CBL & Associates Properties, Inc. (CBL) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CBL & Associates Properties, Inc. First Quarter 2013 Conference Call. During the presentation all participants will be in a listen only mode. Afterwards we will conduct a question and answer session. (Operator Instructions).

As a reminder, this conference is being recorded today, Tuesday, April 30, 2013.

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

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties, Inc. conference call to discuss first-quarter results. Joining me today are Farzana Mitchell, Executive Vice President and Chief Financial Officer, and Katie Reinsmidt, Senior Vice President Investor Relations and Corporate Investments, 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. Future events and actual results, financial and otherwise, may differ materially from the events and results discussed in the forward-looking statements.

We direct to you 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. 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.

The reconciliation of each Non-GAAP financial to the comparable GAAP financial measure will be included in the earnings release that is furnished on Form 8-K, along with the transcript of today's comments and additional supplemental schedules. This call will also be available for replay on the Internet through a link on our website at cblproperties.com.

Thank you, Katie. 2013 is off to a great start for CBL, putting us on track for another strong year. We are pleased with the relative out-performance of our stock year-to-date, and the good news is that we see sizable upside remaining. The CBL portfolio is only getting better.

Last year, we were very successful in adding several high-growth properties that are a perfect fit with our market-dominant strategy. We coupled this with a number of non-core asset sales through our disposition program, allowing us to redeploy capital into higher growth investments. We continue this activity into this year with the acquisition of the remaining 51% interest in Kirkwood Mall in Bismarck, North Dakota and more than $40 million in asset sales.

We also have a growing pipeline of new developments, as well as redevelopment projects to further strengthen the market position of our properties. Operationally, our portfolio sustained its momentum from last year, and posted strong results for the first quarter even against a tough NOI comp last year.

We were successful in achieving double digit leasing spread, a major goal of ours for the year. We also generated a 40 basis point increase in portfolio occupancy despite the short-term vacancy we intentionally created as part of our tenant upgrade strategy.

Same center NOI growth was solid at 1%, and FFO of $0.53 per share exceeded consensus growing 8.2%. The 40 basis point increase in the overall portfolio occupancy to 92.2% was primarily driven by continued lease up in our community and associated center (technical difficulty).

For stabilized malls, occupancy was relatively flat year-over-year at 91.7%. As the supply/demand dynamic has shifted more in our favor, we have increased our focus on upgrading tenant mix and productivity. During the first quarter, we intentionally allowed a number of spaces to become vacant where we saw opportunities to replace under-performing retailers with higher quality stores.

While this decision creates down time and resulted in flat mall occupancy in the quarter, it will contribute to better mall performance and NOI growth later in the year and in the future. In anticipation of these spaces becoming available, leases have already been executed or out for signature with exciting additions to our property such as Michael Kors; Crazy 8; Chico's; White House, Black Market; Tillie's; Vera Bradley and H&M.

The new leasing spreads of almost 33% reported in the first quarter are indicative of the rationale behind this strategy. As we have previously said, one of our major goals for the year is to achieve double digit leasing spreads. We are pleased that overall for the first quarter leases for stabilized malls were signed at a 10.8% increase over the prior gross rent per square foot. Renewal rents were signed at a 3.4% increase, and new leases were signed at a 32.9% increase.

We had a higher proportion of 2013 leases come up for renewal during the first quarter, which put pressure on the average spread. However, we expect our renewal spreads to improve throughout the year. We have reduced the number of renewals that are for terms less than three years to fewer than 35% of leases signed in the first quarter, which reflects the improving quality of our re-leasing efforts.

First quarter sales were positive with strong results in January, and a more moderate showing for February and March. January strength was assisted by the extra week in the calendar, and while March business at many of our malls was hurt by the prolonged winter weather, the month ended strongly with the earlier Easter holiday.

Rolling 12 month portfolio mall sales increased a healthy 4.4% to $355 per-square-foot compared with $340 in the prior year period. We are still anticipating sales increases for the full year in the range of 3% to 4%. I'll now turn it over to Katie for her comments.

Thank you, Stephen. Subsequent to the end of the quarter, we completed the acquisition of the remaining 51% interest in Kirkwood Mall in Bismarck, North Dakota. The aggregate purchase price for Kirkwood Mall is $121.5 million including the assumption of a $40.4 million non-recourse loan with a fixed interest rate of 5.75%, maturing in April, 2018. Kirkwood Mall represents a tremendous opportunity for CBL.

The mall enjoys significant growth in upside with its proximity to the Bakken Formation, and benefits from the stability afforded from its location in the capital city. Mall sales were up double digits in 2012 to over $400 per-square-foot. Occupancy costs are low at around 9%, providing a great opportunity to improve NOI through higher rents on roll over leasing.

