditional department store, box users, restaurants, et cetera. We will continue to watch Sears closely, but we don't anticipate a material negative impact from any future closings.

Moving on to transaction activity. As I mentioned earlier, we have been active on the disposition front recently. In November, we closed on the sale of Westridge Square Community Center located in Greensboro, NC, and last month we closed on the sale of Oak Hollow Square, a community center in High Point, NC. The aggregate sales price for the properties was $40.3 million in cash. Proceeds were used to reduce the outstanding balance of our Starmount unsecured facility. We will continue to pursue non-core disposition activities where we can achieve attractive pricing. I'll now turn it over to John for the financial review.

Thank you, Stephen. During the fourth quarter, we completed approximately $380 million in financings at very attractive rates. These financings generated net cash proceeds of more than $160 million after repayment of the existing loan balances. The new loans were placed with a mix of lenders, including CMBS, banks, and life companies, demonstrating our broad access to capital.

We have approximately $635 million of mortgage maturities remaining in 2012. We are currently in the market receiving bids on the majority of these maturities. We have received interest from CMBS Lenders, as well as institutions and banks, and anticipate completing these financings within the next several months. With the very favorable rate environment, we are hoping to achieve improvement rates on the new loans. We will keep the market informed of that progress.

In the near term, we will be retiring a number of these loans using our credit facilities, which allows us to take advantage of the interest rate savings. We are pleased to have finished 2011 with nearly full availability of $1.1 billion on our three major credit facilities. Our coverage ratios remain very sound, with an interest coverage ratio of 2.5 times, and a fixed charge coverage of 1.9 times.

Debt to EBITDA improved to 7.1 times for 2011, and our debt-to-GAV ratio was 51% at quarter-end. Today, more than 80% of our debt is non-recourse and property-specific. For the fourth quarter 2011, we reported FFO per share of $0.60, compared with $0.62 in the prior year period. We reported FFO for 2011 of $2.22 per share, including the $0.17 per share gain on the extinguishment of debt. This compares with FFO per share of $2.08 in 2010.

We were pleased to exceed our previously increased FFO guidance for the year. There were several contributors to this out-performance, including a higher-than-anticipated occupancy, and lower-than-budgeted interest rates on floating rate debt, as well as new loans. Our same Center NOI growth was near the high end of our guidance, increasing 1.4% over the prior year. During the fourth quarter, same-center NOI increased 60 basis points.

Other major items in earnings results included G&A as a percentage of revenues was 4.3% for the fourth quarter, compared with power to 4% in the prior year period. Our cost recovery ratio for the fourth quarter 2011 was 102.1%, compared with 103.9% in the prior-year period. For the full year, the cost recovery to ratio was 100%, compared with 102.5% for 2010.

We recorded a bad debt credit of $270,000 for the fourth quarter 2011, compared with a credit of $154,000 in the prior year period. Bad debt for the year was $1.6 million, compared with $2.7 million for 2010. Variable rate debt was 10.3% of total market capitalization at the end of 2011, versus 17.4% in 2010. Variable rate debt represents 17.2% of our share of consolidated and unconsolidated debt, compared with 29.3% last year.

The decline in variable rate debt is a result of the payoff of two construction loans using the proceeds from the TIA joint venture, as well as new permit loans that was put in place for the Outlet Shoppes at Oklahoma City. Based upon our current outlook and expectations, we are providing guidance for 2012 FFO in the range of $1.95 to $2.03 per share, which reflects diluted impact of the TIAA joint venture that was completed in the fourth quarter of 2011. The guidance assumes NOI growth in the range of 0% to 1%, other assumptions in guidance includes out parcel sales in the range of $3 million to $5 million for the year. We are assuming that the portfolio occupancy will be flat up to 50 basis points for the year.

While we realize that our guidance range is slightly below consensus, we believe that there may be a few items that are impacting 2012 that are not fully reflected in the street's estimates. We anticipate an income tax provision of $3 million to $5 million for 2012. This is a non-cash impact, but creates a negative variance when compared with the $275,000 income tax benefit in 2011. We are assuming a more normalized level of bad debt expense for 2012 in the range of $3 million to $4 million. Total bad debt expense in 2011 was only $1.6 million. Bad debt expense directly impacts both FFO and NOI.

