CBL & Associates Properties, Inc. (CBL) 2015 Q2 法說會逐字稿

Good morning and welcome to the CBL & Associates Second Quarter 2015 Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Katie Reinsmidt, Senior Vice President of Investor Relations and Corporate Investment. Please go ahead.

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties Inc.'s conference call to discuss second quarter results. Joining me today are Stephen Lebovitz, President and CEO; and Farzana Mitchell, Executive Vice President and CFO. I'll begin by reading our Safe Harbor disclosure and then I'll turn the call over to Stephen for his remarks.

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 you to the Company's various filings with the Securities and Exchange Commission, including without limitation, the Company's most recent Annual Report on Form 10-K.

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 schedule. 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, everyone. Yesterday, we announced that our Board has authorized a $200 million stock repurchase program, demonstrating the confidence that Management and the Board have in the underlying value of the CBL portfolio. The discount to NAV that our stock is trading at is more than compelling in our view. This authorization provides us with the flexibility to utilize future disposition proceeds to take advantage of this discount and invest in what we view as a tremendous acquisition opportunity, our own high-quality properties. We will fund repurchases by utilizing a portion of asset sale proceeds from our mall disposition program, as well as sales of other properties. To be clear, we do not intend to borrow, to fund share repurchases and continue to prioritize maintaining and improving our credit metrics, to support our investment grade rating.

The transformation of the CBL portfolio is our top priority. I will discuss disposition activity shortly, but wanted to first talk about the acquisition of Mayfaire Town Center and Mayfaire Community Center in Wilmington, North Carolina, which we closed this quarter. Mayfaire holds a dominant position in its market with no comparable competition, making it a perfect fit for the CBL portfolio and furthering the goal of improving our asset quality and growth rate. With sales of $390 per square foot, we have added a strong Tier one asset with significant growth opportunities, including the following. As leases mature, the low 8% in-place occupancy cost offers tremendous upside. There are several available parcels with strong interest expressed from national restaurants that will upgrade to mix of the property and generate near-term income growth.

The center has roughly 20,000 square foot of vacancy, that we anticipate leasing with high-quality retailers. Additionally, we are in the pre-development phase to add 75,000 to 100,000 square feet of retail on developable land that was acquired with the project. We believe that Mayfaire will provide exactly the type of near, long-term growth that our portfolio strategy is designed to unlock, progressing CBL towards our goal of a higher growth rate portfolio.

During the second quarter, we made progress on certain dispositions, closing on the sale of Eastgate Crossing in Cincinnati, Ohio, for a gross sales price of $22.8 million, including the assumption of the related debt. We also closed on the sale of Madison Square Mall in Huntsville, Alabama, for a cash sales price of $5 million. Subsequent to the quarter end, we completed the sale of its associated center, Madison Plaza, for $5.7 million. Including these sales, year-to-date, we've raised approximately $52 million of equity. We anticipate closing in the third quarter on the new 15%, 85% joint venture of Triangle Town Center and its associated center in Raleigh, North Carolina. We are also working with a special servicer on Gulf Coast Town Center and anticipate a resolution by year-end.

Including the pending transactions, we have disposed of six of the 25 targeted mall assets. We have held back six malls from the market, that have anchor redevelopments in process. The other properties are in various stages of marketing or negotiation. In addition, we've targeted certain power and community centers for disposition to provide an additional source to reduce leverage and find our stock buyback program. At current valuations, these assets provide an attractive capital source. The depth in the market for institutional quality community and power centers leads us to be optimistic that these sales will be completed later this year or in early 2016.

While the market for lower-tier malls is challenging due to buyers' concerns over the combination of tenant bankruptcies and anchor uncertainty, we are aggressively pursuing various avenues to execute sales on an expedited basis. These include a traditional on and off market process, larger portfolio dispositions and joint ventures. In recent months, CMBS financing for lower productivity malls has become more difficult to obtain. Banks and unregulated lenders provide an alternative source, but these institutions are also underwriting conservatively.

Given the current market, we realistically expect our process to take at least a full three years that we outlined at the start of the program. It is important to note that the assets targeted for sale represent less than 10% of our Company's total enterprise value and 14% of our mall NOI. These properties are not distressed. They are generating significant and stable cash flow that we are re-deploying into attractive redevelopment and expansion projects in our core portfolio. As a reminder, over the past three years, we have made significant progress in disposing of lower productivity and non-core assets. Since 2012, we have disposed or conveyed more than 25 non-core assets, including a dozen malls, as well as community centers, office buildings and other assets totaling over $700 million. This includes 12 assets totaling approximately $330 million that we have completed dispositions of or have pending since announcing our program a little more than a year ago. Throughout this process, we have been able to manage dilution, maintaining and growing our EBITDA and FFO.

Now, I'll spend a few minutes discussing our operational performance. Results for the quarter were in line with expectations with flat same-center NOI and FFO in line with consensus of $0.54 per share on an adjusted basis. We've made solid progress in re-leasing spaces that were vacated earlier this year due to bankruptcy activity. To date, of the 175 stores closed, we have 62 leases executed or out for signature and an additional 53 leases in active negotiations. Most of these leases will take occupancy late this year, or in 2016. We mentioned last quarter that due to timing, second quarter would bear the full impact of the bankruptcy-related store closures. As anticipated, same-center stabilized mall occupancy ended the quarter down 330 basis points. Overall, portfolio occupancy ended the quarter down 250 basis points at 91%. We anticipate this spread to diminish, as we head into the third and fourth quarters, ending the year, down 150 basis points to 200 basis points from 2014.

