CBL & Associates Properties, Inc. (CBL) 2016 Q1 法說會逐字稿

Good morning and welcome to the CBL & Associates Properties Inc. first-quarter 2016 earnings conference call. All participants will be in listen only mode.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Scott Britton with Corporate Communications. Please go ahead.

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties Inc. conference call to discuss first-quarter results. Presenting on today's call are Stephen Leibovitz President and CEO, Farzana Mitchell Executive Vice President and CFO, and Katie Reinsmidt Senior Vice President of investor relations and corporate investments.

This conference call contains forward-looking statements within the meaning of the Federal Securities Laws such statements are inherently subject to risks and uncertainties. Future events and actual results financial and otherwise may differ materially. We direct you to the company's various filings with the SEC for a detailed discussion of these risks.

A reconciliation of non-GAAP financial measures to the comparable GAAP financial measure will be included in today's earnings release and supplemental that is furnished on form 8-K and available in the investing section of the website at CBLproperties.com. I will now turn the call over to Mr. Lebovitz for his remarks.

Please go ahead Sir.

Thank you Scott and good morning everyone.

We are pleased to generate such strong results for the first quarter and are encouraged by the overall health and resiliency of our properties. We reported adjusted FFO per share growth of 8% to $0.56 and same center NOI growth of 2.8% putting us on track to meet our goals for the remainder of the year. Demand for space in our portfolio was strong across all tiers as we boosted occupancy 130 basis points in our same center mall portfolio to 91%.

Overall occupancy increased 70 basis points to 91.6%. We leased over 520,000 square feet in our portfolio this quarter. Renewal leasing was down 3% which we anticipated due to a couple of portfolio deals with retailers with high occupancy costs. However new lease spreads were excellent, increasing 24%. While we expect continued pressure on renewals, results should improve as we move through the year.

Sales in 2016 are off to a solid start with a rolling 12 months increase of 2.4% to $378 per square foot. Categories performing well include athletic shoes, beauty and cosmetics, as well as intimate apparel, jewelry, and most children's retailers. Juniors have been mixed with certain brands increasing double digits and others declining. Overall we expect a positive sales environment for the remainder of the year.

Despite the hype regarding online sales, retail sales generated through e-commerce to date still represent less than 10% of total sales. While online sales will continue to grow mobile and omni-channel strategies are proving to be the most successful, as previously online-only retailers are opening physical stores. With the high percentage of only-game-in-town malls in our portfolio we are well-positioned to benefit from this trend.

At the same time our properties are evolving to offer more captivating experience for the customer, rather than exclusively focusing on shopping. The majority of our properties enjoy unique franchise position in their markets. They are more than just a great shopping destination they are suburban town centers were customers gather with friends to dine, shop, and be entertained.

Consistent with this trend, on May 2 we will open Kings bowling and entertainment in Cool Springs and we're adding more restaurants, entertainment uses, fitness centers, dine-in theaters, and other unique uses to our properties.

We have seen an increase in bankruptcy activity recently although the revenue impact is somewhat diminished since filing retailers have moved towards reorganization rather than liquidation. We have 42 PacSun locations representing less than 50 basis points of total revenues. We anticipate five store closures in our portfolio, as well as rent reductions for certain stores with excessive occupancy cost.

We're estimating an impact of roughly $1.6 million to total revenues for 2016. Aeropostale is rumored to be close to filing. We currently have 69 locations representing 94 basis points of total revenues.

In our portfolio their occupancy costs are generally reasonable. We expect them to follow a similar path as PacSun and maintain as much of their store base as possible. We are monitoring the situation closely and expect an impact of approximately $2 million to total revenues for 2016.

While there has been much in the press regarding store closures and department stores, we expect minimal impact on our portfolio due to our higher percentage of only-game-in-town properties. Sears is closing one store in Midland, Michigan where the lease is expiring in October. While we have several replacement prospects, given the loan amount and maturity later this year, we're working with the lender on this property. Department stores in general are performing well across our portfolio. Where this is not the case, we have successfully used anchor redevelopments as opportunities to diversify the offerings of our shopping centers, reduce exposure to under performing retailers, and solidify the centers dominant position in the markets for the long term.