Finally, work we anticipate a cost recovery ratio in the range of 97% to 99% for 2012, slightly lower than our cost recovery ratio of 100% for 2011. We are proud of our achievements in 2011, setting new leasing records, continuing our debt reduction, and posting strong operational gains. The entire CBL team is focused on continuing this positive momentum in 2012.

Our strategy for owning the only, or the dominant, mall in a market differentiates our portfolio and adds tremendous value. Our properties and our markets are places where retailers want to be, and due to our reasonable occupancy costs of 12.47%, can operate profitably. I think we have generated significant supporting evidence of the advantages of this position through the growth and fundamentals over the past year. We are pushing to continue these improvements.

In addition to our focus on driving internal growth, we will be prudent in managing our capital, while we pursue new external growth opportunities. We are also exploring opportunities to monetize certain non-core properties. As we see attractive pricing, similar to our two recent community center sales. With the improving markets, we are encouraged with our prospects for 2012. Thank you for joining us today, and we appreciate your support. We will now be happy to answer any questions you may have.

Absolutely. Thank you. (Operator Instructions) Paul Morgan with Morgan Stanley.

Good morning, Paul.

Good morning.

Good morning.

On the cost recovery ratio that you just mentioned going down to 97% to 99%, what is the driver of that, if you have occupancy kind of flat to slightly up? What's causing that to dip down?

Paul, I think the primary drivers are fixed CAM, and we've been able to benefit from reduced expenses over the past few years, but in the fourth quarter, we actually started seeing some expenses go up, with utilities and insurance and some other items. And as we're rolling leases, we roll them to the current rate of CAM. Having the 100% is a target, but as we roll some of the leases, then that slips a little bit.

And what percent is on fixed CAM now throughout the mall portfolio?

It's about 85% now.

Okay. And then, you mentioned paying off some of the mortgages on the line for a while, as you work on the permanent refi -- I mean, can you walk me through how that would go? How much would end up going on the line, what kind of timing, and what you're waiting for. Are you waiting to do a package all at once or something?

I think where we are is that as those loans mature or as they open for prepayment, we'll basically use one of our lines of credit, either the $520 million or the $525 million, and use that to pay off those. So, as those loans mature, we will be doing that. At the same time, we're in the market, basically, to put in place new CMBS, or new loans basically, with institutions or whatever.

This is pretty consistent with what we did last year when the markets were a little tumultuous. We used our lines of credit, and then we went out and got new loans on those. So, I think by being patient and not being in the position where you have to push and move on a very quick basis, gives us the maximum ability. I think that we see some good capabilities there, and we think that what we're doing is really extremely good. So, I think we'll see some interest rate savings as a result of that, as well.

So, would you say the market is pretty good right now? You would be able to refinance then, upon maturity, I would think now, or is there another reason for waiting?

Yes, I think the market is extremely good. I think the competition from the CMBS lenders is back. I think that the focus of CMBS lenders is to make certain that they have the right sponsor of those properties, and that the public companies have definitely a leg-up with regard to being able to achieve those results. I think that our properties are performing well.

I think what we did is, is that we are taking advantage of the interest rate savings by putting those under the lines, but at the same time, we are very focused on non-recourse debt and project-specific. So, we'll put those loans in place as quickly as possible to, basically, continue what we've done in the past, where we mentioned in our comments that our portfolio is 80% non-recourse, which we think is a very, very important thing when you put everything together, and look at risk versus equity return. So, it's a very, very important thing for us.

Okay. Great. Just last thing, just briefly on the PacSun. You said some short-term leases. They were out in December saying that they had agreed to close a bunch of stores. Could you walk through the impact for you, and what the short-term renewals were for, if they're actually looking to close the stores?

Well, we did a package with them of 25 renewals. Those were mostly short-term for one year. It gives us a chance to come up with other prospects, and we're concerned about their future. I think that in addition to us, the other major mall owners also work with PacSun. They did get a private equity investment, but their sales have been down, and so we're working to try to replace them in as many of those locations as possible, in case they're not able to weather this storm. They're in a competitive category, and this is -- we've done this with a few (inaudible) over the past few years, where [we're] hoping they can come back and get through it.