We'll continue to monitor additional acquisition opportunities that come to market, as well as look for off market transactions. Our disposition and capital markets activity also started off well. In the first quarter, we raised over $105 million in equity capital through the initial tapping of our ATM, and from sales of non-core assets.

On March 1st, we put our $300 million ATM program in place. During the first quarter, we sold 2.7 million shares at a weighted average price of $23.58 per share, near the quarter's high. There were only actually four trading days during the quarter that topped this price level. These sales generated net proceeds of just over $62 million.

During the first quarter, we completed the disposition of five office buildings in Greensboro and Raleigh, North Carolina and Newport News, Virginia, for a net sales price of $43.5 million. We have five additional wholly-owned office buildings that we are completing final lease up on, and should be in a position to bring these to market later this year. Selling non-core and mature buildings, such as office buildings, lower productivity malls and community centers continues as one of our strategies to provide additional capital.

Our development and redevelopment pipeline is accelerating this year as well. We have several new development projects that began construction during the first quarter. We broke ground in March on our new 65/35 joint venture development project in Slidell, Louisiana with Sterling Properties. Phase one of Fremaux Town Center is a 295 thousand square-foot power center development with Dick's supporting goods, Michael's, Kohl's, Cutsmart, T.J. Maxx, ULTA and additional shops and restaurants.

The project is located on the northern shore of Lake Pontchartrain, across from the city of New Orleans, an area that has experienced tremendous growth following Hurricane Katrina. Phase one is already 70% leased or committed, with a grand opening slated for the second quarter of 2014, and the fashion-focused second phase of approximately 300,000 square feet is well into the planning process. In Woodstock, Georgia, we will be celebrating the grand opening of our newest outlet center development, The Outlet Shoppes at Atlanta, on July 18th.

The 94% leased or committed center will open with a terrific retail lineup including Saks Fifth Avenue OFF 5th, Nike, Coach, Asics, Columbia Sportswear and Juicy Couture. Atlanta will represent the fourth outlet center in other portfolio, and we expect to make an announcement before recon of our new outlet project as part of our joint venture program with Horizon. In June, we will open The Crossings at Marshalls Creek, our 103,000 square-foot shopping center development in Stroudsburg, Pennsylvania.

The 88% leased or committed shopping center development will be anchored by Price Chopper Supermarket and Rite Aid, and will feature approximately 22,000 square feet of stores and restaurants. With new construction at an all-time low, we have a tremendous window of opportunity to capture incremental market share or existing properties. A great example of how we're executing on this strategy is our expansion project at Cross Creek Mall in Fayetteville, North Carolina.

Cross Creek is one of our most productive centers, maintaining a full occupancy rate and generating sales approaching $550 per square foot. In 2012 the mall underwent an interior and exterior renovation with updated entrances, lighting, flooring, new seating areas and other amenities. During the quarter, we started construction on a 46,000 square foot exterior expansion that will allow us to accommodate a number of retailers that are in demand by the market.

This expansion is 91% leased or committed, with retailers including Chico's; LOFT; White House, Black Market; Men's Warehouse and Reeds Jewelers, and will open later this year. We also recently announced our restaurant district at Volusia Mall in Daytona, Florida, as an expansion to the property, which is located immediately across from Daytona Motor Speedway.

The project includes IHOP, Olive Garden and Bahama Breeze with openings scheduled for late 2013. We're working on a number of other redevelopments and expansions at several of our properties, and see this activity generating ongoing upside to CBL both financially, and in terms of our ability to strengthen the market dominance of our properties.

We will be pre-leasing these projects in Las Vegas, and hope to be in a position to make additional announcements as the year progresses. I'll now turn the call over to Farzana to provide a financing update, as well as a review of our first-quarter financial performance.

Thank you, Katie. During the quarter, we continued to make progress towards our goal of obtaining an investment grade rating. To achieve this objective, we are making strides towards establishing a balance between secured and unsecured debt. Late last year, we completed the conversion and expansion of our unsecured credit facilities to $1.2 billion.

In February, we closed on the extension and modification of a $105 million line of credit, converting it to a $100 million unsecured line of credit and a fully funded $50 million unsecured term loan. The line of credit matures in February of 2016, and has a spread of 185 basis points over LIBOR based on our current leverage, which is an annual savings of 40 basis points from the previous facility. The term loan matures in February, 2018, and is at 190 basis points over LIBOR.

We are utilizing our combined $1.3 billion of credit facilities to pay off maturing loans. Today, we have approximately 30% of our total NOI unencumbered. The unencumbered NOI pool will grow further as we retire additional maturing loans on wholly owned properties over the upcoming years.

To maintain capacity on our line, we envision putting a 5 to 7-year term loan in place later this year to provide liquidity for investments in our growing development pipeline and to retire maturing loans. Ultimately, when we achieve an investment grade rating, we will issue long-term, fixed-rate, unsecured corporate debt with a focus on laddering our maturities and reducing our cost of borrowings.

