CBL & Associates Properties, Inc. (CBL) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CBL & Associates Properties first quarter 2014 conference call. (Operator Instructions). I would now like to turn the conference over to Katie Reinsmidt, Senior Vice President, Investor Relations and Corporate Investments. Please go ahead.

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 Stephen Lebovitz, President and Chief Executive Officer and Farzana Mitchell, Executive Vice President and CFO.

I will begin by quickly reading our Safe Harbor disclosures and we will then turn it over to Stephen for his remarks. 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 with the Securities and Exchange Commission, including without limitation, the Company's most recent Annual Report on 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 the comparable GAAP financial measure will be included in today's earnings release that is furnished on Form 8-K along with a 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, and good morning. Before we begin reviewing our first quarter results, I wanted to thank everyone who participated in our special update call earlier this month where we outlined the following goals and objectives. Position our portfolio to produce sustained same-center NOI growth of 2% to 4%, increasing from the current range of 1% to 2%. Increase the percentage of mall NOI generated from Tier 1 and Tier 2 assets from 78% for 2013 to more than 90% over the next several years through divestitures of lower productivity assets and investment in higher growth assets. Proactively take advantage of opportunities to upgrade both mall shop and anchor retailers through value added redevelopment and ongoing re-tenanting. Maintain and enhance the strength and flexibility of the balance sheet including growing the quality and size of the unencumbered assets pool and further improving key financial metrics.

The feedback we have received from investors in support of our strategy has been positive and we are committed to executing our plan as expediently as possible. Even though it has only been a few weeks since our call, we wanted to provide an update of the latest advancements in our assets recycling efforts. We are pleased to demonstrate progress with a binding contract for the sale of Lake Shore Mall which we anticipate closing in May. We want to point out that including pending transactions we have dispossessed of one dozen of the lowest productivity malls from our portfolio over the past several years. Additionally we have entered into a non binding contract for the sale of a small associated center consistent with our plan to dispose of non-core assets. For the other three malls that we are marketing we are negotiating with potential buyers but are not yet at the contract stage. These discussions include several parties for all three malls as well as for individual malls. We are also making progress in our discussions for the seven malls we are working to sell in a privately marketed transaction. We will update the market regularly on our progress and I want to reiterate our commitment to the successful execution of this plan. We are confident that this process will better position CBL for future growth.

I will now spend a few minutes reviewing our operational performance for the quarter. In general we were pleased with our results as they reflect the positive impact of our strategic initiatives and are in line with our expectations and guidance. Same-center NOI accelerated despite the industry wide headwinds from bankruptcies, weather and sales. Store closures have been higher this year than the recent past, with notable announcements from Cold Water Creek, Sbarro, Radio Shack and others. We are addressing the anticipated short term impact by proactively releasing the space with expanding retailers. For example of the 21 Sbarro locations we anticipate closing we have LOIs out or solid prospects for approximately two-thirds.

We delivered strong leasing results in the first quarter with approximately 550,000 square feet of leases executed in the mall portfolio. Average leasing spreads were up 9.5%. Increases on new leases were strong at 37.5% and renewal leases increased 2.4%. Renewal spreads in the first quarter are typically lower than the rest of the year as we complete a higher percentage of portfolio deals. However taking a broader view we have demonstrated consistent improvement over the past several years. In 2011 we reported renewal leasing spreads of 1.1%, improving to 4.7%in 2012 and 5.9% in 2013. We are focused on continuing this trend in 2014.

Occupancy in the same-center mall pool improved 10 basis points with overall occupancy in the portfolio increasing 30 basis points to 92.5%. Rolling 12-month sales declined approximately 3% to $351 per square foot. As expected results were negatively impacted by the shortened calendar in January, the impact of harsh winter weather and the late Easter holiday. In addition to our Northeast and Midwest properties many of our malls in the South and Southwest were also meaningfully impacted by the severe weather. Retailers also remained highly promotional, reducing prices for their merchandise and making it difficult to meet comp numbers.

Certain categories experienced growth such as athletic footwear, eye wear and jewelry, but we saw continued weakness in children's, juniors and ladies specialty apparel. Across the portfolio we have been proactively adding stronger names such as H&M, J. Crew, Oakley, Vera Bradley and Michael Kors as well as a number of restaurant concepts. April sales have been encouraging as the better weather and Easter holiday engage shoppers. We expect more positive sales reports over the next few months to counteract the difficult start to the year.