And over the long term that helps us, because we don't have the cost of replacing them, and the down time and all of that, but at the same time, we're planning for the worst. Zales is an example, a couple of years ago where they were struggling, and we worked out a short-term package with them, and now their sales have come back, and we're doing more long-term deals. That one had a happy ending, and hopefully PacSun will, too.

So, were there other stores closed, or was it [just] 25 just done on a short term?

There were a couple that closed that were closed at expiration, but this was mostly stores that were expiring. When you get into these packages, there are a few where we would give them concessions on stores that are prior to expiration, but at the same time, they would give us something in return. So it ends up being a fair situation for both companies.

Okay. Great. Thanks.

Thank you.

Christy McElroy with UBS.

Hello, Christy.

Hi. Good morning. I just wanted to follow up on Paul's question a little bit about the maturing debt. How much of what you have maturing in 2012 will go on the line? How long do you expect it to remain on the line? And then, at what rates do you expect to eventually fix that debt, versus where you could today?

I think that we view this as basically a bridge loan, because as maturities, we think that it's going to be there for a fairly short period of time. Those dollar amounts, as those loans open to maturity, we'll take those and do those -- put them on the line. And it's our intention not to keep those on the line for any significant period of time. So, if you took everything, that the total would be in the range of $330 million to $350 million. It's not a huge number, but we also are in the midst of getting some excellent quotes on these loans and so on. And it does give us the ability to negotiate better terms for us on those loans as they come up, because we don't have to rush and panic. We have the situation in line, under control. So, we're very, very cognizant of what's going on in the market, and taking advantage of those favorable markets.

And what kind of rates do you think that you could eventually get on that debt?

I think it depends upon what's happening in the swap market. We're seeing, at first, the CMBS spreads widen quite a bit. They're pulling in a little bit, but the spread numbers have basically come in fairly good. So, it all depends upon timing. We're very cognizant of the ability and the desire to get these done as quickly as possible.

And then, just with regard to your same-store performance and your mall portfolio in Q4. Just wondering if you could walk us through how you get to the flattish same-store NOI growth that you saw when you had 125 basis points of occupancy upside, 8% releasing spread? Was there something else going on there with expenses or was there something weird with the timing of occupancy commencement during the quarter? It just seems like the growth should have been a little higher.

Yes, sure. Well, there were several things going on. We benefited from the occupancy, but percentage rents were down slightly, like we talked about earlier with Paul's question, the tenant recoveries and reimbursements were down from 2010. And then, like I said, some of the expenses were higher, we had energy, higher energy, security, and we also had higher state taxes. When we get into the improvements in occupancy, there is definitely a lag. And we had a strong fourth quarter in 2010, also, so that -- so we're coming up against a more difficult comp than we've had in the third quarter. So, I think when you put it all together, that's where we ended up.

Specialty retail ended up being lower. There were some challenges there because of the immigration laws have been tightened a lot, and so it's been tougher with employment for those guys. We had some back-sliding there compared to where we expected to be. So, there were just different factors involved.

Hello?

Still there?

Oh, sorry about that. I had you on mute. If you think about occupancy this year, I think you talked about flat to up 50 basis points, how do you see it trending through the quarters throughout the year?

Yes, most of the progress usually comes towards the latter part of the year, so we would expect it to be flat through the early part of the year. And then whatever gains, the gains we achieve will be loaded more towards the third and fourth quarter.

What about the first quarter?

Probably more, like I said, more on the flat end.

Okay. And then just lastly, sorry if I missed this, on Atlanta, did you mention the total project costs and then expected completion date?

We did not, Christy. We put that in our supplement as we finalize those numbers. We did say that it's 10% -- that we're there at a 10% number today. And as we get the numbers and clarify everything, it will be in the supplement. It's going to be a great project for us, and with 70% pre-leased, it's going to achieve great results for us.

Oklahoma City has been phenomenal, and the sales there have been great, as well. So, our partner has done a great job, and I think it's been a great relationship that we've enjoyed with Horizon. And we look forward to doing many more things with them, and we think it's been a great marriage there.