We anticipate this process could take through 2014, but are pleased with the progress we're making in our dialogue with the rating agencies. For properties owned in joint ventures, we will continue to obtain property level financing. In March, we closed a new ten-year, $100 million loan with a fixed interest rate of 3.4795%, secured by Friendly Center in Greensboro, North Carolina and retired the existing $77.5 million loan.

We also closed on a new $16 million loan secured by Renaissance Center, Phase 2, a community center in Durham, North Carolina. This ten-year nonrecourse loan with a fixed interest rate of 3.4895% replaced the existing $15.7 million loan. These properties are owned in a 50/50 joint venture.

Excess proceeds from these loans were used to retire loans secured by office buildings in the same joint venture. In January, we retired a $63.6 million loan secured by Westmoreland Mall, which was scheduled to mature in March, and a $13.5 million recourse loan on Statesboro Crossing. Subsequent to the quarter end, we retired the $228 million unsecured bank term loan, as well as a $72 million loan secured by South County Center in St. Louis, Missouri.

With these activities we have addressed all of our maturing debt obligation for 2013. As we look ahead to 2014, the $32 million loan secured by North Park Mall opens to pre-pay this December, which we intend to retire with our lines of credit. Regarding the Westfield Preferred units, our guidance assumes a midyear payoff, and we remain on track to redeem these units.

Funding of the redemption has been a question that we have received quite often. As Katie mentioned, we raised over $105 million in the first quarter through ATM equity issuance and dispositions. In the near term, we plan to fund the redemption by using this recently raised capital and our lines of credit. While we do not view the lines of credit as a long-term solution, it does provide us with time and flexibility to raise a more permanent source of equity.

These sources may include proceeds from additional dispositions of our non-core and mature assets. Additionally, depending on the trading level of our stock, we can continue to access our ATM. We ended the quarter with $841 million available on our lines of credit. Our financial covenant ratios remain very sound with an interest coverage ratio of 2.64 times as of March 31, 2013, compared with 2.46 times as of March 31, 2012, and a fixed charge coverage ratio of 2.05 times as of March 31, 2013 compared with 1.91 times as of March 31, 2012.

Our debt-to-total-market capitalization was 51% as of March 31, 2013, compared with 55.7% as of the same period last year. First quarter 2013 FFO was $0.53 per share, an 8.2% increase over the prior year period. Improvements in FFO for the first quarter were driven primarily by top line revenue growth from our same center portfolio and contributions from the recent acquisitions.

Despite the assumption of debt from recent acquisitions, interest expense was relatively flat during the quarter as a result of lower weighted average interest rates from the payoff of higher rate loans, favorable financings and low rates on the lines of credit as compared with the prior year period. G&A, as a percentage of revenue, was 5% for the quarter, compared with 5.6% in the same year in the prior year period.

G&A in the first quarter of 2013 declined as a result of one-time expenses in the first quarter 2012. Our cost recovery ratio for the first quarter was 94.4%, compared with 96.9% in the prior year period. The cost recovery ratio in the current quarter was impacted by an increase in snow removal expense of approximately $900,000 and bad debt expense of $485,000 compared with the prior year period.

Portfolio same center NOI grew 1% for the quarter. While this is at the low end of the full year guidance, we anticipate NOI growth to improve throughout 2013. Same center NOI growth was negatively impacted by the increase in snow removal and bad debt expense. Excluding these items, same center total portfolio NOI would have increased 1.8% for the first quarter and 1.4% in the mall portfolio.

The growth in same center NOI is primarily being driven by improvements in rental rates and overall revenue increases. We are maintaining our FFO guidance for 2013 in the range of $2.18 per share to $2.26 per share despite the dilutive impact of the 2.7 million shares issued through the ATM during the quarter, as well as the asset sales.

The guidance incorporates our same center NOI growth forecast of 1% to 3%, and portfolio occupancy improvements of 25 to 50 basis points for the year end nearing 95%. Our guidance also assumes the redemption of the Westfield Preferred units by midyear using availability on the lines of credit and cash on hand. As always, our guidance does not include any unannounced transactions. Now, I'll turn the call back to Stephen for closing remarks.

We've had a great start to 2013, which was highlighted by the third consecutive annual increase in our common dividend of approximately 5% announced in February. We are enthusiastic about the depth of new development and redevelopment opportunities for generating ongoing growth in the CBL portfolio.

While there is no shortage of negative headlines, our customer is still shopping and underlying improvement in employment in the economy is helping our malls' performance. As everyone is aware, events at JCPenney have created concerns over their future. With 75 JCPenney stores in our portfolio, we're certainly watching that situation closely.

The JCPenney stores I've seen over the past month look much better as a result of the investment in new shops and new concepts they've added, such as Joe Fresh, Izod, and Levi's. We are confident that their new management will fix their pricing and marketing issues, and sales will recover as the year progresses.