Moving to dispositions we have made terrific progress in our program year-to-date with two mall and two community center sales completed. DRA and institutional investor purchased a 90% interest in Triangle Town Center in place in Raleigh, North Carolina for a total sales price of $174 million.

In addition to reducing our ownership from 50% to 10%, this transaction removes $68 million from our pro rata debt balance. Concurrent with the formation of the new JV, we restructured the nonrecourse loan secured by the property, extending the term a total of five years and reducing the rate to 4% interest-only.

We also completed the sale of a 75% interest in River Ridge in Lynchburg, Virginia to Liberty University, generating net proceeds of $33.5 million. While we do not release specific cap rates for transactions, the pricing on this asset was materially better than other recent sales of what are considered to be B-malls.

The reality is that not all lower productivity malls are comparable, which contributes to the wide spectrum of pricing in recent trades. Most of the malls we're selling are similar to River Ridge as a dominant or only mall in their markets generating stable cash flows. Many offer upside to anchor other redevelopment opportunities. They play an important role in their communities providing jobs, property in sales tax revenue, and enjoying strong local support. These malls have a sustainable long-term position and are attractive to private, local, or regional buyers.

We are pushing to make additional progress on our mall disposition program. While the financing environment continues to present a challenge we have found creative workarounds to complete these recent transactions. We are receiving solid interest in properties that we are marketing and will update the market with additional announcements throughout the year.

As we work to complete more sales, we continue to benefit from the significant free cash flow of these properties generate, which we use to find a creative redevelopment and new development projects. Our community center portfolio has received a tremendous reception in the buyer market, allowing us to quickly generate significant equity and take advantage of favorable market pricing.

On April 1 we closed on the sale of Renaissance Center in Durham North Carolina for $129 million, or $64.5 million in our share. We also completed a sale of a grocery-anchored strip center in Middle Smithfield, Pennsylvania for $22.2 million. Altogether we have completed $160 million in community-centered dispositions at our share since announcing the program in the third quarter of last year.

Equity raised through these dispositions allows us to strengthen our balance sheet by deleveraging and improving liquidity. While we lose EBITDA through asset sales, the cap rates are attractive, such as these transactions improve our debt to EBITDA multiple.

I will now turn the call over to Katie to discuss new developments and redevelopment activity.

Thank you Stephen.

We recently celebrated the grand opening of Ambassador Town Center in Lafayette, Louisiana, a joint venture project with Sterling Properties. The 438,000 square foot center opened 97% leased with anchors Costco, Dick's Sporting Goods, Field & Stream, Marshals, and Nordstrom Rack. Initial sales reports from the retailers are very strong with numbers meeting or exceeding projections.

As we mentioned last quarter, our outlet center partner Verizon has been successful in sourcing strong outlet projects in recent years that have all met the required return in pre-leasing thresholds. The centers we have developed together are thriving and have created significant value for shareholders. Soon we expect to finalize our documentation, initiating an special media release announcing our newest 65-35 joint venture project with Horizon which will be located in Laredo, Texas. The 350,000 square foot center will be the only outlet for 180 miles, serving as a regional destination as well as providing a value shopping option for the 4.5 million people living in Monterrey, Mexico and the nearly 1 million people in Laredo and Nuevo Laredo.

Leasing is nearly 80% with an excellent lineup including Michael Kors, Brooks Brothers, Nike, Under Armour, and Puma. We expect another strong opening with high interest in the remaining space. The economics of the projects are favorable as well, with an initial unleveraged return approaching 10%. The Outlet Shoppes at Laredo is under construction and scheduled to open this November.

Redevelopment projects are an excellent use of our capital as they generate strong risk-adjusted return. Additionally our redevelopment efforts have resulted in a significant reduction in our average anchors per mall. In 2007 we averaged 5.4 anchors per mall. At year end 2015 we averaged 3.9 anchors per mall and that number is continuing to decline as we proactively take back locations to bring in more productive and diverse uses.

