CBL & Associates Properties, Inc. (CBL) 2015 Q4 法說會逐字稿

Good morning, and welcome to the CBL & Associates fourth-quarter conference call.

(Operator Instructions)

Please also note today's 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, ma'am.

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties, Inc. conference call to discuss fourth quarter and full-year 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 his 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 a transcript of today's comments and additional supplemental schedules. This call will also be available for replay on the Internet through a link on our website at cblproperties.com.

Thank you, Katie, and good morning everyone. CBL's year end 2015 results clearly demonstrate the ongoing strength of our Company, and our portfolio. I am proud of our organization for what we accomplished. As a result of hard work and dedication, we overcame significant obstacles, and ended the year with solid results.

We are in the process of transforming CBL by transforming our portfolio and our properties. Contrary to what many analysts have written, we have not abandoned our plans to dispose of slower-growth properties. In fact, we are just as committed to this plan as when we made our announcement in April, 2014. While the investment community likes to simplify malls as letter grades to determine viability, the reality is that our shopping centers are more than just places to shop. We are in the real estate business, not the retailing business. Our properties are the suburban town centers for their communities with market-dominant franchise locations. And, we have tremendous opportunities to create significant value to re-developments, expansion, and densification.

We ended 2015 with strong results, generating same-center NOI growth of 2% for the fourth quarter bringing full-year growth to 70 basis points. We showcased our operating expertise by overcoming the more than $15 million impact from the major retail bankruptcies we saw in Q1 and re-leasing more than 70% of these locations. We also significantly narrowed the occupancy impact of these bankruptcies. We started the year with a decline of 320 basis points in the first quarter. We ended the year with mall occupancy of 93.3%, representing a 160 basis point decline from last year and a 170 basis point increase from third quarter.

Overall, portfolio occupancy ended 2015 at 93.6%, a decrease of 110 basis points compared to 2014, and a 120 basis point increase from third quarter. We executed more than 590,000 square feet of leases in the malls during the fourth quarter and achieved leasing spreads of approximately 7%. New lease spreads remained strong at 19%, with renewal spreads at 2%. You'll note in our supplemental, the updated tier allocation. As a result of sales growth and dispositions, our Tier 3 assets now represent just 11.5% of NOI. a significant reduction from 19.1% in 2014.

Five properties were elevated to Tier 1, which now represents over 41% of our NOI, compared with 34% in 2014. For the full year, our sales increased 4% to $374 per square foot, although we did see deceleration during the fourth quarter. Categories performing well include, beauty and cosmetics, as well as intimate apparel, jewelry, home furnishings, and most children's retailers. Certain jewelers and ladies' stores reported declines.

Weak results in the fourth quarter by department stores, especially Macy's, created major negative headlines for business. However, as we have said before, we view the redevelopment of department store spaces as a major opportunity for us to upgrade our properties. Furthermore, we believe concern over department store closings is overblown. Only one CBL mall was impacted by Macy's 40 store closures, which we anticipated and have a redevelopment plan and process. JC Penney announced a handful of closures, none of which are in our malls. We did proactively terminate one lease for a redevelopment, which Katie will highlight.

Year-to-date bankruptcy activity has been minimal and we are in close contact with retailers on our watch list to monitor their plans. While a few specialty retailers, such as Gap and Finish Line have announced store closings over time, these are occurring mostly at lease expiration. We are improving the credit quality of our retailer mix, reducing exposure to weaker tenants. Compared to 2010 we have 42 fewer Abercrombie and Fitch stores, 18 fewer Gaps, and 24 fewer PacSuns.

On the anchor side, we have reduced our store count with Sears by 17 and JC Penney by 13. Conversely, over the past five years, we have increased our leasing with in-demand retailers. Including 23 H&M stores, seven DICK's Sporting Goods, 14 ULTA Cosmetics, and five new TJ Maxx Marshall's leases. And, we are developing new relationships and leasing our centers with changing consumer preference in mind. Later this year we'll open our first West Elm at Friendly Center in Greensboro, where we added Lululemon last year. We are adding more theaters, restaurants, fitness centers and other services that invite customers to not just walk in the doors but to stay for the experience. Operators like Kings Bowling & Entertainment, Cheesecake Factory, American Girl, and Dave and Busters are changing the landscape of traditional shopping centers.

We are also looking to densify our properties with apartments, office space, medical uses, and hotels, providing an embedded customer population. In 2015, we partnered with a multifamily developer to build two Class A apartment projects and we're exploring similar opportunities within our portfolio. We are innovating by introducing new technologies that assist retailers' omni-channel strategies, and revolutionize our marketing to customers.

Dispositions have been and continue to be a major priority. While the financing environment has resulted in slow progress on the mall front, we're showing excellent results and community center dispositions. In 2015 we announced more than $220 million in sales from non-core and community centers, generating more than $180 million of net equity. The sale of Mayfaire Community Center was achieved at a lower cap rate than the acquisition five months prior, improving the yield on the adjoining Mayfaire Towne Center. In addition, we are leasing and managing the property for the new owners, allowing us to earn fees and enjoy the synergies between the two properties. Cap rates on our community center dispositions have generally been 5% to 6%, representing a very attractive source of capital.