We are also encouraged by their recent increase in credit availability, and the vote of confidence they received from savvy investors. At the same time, we keep a current inventory of anchor locations that we believe could be at risk and potential replacement strategies. The market office seems to forget the resiliency of the mall business.

In the past years, malls have absorbed significant consolidation in closures of stores of major department stores, box and small shop retailers, not to mention competition from the internet, and emerged stronger and more profitable than ever. The overriding factor in all of these examples is that a well-located mall in a dynamic market is a great asset to own. Our strategy of owning the dominant or the only mall its trade area is designed to ensure that over time our portfolio can absorb changes in the retail landscape and emerge even stronger.

We are looking forward to a productive ICSC RECon in Las Vegas next month, and hope to see many of you there, as well. We'd now be happy to any questions you may have.

(Operator Instructions). Our first question comes from the line of Paul Morgan with Morgan Stanley. Please proceed.

Good morning.

Good morning.

On the Westfield Preferred and your funding plans for that, I mean, the stock is at, you know, about a five-year high. I appreciate that you did a fair amount of activity last month in the ATM, but as you think about what you've assumed in terms of your guidance, and then the opportunity to take out a bigger chunk just with a larger equity offering, why not do that? And then how are you thinking about really kind of the long-term use of that full $300 million via the ATM.

Hi, Paul, this is Farzana. We've been quite successful. We put the ATM program in place on March 1st, and since then we have successfully raised over $62 million. At this low cost of raising the stock issuance through ATM, we think we can continue this process and access the ATM we have put in place up to $300 million. So, we feel pretty good about it, and I think that it will help us to raise enough capital, and with the asset sales we should be able to replace the $410 million of Westfield preferred units that we have to redeem later in the year, and I think that would be leverage neutral.

You think of the ATM as funding both the Westfield issue, as well as your ongoing development equity capital needs. Is that right?

We're looking at all our options. Our ATM is -- obviously, we have that in place, specifically knowing that we have to redeem the Westfield units. And with asset sales and other opportunities that we may have in terms of other potential, other joint ventures, we really have a lot of options on our table, so we should be able to, you know, be leveraging it.

Okay, then my other question is just more on the retailer side. I mean, you talked about two things. One in the context of same store NOI, your bad debt expense, if I heard it right, was up. And in the context of what seems like pretty low tenant bankruptcies I was wondering if you had anymore color there. And then, as well, on the tenant upgrade plan, maybe you could just give a couple of examples of -- I mean kind of what -- is there a kind of subset of the mall? Is it specific to redevelopments or improvements at specific malls, or is it broad-based, and how is that progressing?

Sure, I'll take the second question first. And we had roughly 600,000 square feet of tenant fallout during the quarter, which is about 15% higher than it was in the first quarter of last year. Like I said during the call, we really decided that instead of letting those guys continue to ride it out at percent-type deals or low-rent type deals on a short-term basis, this is the time to bite the bullet and to go ahead and seek better quality replacements for a lot of that square footage. You know, it was a change in our strategy.

It's something that we, over the past few years, as we've said, we've prioritized occupancy, and looked at that as really the primary driver, and now we're moving more into a quality focus in terms of replacing tenants that aren't productive or that aren't paying market rents. We feel like it's going to be successful. It definitely hurts our short-term results, because we have down time while those tenants are being replaced and the construction is occurring.

But as the year goes on those spaces will also open up, and we feel like it will serve us well as the year continues and going into the future. I think that's an important distinction. It definitely impacted our vacancy and it impacted our NOI for the quarter, but it's one quarter. And we don't want to blow one quarter out of proportion by any means. So that's the second question.

As far as bad debt expense, it is higher on a comparable basis. It's still not significant. There haven't been a lot of bankruptcies or fallout from bankruptcies. We had a little bit more this quarter compared to last year. Last year was the lowest ever in the first quarter. I think we had two or three stores close. This year it was seven or eight stores, so it's not a lot. But on a comparable basis it did impact our numbers, so we thought that was worth pointing out, as well as the higher snow removal since we are on mostly fixed CAM, so we have to absorb that as an expense instead of being able to pass that through to the tenants.

Thanks. It sounds like the tenant upgrade thing is kind of a statement of confidence in your ability, I mean, as opposed to just rolling -- I don't know if you had the option to roll people over on a short-term deal, but am I reading it right, it's just -- you may have had that and it's like okay, now we are going to try to get a longer-term lease signed from a new guy coming in?

Yes, absolutely. I mean, we've got stores -- companies like Abercrombie and Gap have announced for a while that they are downsizing their number of stores. And because of our relationships, they have worked with us. They have kept stores open, and the rents haven't been great but it's helped occupancy and NOI. But, you know, now -- I gave a list during the script of stores.

