CBL & Associates Properties, Inc. (CBL) 2015 Q3 法說會逐字稿

Good morning and welcome to the CBL & Associates Third Quarter 2015 Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (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 Investments. Please go ahead.

Thank you, and good morning. We appreciate your participation in the CBL & Associates Properties, Inc.'s conference call to discuss third 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 will 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 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 the 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. Our third quarter results were in line with our guidance and expectations as our leasing and sales results produced tangible evidence of the resilience of our portfolio. Consistent with the low-end of guidance indicated last quarter, same-center NOI for the quarter was flat in the total portfolio and down 80 basis points in the malls. FFO was in line with consensus at $0.56 per share, an increase over last year's $0.55 per share. Our leasing progress was notable this quarter. As a result of the strong retail demand at our properties, we made excellent progress re-leasing spaces vacated due to bankruptcy in the first quarter.

To-date, of the 175 stores closed, we have 85 leases executed or out for signature and an additional 41 leases in active negotiations. For comparable space, lease spreads have been in line with the portfolio average. We have been aggressively opening replacement stores as early as possible and as a result, made significant progress in improving occupancy over last quarter. Overall, portfolio occupancy ended the quarter at 92.4%, an increase of 140 basis points compared to last quarter and down a 130 basis points compared to last year.

Same-center stabilized mall occupancy was 91.6%, an increase of 170 basis points compared to last quarter and a decline of 180 basis points compared with last year. While the NOI impact for the quarter was limited due to timing of the openings, the revenues should benefit the fourth quarter and 2016.

Retail demand leasing activity and lease spreads remained strong at our properties. We executed more than 413,000 square feet of leases in the malls during the quarter. The average increase in gross rents for new and renewal leases was 11.1%. Spreads on renewal leases were 6.1% and new lease spreads remained high at 24.9%.

Retail sales for the quarter were excellent, with continued healthy growth. Sales during the third quarter grew 4.3%, bringing our rolling 12 months same-center sales up 4.2% to $371 per square foot. Predictions for the holiday sale season are generally in the 3% to 4% range and we expect similarly strong results in the CBL portfolio.

Before I turn the call over to Katie, I would like to make a few comments on our disposition program. In April 2014, we announced our portfolio repositioning strategy, which included the disposition of 25 malls, primarily through sales, as well as certain lenders transactions in a two-year to three-year time frame. To-date, we have completed four transactions and have two others that are in process.

We have dedicated significant internal effort to this program. However, the market for disposing of lower sales productivity malls has deteriorated in 2015 as volatility in the financing markets has become a major obstacle. Given this current status, we no longer expect to complete the disposition of the remaining 19 properties by early 2017.

To be clear, disposing of these assets remains a major corporate priority. However, the timeframe we originally announced is no longer realistic and has brought disproportionate focus on this portion of our portfolio. Accordingly, going forward, we will only report on our disposition progress if transactions are completed.

To put some perspective on this matter, these assets represent less than 10% of our Company's total enterprise value and less than 15% of our NOI. Also I want to highlight that the remaining sale portfolio of 19 malls is encumbered by approximately $550 million of non-recourse debt and is generating substantial cash flow above the debt service. We're utilizing this free cash flow to invest prudently in value-added redevelopment expansion projects at accretive returns, growing EBITDA and creating value. And going forward, we should benefit from improved NOI in this portfolio as we make progress backfilling vacant spaces from the bankruptcies earlier this year. Acquisitions are not on our radar today as a capital use and we are very selective in our new developments requiring strong returns and reducing risks through conservative pre-leasing thresholds.

As announced last quarter, we have also stepped up our dispositions of community centers and non-core assets with deleveraging as our preferred use of proceeds today. The power and community center disposition market is very strong with deep institutional demand. We are marketing a handful of wholly-owned and joint venture centers and have made significant progress on several transactions.

Subject to any necessary loan assumptions, we anticipate making announcements for year-end and an early 2016. We anticipate raising net equity of at least $100 million. Strengthening our balance sheet is also a major corporate priority.

As Farzana will discuss in a few minutes, we recently announced several major financing transactions, including the extension of our unsecured credit facilities, a new term loan and two new secured loans on joint venture properties. The investment-grade rating, recently obtained from S&P demonstrates the progress we have made improving our balance sheet and we are pursuing additional transactions to take further steps in this direction.

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

Thank you, Stephen. Stephen mentioned, investing net free cash flow in the redevelopment and expansion of existing assets provides us with attractive risk-adjusted returns and enhances the growth rate of our portfolio. A great example of this is the Sears Redevelopment in CoolSprings Galleria, which we opened in May. This project includes American Girl, H&Ms, Cheesecake Factory and Belk Home with additional stores and restaurants opening soon. The vibrancy and life that the redevelopment has delivered to CoolSprings Galleria has generated strong sales and traffic increases.