Equity raised through these dispositions allows us to strengthen our balance sheet by deleveraging. And over the near term, we will continue to apply the majority of the equity we raise to reduce leverage. While we currently have a share repurchase authorization in place, given the volatility in the debt markets, we believe it is important for us to prioritize enhancing our liquidity and financial flexibility before considering share repurchases.

We are maintaining strict disciplines on our capital allocation and monitoring our liquidity. We had over $700 million available on our lines of credit at year end and have multiple sources of financing available at both the property and corporate level. We're making careful investment decisions for the long-term, mindful of the future growth of our Company. To make sure that our assets and our organization stay ahead of the retail evolution.

With our dividend payout ratio of less than 50% of FFO, our portfolio generates more than $200 million in free cash flow per year to fund these portfolio improvements without borrowing. Our dividend, which yields more than 9% of today's low stock price, generally tracks taxable income. I will now turn the call back over to Katie.

Thank you Stephen. We're upgrading our properties with exciting new stores and restaurants. In 2015 alone, we added more than two dozen boxes and junior anchors. We opened 10 H&M stores, including five in the fourth quarter, and have 10 more on tap for 2016. We also opened two Dick's Sporting Goods, four ULTAs, a Dunham's Sporting Goods, an Academy Sports, and a Hobby Lobby, just to name a few. New restaurants joined our centers, such as Cheddar's, Travinia's, and Panera Bread. And our portfolio continues to offer excellent opportunities to create value through merchandising upgrades, as well as redevelopments and expansions.

For any doubters of the power of an anchor redevelopment, a great example is our investment at Northgate Mall, which was elevated to a Tier 2 mall in 2015. We redeveloped underutilized portions of the mall, adding a 60,000 square foot Burlington's in October 2014, as well as additional shops and restaurants. We invested in a renovation with new floors, paint, and entrances among other improvements. As a result of these initiatives, the occupancy at Northgate has increased from 71% at year-end 2013, to 96% at the end of 2015. Sales have increased from $291 per square foot to $326 and NOI has increased significantly. Using Green Street's cap rate scale for consistency, the increased NOI and cap rate compression generated by the redevelopment activity has created value of more than 1.5 times our $16 million investment.

We're also proactively reducing exposure to traditional anchors where they are underperforming. At College Square in Morristown, Tennessee we worked with JC Penney to negotiate a lease termination. We have leases out for signature with two high-quality box retailers and expect to start construction later this year. At North Park Mall in Joplin, Missouri we are replacing a former Shopko box with an 80,000 square foot Dunham's Sporting Goods. Construction is expected to start soon, with the opening schedule for later this year. At Randolph Mall in Asheboro, North Carolina, a new Ross and ULTA will open in a former JC Penney location before summer.

At Kirkwood Mall in Bismarck, North Dakota, two new buildings totaling 13,000 square feet are under construction with Panera Bread, Caribou Coffee, and Verizon. Panera and Caribou recently opened, with Verizon set to open later this year. At Friendly Center in Greensboro, North Carolina we've recently commenced construction on a 13,000 square foot expansion, adding our portfolio's first West Elm as well as Pieology, and one other yet to be announced store.

Here in Chattanooga, we will start construction this year on the redevelopment of an existing theater location located adjacent to Hamilton Place and to the market's first luxury theater experience. At Mayfaire Towne Center in Wilmington, North Carolina we are finalizing plans for new 67,000 square foot expansion, including H& M, Palmetto Moon, and West Elm. We anticipate starting construction later this year.

We recently completed the redevelopment of a portion of the Sears Store at Brookfield Square in Brookfield, Wisconsin. The project created a new restaurant district and shops, including BlackFinn Ameripub, and Jason's Deli along the front of Sears. In March, we will open Ambassador Towne Center in Lafayette, Louisiana, a joint venture with Stirling Properties. The 438,000 square foot center will be anchored by Costco, Dick's Sporting Goods, Field and Stream, Marshall's, HomeGoods, and Nordstrom Rack. The project is currently 95% leased or committed.

We've enjoyed a very fruitful partnership with Horizon on our outlet center program over the last six years. The value created in our portfolio through this partnership is under-appreciated. Our new development projects have opened at near full occupancy levels, generating attractive double-digit un-leveraged returns. We placed attractive secured debt on the project shortly after opening, and are generating return on equity of nearly 30%. Our portfolio of five high-quality and growing outlet centers have been successful enough to support multiple expansion. While new development opportunities in the outlet space are competitive, Horizon has been successful in sourcing strong projects over the years that have all met our required return and pre-leasing thresholds. And we hope to announce our next partnership in the coming months. I will now turn the call over to Farzana.

Thank you, Katie. 2015 ended on a strong note for CBL, especially given the more than $15 million impact from store closures at the start of the year. Same center NOI increased by 2% for the quarter and 0.7% for the year. Adjusted FFO increased 6% for the quarter to $0.71 per share and we achieved adjusted FFO of $2.32 per share for the year, meeting the high end of our guidance range. Major drivers in the quarter and for the year included growth in minimum rents from increased rental rates and new openings.

Percentage rents declined in the quarter as retail sales moderated, but ended the year positive. We also recorded a decline in tenant reimbursements for the quarter and the year, correlated to lower operating expenses, including snow removal expense, as well as utility and central energy. FFO benefited from $4.8 million in interest expense savings in the quarter and over $10 million for the year. FFO growth from our existing properties and new centers more than offset the dilution from asset sales.