We've got a real robust program with some great retailers, Chico's, White House, H & M. Lucky is one I didn't mention, jewelry stores, you know, there's just a whole list of retailers that we're expanding throughout the portfolio. They're goods names. They're going to be more productive for the space, and also they just give new life to the centers when you have a new retailer.

That's what the customers like is that new, new and fresh addition to the mall. It's definitely a statement of confidence, and we're having success with it, with our new leasing results that we've been able to show. There are some retailers that are continuing to struggle, and we're working to replace those, as well. PacSun, Radio Shack, you know, people -- Game Stop, people like that.

It's not like it's over in terms of certain retailers downsizing. That's always part of it, but it does give us an opportunity to take advantage of the demand and, yes, there is no new construction happening in our markets, so there are retailers that want to come in. When we have the only mall in the market, which we do in most of the cases, that's the place they want to be.

Great. Thank you.

Thank you.

Our next question comes from the line of Christy McElroy with UBS. Please proceed.

Hi. Good morning, everyone.

Good morning.

In your stabilized mall portfolio, I'm trying to get a handle on what is driving your average base rents, which are flat year-over-year. I would think with embedded contractual rent growth and positive re-leasing spreads that there would be a positive comp there. Can you talk about what is impacting that number?

Hi, Christy. Sure, I'll answer that question for you. It is flat year-over-year if you look at the reported numbers, but we mentioned this last time. We had four properties that were not there in the comparable period, and they are Gettysburg, El Paso, Dakota and Kirkwood malls. All these four properties have base rents lower than our portfolio average base rent, which is -- actually, if you take those out we would be up at $29.70. And what it is really showing us is that we have tremendous opportunity to increase these base rents, particularly at Dakota Square Mall and Kirkwood Mall, so we see this as a positive going forward, and hopefully our base rents will continue to increase.

Got you. And Farzana, you talked about paying off the Westfield Preferreds midyear. Are you able to be sort of a little bit more specific on the timing given that you're funding it with the line of credit? And just following up on Paul's question, I thought I heard you say earlier that you will, ultimately, fund Westfield, the Westfield Preferreds, with more permanent equity. Does that mean longer term you expect the full amount will be replaced with equity, and would you expect to exercise the full amount of the ATM by year end?

Let me answer the question on the Westfield Preferred. We cannot really give you a specific guidance as to when we will be redeeming them. There is a process we have to go through and it is a sensitive process, and we just cannot give you that information, but we estimate in midyear, latter part of the year, and so that's baked in into our numbers.

As we mentioned earlier, we have asset sales, and we still have the ATM program that is in place. We have $240 million some odd left on it, so that's sufficient. I think we will continue to monitor our development pipeline, and based on our activity, we also mentioned we will exercise -- we will go out for a term loan later on this year. So we have plenty of liquidity to stay leverage neutral.

So I think that there is no incremental asset sales baked into your guidance, and I think from what I'm hearing there's no incremental ATM issuance, yet, baked into your guidance. So does your guidance assume that that balance of the Preferred paydown remain on the pay down line of credit for year end?

Yes. Later, since we -- as we mentioned, no transactions are baked into our guidance. New equity issuance through the ATM is not baked into our guidance. We will update our guidance next quarter as we issue -- if and when we issue additional equity. As to the Westfield Preferred, we have baked in the latter part of the year to pay that off from our lines of credit.

Okay.

And that will replace 5% with average of 2.5% or so weighted average interest rate on our lines of credit.

And then just lastly, regarding the space that you intentionally allowing to go vacant in Q1, can you quantify the impact that had on occupancy? Stephen, I think you mentioned that earlier. And what is the timing be of sort of re-leasing that space throughout the year in terms of the incremental NOI impact given the leasing that you've already done?

Yes, Christy, I think what we've said is for the year we're looking at 25 to 50 basis points. One of the things is in some cases the space that we -- that became vacant is being occupied by stores over 10,000 square feet, so those don't necessarily go into the average. So that's something that will help us in terms of NOI and FFO, but won't necessarily help our occupancy. But you know, if you look at just what we lost, it's probably close to 50 basis points of occupancy.

So, it's something that definitely we look -- we look to -- oh, wait. I'm sorry, I gave you the wrong number. Okay. Sorry. It's actually closer to 200 basis points, I was way off on that one, that the fallout impacted us. So, as we continue to lease that up, you know, we will see the increase. First quarter is natural -- is usually the lowest quarter anyway, so it just brought first quarter down below where it would have been otherwise.

Okay. Thank you.

Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed.

Hi. Thanks. Good morning. I'm on with Jordan Sadler, as well.

Good morning.

Good morning.

Just first question, just following up on that, the change in strategy. Can you clarify whether -- is that a change in strategy that was, you know, specific to the first quarter, and some of the post holiday season temporary tenants? Or is that just a process that you're expecting to continue throughout the balance of the year? And are you actually accelerating the process of converting temp spaces throughout the portfolio to permanent?