Looking past the bankruptcies, retail demand, leasing activity and lease spreads remained strong. We executed more than 370,000 square feet of leases in the malls during the quarter. The average increase in gross rents for new, renewal leases was 8.7%. Spreads on renewal leases were 4% and new lease spreads remained high at 29%.

Retail sales for the quarter in our portfolio were excellent, with continued healthy growth. Sales during the second quarter grew 4.1%, bringing our rolling 12-month same-center sales up 3.7%, with $368 per square foot. Back to school will be an important indicator of what to expect for the holiday sales season and we're optimistic that positive trends will continue. Cosmetics, athletic shoes, home and eyewear sustained strong increases into the quarter with mixed results across apparel retailers.

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

Thank you, Stephen. We've discussed one of our priorities is to invest in our existing centers to redevelop underperforming locations and expand and upgrade high-performing centers. We're making significant progress in meeting this goal. Construction is nearing completion on the new ULTA and Dick's Sporting Goods in the former JCPenney store at Janesville Mall in Janesville, Wisconsin. Both new stores have openings planned for this fall. We are redeveloping a portion of the Sears store at Brookfield Square in Brookfield, Wisconsin, into a new restaurant district that will open later this year. A new 60,000 square foot Dick's Sporting Goods will open at Sunrise Mall in Brownsville, Texas, in time for the holiday sales season.

In May, we celebrated the grand opening of the Sears redevelopment in CoolSprings Galleria. Hundreds of little girls and their families lined up to enjoy Nashville's First American Girl, which joined great retail and restaurant names such as H&M, Cheesecake Factory and [Belk Woman]. Earlier this month, we opened a 50,000 square foot Gordmans at Meridian Mall in Lansing, Michigan. Hobby Lobby also opened this month in a new 60,000 square feet store in the former JCPenney space at Hickory Point in Forsyth, Illinois. In addition to this activity, we are adding more than 20 new boxes and junior anchors across our portfolio this year. In August, also we'll open at our Northgate Mall in Chattanooga. Three additional office stores will open in our centers this fall, including the new store at Janesville Mall, as well as openings at Statesboro Crossing in Statesboro, Georgia, and CoolSprings Galleria, Nashville. Ten new H&M stores will celebrate grand openings across the CBL portfolio in 2015, including a new store at CoolSprings Galleria which opened earlier this year. The remaining nine stores will open in the fall.

And Mid Rivers Mall in St. Peters, Missouri, we opened a new Planet Fitness in May. And at Regency Square in Racine, Wisconsin, we have started construction on a new Dunham's Sporting Goods in the former Sears location. The 88,000 square foot store will open in November. Additionally, the third-party owner of the former JCPenney store at the center recently announced that they will redevelop the space to bring in Ross, Jo-Ann Fabric and PetSmart. These new retailers will be outstanding additions for Regency Square. At Randolph Mall in Asheboro, North Carolina, construction is commencing on a new Ross and ULTA in the former JCPenney location. Openings are scheduled for summer 2016.

At Kirkwood Mall in Bismarck, North Dakota, we are opening [several new] retailers this fall and a 13,000 square foot freestanding addition. New stores include Panera Bread, Verizon and Caribou Coffee. Our outlet center portfolio continues to show strong results which is supporting several expansions. Construction is progressing on the second phase of the Outlet Shoppes of the Bluegrass. The 53,000 square foot expansion will include H&M, the LIMITED Outlet and several other brands. In Atlanta, construction is underway on the 33,000 square foot Phase II expansion that includes Gap and Banana Republic. Both expansions are expected to open before year-end.

Moving on to new developments, Phase II at Fremaux Town Center in Slidell, Louisiana, is under construction and will open this November. The 280,000 square foot project will be anchored by Dillard's and will include additional fashion-oriented shops such as Ann Taylor LOFT, Chico's, Aveda and Francesca's. The 340,000 foot Phase one Fremaux Town Center opened last year and is a currently 100% occupied. The project is being developed in a JV with Sterling Properties. Construction is also well underway on Ambassador Town Center in Lafayette, Louisiana, our second JV with Sterling. The 438,000 square foot center will be anchored by Costco, Dick's Sporting Goods, Field & Stream, Marshalls, HomeGoods and Nordstrom Rack. The grand opening is anticipated in March 2016.

I'll now turn the call over to Farzana to provide an update on financing, as well as a review of our financial performance.

Thank you, Katie. Adjusted FFO for the quarter was $0.54 per share compared with $0.55 per share for the prior year. FFO as adjusted in the current quarter excluded a $3 million litigation settlement and related expense recorded in G&A. This amount was offset by settlement proceeds received in previous quarters. FFO for the second quarter reflects results from new properties such as Parkway Plaza, the Outlet Shoppes of the Bluegrass, Fremaux Town Center, as well as several expansions and redevelopments. This growth in FFO was offset by dilution from the disposition of several malls and community centers, as well as lost income from store closures.