G&A for 2015 was in line with our guidance range discussed last quarter at approximately $59 million net of litigation expense. The increase during the year was primarily a result of one-time items, including consulting expense for operational improvements. Our [cost to carry] ratio for the fourth quarter was 108.6%, compared with 102.1% in the prior-year period. While fourth quarter 2015 was higher than our typical run rate, it benefited from improved recoverable expenses. For the year, our cost to carry ratio was in line at 101.7% compared with 98.9% in 2014.

Same-center NOI growth in the quarter increased 2% for the total portfolio and 1.6% in the mall portfolio. Full-year same-center NOI growth was 70 basis points, with malls up 20 basis points. Same-center revenue grew $1.5 million, with minimum rents and tenant reimbursements growing $0.9 million and percentage rents increased $0.7 million. Same-center expenses declined by $3.6 million with a $7.4 million improvement in operating and maintenance expenses, partially offset by the $3.7 million increase in real estate tax expense.

Our expectation for 2016 of achieving FFO in the range of $2.32 to $2.38 per share, is based on a number of assumptions. To date, there have been limited bankruptcies impacting the mall space. With the traditional bankruptcy season nearing an end, we are optimistic that 2016 activity will be muted. However, we have several retailers on our watch list and expect pressure on renewal spreads. And the impact of downtime as we replace underperforming stores. We anticipate moderate sales growth in 2016 as compared with 2015, which will impact percentage rents. We are projecting occupancy up 25 to 75 basis points over the prior year.

We are assuming G&A in the range of $58 million to $60 million and outparcel gains of $3 million to $5 million. Our guidance assumes same-center NOI growth for the portfolio of 0.5% to 2%. The low end of our guidance assumes flat to down percentage rent, occupancy at the low end of our anticipated range, and operating expense pressure. Consistent with our practice, guidance does not include any future unannounced asset sales, acquisitions, or capital markets transactions.

We made significant progress in enhancing our balance sheet flexibility during 2015 despite the volatile debt markets over the past several months. Including our new development, redevelopment, acquisition, and disposition activity, we ended the year with total debt of $5.4 billion, just $60 million or 1.1% higher than the prior year end. We completed more than $1.7 billion on financing activity, generating significant improvements in our borrowing rates. Our maturity schedule in 2016 is limited.

Later this year, we have $140 million non-recourse loan, secured by Chesterfield Mall, maturing. This small was severely impacted by the outlet center wars in St. Louis, which negatively impacted its cash flow. We have explored re-developing the property, but this would require significant investment at returns below our threshold. We have recorded an impairment charge on Chesterfield this quarter, and intend to work with the lender to exit this investment when the loan matures later this year.

We have made progress with the lenders for the loan secured by Hickory Point and Triangle Towne Center. We will provide updates after closing on the modified loans. We have one additional $30 million nonrecourse loans on a Tier 3 asset that matures later this year, where we are evaluating a possible restructure and will engage in discussions with the lender. Gulf Coast Town Center continues to be in receivership, and we are waiting on the courts to finalize the foreclosure. Outside of this, in 2016, we have $230 million of loans maturing that are secured by wholly-owned assets that we anticipate retiring. The debt yields on these properties are in the mid-to-high teens and are supported by stable and growing cash flows.

Today, we have more than $700 million available on our lines of credit, and that will shortly be further improved by equity proceeds from the sale of Renaissance Center, and additional community center dispositions that we are working on. This gives us tremendous financial flexibility, and we intend to be opportunistic with our financings to take advantage of the best available execution. I'll now turn the call over to Stephen for concluding remarks.

Thank you, Farzana. While 2015 started with tremendous challenges, today we are a stronger Company, with a better portfolio, and a more flexible balance sheet. And we remain focused on becoming an even stronger Company. We are transforming the organization and our portfolio for the better and we are focused on making the right decisions for the long-term growth of CBL. As Senior Management and 11.5% shareholders, our goal is to help the market recognize the value that we know is in our portfolio and Company. We expect to demonstrate this value as we execute on our strategic objectives. Thank you again for joining us this morning. We will be happy to take questions.

(Operator Instructions)

Christy McElroy out of Citi.

Good morning. Regarding the decline in percentage rents year-over-year in Q4, can you break out your sales growth? Isolating Q4 2015 over Q4 2014? And Farzana you mentioned softer sales growth, potentially impacting percentage rents in 2016. What are you forecasting within your guidance for percentage rent growth?

Hello, Christine. For percentage rent growth for 2016, and the guidance at the low-end. We are flat to down as I mentioned in my comments.

And so, on the higher end, hopefully we will make up percentage rents and sales will continue the trend and get better. And we will pick up some more percentage rents at the higher end. That's one of the pressures we mentioned for the guidance at the low end of the range.

Then on the fourth quarter this year versus last year we are up 1.6%. So like I said, we saw some deceleration in sales growth. Once we got into the fourth quarter compared to the earlier part of the year.

Okay. And then thinking about your occupancy expectations. I think you mentioned, correct me if I'm wrong -- but Stephen you mentioned 70% of the bankruptcy space had been addressed. But then when you think about the 160 basis point negative occupancy delta for malls at year-end, and I think you're talking about 25 to 75 basis points of upside in 2016. It looks like by year-end you're still not getting back to that 2014 level pre-bankruptcy.