In 2015, we are adding more than 20 boxes in junior anchors, with several grand openings celebrated recently. We opened four H&M stories during the third quarter, DICK's Sporting Goods and ULTA opened in the former JCPenney space at Janesville Mall in Janesville, Wisconsin. In October, we opened a new 50,000 square feet DICK'S Sporting Goods at Sunrise Mall in Brownsville, Texas.

Several additional openings will take place during the fourth quarter, adding more excitement and appeal for the holiday shopping season. Five new H&M store openings will be celebrated across our portfolio later this year. At Kirkwood Mall in Bismarck, North Dakota, a 13,000 square feet freestanding addition is under construction. We are redeveloping a portion of the Sears Store at Brookfield Square in Brookfield, Wisconsin and two new restaurant district opening in November.

Next month Dunham's Sporting Goods will open a new 88,000 square feet store in the former Sears location at Regency Square in Racine Wisconsin. And in November, we will celebrate the grand opening of second phase expansions at two of our outlet centers. Many of you who joined us on the Kentucky Property Tour were able to see the construction progress on the second phase of The Outlet Shoppes of the Bluegrass, the 53,000 square feet expansion include H&M, THE LIMITED Outlet and several other brands.

In Atlanta, the 33,000 square feet Phase II expansion mall includes Gap and Banana Republic. Earlier this month, we opened the Phase II of Fremaux Town Center in Slidell, Louisiana, our joint venture project with Sterling Properties. The 280,000 square feet project is anchored by Dillard's and includes additional fashion oriented shops such as Ann Taylor LOFT, Chico's, Aveda and Francesca's. Including the 100% occupied Phase I, which opened last year, Fremaux Town Center totals more than 620,000 square feet and is well located with a heavy density of residential, office and hotels.

In March 2016, we will open our second joint venture project with Sterling, Ambassador Town Center in Lafayette, Louisiana. The 438,000 square feet center will be anchored by Costco, DICK's Sporting Goods, Field & Stream, Marshalls, HomeGoods and Nordstrom Rack. The project is currently 95% leased or committed.

At Randolph Mall in Asheboro, North Carolina, construction commenced on a new Ross and ULTA in the former JCPenney location. Openings are scheduled for summer 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. As Stephen mentioned, adjusted FFO for the quarter was $0.56 per share, an increase over $0.55 per share for last year. FFO for the third quarter reflects positive contributions from new properties, including Mayfaire, Fremaux Town Center and other new openings, partially offset by the dilution from the community centers and malls sold earlier in 2015. Strong retail sales have contributed growth in percentage rents of $0.8 million. And other major variance in the quarter was lower interest expense of nearly $4 million or $0.02 per share, resulting from reductions in higher rate secured debt.

G&A as a percentage of total revenues net of litigation expense was 4.8% for the quarter, compared with 3.7% in the prior year. However, G&A in the prior year was lower than our normal run rate due to $1.7 million reversal of certain regional expenses in the third quarter 2014. G&A in the current quarter reflected the increased personnel and consulting expense related to the technology and process improvements that we outlined last quarter. We expect full year G&A in the range of $57 million to $59 million net of litigation expense.

Our cost recovery ratio for the third quarter was 100.8% compared with 99.8% in the prior year period. Same-center NOI in the quarter was flat for the total portfolio and declined 80 basis points in the mall portfolio. Year-to-date same-center NOI growth was 30 basis points with Malls down 30 basis points. Revenue growth of $2.1 million in the same-center pool was offset by a $2.1 million increase in expenses. The majority of the expense increase was driven by a $1.8 million unfavorable variance in real estate taxes, primarily due to increased assessments.

Based on year-to-date performance and our expectations for the remainder of 2015, we anticipate achieving adjusted FFO at the mid to high-end of our guidance range of $2.25 to $2.32 per share. We anticipate same-center NOI growth for the portfolio near the low-end of our range of 0% to 2% for the full year.

While we have been working to offset more of the bankruptcy loss suffered this year. The income from re-leasing that space is commencing too late in the year to achieve a higher growth rate in 2015. We are projecting occupancy to end the year 150 to 200 basis points lower than 2014, in the range of 92.7% to 93.2%. Consistent with our practice, guidance does not include any future unannounced asset sales, acquisitions, or capital markets transactions.

Last month, we were pleased to announce that we had received an investment-grade rating from S&P, which recognizes the many significant improvements to our balance sheet. In addition, we recently announced several financing transactions that strengthened our balance sheet by reducing our overall borrowing cost and lengthening our maturity schedule.

We closed on two separate 10-year non-recourse loans on two properties owned in 50-50 joint ventures, improving the weighted average interest rate by 178 basis points. The loans were secured by Oak Park Mall in Kansas City, Kansas, and the outlet shops at Gettysburg in Pennsylvania.