Continued sales growth resulted in percentage rents increasing $0.6 million. Property operating and maintenance and repair expense declined from the prior-year period, offset by an increase in real estate tax expense. The increase in real estate tax expense was partially recovered from tenants. Bad debt expense was $0.6 million versus $0.7 million in the prior-year period. Interest expense declined as a result of interest rate savings achieved as we retired higher-rate secured loans.

G&A as a percentage of total revenues, excluding litigation expense, was 5.2% for the quarter, compared with 4.4% in the prior year. G&A in the current quarter, excluding litigation expense, was $1.9 million higher due to additions to personnel and consulting expense related to technology and process improvements.

Our cost recovery ratio for the second quarter was 103.5% compared with 100.8% in the prior-year period, due to lower operating and maintenance and repair expenses.

Same-center NOI in the quarter increased 30 basis points for the total portfolio and was flat in the mall portfolio. Year-to-date same-center NOI growth is 40 basis points. Same-center NOI growth continues to be moderated by the impact of bankruptcy-related store closures. As we communicated during the first quarter call, our results in the second quarter were more severely impacted by the store closures, resulting in topline revenue growth of only $1.1 million for the same-center pool. This includes $0.9 million decline in base and short-term rents, a $0.5 million increase in percentage rents and $1.5 million increase in tenant reimbursements.

Property operating expense declined $0.9 million, primarily as a result of $0.4 million decline in bad debt expense. Real estate tax expense increased $1.2 million, largely due to a tax refund receipt for one of the properties in the prior-year period. Based on year-to-date performance, the acquisition of Mayfaire and our expectations for the remainder of 2015, we are increasing our adjusted FFO guidance to a range of $2.25 to $2.32 per share. The addition of Mayfaire is approximately $0.02 accretive to FFO based on the June acquisition date. This increase is partially offset by slightly higher G&A assumption of $57 million to $59 million for the year due to new personnel and consulting expense related to technology and process improvements. These improvements will streamline our systems and create efficiencies.

We are maintaining our same-center NOI growth assumption of zero to 2%. In order to reach the higher end of our NOI guidance range, we would need healthy improvements in percentage rent and additional temporary income, as well as further savings in operating expenses. As compared with the prior year-end, we expect occupancy to end the year 150 basis points to 200 basis points lower, in the range of 92.5% to 93.5%. Consistent with our practice, guidance does not include any future unannounced asset sales, acquisitions or capital markets transactions.

We continue to make solid progress in the transformation of our balance sheet. Since our last call, we have retired five secured loans totaling over $370 million using availability under our lines of credit. These pay-offs allowed us to add five high-quality properties to our unencumbered pool with rolling 12-month sales averaging approximately $385 per square foot. We have two wholly-owned secured loans remaining that will mature this year totaling $87 million. Given our conservative approach to utilizing floating rate debt, we anticipate issuing unsecured bonds later this year to reduce our line balance, subject to market conditions.

We are also in the process of refinancing a number our maturing joint venture loans. Our share of these loans in 2015 totals $202 million. Based on the current indication of spreads and benchmark rates, we anticipate achieving interest rate savings over the prior rates.

At quarter end, our debt balance of $5.49 billion represents a $140 million increase from year-end 2014 and a $169 million increase from first quarter. Over the past year, we have made significant investments in our portfolio, generating new source of EBITDA with the acquisition of Mayfaire Town Center, as well as funding our new development and redevelopment pipeline substantially with free cash flow and asset sale proceeds. At quarter end, our lines of credit were 35% drawn, providing us with more than $846 million of availability. Since quarter-end, we have utilized $323 million of additional funds to repay secured debt, reducing our available balance to approximately $520 million. All financial covenants are healthy, with a fixed charge coverage ratio of 2.2 times and an interest coverage ratio of 2.8 times, both flat with the prior year. Secured debt to gross book value declined to 35% at quarter-end from 40% in the prior-year period. Including the payoffs that were completed subsequent to the quarter end, secured debt to gross book value declined to 32% and consolidated unencumbered NOI represented 44% of total consolidated NOI.

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

Thank you, Farzana. Thank you, again. for joining us this morning. We are pleased with the progress we've made in leasing through the quarter and encouraged by the ongoing strength in retail demand and sales. We hope that many of you will be able to join us for our Kentucky Property Tour on September 10, where we will show off our three great centers in the Louisville and Lexington markets. Please reach out to Katie for further details. We are now happy to answer any questions you may have.

We will now begin the question-and-answer session. (Operator Instructions) Todd Thomas, KeyBanc Capital Markets.

Hi, thanks, good morning. Stephen, with regard to the other property sales that you discussed, I think the community and power centers that you might look to sell, to fund stock repurchases, can you maybe bracket what the net proceeds might look like from these sales and what kind of cap rates that you're anticipating, as you weigh using the proceeds to fund the stock buybacks?