I will now turn the call back over to Katie to provide an overview of our redevelopment and development pipeline.

Thank you, Stephen. We have a robust pipeline of redevelopments, expansions and new development to review today. These projects align with our objective to upgrade our portfolio through investments in higher grade assets. First I will review current anchor redevelopment program before discussing our new development pipeline.

In College Square Mall in Morristown, Tennessee we just completed the redevelopment of a former Sears location into a T.J.Maxx and LongHorn Steakhouse, opening the project earlier this month to a 10% initial unleveraged return. The new stores have enjoyed terrific reception from the market and it has helped spur additional leasing activity. Burlington is under construction at our Northgate Mall in Chattanooga, Tennessee. The new 63,000 square foot store is taking space formally occupied by a (Inaudible) store and shop space and is expected to open later this year. Nordstrom Rack is under construction at West Towne Crossing our associated center next to West Towne Mall in Madison, Wisconsin. The 31,000 square foot store replaces a former Gander Mountain location and is scheduled to open in the fall. Dick's Sporting Goods is under construction at Monroeville Mall in Pittsburgh, Pennsylvania in the remaining portion of a former department store space. The new store will open later this year.

We commenced construction on the Sears in Fayette Mall in Lexington, Kentucky with Cheesecake Factory and H&M as keystone retailers along with Michael Kors, Swarovski and the portfolios first (Inaudible). Construction on the Sears redevelopment in CoolSprings Galleria which includes Nashville's first American Girl as well as (Inaudible) and H&M will commence later this year with the opening schedule for 2015. We are making progress on releasing the three leased JCPenney locations that are expected to close next month. We are moving forward with LOIs from retailers on two locations and are working with the department store to replace a third location.

We have two expansions under construction at our outlet centers in Oklahoma and El Paso. Their 35,000 square foot expansion of the outlet shops at Oklahoma City is underway with new retailers Forever 21 and Lids. A grand opening is scheduled for August. At the outlet shop at El Paso we have broken ground on the 45,000 square foot expansion with H&M, Love Culture and Kate Spade. The grand opening is scheduled for late summer.

On the new development front construction is nearing completion at our outlet center near Louisville, Kentucky. With the grand opening scheduled for July the center is 96% leased or committed with premier outlet brands including NorthFace, Banana Republic, Brooks Brothers, Chico's, Nike and Saks Fifth Avenue OFF 5th. We celebrated the grand opening of the first phase of Fremaux Town Center in Slidell, Louisiana in March. The project opened over 95% leased with anchors including T.J.Maxx, Michaels, Kohls and Dick's. Construction on phase II which will be anchored by Dillards will begin shortly with an opening scheduled for October 2015. Finally, construction started this month on our latest community center project Parkway Plaza, a 134,000 square foot project in the Chattanooga suburb of Fort Oglethorpe, Georgia. At the opening in Spring 2015 the 16 acre site will deliver several retailers that are new to the area, including anchor stores Hobby Lobby, Marshalls, Petco.

I will now turn the call over to Farzana to provide an update on financings as well as a review of our financial performance.

Thank you, Katie, and good morning everyone. We are pleased with the progress we are making to enhance our financial metrics and provide further flexibility in our balance sheet. In January we completed the early pay off of $122 million loan secured by St. Clair Square in Fairview Heights, Illinois adding a strong asset to our unencumbered pool. Additionally, the foreclosure of Citadel Mall was completed reducing secured debt by over $68 million. We recorded a gain of $43.9 million on the extinguishment of debt partially offset by a (Inaudible) fee of $1.2 million for the early retirement of the secured loan at St. Clair Square Mall.

We ended the quarter with more than $918 million available on our lines of credit. Our financial covenants remain sound with a fixed charge coverage ratio of 2.2 times as of March 31, 2014, compared with 2.1 times last year. Our bond covenants are well in excess of the minimum required and we expect continued improvement over time. The secured debt to gross book value ratio was 39.7% at quarter end.