Yes. I think -- I wouldn't say it was a point in time. It's been more of an evolutionary strategy, and as we've made progress with sales and [occupancy] over the past 18 months and re-leasing spreads, we're just continuing to push that harder. One of the things I mentioned is our leases under three years is down under 35%. That's a dramatic improvement of where we were two years ago or even a year ago. Our re-leasing spreads are above 10%. I think what it really shows is just the ongoing improvement in our portfolio, and it's been a recovery process.

But now, we feel like we can play more offensive with our leasing strategy. I wouldn't say it's just one -- it's just a thing we decided on January 1st, but it's something we've been pushing and we've been planning for. It takes some time to queue up these deals. In a lot of cases, it's a year plus to get the deals into position to be ready to go out for signature or for leases to be signed. It's something we've been working towards, but now we're really starting to implement it more aggressively.

Okay, and I may have missed the comments on renewal spreads, you know, those came in. They're still at the low end, just above zero for the malls. What is keeping renewal spreads from improving, and what is the expectation throughout the balance of the year for leases expiring that you are renewing?

Yes, we think it's going to get better. The first quarter has the highest percentage of renewals, and so it's when we, I guess, have the toughest comps in terms of that. We see it improving over the course of the year. We look at the numbers every quarter, and it seems like we have a lot of good results, and we still have a few that drag us down to a certain extent.

We're pushing to minimize those as much as possible, but on an average basis, the renewal spreads were still up about 3% on an average, you know, in terms of the average. Like you say, positive on the initial, and we do see that continuing to improve.

Okay, and for the new lease deals that were signed in the quarter, so the 118,000 square feet, do you have a range, in terms of occupancy costs, to where those leases were signed?

Yes, I mean, I think we're still in the mid 12s on occupancy cost as a percent of sales. Typically when a new lease gets signed it's lower, so the retailers want to see some upside. Those will typically tend to be at the lower end of the range.

All right, and then just the last question, Katie, I think you hinted that there could be a new outlet site announcement with Horizon. Is that right?

I did hint that, yes.

When you work with Horizon, can you tell us what type of pre-leasing threshold you look for before making a formal announcement to decide to move forward on a site?

Yes, Todd. We look to achieve about 60% pre-leasing levels before we move forward in buying the land and putting a shovel in the dirt.

Okay, thank you.

Sure.

Our next question comes from Nathan Isbee at Stifel Nicolaus.

Hi. Good morning.

Hello, Nate.

Hello, Nate.

Good morning. Just getting back to the occupancy question, I'm still a little unclear. You said you had 600,000 of fallout in the first quarter this year, which is 15% higher than last year. If you were to look at that number, what would -- without -- just taking your last year at your --- the strategy you took then, or what the situation allowed, what would your fallout have been had you not taken the hard line this year?

Yes, I think what is confusing about it, Nate, is that it's not 600,000 more; it's 100,000 square feet more than it was last year.

Right. That's the (inaudible).

Right. So that's really the difference in the calculation. That's why it's more confusing. Also when you go from fourth quarter to first quarter there is fallout, anyway, because of seasonal business. So the combination creates a larger short-term effect. But when we look at the year end, we're still looking at that 50 basis points.

Okay. So, if you were to look at what fell out because of your harder line, you'd say about 100,000 square feet.

Yes, that's right, kind of on a comparable basis, yes.

All right. Thank you. That's helpful. Was there any change in the methodology in how you computed same store sales this quarter?

We changed it in the fourth quarter, Nate. We reported it both ways in the fourth quarter, and then we started reporting it using our new methodology, which excludes license agreements. So that's how we reported it this quarter, and we reported it on a comparable basis, so it is apples to apples.

Okay. And then the $340 for the prior year period, how was that computed?

That is the same way that we've computed the other one without license agreements, so they are apples to apples.

Okay, great. And then I might have missed this. Did you say if you've issued any shares quarter to date with ATM?

We did not say.

Okay, would you like to say?

We have a few trading days that were open this quarter, but we have a blackout that goes into place. There are only a few trading days there. We haven't really issued any meaningful amounts.

Okay, thank you.

Thank you.

Our next question comes from the line of Ben Yang with Evercore Partners. Please proceed.

Yes, hi. Good morning.

Hi, Ben.

Hi, how are you doing? You mentioned monitoring the JCPenney locations you felt were at risk in your portfolio. Did you comment on how many of the 75 you thought were at risk? And then also, is there any common theme for these particular stores, maybe like geography or sales, or maybe if it's also co-anchored by a Sears? Any common themes worth commenting on on this situation?

Sure. First of all, I didn't say exactly what you said in terms of JCPenney locations being at risk. What I said is we monitor anchor locations that we consider at risk. So just to clarify, in fact, with JCPenney in the past couple of weeks, we've approached them on a couple locations just to get a sense for what they're thinking. They have shown no interest in closing stores, selling stores, giving back parts of stores, anything like that. That might change, but so far to date that's what they're telling us.