Sure, Todd. Good morning. Yes, like I said, we've targeted the community centers and for disposition, a lot of those we hold in joint venture that we're looking to sell and it's a strong market for those assets today. We sold Eastgate Crossing for a 6-plus cap rate, and I think for these properties that we're targeting, the cap rate should be lower than that, and there's just a lot of demand for that type of product. In terms of a dollar amount, I'm a little hesitant to turn anything out there. But I'd say it's at least $100 million that we feel like we can generate, just given what we're targeting immediately and then we're looking beyond that, because like I said in the call, we've got the $200 million authorization now from the Board and we want to generate the funds that would give us the ability to move ahead with that, sooner rather than later and take advantage of where our stock price is because it's such a good opportunity now.

Okay. And then, switching over to leasing and as it pertains to the leasing strategy, I'm just thinking about rent versus occupancy as you backfill the vacant space. I'm just wondering, if there is a sort of general strategy across the majority of the portfolio that you're employing in and how you think about maximizing revenue in the context of setting rent and/or targeting occupancy.

Sure. I would say there are a couple of points, from a strategy point of view. And part of it also depends on the spaces that we're talking about. But we view this as it's definitely painful from a short-term, but it's a great opportunity for us to bring in retailers that we didn't have the capacity for or the space for before. And as we talked about, as Katie mentioned, we're doing a lot with H&M, we're opening 10 stores with them, we're doing a lot with ULTA Cosmetics, those are two of the hottest retailers out there. So these bankruptcies give us an opportunity to create spaces to accommodate some of these larger users like that. Restaurants is a big priority for us across the portfolio, both in the malls and at the front of the malls. And again, we're looking to these bankruptcy spaces and it involves moving our different tenants around, we might move one tenant to a bankrupt space to generate a space that we can accommodate a Cheesecake Factory or a BJ's or another retailer, another restaurant like that. So there is a lot of strategy to it and a lot of moving pieces that we try to look at to maximize this.

Also, from a profitability point of view, we're generating positively spreads comparable to the lease spreads we're seeing overall. So that's something that we're also looking at. And then, we're also broadening the mix and we're adding -- in addition to boxers, we're adding entertainment users like Dave and Buster's, even fitness centers and complementary users that have expressed an interest in going to the mall and giving the demographic changes, those are important part to the mix.

Okay. I guess I'm curious, could you reduce rents or increase concessions a bit more and increase occupancy much quicker across portfolio, is the demand for the space there, but it's that you're holding the line on rents a bit?

It's a balance, it's a good question. We are really happy that we've got two-thirds of the spaces that we really have only had vacant for a couple of months that are already either leased [out for signature] under negotiation. So we think we've moved very quickly and with the sense of urgency to accomplish that. The other thing is, we've got temporary uses that we're putting in these spaces and we'll be able to generate income from that, especially as we get into the holiday. So we're balancing trying to use this as an opportunity to upgrade our quality, bring in the right tenants, but we're certainly cognizant of NOI and we're pushing that hard and, like Farzana said, we're pushing every way we can to get higher into our range for the year for NOI growth.

Okay, great. And just last question for Farzana. Can you just talk a little bit about the G&A expense increase that you're anticipating now? Seems like these are new initiatives since last quarter. Last quarter, you mentioned that you're comfortable that G&A expense would moderate perhaps throughout the balance of the year. What changed and what specifically are these technology and process improvements?

Hi, Todd. We had baked in some G&A expense. However, we have embarked on a new technology platform, as well as improving our back office support. So in order to accelerate that, we have brought in consultants to help us. Part of it is not capitalized, so that's the expense we are incurring. But we think that this investment is for the future. It will bring in a lot of efficiencies and these are one-time expenses that will not replicate next year. So that's really where we're spending the money.

Okay, thank you.

Thanks, Todd.

Christy McElroy, Citi.

Hi, good morning, everyone. Just on Mayfaire, when you bought the mall, how did you think about the tradeoff between doing that deal versus buying back your own stock at that time, sort of investing in a portfolio you know well, which trades at a much higher implied cap rate, and we think has provided a much more attractive value proposition for you for that capital at that time? And you mentioned that you wouldn't want to borrow to buy back stock, but you did lever up a bit to buy Mayfaire. So just wanted to get your thoughts on how you thought about each option from a capital allocation perspective?

Sure. Good morning, Christy. Well, first, at the time, we didn't have the authorization to buy back stock. So now, we have that. So we view that as a very positive step. And we really don't view it as an either/or, and I don't want to isolate Mayfaire because that's not the only example of growth that we've shown. We've invested in the Sears buildings that we redeveloped at Fayette and CoolSprings and those have been incredibly successful. We invest in the outlet centers and the other one we opened last year, Bluegrass, has been incredibly successful.

We've invested in other anchor redevelopments and expansions, and we invested in Mayfaire. And from our point of view, it's consistent with our strategy of upgrading our portfolio and generating long-term growth; and Mayfaire is an opportunity, like I talked about during the call, that we were very excited about for a lot of the reasons that I outlined and we continue to be more excited about it now that we own it and we get into it and we're into it about the upside opportunities that that asset will generate. Now that we have an authorization in place and where our stock price is, like I said, that's a compelling investment for us as well. And we've looked at some other sources of proceeds that we hadn't previously talked about as a way to fund that.