As Stephen mentioned in his opening comments our operating results were strong for the first quarter despite various factors such as, higher operating expenses related to severe weather conditions and pressure on retail sales. Adjusted FFO was $0.52 per share compared with $0.53 per share a year ago. Major variances impacting FFO as compared with the prior year period include higher base rent net of the decline in percentage rents contributed $0.02 to the quarter, a $0.05 dilutive impact from the equity raised to the ATM program in the second quarter 2013 and the asset sales completed last fall and $0.01 negative impact from higher bad debt, utility and snow removal expense net of a favorable insurance reserve adjustment.

G&A as a percentage of total revenue was 5.7% for the quarter compared with 5.2% in the prior year period. Our cost recovery ratio for the first quarter declined to 93.2% from 95.4% in the prior year period as the result of higher operating expenses including utility and snow removal expense. First quarter portfolio same-center NOI improved by 1.5% with the mall category increasing 1.6%. The leasing upgrades and expansions to our higher growth properties we have made over the past year were evident this quarter with minimum rents increasing $4 million on a same-center basis. We also recorded a favorable insurance reserve adjustment of $1.1 million during the quarter following a review of our outstanding claims. However this growth was partially offset by $3.8 million of weather and bankruptcy related items including a decline in percentage rents and an increase in bad debt, utilities and snow removal expense.

We are reaffirming adjusted FFO guidance for 2014 in the range of $2.22 to $2.26 per share. Our FFO guidance assumes same-center NOI growth in the range of 1% to 2%, flat to positive 25 basis point increase in occupancy throughout the year and the sale of Lakeshore Mall. Our guidance does not include the impact of any future sales, bond issuance or acquisition.

I will now turn the call over to Stephen for concluding remarks.

Thank you, Farzana. Thank you again for joining us this morning. While we are still in the early stages, we are excited about the transformation of CBL into a more focused, higher growth Company. Our results this quarter are indicative of the stability of our properties, and we look forward to reporting continued progress on our strategic initiatives as the year unfolds. We are now happy to answer any questions you may have.

Thank you. (Operator Instructions). Our first question is from the line of Todd Thomas with KeyBanc Capital Markets. Please go ahead. Your line is open.

Thanks. Good morning. Jordan Sadler is on with me as well. First question on the store closures and bankruptcies that you mentioned. I was wondering if you could talk about what CBL's exposure is to Coldwater Creek. And then also we heard recently that Wet Seal is looking to close roughly 15 stores this year maybe another group next year, and I was wondering if you have had discussions with them and what you are hearing particularly since you had signed a portfolio deal with them not too long ago on what I believe was a temporary basis.

Sure. Taking Wet Seal we have not had discussions with Wet Seal as of this point as far as closing any additional stores. There has been some correspondence about their Arden B Division and them possibly doing something with that,. We only have three stores with Arden B, and they are in three of our top five malls so those we feel would be readily releasable. And as far as Wet Seal in general they had been making a good recovery but then their sales had a decrease towards the tail end of last year. We are watching them carefully and we will continue to see where that goes. I think your other question was Brookstone -- Coldwater. I'm sorry. We have 16 Coldwater Creek stores in the portfolio total revenues are roughly $2.8 million. Again we feel like they are in good locations, in good malls. We have got prospects that we are working on for a number of them. And we feel very good about our ability to successfully release those locations, there will be some down time, but with minimal down time.

Okay. Second question regarding the retail environment clearly it is changing and some of your peers are working together and investing in new ventures and partnership even with nominal dollar amounts to help promote and improve the mall experience. [Dalive] for example I know CBL is not involved in that partnership specifically, but I am wondering if you can talk about what CBL is doing in this area as the mall business and environment evolves.

We actually have talked to Dalive. We talked to them last year at the same time that our other peers were doing so. They were only rolling out the service in Chicago, San Francisco and L.A., and we didn't have any malls in the market so we didn't participate in any of the test sites at that time. But we are talking to them about this year about doing that. We think that makes a lot of sense. It is a great idea, and it is interesting how the customers reacted in terms of the added convenience of having people help them with concierge services. It still remains to be seen how much demand there is for same day delivery. It does seem like the convenience of it is a factor that is something that the customers are looking for. And it is all part of enhancing the shopping experience and it is something honestly we spend time every day talking and thinking about what can we do to enhancing the customer experience. Whether it is better stores, renovating our properties which is something that we do on a regular basis, providing different types of retailers, adding more food restaurants, opening stores like Dave & Busters and entertainment related uses that bring in different traffic. It is all part of this experience. American Girl which we are doing our third in Nashville CoolSprings coming to the expansion there, is again the type of retailer that provides a different experience for the customer, so that is a big part of it. And also the initiatives our peers are doing we are talking and watching those very closely and are involved in everything that they are as well.