We recently announced the extension and modification of our three unsecured credit facilities with total capacity of $1.1 billion, reducing the interest rate and facility fee by an aggregate 25 basis points and extending the maturities out several years. In addition, we entered into a new $350 million term loan at a spread of 135 basis points over LIBOR, which we used to term out a portion of our line balance.

Overall, we increased our facilities by $150 million.

As most of you are aware, we elected not to move forward with our recent offering of unsecured bonds, due to unfavorable mid-day market volatility on the day we announced the deal. However, the term loan that we recently closed was a great source of attractively priced capital and our other alternative sources that are available, which we are actively exploring.

Our extended maturity schedule provides us with a flexibility to be patient and wait for more favorable market conditions. As we look forward to our capital needs over the next year, we have a manageable maturity schedule. In 2015, we have three properties remaining with near-term debt maturities. Gulf Coast Town Center have been placed in receivership and we are hopeful that the foreclosure will be completed before year-end.

Triangle Town Center and Town Place are currently encumbered by a non-recourse loan. Earlier this year, we entered into an agreement to sell the property into a 15/85 joint venture. A new loan for this property was not available at satisfactory terms. So with our prospective joint venture partner, we have entered into discussions to restructure the existing loan. If successful, CBL would retain a 10% interest in the venture, as well as management and leasing for the property. If we're not successful in restructuring the loan, we expect to convey the property to the lender.

The $28 million loan secured by Hickory Point Mall is the final loan maturity in 2015. We're in discussions with the lender to restructure the existing non-recourse loan. As we are in active discussions with the lenders for both Triangle and Hickory Point Mall, please understand that we are limited to the comments I've just shared.

In 2016, we have $264 million of loans maturing that are secured by wholly-owned assets, excluding $140 million non-recourse loan secured by a non-core asset. We have very few capital requirements until the second half of 2016, with the majority of the 2016 loans maturing in August or later. Our development and redevelopment pipeline is fully funded through free cash flow or project-specific construction loans.

We expect to be back in the unsecured bond market and we have the flexibility to be patient to wait for the right market conditions. And as Stephen mentioned earlier, the community and power center asset sales that we are selling are receiving strong interest, which will generate additional funds to reduce debt.

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

Thank you, Farzana. As we move towards year-end, CBL is focused on strong leasing and enhancing value through accretive investments. We believe this focus will position us for growth in 2016 and beyond. In addition, we are continuing our efforts to dispose of lower productivity assets and as I stated earlier, we'll keep our investors in the market informed as transactions occur.

Thank you again for joining us this morning. We look forward to seeing many of you at NAREIT in Las Vegas in a few weeks.

(Operator instruction) Todd Thomas, KeyBanc Capital Markets.

Just first question, Stephen, in your comments about, no longer focusing on the portfolio repositioning program that you outlined in 2014, I think you mentioned that the market was not supportive. Was the financing market -- the CMBS market that you're referring to or was it more the fundamental and operational environment?

It's really the financing markets, like I said, that it deteriorated this year, the CMBS market. And the malls that we're selling are stable malls. Mall assets are difficult to buy with cash, at least the ones that we're selling, because the values are $30 million, $40 million, $50 million. So, because the financing markets and CMBS markets have deteriorated for these assets, it's been difficult for buyers to perform. And that's delayed the progress and that's really the biggest reason that we haven't been able to get more done in a quicker time frame.

Okay. And then, you talked about, still moving forward though, with some of the power and community center sales. The $100 million of net proceeds or net equity that you're expecting those sales to generate, is that something that you expect to happen before the end of the year? And then, last quarter you talked about potentially looking to repurchase stock, is the use of proceeds still to fund stock repurchases? Is that still on the table?

Yes, I mean, just to clarify, we're still working to sell the pool of properties in 19 malls that are left. It's not that we've said we're not going to sell them or try to sell them and the financing markets change and because CMBS is not available, there is different kind of lenders that have come in, the loan to values are more conservative, so there has got to be more creativity. But we're not backing away, we're just saying, given our progress to-date, the timeframe is not realistic. I don't think we're saying anything that people don't know. Just given what we've done to-date, but I just want to make that clear that we're not stopping the effort to sell those properties and we think it's the right thing to do.

And then as far as the other sales of power and community centers, I don't think we'll have it all done by year-end, it will go into the early part of 2016. But we feel confident given where we are with these transactions that will get done and it will raise our level of capital.

And then as far as the stock repurchase program, we have it in place. Our stock is attractive, but we're very cognizant of our balance sheet, and given priorities today, deleveraging is higher on the list. Then stock repurchases, but if we were able to do sales that generated enough progress on deleveraging and would allow us to buy stock, then we would like to do that as well. It makes a ton of sense, it's very compelling given where we are trading from a discount to NAV.

And then just last question, I guess, sticking with that and sort of given where your cost of capital is today, are you rethinking your return hurdles on community center or mall redevelopments, have you raised your required returns to move forward on new initiatives? How are you thinking about some new start as we think about 2016?