And given that the equity portion isn't fully funded yet on Mayfaire and thinking about the community center or even mall disposition proceeds going forward, will the priority be to sort of pay down the line before buying back stock? I am just trying to get a sense for sort of how much you need to sell before you can comfortably start buying back stock given the current leverage levels?

It's a balance. We're not going to just put the funds towards one or the other. We're watching our credit metrics. One of the benefits of selling some of these joint venture centers is the debt unconsolidated. So it doesn't really impact our credit metrics, and we have that flexibility to go ahead and make those sales without it impacting leverage. And like we said, we've raised $52 million of equity and over time through these proceeds want to pay down debt so that the Mayfaire acquisition is leverage neutral. So you're right, there are different uses and we're not just putting the next dollar to one, we'll look at where we are overall and prioritize. I will say this though that given where our stock price is that, we think it's an important opportunity for us to take advantage of and there is a huge disconnect between where the market's valuing our stock and the value of our assets and so we want to take advantage of that while it's there; and over time, we would expect the stock price to go up and so we want to take advantage while it's where it is now.

And then, just lastly, Farzana, you mentioned a likely bond deal later in the year, to help pay down the line. Can you provide just sort of a sense for timing and size and where you think you could price the deal?

Sure, Christy. Probably later in the year, we will target anywhere from $300 million to $400 million in bond issuance; and pricing is, of course, contingent on where the treasuries are and we look at different maturity schedule, whether we do a seven or 10, we'll just look at the investor appetite and where we can best trade. So it will come later in the year.

Thank you.

Thank you. Christy.

Tayo Okusanya, Jefferies.

Yes, good morning. Just along Christy's line of questioning, again, the move more towards the unsecured market right now, is that really more of a focus on just having more unencumbered assets or are you really seeing a big difference between what kind of pricing you can get on the unsecured markets relative to using mortgage debt?

Hi, Tayo, how are you?

Hi, Farzana.

Well, as you know, we are moving towards the unsecured balance sheet. So we have been issuing bonds every year. We just completed payoffs of over $370 million and secured debt on our lines and our intention is to, later in the year, issue another unsecured bond to take down the lines of credit. So give us more availability on the line. So, that's how we're funding it. The joint venture properties, we will be putting secured debt on it, the one that is coming up for maturity is Oak Park Mall, that's the biggest loan we have. So we're in the process of getting that loan buttoned up and we should announce that pretty soon. So that's where the secured debt will be placed. However, everything else will be unsecured borrowing from a bond issuance.

Okay. And then when I start thinking about 2016 and the mortgage debt that's coming due, should we be thinking about all of that moving to unsecured as well?

I'm sorry, can you repeat that again?

The 2016 mortgage debt that's coming due, how should we be thinking about that? Is that going to be refinanced as a mortgage debt or is it more the same idea of going to the unsecured markets to pay down those assets?

Yes, it's the same idea, wholly-owned assets will be paid off through lines of credit and then we'll issue the bonds. Our unencumbered NOI has significantly gone up and our secured debt ratio has significantly come down. So the bond guy should be really, really happy; and we should be able to go out and issue bonds later this year and again next year.

Okay. Very helpful, thank you.

Jeff Donnelly, Wells Fargo.

Good morning, folks. I guess first, on the share repurchase, I was just curious, are the rating agencies receptive to allow you guys to increase your leverage even in some small amount to execute on the repurchase plan that you guys just talked about?

Sure, Jeff. The rating agencies understand when we find it compelling to buy back our stock. We have to be cognizant of the credit metrics and that's what we will be doing and we are doing. We believe we have sufficient room. We know how we will be buying back the stock. The unconsolidated sale of properties will give us the proceeds to buy back the stock and we will also balance the leverage. So it's a balance between buying back stock and paying down debt, that will keep us pretty much well within our credit metrics. So it should not be a surprise to them, they understand and they also know that we will be balancing and will not be impacting our credit metrics.

So in other words, they are so much flexible and not taking a hard line on metrics, I guess is the better way to put it?

Yes, exactly.

And to switch gears, I guess I just want to be clear on the second-half leasing and the progress you've made thus far on your occupancy objective for year-end 2015. If I look at the occupancy goal that you have, I think that's about 175 basis points to 200 basis points of growth from where you finished this most recent quarter. I think you said the lion's share of the new leases that have already been signed take place in the back half of this year. Is it fair to say you're already about one-third of the way to your goal?

Yes. I think it's a little higher than that just in terms of leases that are signed, but it's just a timing issue. I mean it's not just the bankruptcies, it's our leasing activity that we have budgeted which kicks in primarily in the third and fourth quarter anyway. So we're always going to be lower this time of year from an occupancy point of view in the first and second quarter and then it kicks in to the third and fourth quarter. The bankruptcies is really the biggest impact on us and that 150 basis points, 175 basis points is maybe -- it is roughly I guess the third of the total that we are expecting to come online, that will get us there.

I guess that's what I'm kind of trying to build up to. So how much further do the leases that you have under various stages of negotiation like as you said, it is kind of a timing issue gets you to that objective? I'm just trying to think of between what you have signed and what's in negotiation. As of today, do you think you're already 50%, 60%, 70%, of the way there, I'm just trying to figure out?

Yes, I know we think we're roughly two-thirds of the way there in terms of replacing those stores and it's the timing question about when they open.