In fact, it's not driven by higher productive stores or lower productive stores. We were at one of our malls last week in the JCPenney store, it's a small store. It's only 50,000 square feet, but it does under $5 million in volume, and we had a potential expansion of the mall, and we could have incorporated their store, and they said, "No, it's very profitable. We have no interest in having any discussions with you."

They have a low occupancy cost. And so they are still -- even with their 30% sales decreases, they're still making money at their locations. But we want to be -- we don't want to get caught, and that was my point. We've looked at the locations. We look at who is in the market, who is not in the market, who we could relocate. We've got redevelopment strategies that we're working on at properties, because we're seeing demand from a lot of boxes and restaurant and new retailers.

Really, we don't have, in a lot of cases, anything else to do other than to try to get back department stores and redevelop them. The JCPenney stores have great locations in most of the malls. They are the point location in the center. Look, if we ended up getting some back, it would be a positive. I don't think we would want them all back at once, but you know, that's something that we would see as an opportunity for us.

Okay, so you do have anchors on the watch list. Some of them are JCPenney. Are you finding it more difficult to maybe lease up some of the space in malls that are anchored by a JCPenney, and maybe also a Sears based on some of your recent discussions? Are tenants taking a more cautious approach? And then, maybe also building on that, is the lending community maybe a little more cautious on underwriting malls that are co-anchored by those two particular department stores?

Yes. We haven't -- I mean, you know, your question about the retailers being more cautious and not leasing around JCPenney or Sears, I mean, it's mall specific, and it's not really driven by JCPenney or Sears. I mean, every mall has 50 yard line locations and end zone locations. The end zones are always tougher, that's just the way the layout works. But there's different retailers that go in different locations in the malls, and we haven't seen any pullback from retailers, and our occupancy isn't driven, at all, by people being concerned about JCPenney or Sears in terms of leasing adjacent to them.

That's not something -- and then in terms of lenders, again, we haven't seen an impact. I think everyone is watching it, and JCPenney is -- given their credit and their capital markets activities, everyone is looking but they still have an equity capitalization of almost $3.5 billion. They do $13 billion in sales. They're down, no question, but we don't view, and I don't think lenders view them as a bankruptcy risk.

Okay, that's helpful. Just a final question. Going back to Nate's question on the (inaudible) changes entailed per-square-foot, it looks like the impact of excluding these temp tenants is actually wider today than it was a year ago. I guess I would have -- I would have guessed that the impact on sales would actually diminish as these temp tenants burn off, so just curious why it might be moving in the opposite direction.

I don't think it's changed. I mean it was -- when we reported in the fourth quarter it was a $7 difference, so roughly 2%.

Ben, you also have to keep in mind that last year when we reported sales per-square-foot, we had not acquired the outlet centers. They're in there this year in the prior year period, so we're reporting on a same store basis.

I see. That makes sense. All right. Great. Thank you.

Our next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed.

Hi, good morning, guys.

Good morning.

I'm curious, on the line of credit, today. What is the balance, today, post putting the term loan that matured, as well as the recent mortgages you put on there, what is the availability, I guess, on the lines of credit?

Well, it's from the $840 million that is available, we paid off the $228 million and the $72 million. So, over $500 million is still available.

Okay. So, then if you take out the Westfield Preferred in the middle of the summer, let's say, and put that on there, as well, you're basically out of capacity on the lines of credit, I would think. So it seems that you would have to do the -- you know, if you're going to do another unsecured term loan, or you are going to do some more asset sales or additional equity, etc., you would have to do that actually fairly soon, I would think.

Rich, yes. We will still have over $150 million or so in -- after paying off the $410 million, plus we do have internal cash flow from our properties so we cannot discount that. But we do plan on putting a term loan later on in the year. It will be an unsecured term loan, either, five or seven, based on the pricing and looking at what the forward curve looks like. So, we will make a decision and we'll also look at our maturity schedules and make sure we ladder it in such a way we don't have any big chunky maturities coming up in any one given year. There are several factors that will play into it, but we're working on it right now.

Okay, thank you, and then on the discussions with the credit agencies, you get the feeling from them that by year end 2014 your process could be complete. Is that what you're thinking?

Yes, we're working on at a minimum two rating agencies, if not all three. We believe that by 2014 we certainly will have two out of the three, and, hopefully, maybe all three by the end of 2014. We're working towards that goal and we will report as we make progress.

Okay, great. Thank you. And then the last thing I had, guys, was the -- I take it that the recovery ratio bounces, next quarter, back to normal. Is that kind of -- or about this quarter, I guess, second quarter, bounces back to its normal level. Is that accurate?

Yes, that's correct.

Okay, great. Thank you, guys.

Thanks, Rich.

Our next question comes from line of Cedrik Lachance with Green Street Advisors. Please proceed.