A great example of this is the former JCPenney at College Square in Moorestown, Tennessee where we proactively negotiated a lease termination last year. This will allow us to add a Dick's Sporting Goods and Ulta, with openings planned for later this year. At North Park mall in Joplin, Missouri we replacing a former ShopKo box with an 80,000 square foot Dunham's Sporting Goods. Construction will start later this year with the opening scheduled for November.

At Randolph Mall in Asheboro, North Carolina, a new Ross and Ulta are set to open soon in the former JCPenney location. We're expanding Friendly Center in Greensboro, North Carolina adding West Elm and Pieology as well as Cheesecake Factory in a freestanding location. The new stores and restaurant will open later this year. Construction will begin soon on a new Regal Cinema adjacent to Hamilton Place, bringing the first luxury theater experience to the Chattanooga market.

We will also shortly began our expansion project at Mayfaire Towne Center in Wilmington, North Carolina bringing H&M, Palmetto Moon, and West Elm to the market. We're pleased with the positive results from our redevelopment and expansion program and will continue to prioritize it throughout the portfolio.

I will now turn the call over to Farzana to discuss our financial results.

Thank you Katie.

Financial results for the fourth quarter were excellent with adjusted FFO increasing 8% to $0.56 per share. Major drivers of growth and FFO include higher minimum rent and tenant reimbursements from occupancy and rental rate increases in the quarter. Percentage rents also increased $500,000 as sales improved. We continue to reduce our overall cost of borrowing and are benefiting from interest savings, including our nearly $4 million decline for the first quarter.

Operating expenses, real estate tax, and maintenance and repairs were relatively flat. G&A for the quarter declined to $15.5 million, net of $1.7 million of expense related to a litigation settlement. Excluding this one-time item, G&A was 5.9% of total revenue for the quarter, compared with 6.6% in the prior year quarter.

Our cost recovery ratio for the first quarter was 96%, compared with 95% in the prior year period. Same center NOI in the quarter increased a healthy 2.8% for the total portfolio and 2.5% in the mall portfolio. NOI benefited from top-line growth and expense controls this quarter, with revenue increasing $4.7 million and operating expenses declining $0.3 million.

Minimum rents increased $2.5 million as a result of rent growth and occupancy increases over the prior year. Percentage rents increased by $0.7 million in our same center portfolio due to positive sales growth. Tenant reimbursement increased by $1.6 million. Property operating expense declined $0.8 million, partially offset by a $0.3 million increase in relative tax expense and a $0.2 million increase in maintenance and repair expense.

Based on fourth-quarter results in our current expectations for the year, we are reiterating our official guidance of $2.32 to $2.38 per share with same center NOI growth of 0.5% to 2%. Our guidance range reflects the anticipated impact from expected bankruptcy and store closures including PacSun and Aeropostale. Our guidance assumes a 25 to 75 basis point improvement to stabilized mall occupancy throughout the year, and does not include any unannounced dispositions or capital markets activities.

Our investment grade balance sheet continues to improve. Total debt was $5.3 billion at the end of the quarter, a $78 million decline from prior year end, from year-end 2015. Our weighted average interest rate improved 42 basis points from the prior-year period to 4.49%, as we enjoy the benefit of lower fixed rate debt from refinancing and our new lower spread on lines of credit.

At March 31, we had owed $700 million available on our line. Since year-end we have raised $96 million in equity from dispositions, which matched off nicely with our midyear maturities. In April we utilized these funds towards the payoff of four loans on two malls and to associated centers totaling approximately $100 million. Outside of this and we have approximately $130 million of loans on a wholly-owned properties maturing that we anticipate retiring later in the year. The debt yields on these loans are in the mid-teens.

As we discussed last quarter, we have $140 million in nonrecourse loans secured by Chesterfield Mall and $32 million nonrecourse loans secured by Midland Mall maturing in the fall. We evaluated restructuring these loans, but determined that a restructure is unlikely to make financial sense for us. We recorded an impairment charge related to Midland during the quarter as a result of the change to our expected whole period. We also recorded in impairment charge related to the sale of River Ridge.

As Stephen mentioned we completed at very favorable restructure of the loan secured by Triangle Town Center, reducing the interest rate to 4% interest only and extended the term for an outside maturity date in December 2020. We also completed the restructure of the $27.4 million nonrecourse loan secured by Hickory Point Mall in Forsyth, Illinois.