Okay. And do you have an estimate of the capital you'll need to invest to facilitate the leasing in the second half to achieve that?

Yes, I mean there is some capital, but it's not material. Most of these spaces are in move-in condition. And so the retailers are coming in and there is minor [pen] allowance, but it's really not significant and shouldn't change our estimates for the year.

And just one last question is, looking back at, I guess year-end 2014 and then ultimately the bankruptcies that you experienced in early 2015, are there any signs that maybe in hindsight, you could sort of take a lesson from if you will or learn from that you say GM? As we look forward to 2016, you think about closures that kind of gives you some feeling for what that future is going to look like or I don't know, I'm just trying to think of like is there a way for you to forecast what might be coming down the road?

Well, we have a list of stories that we're watching and we obviously know about Gap and what their plans are for the year and Gap actually is not -- I mean it's hitting us but not that significantly. We have four Gaps that are going to be closing and they'll close in first quarter of 2016. And so it won't be an economic impact from that point of view. We've reduced our exposure there. So Gap, we have lower exposure; Abercrombie, we've closed stores and reduced our exposure to them. So we've been looking and proactive in terms of replacing stores.

The biggest challenge this year was that the bankruptcies typically bankruptcies, probably 50% or so of the stores end up staying open. In this case, virtually 100% of the stores closed for all these stores that went out of business or they're closed up. So we had a lot more vacancy than we have in the past from bankruptcies and that's probably a trend that we need to watch going forward and we are watching because we just have to be more proactive and be ready for these stores as they get in trouble to close up on us.

Right. Okay, thank you guys.

Thanks, Jeff.

Andrew Rosivach, Goldman Sachs.

Good morning, everybody. I wanted to throw out an idea that I had to. Do you think your organization, I'll tell you why, maybe your Board would benefit from someone in the investment community, if you look, like just examples, Jim Hoffman is out there if you ever look at Regency's share price since [David O'Connell] got there, it's been really successful and I'd just ask as Mayfaire wasn't well received, as many peers have highlighted, so far, your buyback has been received with some skepticism, and I think if you had kind of a learn in from our investors counsel who is either signing off on these actions or not, the market might embrace it more.

Andrew, hi, good morning. We're always open to suggestions as you know and so we appreciate that. And I will say we don't do anything in isolation and we've got a really strong Board with a lot of experience, both in the finance, public market. And most of our Board members sit on other boards. So they are in touch with what's happening, and so I think, we didn't take our share repurchase plan lightly at all or do it impulsively. A lot of people feel like it took us too long to do it, but we felt like we need to go through a thorough analysis and that's how we arrived at the amount that we did and we want to have a plan to execute on as well.

And your latest Board member coming from Target obviously, you guys make an effort to upgrade every time. But just curiously internally, prior to Mayfaire, was anybody saying that this deal wouldn't hunt when it went to the market?

Yes. We have a lot of internal debate on every decision that we make. There is nothing unilateral and our Board is closely involved and we don't look at things on a short-term basis. Like we said, we're looking to position the Company best for the long term and Mayfaire is an important part of that growth, as well as the other moves that we've made in the other assets that we've redeveloped and developed and added to our portfolio. And even the transformation plan, that was a three-year plan and that's just going to take, we wish things would happen faster, but nature of the beast in real estate is that it's not an immediate feedback or immediate results type business.

And then, just one quick gear shifter, you guys have replaced a lot of anchors, a lot of the mall anchors that the market has been scared of for a while with traditional big box. We've heard from you and also the big box players that the [B, big-box] market is open and liquid. In terms of dispositions or the CMBS market, when to say a Randolph or a Northgate who have a lot of big box tenants in them really get classified rather than a mall being just a strip mall with a roof.

We would look at that. I think there's still some -- it's not a pure play from a box point of view and that's really what the institutional investors want. So because it's got a mall components, a little bit of a hybrid, that does help us and Randolph is a great example where JCPenney closed and we've got Ross and ULTA under construction now and that's going to help us sell that asset without those boxes coming in and without the theater and the other boxes that we've added, it wouldn't have the same appeal to buyers, but it's still not institutional quality, and given the CMBS market and where they're, it's not something that is financeable in CMBS world, that's more of an alternative or a bank.

Alright. So, if you basically resolve the Sears or the Penney's and then you bring in a credit power center tenant that doesn't get your financing.

That's right.

Carol Kemple, Hilliard Lyons.

Good morning. Can you talk about your second quarter sales this year? How will those compare to second quarter of last year on a same-store basis?

Hi, Carol, that was a real highlight for us. Sales were up over 4% for second quarter, compared to last year. Our sales year-to-date are up 3.7%, I mean, I'm sorry rolling 12 months are up 3.7%. We're seeing good growth in a number of categories throughout the mall. And so we're very pleased with the sales results. We feel like with the economy improving that we're going to continue to see good sales as the year progresses.

Okay. And then, of your assets that you're trying to sell, the potential buyers that are looking at those, but are making a bid, are they giving you any reason why? Is it asset quality, is that financing, what's keeping them from jumping in and making a bid?