Sure. Well, we look at each one individually, because it's a function of the asset. And for example, in our supplemental, the return on CoolSprings, that redevelopment was lower than it would be on the Tier 3 properties, because the cap rate on that property is a better price asset. So we're creating value -- it's accretive to the value of that asset. But in general, the answer is, yes, we're definitely taking a hard look at every new project, a harder look and looking for higher returns and being very cautious in terms of how we deploy our capital.

Michael Bilerman, Citi.

In terms of the same-store, I guess if I heard you correctly, was the delay in leasing up the space from bankruptcies that effectively delayed some of the same-store gains you thought you were going to get in the back half, is that right? I mean, you have a lot of positive to say about fundamentals, but same-store NOI was down and you're guiding towards a low-end. I'm just trying to understand the differential and what's happening?

We've had positives, but we're still in a halt because of the bankruptcies earlier this year, and it hit the malls 350 basis points. So, we've made up roughly half of that in occupancy, but we're still below where we were, we're 130 basis points on the whole portfolio. So, it's still negative occupancy and that weighs on same-center NOI growth. And we've made progress, very little of that income is kicked in and it will kick in starting in the fourth quarter, but it's going to be primarily helpful to 2016 and beyond.

And as you think about the different tiers of your asset base, and I can understand the decision here to move off the early 2017 sale for the Tier 3 in non-core assets, but if you were to look at same store, can you break it out or do you have it by Tier 1, Tier 2, Tier 3 in terms of how the portfolio is doing from a fundamental standpoint?

Yes, we have it. We don't disclose it quarter by quarter. But I can tell you that, for this quarter, the Tier 3 was going against a tough comp from last year. So, it was -- it had, I'd say, the worst performance compared to Tier 1 and Tier 2. But on the whole, Tier 3 is stable and there is not significant deterioration, but it's lagging Tier 1 and Tier 2.

And then the two that are in process, is that just Gulf Coast and Triangle?

Correct, yes.

Okay. There's not some other things that are going on. I guess, as you think about the market for those assets and clearly, I think you said it, it shouldn't become as a surprise to anyone given the market for weaker quality malls, both in terms from a fundamental and the financing standpoint. You are clearly frustrated where your stock is relative to an asset value, imagine investors are as well. I guess at some point, do you think there is a buyer for the Company as a whole, right? So if this is a smaller part of the company, do you think that it's the right time to think more strategically, did that even crosses the family or the Board's mind about trying to take advantage of what this disconnect is? Do you think a buyer is there?

Look, we're a public company, so we're always looking at every option and it gets considered by our Board. I can't really answer your question directly, we haven't been approached by anyone, but we're a public company, and every public company is a -- we are about doing the best thing for our shareholders and trying to take every step that we can to maximize value.

Is there anything in terms of legacy from an OP unit perspective either from your family or from Jacobs, or any other deals that you've done that would potentially complicate a transaction from occurring?

No, not at all. In fact, we sold assets repeatedly over the past five years, really in our history that have had tax implications from the family's point of view and have had OP unit built-in gain. So, that hasn't been an impediment in the past in any way and it certainly wouldn't be going forward.

Just last question in terms of 19 assets. Do you think that if you provided seller financing or a bridge or kept the minority position that would get those sales done, just hide it off or you don't think it doesn't matter how much financing or how much equity you can support to bridge the gap? People are just too nervous about either the fundamentals or the rollover or obtaining any sort of secured financing to buy the asset?

It really isn't the fundamentals that's been our problem. The buyers that we've talked to understand these assets, they have these assets in their portfolio. They're encouraged by the progress that JCPenney has made, Sears is an opportunity, because they like a redevelopment opportunity. So, it's not the fundamentals and from a leasing point of view, we've made a lot of progress.

So, that's really not what's driving this. It's just the financing markets, and like I said, these malls are chunky and it takes financing and for us, it is significant seller financing don't really accomplished our goal. We lose control of the asset, we put it in someone else's hands and we don't control the destiny of that cash. So, we've talked about doing it on an incremental basis, in fact, we did on one asset on a short-term basis and we've also looked at doing joint ventures where we keep a piece of the deal and we've explored that and those materialized, but it's not for lack of effort or lack of creativity in trying to approach this.

Andrew Rosivach, Goldman Sachs.

I do want to talk about G&A and Farzana, you did -- even after I adjusted that one-time item for 2014, your G&A is up, and I didn't know that one-time adjustment for 2014 was there to be honest, maybe other people did. G&A is still up 12% year-over-year and I guess the question is, is this a run rate or can there be relief in the line item in 2016?

Yes. The G&A is up this quarter. You're right, despite the reversal we had. But these are for some one-time items, we have consulting expenses and as we mentioned some personnel costs relating to our -- to the progress we're making on processing and technology. So we don't expect a big chunk of this expense to happen next year.