Thank you.

Thanks.

Todd Thomas with KeyBanc Capital Markets.

Hello, Todd.

Good morning. I'm on with Jordan Sadler, as well. I just wanted to follow up on some of the expense pressure that you saw in the fourth quarter. First, does it make you reconsider the fixed CAM leases at all? And then, how much of an increase in operating expenses are you forecasting in 2012?

Well, I think that fixed CAM has almost become a standard in the industry today, so I don't think you're going to see that change much. And as far as some of these expenses that we're incurring now, as those tenant leases come up for renewal, we'll be able to reset the bar again, so we should achieve that and collect that back.

Also, there's no slightness of trying to find additional ways to cut costs, but I think we all know that there's going to be some increases in cost, but energy savings, et cetera, is something that we're focused on as well. Hopefully we can turn that around, but I think being realistic with our guidance, we took all of that into consideration. We're working on it to improve that throughout the year, because it's a cost of occupancy to our tenants that really drives the rents, and we have one of the lowest costs of occupancy in the business, so we're proud of that as well.

Okay. And then to your comments on Sears, I was just wondering, how many malls with Sears in your portfolio have other dark or vacant anchors?

Yes, the only one where we have that kind of issue with multiple anchors is Hickory Hollow Mall, where we have a Sears. Yes, that's it.

Okay. And then, John, I was just wondering, today, can you just remind us what's the size of the unencumbered pool today? I don't know if I missed that earlier.

Yes, the unencumbered pool has some malls in it, and some office buildings in it, and we have some out-parcels and some community centers that are probably unencumbered. But as a result of what we've done with Teachers, and the refinancings we're doing today, we were able to pay down the debt, bring our balance sheets in line. And also, we're focused on trying to unencumber as many of those assets as possible.

Keep in mind that all of those that secure our lines of credit can be unsecured as we refinance those, as well. So, we have found that by basically giving the security in those malls, that the covenants are much, much better with regard to our capabilities of dealing with our lead banks, et cetera. So, it's been a positive to us to secure our lines. It creates less problems for the banks when it comes to the regulators, et cetera. So, that's one of the reasons why we basically have secured lines versus unsecured lines.

Okay. And then just lastly, can you just give a range of the gross dispositions that you're expecting in 2012?

I don't think we put a target on it, because we don't want to feel any pressure to do so. I think, as we see those opportunities come along, we'll do that. I think that the Teachers joint venture, it took us quite a while to accomplish that, but I think we've got a great partner with great capabilities of doing things in the future, and so I think that the same thing will apply with regard to the sale of certain specific assets. We don't set any goal or we don't put that in our budgets, but we are focused on taking advantage of the most favorable terms that we can get, and disposing of some of those assets, as well as lowering the leverage in our portfolio and our balance sheet.

Okay. Thank you.

Thanks.

Nathan Isbee with Stifel Nicolaus.

Good morning. Just focusing back on the fourth quarter same-store NOI -- given the mid-quarter JVS [of sales], can you give some more detail, like same-store revenue, same-store reimbursements, same-store expenses, so we can get a better idea of what was going on there in that deceleration?

Well, I think -- let us come back to you on that question while somebody else asks one. We'll come back to you at the end while we put those numbers together, or try to come up with the answers to that question. But let us attempt to do that, if that's okay, Nate? Maybe if you have another question, we can answer that as well and come back to that one.

I do. Aside from PacSun, are there other retailers that you're doing these short-term portfolio deals today? Where would you say temp leasing is today relative to last year?

Well, I think we do portfolio reviews with all of these tenants, and we look at those leases as they come due, and working with the retailers to come up with the appropriate approach to those.

I meant to say renewals versus reviews.

There's a couple of retailers that are on our watch list today that have talked to us. Christopher & Banks is someone that we've talked to, but they have a strong financial situation, and so, we don't really anticipate that. We look at each one individually, but luckily, we've been through the worst of that over the past few years, and we're just not seeing the requests. The retailers are healthier. They've kind of gotten through the worst of the recessionary challenges. PacSun I think is more the exception, versus what we're seeing from most of the retailers these days.