So maybe you can give us some color on the release and progress of that space. And what you're expecting in terms of further store closings this year despite that there's not as many bankruptcies.

Sure. The 70%, a lot of that is kicking in for next year. But we are replacing stores that have closed. So that's not helping us gain over where we had been before. It's getting us back to where we had been. And with the 75 basis points, we are within 40 basis points of where we were at the beginning of last year. So, we're not saying we will be 100% done with the backfill by the end of this year. But most of the 70% will kick in. And then that 30% we will see towards the end of this year into next year.

So we are chipping away. And obviously, the ones that are tougher to do are the ones that get done last. But we are very focused on getting those spaces backfilled, and getting the right mix of stores in there. And trying to have a stronger credit quality in our retail mix going forward like I talked about.

Also, like I said, we haven't had the bankruptcies this year. Knock on wood, so far. And we're hoping it will continue that way. It seems like there have been more in the big boxes this year, compared to some of the specialty stores, which is a positive for us. And we're seeing good activity on the leasing front.

Yes there's the documented gaps in Finish Line closures, and Abercrombie, and they're continuing to down size their fleet. But at the same, time we've got our strongest retailers that are expanding. Whether it's L Brands, or Footlocker, or the jewelry or cosmetics categories. There's a lot of positives that we are seeing. We're seeing a lot of new activity in general, from new types of retailers.

We are seeing more locals and regionals that are adding stores than we've seen in the past. And that's a positive and it differentiates the properties, just to have something different in there. It's a positive outlook that we have as far as leasing for this year.

Lastly, Stephen. It seems like both within the release and in your comments, you are definitely taking a little bit more of a cautious tone, given the current environment. As you head into next year, what are the main trends within your portfolio that you're keeping an eye on that would potentially make you more cautious or more optimistic?

I'd say on the cautious front, it's really the overall economy. And a lot of the macro headwinds, and the volatility in the markets. But the stock markets and the debt markets. And the debt markets have been, as everyone knows, they've been very difficult. At the end of last year and the start of this year.

The equity markets have been tough, so that's something that has had an impact on consumer sentiment. December spending was slow for retail sales. And we're watching that and that's why, as Farzana said, we're cautious in our percentage rent projections.

And specialty leasing is another area that we had some decreases last year. And we are cautious about that. So, given where the general economy is, we feel like this is a time to be conservative and cautious in our outlook.

On the other hand, we are optimistic and positive. And we totally don't get the concerns that have been voiced about malls going away, and online taking over. Bricks and mortar. And that just is something that we're not seeing at all.

Our peers also have said the same thing. Our parking lots were jammed over Christmas. The traffic was strong.

We are seeing demand from all types of new retailers that have never opened stores before, that are online only. And are wanting to open a bricks and mortar presence, enforce their business.

The department stores, yes they are closing if you but we've had a great track record of redeveloping and it allows us to bring in new boxes and uses. We feel very bullish about our business going forward. Despite what the market seems to be saying.

Thank you so much.

Thanks Christy.

Craig Schmidt of Bank of America.

Yes. I was wondering what your expectations are for leasing spreads in 2016? Particularly related to 2015?

Hey Craig, good morning. We are, Farzana indicated, especially on the renewal spreads. We feel like they will be comparable to what they were. So low single digits. We are seeing some pressure on renewal spreads in some of the portfolio deals we are doing with retailers that are struggling.

Like an Aeropostale that has that difficult sales over the past few years. So that's impacting the renewal spreads. And then the new leasing spreads, we expect to continue to be high teens low [20%]s like that happen. I'd say on average, we are probably going to be in the mid-single-digits.

Okay. And then maybe just a little color on Cary Town Centre. I know you've been working on replacing the Sears, and now you're looking at the Macy's. Maybe just broad picture, what are you planning to do with that center?

Sure. Cary Town Centre is in a great location. The market is terrific.

The household income in that area is high. There's a lot of positive demographics. Our redevelopment plan is in process.

And, we are working closely with the city to refine it, so I can't give any details. But, we are working on a rezoning that would allow us to add some other uses to the center. We have strong demand from other mixed uses that would diversify the mix of that center.

And, it would be less of an exclusive retail center, and more of a mixed-use center. And we've actually just recently secured the approval to redevelop a pad that's been vacant for several years.

And we've got a lot of strong interest from restaurants, and other uses for that. So it's a redevelopment that is work in process. But we think it's got a lot of potential going forward.

I know this is hard to say, but how long do you think it might take to get through some zoning and entitlements that you need for pushing your plan forward?

It will take the better part of this year to get through the rezoning. Cary is a town that cares a lot about the way its projects look. And the appearance, and the uses and we have a great partnership with them.

But, we want to go through the process and master plan it to end up with the most successful project going forward. So it's not just going to happen overnight.

Okay thanks. Appreciate it.

Sure, Craig. Thank you.

Tayo Okusanya of Jefferies.

This is Tayo, with George. First up for me. I wanted to talk about debt maturities. There is a decent amount of debt coming up in the next 12 to 18 months. How should we really be thinking about how you plan to manage through that? Is the probability of refinancing do you expect to give back the keys on some assets?