Okay. So, it's fair to think that G&A could actually drop in 2016 versus 2015?

It should around -- you should run it around $55 million -- $50 million to $55 million.

Okay. And then I also wanted to ask, all of you about the concept of comp ratio that's in the financial services industry and to preface I want to be careful, because I don't want to come across too barbed, I think you guys are very well intentioned, I totally agree that you're focused on shareholders. But for most of us on the call, buyside and sellside, when performance is bad, our companies actually get relief on the expense side, that hasn't happened in 2015. And I guess my question is, above and beyond consulting fees and stuff like, will performance, operating and share price in 2015 lead to some G&A savings in 2016?

Yes. One thing we had Andrew, we had a special bonus that we paid early in the year, really right after the first year based on performance in 2014 that should up in this year, so that ticked up our G&A for this year that we won't have next year, just given where the performance has been.

Look, we're definitely looking at managing expenses. There's no question. So that's something that is -- we look closely at, and then we put a new incentive compensation plan in place to be in this year and named executive officers compensation in the long-term plan is based on three-year stock performance primarily. So, we've taken steps to align our compensation with the performance as well.

I'm just wondering, I think, it's always hard to figure out how it gets treated on a GAAP basis. So, like obviously, the present value at day one; so, even though the share price is down, it doesn't end up mattering?

I don't think so. I don't think it shows up until it's actually in place, but --

I have you proxy, hoping that I need to take a proxy class someday, because it's [hard]. I can follow up offline, my partner has easier questions.

This is Caitlin. I was just wondering on occupancy, when do you think the year-over-year numbers could turn positive and to what extent do this year's occupancy results create easier occupancy and same-store NOI comps for next year?

Like I said, it's going really show up next year and we're completing the budgets for next year at this time to have a better sense of it. But, given the progress we've made on the leasing, in terms of leases signed and out for signature, then we expect to continue to make inroads, bring the occupancy back up to where it was before and hopefully beyond that. And then, we're doing a lot of leasing just in the rest of the properties we're adding, H&M has been a strong addition to many of our properties, we have 10 of those this year. And, so that helps occupancy. They are above 10,000 feet, but then other retailers we move around and it cheese up vacant space. And then also, there is a lot of box activity especially in the Tier 3 portfolios that helps us in terms of occupancy whether it's ULTA Cosmetics or DICK'S or users like that that are coming in and strengthening our Tier 3 properties.

Okay. So it sounds like next year we could probably hope for occupancy to get to where it was maybe in 2014 and possibly beyond?

We'll give guidance in our first quarter call, in our February call, so in our next call.

Carol Kemple, Hilliard Lyons.

Thinking ahead to January, how do you think retail bankruptcies will be in the first quarter of 2016 compared to last year? And what kind of tenants are on your watch list now?

So, look our crystal ball is only so good as anyone else's, but this year has been especially harsh on the bankruptcy front and we don't expect next year to be at that level in terms of bankruptcies. I mean, we watch closely the retailers that are struggling and the ones that are doing well. And it's nothing new as far as which retailers are having a tougher time. Aeropostale has continued to have sales declines and they've been someone that everyone has been watching, but the positive is, they just extended their credit facility to February of 2019. So they have some liquidity and they'll continue to close stores and be difficult on renewals. But we feel like that that helps them a lot and just as an example, Aeropostale, we had 96 stores with them in 2013 and we're down to 69 in the supplement that we filed. So we've reduced our exposure to them.

PacSun is a retailer that we're watching closely and hopefully they've had some sales decreases, so we'll see where they go. And then the other category, that's probably the one that's struggled the most has been children's apparel, Children's Place, Justice and Gymboree and financially, there's different degrees of risk among those. Justice is part Ascena, so they're very strong and Children's Place and Gymboree are probably not as strong, but we work with all of these retailers to make sure that occupancy cost is in line and it is. And in our properties, they're profitable. Their rents are lower than they are in malls doing $600 or $700 a foot. But so they are still profitable at the occupancy cost levels and that's what all the retailers are focused on as being profitable in their stores.

Okay. And what retailers have you seen signing leases at your Tier 3 malls?

We've seen a lot of -- there is really a mix of retailers, but it's not that different across other properties. We've done a good amount of business with Windsor Fashion this year, with Picture People, with Tilly's we've done deals, Limited continues to -- or L brands continues to expand with PINK and White Barn and that's across the portfolio, Foot Locker does really well, their performance in Tier 3 is strong and they're expanding. So, it's not the higher productivity retailers necessarily or the bridge retailers, but it's consistent.

And then also the boxes, like I said, we've added boxes to a lot of the Tier 3 malls where that property has been the consolidating property in the market. And Hickory Point is an example of where we put Hobby Lobby in the former JCPenney. We added Ross to the mall last year. We've got interest, we added ULTA last year, we've got interest from other boxes. And if we can create a more significant power center component that helps the value that center, because it goes from being perceived as a middle market mall to a middle market power centers, more stability from the investors point of view.