Okay. That is helpful. Last question I was wondering if you could provide a cap rate on the Lakeshore Mall transaction or put some context around that sale perhaps how the deal was negotiated.

Sure. It is actually a 1031 buyer. We can't give you the exact cap rate, but I will tell you it is low double digits and given the assets and its sales level we feel like it is very favorable pricing from our point of view.

Okay. Thank you.

Thanks.

Thank you. Our next question is from the line of Christy McElroy with Citi. Please go ahead. Your line is open.

Good morning. Just a follow up on the cap rate question. Can you disclose the cap rate on the purchase of the (Inaudible), and can you also provide some color on how we should be thinking about the impact of the P&L? I think I saw that the partner had an 8% preferred return.

Hi, Christy, good morning. This was a negotiated deal with the joint venture of Teachers when we did the major joint venture with them a few years ago and the 12% interest that Teachers repurchase was treated in the balance sheet as debt we had the option to buy back and control that asset and that is what we had always plan to do. And we have now repurchased it, controlled it. We believe Houston market is a strong market and this property we expect it to get into the tier II over time. On a cap rate question it was a blended cap rate at the time, so I don't think it is relevant to this 12% purchase. They did have a 8% preferred return which we paid them off.

Okay. Can you also discuss your decision to transfer Gulf Coast and Triangle Town in to the non-core bucket? They seem like assets you would want to own longer term if not for the debt. How many more balls in your portfolio fall in that same bucket where you are trying to work with the lender or servicer to renegotiate the loan or hand back the keys.

The decision to move them into non-core primarily as you mentioned it is because of the debt issue. It is the debt and the equity in the project is pretty close and also our debt service coverage ratio is slightly above 1.0, so our goal is really to restructure the debt if we can favorably do so over time, but if we cannot, this will be another asset that we will be discussing with the lender if the favorable discussion on restructure does not come to fruition. That is the reason for it to be in the non-core.

Okay. And then looking at your top tenant list it looks like you lost 4 Limited stores, 7 Foot Lockers and 5 (Inaudible). Can you talk a little bit about those retailers and their long-term strategies within your malls?

Those were all because of the sales of the properties we did over the past year. So there weren't any changes, and in fact Foot Locker is one of the best performing retailers in our malls. They are expanding and renovating existing stores. We are doing new deals with them. FootAction which is one of their divisions is red hot in terms of its performance. So their performance is very encouraging and we enjoy good relationship with all the retailers you mentioned and there is no slowing down of the program with them.

It is Michael Bilerman. I just wanted to come back just on working on the (Inaudible) with the loans. If you go back to the strategic review, you talked about one way of existing some of the assets you don't want to own to improve the core portfolio and have higher growth is handing back the keys. It sounds like on Gulf Coast and Triangle those are assets that are good assets you would want to own that are within decent sales productivity but you have too much debt on them and they are trying to renegotiate. What we are trying to separate is how many more assets fit into that category? How many more of your assets that you want to own long-term have too much debt where you are going to have to try to renegotiate? I know you have been working on Gulf Coast for a number of months already, but how many more assets fit into that category versus how many fit into the great they have too much (Inaudible) on them we can hand back the keys and we solve our strategic goals?

Hi, Michael. Thank you for asking that so we can clarify. We spent a lot of time and careful deliberation going through the properties that we put in the different buckets for the strategic review including the malls that we moved to non-core like Gulf Coast and Triangle and that is the list we provided. Beyond that there are properties that are in the disposition portfolio, the 21 malls that depending on how their performance is over the next couple of years there could be an issue with the debt, but as of right now we don't see that happening. There is solid positive cash flow, so I don't think you need to consider adding any more properties to that non-core, non performing bucket at this time.

Right. But in the case of Gulf Coast the debt is too much, but it sounds like that is an asset you would want to own long-term I just did not if there were more assets like that in your portfolio.