Sure. Well, that's an important question. And there is lots of reasons. We've had a combination, we had some properties under contract earlier in the year, where the buyer wasn't approved by the CMBS servicer to take on the properties. So where there is financing in place, getting the approval from the lender, for a new buyer, is a challenge that we faced. Yes, buyers, like I said, they are concerned, where there's anchor uncertainty, anyone understand exactly what the plan is to the point where we have replacement under construction. So that, that's a big consideration and there is also, we're not dealing with institutional quality buyers were -- with regionals, with local buyers and they have personal circumstances that come up, that we've run into, that are considerations. So, it's just, it's a more challenging buyer pool that we're working with, that being said, we don't mean think specific, that we're announcing today, but, we are optimistic, with discussions and negotiations, that we're having and we're committed to making this disposition program happen.

Okay, thank you.

Thank you.

Haendel St. Juste, Morgan Stanley.

Hey, Good morning. Thanks for taking my questions. So I guess understanding that lower leverage threshold for some of the smaller private buyers is one of the headwinds that you're facing, in selling some of your lower-tier malls, given there, I guess the lack of ability desire, for that cohort to right to acquire, equity checks. So I guess, given that headwind, is seller financing something that you have or would consider?

We have done seller financing on a short-term basis and at least one project. So it's something we would look at short term, but from a long-term point of view, it really doesn't accomplish our goal, unless we feel highly, highly confident that we would get paid off and some of these proposals that we've gotten for seller financing are just -- they're not that credible. So, we look at it, but we're pretty skeptical about it.

Got you. And maybe it's a bit early and maybe I missed it earlier as well, but can you talk a bit more about the redev opportunity at the Mayfaire asset you just acquired? Do you have a sense of potentially the total number of dollars and/or the estimated yield of that opportunity?

Yes, well, like I said in the script, we have about 75,000 square feet to 100,000 square feet of new expansion to Mayfaire that's approved and that we're working to put in place as quickly as possible. I can't tell you the exact dollar amount, because, it depends on what kind of density we do and what kind of uses, whether it's restaurants or retailers or boxes and how that gets developed. But I can say, the returns would be accretive and they will be high-single digits, similar to what we've been getting on other expansions that we've been doing throughout the portfolio, hopefully even better. Rest of 20,000 square feet of vacancy that was in place when we bought the center and we're looking to backfill that and fill that on a near-term basis and that will help our returns. So there is really a great upside to Mayfaire. Sales are going in the right direction. We have opportunities to add new restaurants and to bring them in. So we're very positive and optimistic about its future.

Great. One last one. So looks like you've been able to sell some community centers here over the last year, not having much progress with the malls obviously, but given your interest perhaps of selling a few more of those centers, maybe more than you might have contemplated a year or two back and potentially using some of that proceeds to buy back the stock?

Yes. You probably missed it, but we talked about that a [lot] earlier. We are targeting some of our community centers for sale and a lot of them are in joint venture, but that's definitely something that we're looking to do.

Okay, appreciate it. Thank you, guys.

Thank you.

Christy McElroy, Citi.

Yes, good day, it's Michael Bilerman. Stephen, can you just walk through sort of the timeline in terms of the process on Mayfaire? When did you first get to book on the asset? When did you sort of have a non-binding LOI? When did you put down a hard deposit and sort of how big was that deposit relative to the $200 million purchase price? And then, ultimately, you closed in mid June, but just walk through a little bit of the timing from when you got presented with the opportunity and the hurdles to ultimately closing?

Hey, Michael, good morning. I'll tell you, I don't have the exact dates, but as you know, these properties could take a long time from when they're first marketed to when they close. And we actually have been very -- we know the owners of this center that we had a relationship with; one of them is actually an owner of refuelers which is a very strong relationship that we have in our leasing portfolio, work with them closely. So we've done these folks for a while. We've had conversations with them. They talked about refinancing or selling. They eventually decided to take it to market, but this is a property we had tracked for a number of years as a perfect fit with our portfolio, and when you go through a process like this, it's extended. And we signed our contract well before we ended up closing.

Right. I'm just trying to understand sort of when -- I know the Board has to approve every deal. I think it was above $40 million. So I think in response to Christy's question, you sort of didn't have the authorization to do it. I got to assume that in the discussions about putting $200 million of capital out without any equity that someone within the Board would have said, what are our alternative uses of capital, should we think about putting a stock buyback? And the reason I asked you about the dates is I am just trying to understand, what point did you go hard on this asset, where you had $5 million at risk or some amount of money that you then have to make a decision about whether you walk away from it, but whether you go forward and close, and just recognizing the stock today is one that attracts you understand the timing of when ultimately decided to go forward with this deal?

Yes, I now hear you and all these. Yes, we don't just go to our Board with something out of the blue. They are aware of things, they're working on well in advance and it's been discussed for a while and at some point it was voted on before we win another contract. Like I said, I don't have exact dates and I'll think it's appropriate to get into exact dates, but it we get through that process and timing and it's $192 million asset which out of our entire company is a small percentage and we've look at -- we don't look at it in isolation. We don't look at anything in isolation. But our Board also at the same time, every decision is made very carefully and judiciously and so that's we own it and we're looking ahead and we're excited about where we're going and we think it'll help our portfolio, like I said, for a lot of different reasons.