And do you happen to know like if Hobby Lobby or Ross would come into one of your malls, how their rent usually compares to what it would be at a strip center in the same market?

I think from their point of view, the rents are comparable in a strip center. But we are looking at the return on the Hobby Lobby deal was roughly 11%, so that's an attractive return. And like I said earlier, we're looking at each of these redevelopments individually and making sure that they are accretive to the value of the property.

DJ Busch, Green Street Advisors.

Stephen, you talked about selling some community centers and the lack of appetite in the Tier 3, but over the last 12 months or so, it would seem that the cap rates or asset values in the Tier 2 were probably stable and then for the Tier 1 cap rates are probably lower, asset values are higher since a year ago. At what point in time do you start moving up the quality spectrum to look to sell assets and take advantage of the gap between your stock price and where we perceive any B2B?

Yes. I mean that's a good question. I mean there is definitely a really strong market for the community centers and the power centers and the non-core assets. So that's the most immediate opportunity that we're pursuing. The sale or the joint venture of higher tier assets, we might be able to execute a transaction successfully, but that's going to impact your NAV as well. So that's not necessarily the answer. And but there are some additional joint venture opportunities throughout the -- and other levels of the portfolio that we think are worth exploring and like I said in the call, we're exploring some additional types of transactions to take advantage of the discount in terms of our NAV to where our stock price is.

Okay. And then on the financing side, you have quite a few unencumbered properties. So, but the CMBS lenders getting a lot more stringent as far as the quality that they're willing to loan to. As they move up that quality spectrum, you got quite a few unencumbered properties that are in that $350 to $400 a foot range. Is there an opportunity to put some secured non-recourse debt on those and kind of be ahead of the game before the CMBS market moves even further up the spectrum? And how much room do you have, given the covenants in place with the unsecured notes?

DJ, this is Farzana. To your question, we have our investment-grade rating from three rating agencies. And we need to continue to improve our unencumbered asset pool and unencumbered NOI, grow that. So, putting secured debt on those assets would put us in -- make us go backwards. So, our solution is to continue to access the public markets, the bond market, as well as look at other opportunities in the private placement. So, those are the avenues we are pursuing. And we think we'll be successful in getting our more of our fixed rate debt, put on the balance sheet, as opposed to the floating rate that we have today.

The other thing I would add is, we just did a CMBS deal on an outlet center at Gettysburg, that's a Tier 3 asset. So it's not -- the CMBS market isn't necessarily moving up the quality spectrum, it's just asset by asset and they look at the anchor mix and the leasing and there is definitely scare factor with JCPenney and Sears.

But again, as JCPenney continues to make headway with their plan, we think that'll help, because they are going to generate $600 million plus of the EBITDA this year and they've announced over $1 billion dollars of cash flow over the next couple of years. So, the market is definitely tough now, but that doesn't mean it's going to be negative going forward. And I think there are some opportunities as there is more clarity to see some improvement.

I guess, with Gettysburg. It's only Tier 3 in its sales productivity, it doesn't have the anchored exposure and an outlet can do lower productivity, because it's got a lower cost ratios, I would imagine why that. That's why that deal was attractive to lenders as opposed to all the other uncertainties that come with the most -- many of your other Tier 3 properties. I guess just a final question is, going down the unsecured route, what's the contingency plan, Farzana, if the market kind of has a hiccup if you well, like it did several weeks ago when you try to go to market. I guess, what's the backup plan if that market gets -- stays a little shaky?

Well, obviously that was a temporary situation, that day what's completely crazy in terms of many things that came together and closed the market down when we started. So I don't think that a typical day would be the today we would be going out again, hopefully the market conditions are going to improve.

As we pointed out, we really don't have maturities coming up until the middle of next year and $264 million approximately. But in the meanwhile, we have raised, another $150 million on our term loan that we did, the $350 million term loan. And we also are exploring private placement. And the other liquidity will be -- in the short-term, to the sales of these community centers we will get ahead of those -- get excess proceeds from that and pay our lines down and be able to have the visibility to the bond market and then go back into the bond market and issue it again.

Rich Moore, RBC.

This is [Jimmy] on for Rich. I have a question for Farzana as well. What's your line balance post quarter end?

It's approximately $500 million. It's actually less than $500 million. So availability is a little over $600 billion.

And then with the around $500 million in mortgages coming due next year, barring all else that bring it to something around $1 billion. So how large do you think your next bond deal might be?

Well, we don't really have $500 million of maturity. We only have about $264 million as it totally relates to wholly-owned properties. So if we -- assuming, we come out in the reasonable good market conditions on our bond market, we'll start off at $300 million that's around the minimum. But we'll look to see how the market performs.