Hi Tayo how are you.

Good Farzana, how are you?

Great. Let me answer your question. Yes, we do have some significant maturities coming up. But I can break it down for you. As I mentioned, the loans that we intend to pay off, that's approximately only $230 million. And the others are, the Chesterfield loans that I just discussed.

A couple of the loans, Gulf Coast Town Center, as well as Triangle. They will get repositioned here fairly soon. So Triangle Town Center will have a modified loan. And then the Gulf Coast will go away. So those are the other lender considerations that we call them around $200 million. And we have joint venture loans maturing that we will refinance later this year. So between the refinance and the loan payoff, and the lender properties, we will be covered.

Okay. Thanks. George also had a couple questions.

One thing on the potential mixed-use projects, would these be more so at Tier 1, Tier 2 or Tier 3 assets?

Good morning. It's really all the above. And it's market driven. And we are not converting the malls to complete mixed-use projects, but we are adding different uses depending on the markets. And I talked about we did the two apartment projects, we are looking at other opportunities throughout the portfolio.

And a lot of it depends on having the available land or the capacity to do it. So, if we are able to recapture a department store, then we are looking at opportunities to add other uses in addition to retail.

And the other thing is, we are adding like we talked, about a lot of boxes a lot of food. Non-retail uses like medical and education. So, the point is, there's just a lot of activity because the real estate is so strong. We've got great locations, we've got really good road pattern, strong demographics. And we're getting demand, from not just retail uses to come into these properties.

Okay. And one last one. In terms of the stock-buyback programs. How are you guys viewing that now? Given where you are in terms of cash flow needs.

Right now, like I said in the call. That's not our priority. Deleveraging is our priority. So, to the extent we had free cash flow, we're using it to reduce debt or to fund the redevelopment projects that we've announced.

And we're not saying we aren't ever going to execute on the stock-buyback program. But right now just given the volatility in the markets we think it's better to save the powder for other opportunities.

Thanks.

Caitlin Burrows of Goldman Sachs.

Good morning. Farzana, I know you already went through some of the financing assumptions for the year. But could you comment on whether we should expect your floating-rate debt exposure to increase over 2016?

I would expect it to be probably the same. Expecting that we will be paying down our lines from some of the sales that we will receive from the -- particularly Renaissance sale. That will pay down. And then, obviously, we do have $230 million that we will be paying off [with this] fixed-rate debt. It might go up during the year. But, as we complete some other sales of the community centers that we have on tap, that should probably put us at an even level.

Okay. And then a quick question just on the development pipeline. I saw that you guys have the properties that were under development as of the end of the year, and then a few others that were in the shadow pipeline. And I was wondering if those were in the shadow pipeline because they just hadn't started yet? Or if you are still waiting for some sort of threshold to make those a for sure go.

Caitlin let me finish by saying that assumes the floating-rate debt being at least even. Assumes that we do not execute on a public market transactions on the debt side. I just want to make that comment

Okay.

And then Caitlin, these haven't started yet. So, they're not under construction. But we anticipate them to start this year.

Okay thank you.

Sure. Thank you.

Todd Thomas of KeyBanc Capital Markets.

Thanks. Good morning. Just following up on the retail environment. With regard to some of the apparel retailers. Abercrombie, Finish Line and some of the other mentioned that have discussed store closures. Any activity post-year end in your portfolio that you've seen? Or any expectation for store closures early in the year here? Any insight would be helpful.

Yes. No it's a positive story. We've had conversations with retailers across the board, whether they are struggling or whether they are doing well.

We are really in close contact with those that we have on our watch list. And that haven't had the best sales. They are not indicating store closures, they are continuing to be profitable in their stores. And they have a plan.

Aeropostale has really had a tough couple of years. But the last six months we've seen progress from them. We even saw positive sales growth in a couple centers in the fourth quarter. That they are investing in their stores.

Justice is another one owned by Ascena that had some pretty double-digit sales decreases. But they plan for that in the fourth quarter, they have a strategy for turning it around. So they have a positive outlook. And haven't indicated plans to close stores.

Charlotte Russe was soft last year. But again they started to turn it around, and we've seen good progress from them. So, we are encouraged by what we're seeing out there.

And what we feel also, is that by having the dominant mall or the only mall in the market that the retailers are going to keep the stores in our properties for the most part. And even if it's a Tier 3 mall with lower sales per square foot, their occupancy costs are lower and their making money. And they need that bricks and mortar footprint to enforce their omni-channel strategies. So we feel like we're insulated because of that from a lot of the store closings.

And you look at what Macy's did in the stores they closed in their wave of closings, was the fifth, six store in a market where they only need two or three. Our properties, we have a dominant presence in our trade area. And, the retailers are cannibalizing from other locations. So, we feel like we are in a good position because of that.

Okay. So, in terms of thinking about the seasonal occupancy dip in the first half of the year, that typically takes place. Do you think that between progress made on leasing space from last year's bankruptcies and store closures and the more muted environment based on what you're seeing so far this year. Could the drop in first-quarter occupancy from the fourth quarter here into 2016 could it be a little bit less than that has been historically?

It's going to be less than last year. It should be more like a run rate that you saw in 2014 or 2013. Because we have the 10 H&M's under construction, we take a lot of space off-line during the first quarter to do the boxes like that. And other larger retail uses and relocations that were doing.