Okay. And so, where is temp leasing today versus where it was last year?

Well, we're down, even with the PacSun, it was about 50% compared to 60% a year ago, and we've been operating in the low 40%s most of the year. So, we expect that to continue. I mean, you're talking about short-term leasing, right?

Correct.

Yes.

Okay. And then just going back on the PacSun, there had been some news out there about PacSun paying some of their rents in stock versus cash. Did you accept any of that?

No, we did not.

Okay. Thank you.

Yes, the other thing, Nate, your first question about recovery ratios. It was pretty consistent, including the -- if we exclude the joint venture, the recovery ratio was still right at about 100%, and so the -- and expenses were up, and recovery income was a little bit down. So, I don't think it was really any different, if you exclude the joint venture, versus including it. It was pretty consistent across the portfolio.

All right. Thank you.

Okay. Thanks, Nate.

Michael Mueller with JPMorgan.

Good morning. Was wondering, first, if you could talk about the renewal spread trends that you're seeing so far in 2012, compared to the 4.5% increase you saw in the fourth quarter?

Sure. I think we're seeing comparable to last year, with the renewal spreads being in the single digits. We're pushing to get them up as much as possible. The first quarter has a higher percentage of renewals versus the other quarters, so we don't get as much benefit from the new leasing like we had in the fourth quarter, we were 23% up on new leasing, and then mid-single digits for renewals. So we're still pushing to get it positive.

I think everyone has read, with GAP and Abercrombie and some stores like that doing right-sizing that we're still seeing pressure on -- in terms of renewals from retailers like that. And we're going to work through that. And in certain locations we're working out strategies to right-size retailers like that, or consolidate certain divisions and replace them. Each one is on an individual basis, but that's still a factor that we're dealing with, with our portfolio.

Okay. And then, maybe just thinking about the leases for -- what portion of the leases typically have some sort of an escalator built into them, minimum rent, CAM recovery, and what is that escalator typically?

Yes, most of them have some kind of escalation in rent, and the CAM is usually anywhere from 3% to 5% on an annual basis, again, depending on who the retailer is. The rental increases aren't as much on an annual basis; they're more on like a three-year or five-year interval.

But if you have a three- to five-year interval and you amortize it or straight line it, first of all, what portion of leases would you say have that sort of escalator built into it? And what do you think the average annualized bump is?

As far as the percentage, I don't want to throw a number out there, because it's -- I would just be grabbing a number out of the air. But we push to get in as many as possible, and we report on a straight-line basis, so really -- I don't think it really impacts the numbers because of that reporting.

Okay. Thank you.

Thanks, Michael.

Ben Yang with KBW.

I'm just curious why you took out the construction loan in Oklahoma City with the more permanent debt. I mean, with extensions, the construction loan had about four years of term left, you took the rate about 250 basis points higher. The asset is probably still stabilizing since it just opened. Did you need the proceeds sooner rather than later? Is that why you did that?

No, I think we basically believe that -- we look at everything from a risk basis. We think the markets are very favorable today, and we were able to put in place a non-recourse, project-specific loan versus a construction loan that floated, and taking the risk with regard to rates, et cetera. One of the concerns we had early on when we talked about the outlet business is that we had the impression that it was a business that, basically, was more a corporate debt versus project-specific. We like project-specific, non-recourse debt. And so, the ability to close this loan on a CMBS basis, with very favorable rates, was impressive to us.

It goes back to the theory that you look at return on equity, based upon a risk-adjusted basis. When you do that, our returns on equity on Oklahoma City are over 50%, with no risk involved. So, we looked at it and said -- hey, guys, if we can take those kind of returns on equity on a non-risking basis, we would be crazy not to do it, notwithstanding the fact that we probably could have saved some money on interest reserves. But I think it's a cautious approach that we take to every asset that we have.

Okay. And then -- fair enough. And then what type of spread? I think you said you did a CMBS one on that one. What type of spread do lenders require to finance outlets versus, say, a mall that does a similar level of sales? I mean, is it 100 basis points, and maybe talk about what type of LTVs or debt yield lenders require for outlets versus malls?