Okay. So, then without the lease, some line balance and should I model you guys running with a line balance going forward?

I think you should try to blend it.

Okay. And then, one last thing, could you remind us why you exclude that $140 million maturity on Chesterfield?

Yes. That's a non-core asset. We will be discussing with the lender in terms of a restructure next year. So, that doesn't come up till mid --almost September of next year. So, we have plenty of time. It produces significant excess cash flow, so we're continuing to work that asset, and by the time this loan matures, we'll be in discussion with the lender to potentially restructure.

Tayo Okusanya, Jefferies.

I'm just trying to get a better sense of when you do start to benefit from some of the leasing activity that you have had success with this year. One, when is a lot of that stuff expected to come on in 2016? And then two, could you give us a sense of, if you were to take a look today at leases signed, but haven't commenced, what would that mean for where your occupancy would be?

We're finishing up the budgets for next year. And so the leases that obviously the stores that are opening, we're going to get the full impact of next year. But it's going to be spread out over 2016 in terms of the openings, there typically aren't a lot of openings in the first quarter by retailers, it's mostly a second and third quarter event. So, that's probably the most reasonable expectation.

And then in regards to, just getting a sense of what would occupancy look like if all these signed leases that haven't commenced -- when actually hit your -- when they do commence, whether the occupancy -- what would occupancy look like then versus what it is today? Is that a 100 basis points gain or 150 basis points gain?

I can't tell you the exact number. I can tell you where we are and we'll provide guidance for the year in our next call.

Linda Tsai, Barclays.

Sorry if I missed this. Farzana, you mentioned higher real estate taxes that hurt NOI. I think you mentioned assessments, what's driving those and do you expect something similar in 4Q?

Well, some of our properties have experienced increased tax assessment. One of the properties had a tax reduction last year. So they have kind of caught up with us again this year. And so there are a couple of properties where assessments have gone up. But like anything else, we continued to appeal the taxes, so the taxes creates a little lumpiness, because we will win some, we'll lose some, so sometime the taxes go up and we are not 100% recovering the taxes. So that's part of the variance you have seen this quarter. Disproportionately it has impacted us this quarter and year-to-date.

And then any comments on the consumer this quarter, your sales productivity showed a nice improvement, is that more a function of better merchandising, easy comps, lower gas prices, perhaps a combination?

No. We are pleased with the sales that we have this year to-date and what we had with the quarter. And gas prices are definitely helping. I bought gas yesterday for $1.79 and so that puts extra money in the consumers' pocket books and like we said, our trade areas tend to be more extended, so driving is a bigger component. And there is a lot of categories that are doing well for the most part, health and beauty, home furnishings, jewelry, footwear. So even though there is definitely some retailers struggling, there is others that are doing better. And so, yes, we are optimistic about where sales were headed.

Collin Mings, Raymond James.

Just one follow-up here for me. I just wanted to go back to some of the earlier questions. As we think about just some of the occupancy gains and the leasing progress you highlighted at the start of the call. How much would you really characterize as being more by temporary tenants versus those willing to make a longer-term commitment? I'm just trying to get a better sense of -- again, going back to some of the comments and questions of the risk, maybe some of this progress that you've highlighted reversing as well as kind of getting a seasonal to start next year as well?

Yes. The numbers that I gave are all permanent leasing. So the temporary leasing will help our NOI, but that's not part of the occupancy gains that we included.

Okay. And then I guess just on the second part of that question. Again, I know you touched a little bit on the watch list already, but just can you expand a little bit more upon that as far as a risk or within any of your different tiers of having a similar type of occupancy hit to start next year?

Yes. I mean, I don't know what else I can say other than what I said earlier. The retailers that went bankrupt last year were, I don't know if you can say further along on the watch list, but RadioShack and Wet Seal and Deb Shops, these companies were ones that -- it was just a matter of time and they all hit at the same time and they all closed virtually all their stores. So, we see that as an anomaly other than 2008 or 2009, I forgot, one of those two years. This year has been the highest by far in terms of bad debt and bankruptcy hits that we've taken.

So, next year, to the extent our bankruptcies, we expect these companies to continue to operate. And they've also -- the ones that are most at risk have been closing stores. So, in terms of our exposure, you look a Gap and we're not happy to lose four Gap stores, but we took a lower hit than anyone else in the mall business from Gap, because we've been working with them closely over the past several years to manage occupancy cost and make sure their stores are profitable. So, going forward, we have strong relationships with these retailers and we're working with them to make sure their stores are profitable.

Jeremy Metz, UBS.

I just had one quick follow-up on that last question. Actually, just looking at it little differently. You had mentioned aggressively opening, and re-leasing stores, given the bankruptcies took. So, I guess I was just wondering, maybe on the leasing side, are you giving a little more, whether it be on rents concessions or reimbursements or even turns to help drive some of that activity and get occupancy back, it did look like tenant allowances are running well ahead of last year, though I clearly get that they can be lumpy.