No, no. Like you said the data is high and the equity value is minimal and we need to work out a restructure with the lender but we definitely would like to include those in the portfolio going forward. They're good properties, good markets, but we have to have success in renegotiating the terms of the debt.

Right, and if you can't then they would effectively hand the keys back. Any other assets where you are above --

No, there is not.

So everything else you could potentially hand back, there is no other work outs you are trying to do if you have limited equity in an asset or no equity in an asset all those would be handed back?

That is correct.

And that is how many more malls that you plan on handing back just so we are aware?

The ones we have listed.

That is it?

That is it, right. That is in the bucket, and the ones we know we are working on and we will either hand it back or restructure is in the bucket we have listed.

Right. And then all the other 21 are actually sales candidates that fall in to tier II and tier III?

That is correct.

Okay. Sorry I was a little slow.

No worries.

Thank you. And our next question is from the line of Craig Schmidt with Bank of America. Please go ahead. Your line is open.

I was noticing there was a lift in the initial yield at Oklahoma City and El Paso. I wonder is that better leasing done at the malls to raise that or some other thing?

Craig, good morning. It was actually a combination. Primarily it was the costs came in lower than we had originally budgeted. They are not that big of a project so it is easier to move the needle and it was primarily cost driven.

Okay. Then just looking at the sales performance on a per square foot basis it looked like Tier I was down 4.1 versus the 3.2 I think overall. I would have expected that to have done better. Is that explained by weather or another factor?

Craig, when we look at the tier I malls there were several considerations that impacted the sales there. Probably the biggest one was that with the delay in Easter we have several malls in that portfolio that are on the border and Easter is bigger or as big as Christmas for those markets so it had a disproportionate impact on them. The second factor is a couple of them are in military markets where we had deployments occurring so those impacted them. Third is weather and everyone is blaming the weather but with the malls we had a couple that had severe ice storms and snow storms. And then the ones in the South are hardly ever impacted by winter weather like this year and what happens is people just stay home. They are afraid of getting stuck. They don't have the snow removal equipment. So we lost a lot of days even if the malls were open when people were just staying at home and not coming to the malls. It really was a combination of those different factors that impacted tier I. I will say that we think it is more of a blip and not something that will happen over time. And the tier I results over time will continue to perform stronger than there other tiers.

The good news is Easter will show up in second quarter.

Absolutely.

Thank you.

Thanks, Craig.

Thank you. And our next question is from the line of Haendel St. Juste with Morgan Stanley . Please go ahead. Your line is open.

Thanks for taking my question.

Sure. Good morning.

Good morning. First question is on the same-store NOI growth for the quarter up 1.6, which is better than any quarter last year when you were also getting occupancy and reporting positive leasing spreads but the occupancy and uptick in leasing didn't seem to flow-through NOI last year so curious what is different this quarter and has there been any change in the same store pool ?

Can you repeat your question again? I lost the last part of what you said.

Sure. I was pointing to the same store NOI growth in the quarter up 1.6. We saw last year where you weren't able to get meaningful much of any same store NOI growth when you were benefiting from occupancy uptick in positive leasing spreads, so I was curious what is different in the first quarter this year and was there any change in the same store pool?

I'm going to answer in several different components that impacted. Obviously the lease spreads had a very positive impact in the first quarter so all of the leasing activity we had last year had partial year impact last year but now we are getting full year impact or full quarter impact, that is number one. That is driving it both from the renewal spreads as well as the new lease up spreads. Secondly, our same center pool of course did change. The centers that were there last year (Inaudible), for example the outlet center of Oklahoma City is in the pool this year so that is contributing. We have new projects that are now in the same-center pool that is driving the results as well.

Okay. Question on your leasing strategy. In recent quarters you have held back space as you would for more productive retailer versus backfilling immediately. I was wondering if you had to rethink or reassessment of the strategy given the somewhat limited recent benefit, and wondering also long-term how you think about that strategy for your pro forma smaller more productivity portfolio once you sell off that $1 billion to $1.25 billion that you talked about?