I'm not so sure there's a differential in the spread for outlets versus regional malls. I think it's more of market timing. I think it's more of what the project is doing. I think the Oklahoma City project is doing phenomenal numbers. It's probably the talk of the outlet business today. And I think, in turn, we thought it was the right time to finance it, and basically show those returns on equity. Again, we are very cognizant of risk when it comes to any kind of asset. And when you look at the equity returns, that's what should drive the decisions. If it's non-recourse debt, it's non-recourse debt, and you can get those 50% returns. Our opinion, you should do those all day long.

I guess I'm just asking $400-a-foot outlet, 5.7% fixed rate for over 10 years seems a little higher than maybe some comparable transactions that we've seen in the market. Is that not a fair assessment of what you guys did there?

I think you have to look at the timing as to when it occurred, also. There was that sort of bump in the road when everybody thought that the CMBS market was going to go away. We timed it, we think -- maybe our timing wasn't perfect, but our timing was good enough to get us the returns on equity that we thought that this deserved, and eliminated the risk. Today, could we probably get a lower interest rate loan on it? Possibly. But you just don't know in today's market. So, when you've got a bird in the hand, it's better than trying to kill one in the bush.

That's helpful. And then maybe switching gears, Stephen, you sound pretty confident that you're going to break ground on the Atlanta Outlet pretty soon. 70% pre-leased at this point, I think you said that. I just want to confirm, is that buy-in leases or letters of intent, as well?

It's a combination of signed leases and letters of intent where the leases are out for signature and under negotiation, and we're confident that they'll get executed.

Do you know if the other competition in that market is still moving forward as well, or is that competition essentially dried up at this point?

No, there's not another competitive project at this time. There had been talk -- Taubman was working on something, but they have moved on because of the pre-leasing that we were able to achieve here. And we're looking to break ground, like I said, in the next couple of months, and really excited about the prospects.

We have great outstanding tenants that have already lined up, and we think the others will come in as well.

Okay. Perfect. And then just a final question. Can you give an update on some of the proposed outlet competition near your St. Louis malls? Is it possible, or are you trying to work to maybe permanently derail the competition in any way? What's going on in that market?

Well, I don't -- I think we know what you know, from what other companies have said, and we'll see what Taubman says when they do their call later, right after us. But they're working on a project. Simon is working on a project, and we hear rumors of private owners working on an outlet project. So, from our point of view, it seems like there's a pretty high probability that there will end up being an outlet project in St. Louis. It's a large market that doesn't have one, so the odds are, it will be there, and we are just working to strengthen our malls and put them in the best position.

We just announced, we added American Girl to Chesterfield Mall, and that's closest to the competitive mall, so that's a real strong endorsement of that property, being able to add that quality of tenant with there being so few of those stores in the country, and the attraction that it provides. And we're confident we have a good position in St. Louis, and we'll see what happens with the outlet centers. We're not working on one in the market at this time.

All right, great. Thanks, guys.

Carol Kemple with Hilliard Lyons.

Hi, Carol.

Good morning.

Good morning. At this point, are you seriously looking with Horizon for any other outlet development?

I think we're always on the prowl for any opportunity where we think we can make some money.

Well, and we view the outlet business as a real good opportunity for us. And we gained a lot of credibility with Oklahoma City doing as well, and now we're able to put Atlanta in the position, and we definitely want to do more. So, we are looking for other types of opportunities.

I guess, if everything went perfect, if there's anything out there you're looking at right now, when could we expect another announcement for an outlet?

Well, that's difficult to say. With so many people out there looking at projects and the evaluation and going to the retailers, it's hard to put any specific deadlines or things in place on those. I think our partners, Horizon, they have a great relationship with these retailers, and we're developing that as well. So, it's a situation where they're looking constantly.

Okay. And then right now in the market place, are you seeing anything on the acquisition front that you all are interested in?

We are seeing more properties out there that, it seems like -- than there has been over the past couple of years. So, we are looking at situations or properties that fit with our strategy, whether it's dominant malls in markets, or other properties that fit in with our core. We're going to be really selective, and make sure that anything, if we do pursue it, makes a lot of sense for us. But we think there will be more opportunities in 2012 than there have been on the acquisition front.