So, we take some of that space off-line in the first and second quarter so it can open for the third and fourth quarter. And then, a lot of our renewals happen at the end of January. So we do have the downtime for the ones that are not renewing when stores are coming in to replace them.

So there's always going to be that first quarter drop off. But again, it's not going to be anywhere close to what it was and 2015. And a lot closer to what had been historically.

Okay. Farzana, is there a bankruptcy or bad debt reserve factor in the guidance? I think last year the number was $10 million. Obviously you had some visibility by the time of the fourth quarter call last year, but has anything factored into guidance this year?

Thank God we don't have that same number that we had last year. This year, we go through property by property, lease by lease. So they are all baked in. So, as a particularly extra reserve we have not taken that. So we have baked in already with our 0.5% to 2% same-center NOI increase that we guided you. And, also in the FFO that is all baked in.

Okay. And just lastly, looking at the renewals spreads. The 1.8% in the quarter. You mentioned that there's been some portfolio deals. And some of the pressure you're seeing on renewals.

Can you just talk about the magnitude of the rent relief that's being offered? And how much of the renewal GLA included portfolio deals with some of these struggling retailers? Any sense what the breakout would be for renewal leasing in the quarter between portfolio deals and just more ordinary leasing at market rates in terms of GLA and spreads.

That's a tough one to answer to be honest. Because there is a mix.

We did the largest portfolio we did in the fourth quarter was with Claire's. And that was 19 stores. They are not big stores. But that was an 11% negative lease spread overall. So, that definitely hurt our overall transaction.

We offset a couple a large user who we did a renewal with them, and relocated some stores. And on the comp store basis it was not a positive. But overall, including the whole pro forma, it was positive. And that impact the our statistics.

So, there's always a few outliers that happen that seem to impact the numbers. And we feel like we had more of those in the fourth quarter than we typically did.

That being said, we have first quarter, we always have the most renewals. And given where sales have been for some of the stores, like I mentioned, Aero or Justice or people like that then renewal leasing is going to be tougher.

So that's why we're just trying to be more cautious as we look ahead to this year.

Okay, thank you.

Thank you.

Michael Mueller of JPMorgan.

Just a quick one on dispositions. You talked about plan to sell more community centers during the course of the year. Just wondering about how much do you think we could expect? For 2016 and maybe into 2017.

It's going to be about $100 million, including the Renaissance sale. The equity that we will raise from the community centers. That's what we're projecting right now.

Okay. So that's $100 million equity being raised in 2016 so that's, debt aside, this is just cash coming in the door?

That's right.

Okay. That was it. Thank you.

Thanks Mike.

Carol Kemple of Hilliard Lyons.

Good morning. On your malls that you want to sell, can you give us any kind of information? How the market is out there? And what you're hearing from potential buyers as why they are not going through with any deals?

Hello, Carol. Like I said in my remarks, we are pushing hard on the mall dispositions. The debt markets have been the biggest challenge. But, we do have activity there. And like we said in our last call, that as soon as we have something to announce we will be announcing it.

Because we will be happy to share that news, that good news with the market. It's not an easy market. It's taking time.

We are still seeing activity with potential buyers. And there is that available. It just takes longer, and there's more hoops to jump through.

We are pushing it hard, and hope to be able to announce some things going forward this year.

Okay. And then a new leasing. Can you talk about what retailers you're seeing the most demand for? From?

Sure, H&M like I said, we are doing a lot with them. The cosmetics sector whether it's Ulta, Sephora, stores like that. L Brands, Victoria's Secret, Pink, Bath & Body, White Barn. They are just a powerhouse, and they just keep on putting up unbelievable numbers. Optical is a strong category.

Hot Topic and Torrid are doing very well. And then we've got some regional stores, like I mentioned. Altered State out of Knoxville, we are going with them. And they are doing a great job so there's a lot of good activity out there.

Okay great thank you.

Thank you.

D.J. Busch of Green Street Advisors.

Thank you. Stephen, you mentioned you did a portfolio deal with Claire's. Obviously they're one of the retailers that's been struggling. Certainly their bonds are trading like there's probably more of a stress to come. Why do a bigger deal with them as opposed to letting them move out and backfilling with a more viable retailer at this point?

I hear you on their bond as a corporation. But they are actually a really popular use in the properties. Girls, kids -- and a lot of girls got there first earrings and their first ear piercing at Claire's. And it's got a viable business in the properties.

And they've had issues that aren't only related to their performance. So, and we've also seen some good improvement in their sales recently. So the trends are positive. So we look at all that. And, at the same time we're trying to be proactive when we see weakness and lineup replacements.

So you see it more of just the way the debt structure issue is as opposed to Claire's is not really a [growing] concern for the mall going forward?

Yes I think they got overextended.

Okay. The decline in the percentage of NOI in the Tier 3 assets was pretty significant from last quarter. Obviously some of it was due to the composition, the addition of Mayfaire in Tier 1. The removal of Chesterfield. But it seems like some of it has to be due to a pretty wide difference in NOI growth. Is that the case? And if so, can you give us any color on what that magnitude could of been between the Tier 1 for instance versus Tier 3?