Yes. Tenant allowances are lumpy and we'll end out the year virtually at the same level as last year and the tenant allowances are driven primarily by H&M and just doing more stores with them and they are expensive in terms of the tenant allowances. So, we don't see any increases and we're not having to make a different kind of deal to attract retailers. We've just been working the relationships hard. We got out there early to meet with the retailers and try to get in their programs for 2015 and then we tried to do it for 2016 as well.

Michael Bilerman, Citi.

How many other malls are effectively that -- when you look at the next few years' maturities, are in this lender issue where the loan is greater than the asset value, right? We already know about Triangle and Hickory and Gulf Coast, Chesterfield, how many more are there?

We mentioned Chesterfield, we are in discussions, we will be in discussion later on next year. So far in our horizon, as we look at the maturity schedule, our debt yields are pretty strong. So we don't see anything other than the one we just mentioned and you know the two we're talking about. Actually three, Gulf Coast, Triangle and Hickory Point and then Chesterfield.

So nothing else. And then how should we think about Chesterfield? You've put $300 million into that asset when you bought it, I think back in 2007. You think about $140 million mortgage, I recognize the competitive landscape in that market, that certainly has changed. Correct me if I'm wrong, but think you've been spending some redevelopment dollars last year and this year, I don't know how much that is, but can you just walk through the decision to spend money in such a massive decline in asset value effectively in half relative to what you paid in less than eight years? Help us understand sort of cap rate then, cap rate today, income then, income today, to have caused that much of a decline?

Well, first of all, we've been monitoring our investment in Chesterfield and we haven't been investing in any redevelopment. So that's something -- that's been -- we've been very careful about. And if you recall Chesterfield is the mall where both to Simon and Tobin build outlet centers within five miles of the property. And so, to add basically 750,000 square feet of additional retail has hit the mall hard. And it's just down the street from both those assets, so there is no question that it was right in the cross hairs.

And Chesterfield is kind of a quirky asset, because it's got the best AMC Theater in the market. It's got Cheesecake Factory, that's doing really well. It's got American Girl that's doing really well, but it also has a large amount of mall GLA more than it should. And so, we actually have opportunities to redevelop it and reposition it, so it's not directly competitive. But that demands capital and until or unless we could work something out with the lender, then we wouldn't invest in the asset.

But I guess just help us understand what was sort of NOI when you bought in 2007 on that $300 million valuation and what is sort of NOI today or effectively the debt yield? Or if you're saying that the assets work less than $140 million. Just so that we can understand some of the goal posts of what's transpired?

We'd have to give back on that. If you remember, that was part of the whole Westfield transactions. So, it wasn't just one asset.

And then I think you said to DJ, if you wouldn't -- it would be a negative to NAV if you were to sell an interest in one of your higher quality assets and I don't know if that's because you think the whole -- the enterprise would have a lower growth because you're selling when you have better quality assets. I don't know where that comment would come from, but it seem at least to me, that selling an interest in one of your highest quality malls, you guys are going to give up some of the growth upside in that asset. But using that to delever, which is a major concern, one of the major concerns of the marketplace. So, that frees up a little bit of your capacity, a little bit of the overhang that's there so that you then don't have as much of a noose around your neck in terms of executing the other 19 sales, and then as you execute the 19 sales, you can use that capital to buy back stock. Would it seem like -- I don't know why that's a negative for NAV.

Well, we appreciate your input and your points are well taken. So, we appreciate you bringing them up.

But what was your -- the rationale for saying a negative to NAV was, I just want to make sure I understand what context that was said in? Of selling an interest in one of your high-quality assets?

No. Just because of the growth, the higher quality assets have had the strongest growth. So, it was really just more the math of, if we sell a mall that's five cap rate and our NAV is going to be reduced proportionately. So, I mean I wasn't trying to make a value judgment or anything like that to DJ. We're exploring additional transactions across the spectrum of the Company and we're frustrated with where the stock is. We're not sitting back and it's not business as usual and we're taking steps in exploring transactions that would narrow the gap in NAV, once they materialize. So, I don't want to give the impression, we're just not open to doing some things differently than we've looked at in the past.

And what would that encompass? I was trying to think about, and it has been a long earnings season, but what sort of things can you do other than selling interest in assets or selling assets outright? You're certainly not going to raise common equity. So, what could you do to narrow that gap?

Sales or joint ventures, I mean those are the two options.

But I guess, the Mayfaire was a recent deal at least that has a mark on it for what you bought, that would seem to be an easy one to bring a new joint venture partner in?

I mean, like I said, we think the best strategy for us is to make announcements when there are announcements to be made and we're open to ideas, but I'm not going to comment on any specific asset or anything beyond that.

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, everyone. And like I said, we're looking forward to seeing you in a few weeks at NAREIT. We appreciate your time today.

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