And because of the headway we've made with our balance sheet and availability under our lines, we feel like we have good access to capital, we've got the joint venture with Teachers that we're hoping to grow, and we're talking to them about hopefully finding more opportunities for that. And then we have other potential joint venture partners that we've talked to. There's a decent amount of private equity funds out there that are looking to invest, and real estate is popular because of the yields that you can achieve, versus comparable yields in the market. So, we're reasonably optimistic on that front.

And then my final question is, all this mall shop space, we've seen some of the retailers start to kind of prune their portfolio. Who is actually wanting to increase their store count in your centers?

I mean, we're seeing some real good activity on that front. We've been doing a fair amount of activity with H&M. They just opened in Hanes Mall in November, in Winston-Salem, had a great opening. And we're talking to them about a number of situations. Forever 21 continues to increase. Teavana, it's a small store, but we're working to do more with them. We've done a lot with Best Buy Mobile. They're doing well, and they've continued. Some of the mid-sized boxes like Ulta Cosmetics, Encore, Joanne Fabrics, we've been doing activity with them.

So, it's assuring that there's a decent amount of activity from new names throughout the portfolio. And we're continuing to see new types of retailers that are coming in, some international retailers from Australia and Europe have come into the market, in addition to H&M. And so we're seeing good activity, and we feel like that's really important for us as we're working to replace some of the stores from retailers that have announced that they're downsizing.

Okay. Thank you very much.

Thanks, Carol.

Quentin Velleley with Citi.

Hello, Quentin.

Good morning.

Good morning.

Just in terms of guidance, I just wanted to clarify a few things. What are you assuming for lease termination in coming 2012?

It's -- we're not assuming any. We don't put that in our budgets.

Okay. And then in terms of G&A, is the fourth quarter run rate reasonable going into the start of 2012?

Yes, we're going to see some increase in G&A, slight increase.

Okay. And then, I know there's been quite a few questions if terms of interest expense, but just so I'm clear, while you might put some of those maturing mortgages on the line short-term, or you may not, and you probably are going to get better refinancing rates on those mortgages ultimately, it doesn't sound like you're actually banking in much of an interest expense improvement in 2012? And that a fair statement?

I think that's correct.

Okay. And then just lastly on the guidance, the four assets that you're renovating, is there any short-term drag on NOI over 2012 from those renovations?

No, it's really -- it's cosmetic renovations, and we do the work at nights, and it doesn't really impact the NOI. It's interesting, over the years we've actually seen sales increase during renovation, because there's some different kind of activity, it's like a curiosity, but it's not an impact on NOI.

Okay. And then lastly, in terms of the Westfield assets that they've been looking to sell, I know you previously commented that you weren't looking, you had looked at them, but weren't looking further. My understanding is that they've come back and pricing may have changed. I'm just curious whether or not you're revisiting those potential acquisitions.

We haven't. It's been quiet, but we haven't been contacted by anyone, and we haven't heard much about it, so we've moved on.

Okay. Thank you.

Thanks, Quentin.

Cedrik Lachance with Green Street Advisors.

Hi, Cedrik.

Just actually staying on the Westfield theme. In regards to your JV with them in which there's a preferred security on the St. Louis assets, can you remind me what are the put call provisions that can take place this year?

There are none for this year.

There's nothing? When is the possibility for Westfield or yourself to (inaudible).

I think next year is the earliest, and there's provisions, et cetera, that we work together on, so that we're very comfortable with where we are on that, and what we're doing there, as well.

Okay. Just in regards to the Starmount unsecured loan that's coming due at the end of the year, what's the game plan for refinancing there?

Well, we have a group of office buildings that we're looking at disposing of those, and we've got some additional assets that we could dispose of. And we also, as you know, we've been able to get excess financing proceeds out of these assets that we recently financed, so we have the availability to handle that situation. We paid it down, and will continue to pay it down out of sales proceeds of those assets. So, that's the game plan there. And in our plans, it's on the radar screen, and in fact, some of the banks who have been in that have basically said they were surprised, they wanted us to extend that. So, we're working to pay it off, versus their desire to see it extended.