It's a little bit of a combination D.J. That's definitely a factor. But the Tier 3 growth in NOI wasn't that bad this year.

There's always been a pretty linear relationship. In terms of NOI growth from Tier 1 being the highest. And Tier 3 being the lowest. But, we didn't see that significant a discrepancy this year.

So it's more driven by some of the disposition activity. And the sales growth that we saw at a lot of Tier 3 properties. Then moved them into Tier 2. And Katie talk about Northgate here in Chattanooga as a good example. Pearland in Houston was another example. We're just seeing some growth out of those properties, that we really didn't have on our disposition was because we saw the potential.

So the composition changes when they move because of the sales growth. And then, as opposed to keeping them in the same tiers, and a read through to what's going on from NOI perspective?

Correct.

Okay. And then just a high level, you have talked about department store rhetoric being overstated. And how your dominant malls -- are the only game in town malls are doing quite well. The traffic was up in the Holiday Season.

Just from a high-level perspective, how you define only game in town? Or your market dominant malls within your portfolio? Is it really the only traditional mall in the market? Or do you look at all other retail types whether it's street-scape, power centers, lifestyle center?

How do you analyze that and get comfortable with the fact that you have the go to center in any given market?

It's really all of the above. We're looking at all the competition though. It's not just the fact that we are the only enclosed mall. It's market share, and its having the right location. It's distance from competition. So, Arbor Place in Atlanta has a dominant in its trade area. Even though Atlanta has a lot of malls. But there's not any mall for over 20 miles. And it really has a protected trade area that it serves. It's a lot of different factors that go into it.

Okay. Thanks guys.

Thank you.

Collin Mings of Raymond James.

Good morning.

Good morning.

Two questions for me. First, just a housekeeping question. It looks like the expected yield on your CoolSprings Galleria redevelopment ticked up a little bit this quarter. Can you touch on what's driving that?

Sure. We got in our actual costs. And we were able to save some of the cost during construction. And, we actually also did a little bit better on the actual rent. For the final lease-up. So we're able to improve that pro forma overall and we're really happy with that.

Okay. And then just switching gears a little bit. Back to the disposition strategy. I know you touched on it a little bit last quarter. But, Stephen, can you provide an update on your thoughts about providing seller financing. And, I think you mentioned in the past that you have looked at that and there might be somewhat one-off deals where you thought about using that strategy. Maybe just an update on your thinking there.

Yes. Like we said, we've been flexible in working with potential buyers. We've worked on joint venture structures. Like we're doing in Triangle. And that's something where we can take -- if we need to keep a small piece, we will do that.

So financing is something that we are receptive to. We wanted to be relatively short term, so that we see over the near term period, we are going to be really selling the asset. And not just basically doing a loan. That we're going to get something back in a couple years.

Are there any discussions are having right now where that's a meaningful component of potential transaction? Or not really?

I can't comment. But hopefully, we will have some announcements. And then we'll be able to give you all the details.

Okay. Thanks.

Thank you.

Rich Moore of RBC.

Good morning guys. First, is the only consideration for doing a new bond the level of balance on the line of credit? And the reason I ask is more of your floating rate debt is in term loans.

You can take some of that and term it out. That's the vast majority of it. Or are you just thinking about a bond, Farzana if your line of credit reaches a certain level?

Rich you are right. In all the comments you already pretty much answered it. The consideration for bonds would be if we drop too much on our lines, we would like to reduce our floating rate debt.

And you're right, we can fix the term loans with a swap or cap. That's easy to do. So we can reduce that exposure. That's about an $800 million in term loans. The reality is, we don't need to go to the bond market later this year.

If the market is not favorable. And assuming we continue to get the equity from the sales we have teed up for our community centers. So you're pretty much right what you just said.

So you don't replace any of the term loans with permanent debt then? Is that right?

That's right. Only the lines of credit. We will pay down the lines of credit.

Okay, got you. Then on Chesterfield, I'm curious. What makes that different? I realize it's the closest to the two outlet centers in St. Louis. But you think about the other malls you have in St. Louis and I guess people could get in a car and drive over to the outlet centers.

How do we get comfortable that there are not issues at the other centers in St. Louis that are similar to what's going on at Chesterfield?

Yes the outlet centers are three miles away from Chesterfield. And you have 2 million square feet that were added, and from a competitive point of view it really hurt. It really crushed Chesterfield.

Because a lot of the stores, because of what happened there, Simon won the outlets. Taubman had all this square footage. Taubman started coming after all the Chesterfield stores and trying to get them. And it's just turned into a mess.

The other malls are further a lot further away. West County, actually is the closest. And West County is over [$500] a foot. It's with the Galleria, those are the strongest properties in the market by far.

We've seen sales increase there. They had an initial dip in the outlet open but they have come back strong. And in the other malls in St. Louis, St. Clair is all the way on the other side of downtown.

It's an hour away. Mid-River, South County also are farther away and they have got really strong trade areas that they serve.

Okay, so really Stephen, the impact the Chesterfield is unique

Correct.

Okay. Good, thanks. And the last thing. I'm curious, going back to the buyback for a second. And personally I'm not a big fan of re-stock buyback plans.

So I'm fine with that. That you haven't done it. I think that's great. But I'm curious why you have that plan when the stock is obviously fallen significantly from the time you put that in place.