Good morning. We have not deviated from that strategy of replacing and upgrading with stronger retailers over time. What we did see this quarter is the impact of the opening of some of those stores that were under construction last year. So we had five H&M stores that opened in 2013 and now they are in place and they're producing rent and revenue for 2014. We have another four under construction this year so at those malls there is a drag and that is an impact and without that our NOI growth would be even better. But we still feel like over time it is the right strategy to pursue for the properties. We have added boxes at a number of the centers, and again it is taking up difficult spaces in the end zones or at entrances. There is down time, but once they get opened it produces a stronger center overall. So we feel like that is the right strategy and we are committed to continuing it.

One more if I may. Maybe I missed this, but curious as to further opportunities for refinancing on the balance sheet, Farzana?

Yes, we will be refinancing the joint ventures properties. We are currently working on Coastal Grand that is coming up and we should be ready to refinance that at the maturity date, so that is the one joint venture property. Next year we will have more joint venture properties to refinance. However we do have maturing debt that we will be paying off from our lines of credit.

Thank you.

Thank you. And our next question is from the line of Andrew Rosivach with Goldman Sachs. Please go ahead. Your line is open.

Good morning. I wanted to hit something high level when you did your strategy day, I think the biggest push back that I got from my clients was including the stuff you would like to sell there is arguably 50, 60 B malls in the U.S. that are currently for sale. And we think of the list who has been buyers, call it Rouse, call it Staubach, call it Starwood people are having a hard time lining up the demand that is on the other supply. And I know you are in the midst of the negotiations and I certainly don't want to get to sensitive points, but can you provide any color as to the depth of the market either public players or private players that are really seriously bidding on your assets?

Good morning, Andrew. What I can provide is more anecdotal color because obviously we can't talk about specific buyers and who we are talking to and all that.

Of course.

The buyer pool that we are accessing or going to is primarily private buyers so it is not the other public companies, and it is buyers that have teamed up with private equity or International funding sources. And they feel like given the yields that are available for these assets it is a very attractive financial opportunity for them , and they see stability in the assets going forward, not a lot of upside, not a lot of down side. And that is the same reason we are selling because we don't see the growth. I hear you there are a lot of malls out there for sale and our peers are certainly joining in the party, but we have got good discussions going on. We feel like there is an adequate depth to the market in terms of who we are talking to like I said. Certain groups are interested in individual malls, the buyer on Lakeshore is a regional buyer, it is a 1031, it is a small enough transaction that someone like that can make it work. There are other parties looking do portfolio deals, and we have relationships with a lot of these people that over the years we have developed. Like I said, we sold a dozen malls over the past several years, and I don't think we get any credit for that, but we have sold malls for the most part have sales 250 or under. And we have done over $700 million of dispositions in the past four years. It has been a big part of our business, and because of that we have developed these relationships with both the brokers and the buyers and we are confident that we are going to be able to execute the plan that we outlined in our strategic call a couple of weeks ago.

You don't get any credit. If you were a strip mall REIT, you would have traded up last year when you sold those malls. I'm also just curious it seems like in the last 90 days you have had those three malls for sale, you sold those malls last year. Is the timing of these deals closing any longer or shorter relative to the deals you have done in recent years?

Unfortunately it takes time. And you have to go through a process and you have to educate people about the markets get comfortable. There is issues like JCPenney and Sears that people have to get comfortable with. And the buyers they are thorough and they do a good job and they are smart and they want to do a good transaction. These deals when they make their offers they put a lot of thought in the numbers and then there is due diligence, so it just takes time. It frustrates us like crazy. We wish it could happen over night as well. But again anything that happens this year with the three malls given the likelihood of closing would be third or even fourth quarter it is not going to have much of a dilutive affect impact on us which is why we did not include anything in guidance, but we feel confident that we will be able to get these projects under contract, these properties under contract and then move onto the next batch.

If there was resolution that JCPenney was a going concern would it make it easier to transact these malls?

The JCPenney issue cuts both ways, because we have buyers that want to take back the department spaces like JCPenney and redevelop them and they view that as an opportunity and they're looking to add value to properties. So yes it would help. And there is nothing we view out there as a sense that they are not a viable ongoing concern but like we said in the call we expect them to close more stores next year and that uncertainty is something we have got to deal with.

Is also any part of this financing contingencies where people are interested but it is subject to financing and that has been an onerous process from the buyer side?

Actually no. The buyers we have been working with haven't submitted their subject to financing. We tried to avoid that because that can add a lot of time and uncertainty to the process. So from our point of view we will trade off a few dollars for having more certainty of execution.