Okay. And the office buildings that you may want to market, none of them are currently being marketed, it's just you could market the buildings?

That's correct. We've had discussions with some folks along the lines that could make some sense. We'll continue to explore that. But there's nothing definite, and they're not in the market as such today.

Okay. Thank you.

Thanks, Quentin.

Craig Schmidt with Bank of America Merrill Lynch.

Thank you. It sounds like from comments now that you're going to have some new development opportunities in the outlet space, and I'm guessing you may have some community center development opportunities. Does this suggest that you may have less exposure to mall NOI going forward, particularly when you sold some of the interest in the malls in your Teachers JV?

No, I think where we are is that as a private company, we develop community centers and basically sell those assets to generate equity, so I don't seen us changing. I think that malls are our main focus. We think there's great franchise value in those markets where we are today, and we think that there are those opportunities for us in the outlet mall business, so we see that business growing as well. I don't think that there's any regional malls under construction today, so we see those opportunities in the regional malls to continue to improve, and we think some assets are going to come on the market that are very good for us to acquire.

How long do you think it may be before you do another ground-up regional mall development?

Wow, Stephen, you might answer that one.

Oh, I don't -- we don't have any on the drawing boards right now, so it could be some time, and there's not a lot of new development activity. Most of the talk is in the outlet sector. There's some smaller community centers, but when you look at retailers that have driven a lot of the new development, whether it's power centers, or lifestyle centers, or new malls, they are focused on their existing properties, their existing portfolios, making them stronger retailers, some of the retailers are looking international. So, there's just not a lot of demand for new properties, and it's more repositioning existing, and redeveloping and strengthening that I think is our focus, and I think that's consistent across the industry.

Thank you.

Thanks, Craig.

Rich Moore with RBC Capital Markets.

Hi, good morning, guys. I wanted to ask you on the dividend, your payout ratio was so low, do you think you might accelerate dividend increases in the coming years? Obviously with the balance sheet in great shape, is that something -- and I realize you guys aren't necessarily representing the entire Board, but what do you think about that?

Well, I think the Board will consider that even quarter, and I think that it's very relevant with what we're showing as far as growth and the ability to pay down and the balance sheet, et cetera, basically gives us the ability to focus on that dividend. So, the Board will consider that when they have the next Board meeting, and it's one of the topics that is near and dear to our hearts, as well.

Okay. So you might grow it faster, you think, John, than the rate of growth of FFO?

Well, I think we're focused on pulling those debt levels down, and also taking advantage of opportunities that we see in the market. So if we can keep capital, it's a balancing act between keeping capital, paying down the balance sheet, and then basically showing some growth with regard to the dividends. I think, I don't want to break our arms patting ourselves on the back, but I think we've done a pretty good job of managing that in the past.

Okay. That sounds good, thank you. And then on your preferreds, your C and your D, is the C callable at this point?

Yes, they both are.

They both are. Okay. Would you consider taking either of those out and replacing them with cheaper preferreds, or have you looked at the preferred market? What kind of pricing could you get?

Well, we do look at that constantly. I think one of the things that basically is in the market today, the advantage of where we are with those preferreds is, is that change of control is getting to be quite a hot button with new people who are buying preferreds, and the advantage to us of these preferreds, they don't have a change of control, and we can also call them at any time. So we'll look at that, we'll check the market to see what's going on, and it's something that we'll watch every day.

I mean, would you add more preferred on top of these, or have you got enough preferred?

I think we've got capacity to do so. I think it's a pricing and to look at what you're going to use for the use of the capital, et cetera. But I think what we're doing is, we're amortizing significant sums on our first mortgages, we're selling off assets when it makes sense to do so, and we're refinancing and saving money. And we're always focused on the risk involved, and what is the returns to our shareholders, so, it's very important to us.

Okay, great. Thank you.

Thanks, Rich.

And there are no more questions registered at this point, Mr. Lebovitz. I will now turn the call back to you for your closing remarks.

We would liking to thank everyone again for joining us this morning. We're proud of our achievements in 2011, and looking forward to continuing our momentum in 2012. Thank you.

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation, and ask that you please disconnect your lines.