The loan term has been extended for an outside maturity date of December 2019 and while the interest rate remains at 5.85%, amortization was eliminated. This restructure increases the cash flow after debt service to fund the repositioning of the mall with large box users.

With the improvements we've made, we have tremendous flexibility, putting us in a great position to address some maturity and funding needs through 2017. We generate more than $220 million of annual free cash flow after dividends to fund our capital improvements and redevelopments, which allow us to grow EBITDA without borrowing our credit metrics. Further progress on disposition will provide an additional equity source to improve on liquidity.

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

Thank you Farzana.

We are making great strides on our strategic objectives of improving our balance sheet and liquidity position, transforming our portfolio through asset sales, and investing in value-added redevelopment and development projects. Our portfolio is evolving, becoming stronger, and better positioned for future growth. We're looking forward to a very productive recon in Las Vegas in just a few weeks. Our schedules are already full of meetings with retailers that want to do business in CBL's portfolio of market dominant centers. We look forward to seeing many of you there as well.

Thank you again for joining us this morning and we'll now take questions.

We will now begin the question and answer session. To ask a question, you may press star then one on a touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Christy McElroy of Citigroup. Please go ahead.

Good morning. Stephen I just wanted to follow up on the renewal spreads. You mentioned portfolio deals which retailers specifically did you do the portfolio deals with that impacted the spreads this quarter, just some more color on that. And you mentioned the likely improvement in that metric as the year goes on, what should we sort of be thinking about in terms of a more normal level?

Sure, Christie. Good morning. So I would just say a couple things, first even though releasing spreads were the war in this quarter's earnings, please don't take away from what we accomplished with our NOI growth of 2.8%. And like we said last quarter, we anticipated pressure on releasing spreads, and just from a bigger picture strategic point of view we prioritize occupancy; we saw a really good progress on occupancy with 130 basis point increase there and we also prioritize same center NOI growth. And we've had the best results this quarter in a number of years on that front. So the releasing spreads is one piece of it but I really hate for the focus of this quarter's results to be primarily that.

Now just to answer the specifics on your question, I don't want to name any specific retailers but there are a couple categories that we have been talking about for a while, primarily juniors and children's ready-to-wear, where sales the last couple years have had decreases. When you get a lease up for renewal, it's really a discussion of occupancy costs as a percent of sales and the health ratio and so because of those sales decreases, in certain cases, the rent actually rolled down versus being flat or increasing; and that's really the factor that hit us. A couple portfolios like I mentioned in those categories, juniors and children's ready-to-wear, and it was disproportionate and dragged our renewal spreads down for this quarter. First quarter is historically when we have the largest number of renewals, so as we go through the rest of the year, it won't be as much of an impact on our overall leasing. And also, we do expect to see, just based on the other retailers that are coming up as the year goes on, better results; but it's still going to be a challenge. We're not expecting us to be able to be in the double-digit or high single-digit range, like we had been, it's going to be closer to breakeven low single digits.

So how do you think about renewing those leases to the struggling retailers and the risk associated with that versus not renewing and trying to release that base to other better performing retailers. And also, is there a difference in the duration of the lease -- the duration of the lease versus shorter-term versus longer-term versus where you would do for another a better performing retailers?

Yes. We are definitely trying to release those spaces, but one of the impacts of the bankruptcies last year is that we still have vacancy that we're not back to 100% of the level we were at the beginning of 2015. So we have those spaces to backfill. So we've said we're going to keep these stores open. We will go shorter-term on the renewals and then in certain cases we'll get a right to recapture and we are pushing to bring in new retailers in our new lease results in terms of lease spreads have stayed strong and haven't fallen off at all. So that's a big priority for our leasing team, to replace a struggling retailer as much is possible but in the interim we'll nurse them along, we'll generate the NOI, and we'll give ourselves the flexibility to replace them we have someone to do so.

Thank you.

The next question comes from Todd Thomas of KeyBanc Capital Markets. Please go ahead.