Understood. Thank you very much.

All right, Andrew. Thank you.

Thank you. And our next question is from the line of Carol Kemple with Hilliard Lyons. Please go ahead. Your line is open.

Good morning. Can you give any color to how traffic and sales have been in your malls so far in April compared to last year?

Sure. Good morning, Carol. April has been great. April feels like the shopper is back. The holiday, the weather, the closet fever so the traffic has been very good. Retailers haven't formally reported but we look at impulse items, food court and other food uses and just the traffic that we are hearing from our mall managers everything is positive and we are excited about that.

Okay. And I think earlier you mentioned one of the reasons for your sales decline was due to a shortened calendar in January what exactly does that mean?

January this year had four weeks of selling compared to five weeks of selling in 2013. It happens every six years and this was the year so on a comparable basis there was bound to be a decrease just because of fewer selling days.

Okay, great. Thank you.

Your welcome.

Thank you. And our next question is from line of the Rich Moore with RBC Capital Markets. Please go ahead. Your line is open.

Good morning.

Hi, Rich.

The impairment you took this quarter was that Lakeshore or was that the York, Stroud Randolph group?

Hi, Rich. Good morning. It was two projects, it was Chapel Hill and Lakeshore.

Thank you. Follow up for second on Andrew's question I'm curious what the process for listing the additional assets you want to sell out of the 21. It sounds like you have three listed and seven you are working privately and maybe another 10 or 11 that haven't been listed and meanwhile you have (Inaudible) for example that has half of the company listed. And I am curious should you have everything listed too or how are you going to go about this I guess?

They only want to sell three or four so they are listing a bunch and that is their strategy and I think that is the best way they feel like they can execute that. Ours is a little bit different because we want to sell the 21 and we feel like we need to clear what we have out there and make progress before we flood the market with more. So our strategy is to do it more sequentially, but the benefit of having the private off market discussions is we can talk about malls that are the list without going through the formal listing process. So it does allow us to hopefully find a way to move this process along faster. We actually have gotten a lot of reverse inquiries that came about from our call. It was basically free advertising, and we have gotten calls from all over the place from people interested in certain parts of the country or certain assets, so it has been a helpful process to help us move things along, so we are moving ahead with it and we feel good about the progress we are making and we will continue to push it.

Okay. So, Stephen, those seven that are in the private discussion is that a special situation or is that like the next seven you are going to put out there? I mean in general listing.

We will see. It is a combination. We feel like it is a good package with some synergies and characteristics that make sense to go to one buyer.

Okay, good. Great. Thanks. The recovery ratio if I could real quick, the recovery ratio shrunk this quarter and as I am recalling I think it was down last quarter as well and I am wondering what exactly that is. Is that more bad debt or is there something else in there?

Yes, Rich. Several things snow removal expense was higher. We had higher utility expenses this quarter, bad debt was a little bit higher although we had a good offset by our insurance claim adjustment that we made. So if you take all of that in to consideration that is what really caused the recovery to drop a little bit and we do have fixed CAM, so therefore we can pass through some of these higher expenses. Although we do have annual increases and fix CAM to make up for it but sometimes the quarterly numbers can be distorted.

Okay, great. Thanks, Farzana. Thank you guys.

Okay, Rich. Thank you.

Thank you. And now our next question is from the line of Ben Yang with Evercore. Please go ahead. Your line is open.

Thanks. Sorry but I have another question on the mall sales as well. Stephen, I think you mentioned the low double digit cap rate on the Lakeshore Mall sale which is higher than the high single digital average you talked about on your business update call. I am curious if maybe we could infer that you intend to be more aggressive on the mall sales maybe at higher cap rates but hopefully quicker than the two or three years you outlined on that call?

That mall has sales of 220 a foot so I do not think we every expected it to have a single digit cap rate. And when we talked about during the call it was a blend of the all the properties. We developed our pricing expectation, the range that we gave to be conservative and like I said we are not trying to squeeze the last penny out of this, but we have not also made any big change with our cap rate expectation just to try to move the stuff. Hopefully that gives you a sense of where we are thinking on this.

Okay, fair enough. And then also curious you talked about the higher winter related cost, snow removal, utilities obviously percentage rent but were those costs baked into your prior guidance or were there any positive surprises that off set some of these call it negative surprises helping you essentially maintain your portfolio forecast?