Thank you. Good morning.

Good morning.

Good morning.

Just in regards to asset sales, when you look at the low productivity malls you've discussed as potentially wanting to sell, have you identified any property in particular already?

We have a few that we've identified that we're looking at, and talking to brokers about. It's more one-off type opportunities where we see a good chance to secure a regional type buyer for these assets, so that's really the strategy we are following. But yes, we've got some that we've definitely identified.

Okay. But nothing is formally being marketed currently?

We have one that is in the market and a couple others that we think will be coming to market in the next, say, 60 days. So, we're moving ahead with those.

What are the sales productivity of these three properties?

They're less than $300 a foot.

Okay. And in terms of deciding which property needs to be sold, what are the key metrics that you look at that make you feel like it's time to sale those assets?

That's really a combination, Cedric. Some of them might require investment that we'd rather direct our investment to other properties. And also definitely the lower sales per-square-foot, since we want to raise the overall sales per-square-foot of our properties. And the NOI growth in terms of where we see that heading. And again, like I said, we made the acquisitions of the properties in North Dakota because we see above average NOI growth. These malls are -- they're mature, they're solid, they're stable.

But if we don't see the growth potential, then we think it's a good time to sell them and the market has improved. There are more buyers that are interested in assets that have sales per-square-foot that are lower than $300 a foot. So we think it's a good time to explore and see if we can use this as a way to raise cash and also to upgrade the portfolio.

And based on what you've observed from the buyers, what is their primary source of debt financing, and where does it come from?

I would say it's banks. Banks are the primary source. In some cases CMBS, but I think the banks are the most likely source.

Okay, that's it for me. Thank you.

Thanks, Cedric.

Our next question comes from the Quentin Velleley with Citigroup. Please proceed.

Hi, there. Just in terms of the term loan later this year, and I know it sounds like it's a little bit early to be asking the question, but how should we be thinking about the size and maybe the pricing and just a little bit more clarity in terms of timing?

As I mentioned earlier, Quentin, we just want to wait and see. We do have -- the pricing will relatively be less expensive than our lines of credit because it's fully funded. It's just a matter of also looking at our debt maturities and the forward curve, as I mentioned earlier, to see how the spreads will come in, where we would like to strike. Later on, maybe next quarter, we'll have a better answer for you and we'll let you know what the size will be.

Okay. And then just in terms of St. Louis, the two outlet projects, looks like one will be opening pretty full, and the other one not so full. Can you just give us an update, a sense of the impact on some of the full price malls that you have in that market?

Quentin, what were you talking about again? Which outlet projects?

The two in St. Louis.

Okay, we missed the St. Louis part. So you're just saying, in general, what's the outlook for the outlet center development?

Yes. You've got -- now you've got new supplies coming into the market; one will open quite full and the other not so full. And what the impact might be. Whether you're starting to see anything out of your discussions yet?

Sure, I think it would be misleading to say there is no impact, because there's clearly a lot of new retail coming into the market between the two projects. The Simon project, from our point of view, is marginally better, because it's a little further from Chesterfield Mall, but it still is within five miles so it's not material. Chesterfield Mall, from our point of view, what we've been able to do is to position it to compete against the outlets and to differentiate itself by putting in American Girl. It's got the top theater in the market.

Restaurants do extremely well there with Cheesecake Factory, you've got good interest from some other concepts that -- good quality concepts that want to come in. So, it's something that we're working hard at, and also from a marketing point of view. But it's new retail coming to the market, and it's close by, and it's going to be competitive.

Okay, thanks.

Okay, thank you.

Our last question comes from Carol Kemple with Hilliard Lyons. Please proceed.

Good morning.

Hi, Carol.

What are your all's thoughts on acquisitions at this point, and what kind of properties are out on the market, currently?

Sure, on acquisitions there is -- there really hasn't been a lot of new property that has come on the market since the call in February. The matrix portfolio was the main thing that was on the market. I think that's being digested by some of the buyers, which does not include us. But beyond that there's a few single assets here and there. The Colony in Albany traded to KKR. We didn't participate in that process. The Legends in Kansas City also was bought by KKR. We didn't participate in that.

So, I'd say there's some single asset opportunities out there, but our strategy is really to continue to try to find the off-market transactions that fit with -- fit with our overall corporate strategy of the dominant malls in middle markets, the only game in town and that's what we're continuing to do.

Is there anything you're seriously looking at right now?

We're always looking. I don't know how you define serious, but there are always things out there that we're looking at. But there is nothing that we're close to any announcements on.

Okay, thanks.

Thank you, Carol.

I will now turn the call back over to Mr. Stephen Lebovitz for any concluding remarks.

Okay. Again, Thank you, everyone. We appreciate your participation this morning, and look forward to seeing you in Las Vegas in a couple of weeks and then at NAREIT in June. Have a good day.

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