What is the purpose of having that plan if you wouldn't buy stock back at this level?

I think it's great to have it as an option. And, like I've said, we're exploring opportunities in addition to just selling the lower Tier joint ventures. Or other capital raising opportunities.

And if we were able to realize one of these, then that would be a great use. Especially at the stock price of where we are. So, it's just given the community center sales, and the amount that we've realize so far and also the debt markets.

It's low on the priority. But I think, down the road, we're hoping that we can take advantage of where the stock price is. And buy some back because it's such a great opportunity.

Okay, thank you guys.

Thanks, Rich.

Linda Tsai of Barclays.

Hello. The discrepancy in NOI growth between the Tier 1, 2 and 3 assets, would you expect this level discrepancy to remain similar level in 2016? Or do you think one or more tiers will grow faster than the others?

The Tier 1 has historically grown faster. And we expect that to continue. And when we initially announced our plan in 2014 our goal was to go from [0 to 2 to 2 to 4]. And having a higher concentration in Tier 1 and 2 is what gets us there.

That's the pattern that we've seen, and we would expect that to continue.

Would you expect Tier 3 to remain similar?

Well, Tier 3, because it's shrinking, as a the percentage of our portfolio, is less [than] an overall impact. So now we're down to 11%. We're hoping to push that down into single digits. So that should allow us to have better growth and it will be less of an impact.

Thanks. And I realize you have many more malls than outlets. But any comments on over-sales trends there versus the enclosed malls? And maybe comments on traffic at both formats?

I'd say -- (multiple speakers).

During the Holiday Season.

The Holiday Season was pretty comparable. We had good traffic at the malls and the outlets.

The outlet in El Paso, which is on the border, had the toughest sales just because the dollar and the impact of that. But Louisville and Atlanta both have really strong growth. And we're seeing good traffic and the leasing is still strong, and the sales are doing well.

Thanks.

Christy McElroy from Citi.

Its Michael Bilerman with Christy. Stephen, I'm curious. You talked in some of your comments about not understanding the markets focus on the obsolescence risk with your asset base. And that the market is clearly sort of undervaluing the assets.

When you step back from it, and you think about [BAM] taking Ralph's private. And it's not just your stock within your asset base that's being impacted. But I guess you step back and say the public markets perhaps is not the right sort of fit for your type of assets that your operating?

And that it's much more akin to a private marketplace? And I've been following the Company for almost two decades. The first part of that decade your stock dramatically outperformed mall REITs. As well as the REIT sector.

It's really been the last nine years that you have seen this much larger discrepancy. When you step back from it, with all these things going on, how do you think about the Company being public versus private?

Yes, that's a tough question. I'd say that we are very happy being a public Company.

We are frustrated with our stock performance. And we do feel like there's a disconnect there. But, we believe that the market over time, will see the value of our properties, of our strategy, and of our Company.

We are not in this for the short-term. Like I said we are 11.5% owners of the Company. So we are fully vested in it. The Brookfield Ralph's thing, for us, just validated the opportunity.

Because of the cap rate that they bought those properties at. You've got Brookfield, a very smart, savvy investor saying number one, that they're comfortable with the malls in our Tier going forward. They're putting significant money behind it, at a price that is dramatically above where we are trading.

That was, we thought, a real positive for us and for the overall space. Being public has been a great thing for us over our 20 year-plus history. It's given us a lot of opportunities. And we are excited about the future.

Like I said, of course, it's frustrating to see where our stock has been trading. But we feel like this quarter was a really good quarter for us. We ended the year strong. It was a tough year, and we are positive going forward.

Do you think the public markets in terms of trying to execute what you want to execute in terms of the sales and the REIT positionings is just maybe better done in private versus public? Where your assets do need a little bit more attention and there is a certain amount of uncertainty in the challenges you been dealing with the past couple of years?

Having financial partners is part of the business. And whether it's a public or private partner, then they are going to look at I think, in a similar way. And, the other thing is, things take time in real estate. They don't happen overnight. I wish they happened faster.

But, we did make some real progress on dispositions. The community centers are happening faster, and we're working the malls. And we're just going to continue to push our strategy.

We think it's the right strategy. And hopefully, we can make some meaningful progress and get it out there.

Lastly on the site buyback. And I recognize some of the power center sales. And some of these other lower Tier mall sales will provide you some capital. Obviously, importantly to delever.

But to execute on the stock buyback you talk about. Is there any thought you go back a number of years where you had done the joint venture on some of your higher quality malls. And I recognize doing that would enlarge the base of the others.

But, given the fact that there is more capital and certainly partnership capital at the higher levels of your portfolio, would you execute on that? Or would you entertain that? To delever quickly and provide that capital if you truly believe the stock is that discounted to be able to act today rather than wait?

You've got to assume doing a joint venture on one of your top-tier malls is a lot easier than going to through process on some of the weaker assets.

We get our best growth from our Tier 1 properties. So we are giving up the growth if we do that. And I think our sense is, that the markets giving us credit for those Tier 1 properties in our stock. It's more of the Tier 3 and even some of the Tier 2 now that they're questioning.

Okay. All right. Thanks for the time.

Thanks Michael.

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

Thank you again for your time this morning and we look forward to the rest of 2016. Have a great day.

Thank you, Sir. The conference has now concluded and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.