When we made the special presentation, Ben, when we showed you the bridge, we had baked in some of the higher expenses and the offsets; therefore most of it is accounted for. We also included the known store closures and backfilling all of that with the tenants we are working with. So the range we provided of the bankruptcy and fall out and closure of $18 million to $19 million that is still the range we are working with. So unless something crazy happens we will come back and readjust our guidance and take a look at it again but the positives and negatives we are still in the same range.

Okay. And then final question, I know it is a small investment but I am curious what is the thought process behind spending any time and capital developing these small community centers like Parkwood Plaza? It seems like you have a lot on your plate already.

First of all it is in our back yard in Chattanooga, so it is really close and convenient from that point of view. Over the years it has been a good source for us to generate equity through the development and potential sale of these assets. Also most of these projects we do are through assignments from retailers, and the relationships with the retailers is a core competency for our business. And if they are assigning us project opportunities and we can make them work then as long as they have a general fit with our strategy geographically or with our properties then we feel like it makes sense and that was the thinking behind this one.

So driven by the retailers. I mean is this like merchant build or are you thinking these are long-term holds for the Company?

No most of them we sell. Like we have done in the past most of the community centers we built and stabilized and then we sell and it allows us to recycle the capital.

Got it. Thank you.

Okay. Thanks.

Thank you. And our next question is from the line of D.J. Busch with Green Street Advisors. Please go ahead. Your line is open.

Thank you. Looking at the percent of NOI by the different tiers, I understand there was a mix change just removing Gulf Coast and Triangle out of the tier II, but it looks like NOI dropped considerable as a percent of the portfolio, I think somewhere from 50% down to 45%. Understanding some of it is due to that mix. What was the growth in the NOI or can you give us a little color on the NOI changes in the different tiers and why it looked like the tier II may have decelerated?

D.J., it is actually because we changed the way we report on that page. So we are reporting percent of total mall NOI and last quarter we reported percent of total same-center mall NOI.

Okay. So there was no material change if the reporting was like for like?

Exactly. Last quarter the non core was 0 because it is not included in the same-center and this quarter it is 3% because now we are reporting it on total. And it was the request of actually I think a couple of analysts asked to see it that way rather than the same-center.

Okay. Stephen, going to one of your earlier remarks as selling an associated center just to be clear do you own the mall attached to that associated center or is it one of the ones that may be a candidate for sale?

It is an associated center next to a mall we own. But it is really a unique situation where the party that we are selling to bought a building next to it and trying to do a redevelopment so they came to us and approached us about buying and it and is very small dollars. And there is actually still another associated center with the mall that is more stable long-term that is less of a redevelopment opportunity that if we sold the mall, we would sell the associate center with it.

So there is no change in your thought process as far as the operational synergies that you get owning the associated center with your malls?

Right. That is correct. And if we sell a mall, then we would typically sell the associated center with it, but as long as we keep the mall then we feel like there is a lot of benefits to holding them together.

Great. Thank you.

Thank you.

Thank you. And now our next question is from the line of Michael Mueller with JPMorgan. Please go ahead. Your line is open.

Hi. Thinking about this whole portfolio transition from an earnings perspective. When you come out the other side say two to three years from now your current guidance is in the 220 do you think you will be able to hold the line on that rough earnings level or do you think you will have to some dilution from it once you come out the other side?

We feel like we will be at that level and hopefully even beyond with the reinvestment opportunities and we have been conservative with our reinvestment assumptions. There will be short term dilution based on the timing of the sales and how much we do at any one time, but once we get through it all the $0.16 to $0.21 dilution we will make up for that and we look to grow beyond that. That is the whole reason we are going through this.

When you talked that beginning I think you used the term accelerated or expedited is that even more accelerated from the call a few weeks ago or is just on a similar time frame?

No, Similar time frame. But we said in the call if we can accelerate it we will, and our goal is to do it sooner than the time frame that we mentioned in the call, so nothing has changed since the call a couple of weeks ago.

Okay. That was it. Thanks.

Thank you.

Thank you. And there are no further questions in queue. I will turn the call back to Ms. Reinsmidt.

Thank you for joining us today. We look forward to seeing many of you at (Inaudible). Thanks.

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