And then thinking about the community center sales, how many of those are joint ventures versus wholly owned and in the joint ventures do your partners have right of first refusal or right of first offer at all, as we think about the marketing processes of those assets?

Yes, the partners are supportive of selling these assets and so we would be doing that together with them.

And so, how many of the sales that you're targeting are ventures versus wholly owned?

It's probably half-and-half. And we haven't gone out there and said, which center is for selling? So I can't tell you exactly what the numbers are, but we have some that are wholly-owned that we would sell. The ventures are probably the larger ones in terms of the proceeds that they would generate, and those are the higher quality from an institutional point of view that we think will attract lower cap rates.

And is there any leverage on community center portfolio and how much leverage is on it today?

Some have leverage and some down. On average, it's definitely less than 50%, but yes, that's --and the proceeds that we're talking about raising obviously are net of leverage.

The $100 million is just a net to you, right?

Correct.

And that would effectively fund -- that first $100 million would fund effectively Mayfaire, the equity to be leverage neutral and then the next round of sales would then go towards stock buyback. Is that a fair way to think about it?

Well, we've sold -- with the assets that we've done this year, we sold $52 million of equity and the $100 million is really just a conservative starting point. We're looking at other asset opportunities to monetize; and, like I said, we're not saying we're going to walk a line between paying down leverage from Mayfaire and just general and also the stock buybacks.

I didn't get the sense that when you came into this year that you are at your leverage target yet. So I had sort of viewed the $50 million as a deleveraging process, not a big $50 million to reinvest. Maybe I was thinking about it the wrong way, but it still seems that you are at the higher end of where you wanted to be from a leverage perspective. Is that not right?

I'd say there's -- we long-term would like to be lower from a leverage point of view. But we're within the ranges of our investment grade rating on where we are now. So we don't feel pressured to de-lever and given the opportunity with our stock, we want to take advantage of that.

Okay, thank you.

Okay, Michael.

Jeremy Mets, UBS.

Hey, I'm on with Ross. Stephen, you talked about the bankruptcies as an opportunity. You have to upgrade the tenancies and also the capital, the re-lease spaces wasn't -- or won't be material. But there is a large jump in TIs this quarter is over 50% up over last year and it had appeared that you did a fairly similar amount of leasing volume. In fact, as I look at it, it looks like you actually did more new leasing this quarter, so, which typically requires higher TI dollars. So I'm just wondering if you could kind of talk about what was going on this quarter and how you think about weighing TIs versus showing the market positive rents [for a tier].

Yes, I mean, it's really timing and this is TIs paid and so those are typically paid not in -- after the store is opened. So that leasing was done a year to 18 months ago, for the most part. So it's not really a direct comparison and we're feeling that our TIs are going to be consistent this year with what they've been last year and the range for a total CapEx will also be in the same range of, roughly, $125 million, like our run rate has been for the last couple of years, including CapEx and renovations, [internal] allowances.

Okay. And I guess just thinking about the leasing spreads, they were down for the four straight quarter. So, is this just a reflection of lease mix? How should we think about leasing spreads here as we look at the rest of 2015 and into 2016? I wonder if maybe they should accelerate as some of these weaker vacancy spaces maybe come online.

Yes, I mean the renewals, it's really more of a higher mix of renewals and as we come into later in the year, we'll have new leasing and so we expect to see some improvement there.

So back to maybe double digits?

That's where we're -- that's the goal and that's where we're pushing to be.

All right. And I think Ross has a question as well.

Okay.

Yes, I think two quickies. Do you have what your occupancy cost has been for the trailing 12 months, just curious where that number has been trending?

Yes, Ross, we just reported, at the end of the year, and it's right at -- it was 12.6% and it stayed in that range. I mean, we've had some sales increases. So that'll help support it a little in terms of bringing the occupancy costs down and give us some room to generate some rent growth.

Okay. And then, Farzana, on the balance sheet, I thought I heard you say, you're going to do maybe $300 million to $400 million of unsecureds later this year. I guess my question is that with the $400 million out on your line and another $400 million plus of mortgages coming due for the remainder of the year, why wouldn't you be doing a bigger offering to clear out the line?

Yes. So Ross, we have about $800 million availability at the end of June 30. So subsequently, we paid off another $300 million, some. So right now, we have $500 million available. So if we go out and do $300 million, $400 billion of bond financing, then we should be back -- our line should be back down to approximately $500 million. So right now, (multiple speakers) we should be back down to the balance we have today as of June 30. So if we do $300 million, our balance will be about -- we will have availability of $800 million. If we do $400 million, we will have availability of $900 million.

Got it, okay. The last one from me, how many vacant anchor boxes do you guys currently have, if I just cut through all the activity that you've got going on?

There is a couple that we have that are vacant, but we don't own them, that were former JCPenneys. And then, we have one Sears building that we own that we have a redevelopment underway and we're working with a couple of possible retailers. And of the other six JCPenneys, three are under construction and three are under development. So those are still vacant at this time. So to total it up, it's about six.

Got you. Thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Stephen Lebovitz for any closing remarks.

Thank you, again, to everyone. And like I said earlier, hopefully, you can join us in Kentucky in September. Take care and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.