Hello thanks. Good morning. Just to follow-up on the leasing, how much of the 409,000 square feet of renewal leasings included in that portfolio deal bucket, and if you back that out, any idea what the renewal spreads would look like on the remaining square footage renewed?

Yes, I would say roughly 50 of it was the portfolio deals and we would have still been kind of in the low single digits, so I wouldn't say it was robust otherwise, but when you take that out we are definitely in positive territory. And then the other thing I would say is that retailers, they turn around their performance over time so one of the benefits of keeping these retailers in is that they are working to change their strategies and to pick their business back up. That's something that contributes to our strategy as well.

50,000 square feet or 50% of the square footage?

50,000.

Got it, okay. And then where were the occupancy cost ratios on average for these 50,000 square feet, I guess, and where does the renewal rent sort of take down occupancy costs for these retailers?

I don't have that number in front of me. In general the retailers are trying to be in that 12% to 13% range which is where our average is. But if we get up into higher teens, that's where it impacts us the most and the retailers -- there's a lot of stories out there about closing stores, but the retailers still -- they are not in the business of closing stores. They're in the business of making money, and so if the occupancy cost is out of line then we'll work with them, but it's not about closing stores it's more about just making sure they're profitable.

Okay and then in terms of the outlets in Laredo, I imagine it adds to the retail hub in that market, but just curious with Mall Del Norte just a few miles away, if you would expect there to be any impact on sales, maybe at the open of the outlet center for a year or so?

Hi Todd, it's Katie. We definitely have seen that in other markets where there was a short-term impact on the existing mall that's in the market, but Laredo and Nuevo Laredo have a population of about 1 million people, plus your drawing from a much broader region. There's the nearest outlet being about 180 miles away, so it's really a regional destination. We have Monterey that has 4.5 million people that's nearby that it will pull from as well, so we do expect there to be a short-term impact but it should recover very quickly and start back on its trajectory of growth that we've seen from it.

Alright, great and just real quick lastly, the $1.6 million impact to 2016 revenue that you're expecting for PacSun and the $2 million for Aero that you're expecting, Farzana, was any portion of that realized in the first quarter or is it still to come?

That's still to come that's the pro-rata that we expect in the next nine months to have an impact on our guidance so that's really where our guidance has remained the same because of this impact that we anticipate.

Okay. Thank you.

Thanks Todd.

The next question comes from Tayo Okusanya of Jefferies. Please go ahead.

This is George Hoglund on for Tayo. Just a question about the disposition market. Just in terms of what's the appetite you're seeing from potential buyers, and then also for deals that you would expect to complete over the back half of the year. Do you expect to retain interest in some of these sales or do you expect more, sort of, 100% outright sales?

Hi George. We continue to have good interest in the properties that we are marketing right now. The financing environment continues to be a little bit challenging, but we've been successful in finding creative ways to work around it, and we did do a couple of JV transactions. You know that's still on the table for us, in the future we would obviously prefer to do 100% dispositions, and we will work towards that, but we are flexible and reducing our interest in these assets is an alternative that makes sense if we can get the right pricing and if we can get a transaction achieved.

Okay, thanks and then just one thing on the overall store closing environment. I guess relative to a couple months back, are you guys viewing it as a sort of incrementally a little bit better, or incrementally a little bit worse, or relatively the same?

Sure. Well, I'd say pretty much the same with the exception of the PacSun bankruptcy and the Aero pending bankruptcy, those are two that have been on our list for a while and we've been watching them but beyond that we really haven't seen retailers closing stores. Sears announced a round of closings but it was primarily Kmart and there were a few Sears, and like I said we had one of those in our portfolio, but again it's a lease expiration we expected it to come. And it's really pretty healthy overall from the retailer's point of view. We are still seeing new retailers that are coming to the properties that are expanding that are growing whether -- we're doing a lot with H&M still and their growth and all brands with Victoria's Secret and Pink and Bath and Body and White Barn is growing, and the Footlocker brand is really strong in footwear, and cosmetics is strong; and so we are seeing categories, fitness and lifestyle related, and then were also continuing to see the interest in the boxes, and coming into the properties and restaurants and I talked about the entertainment uses, so we've seen this broadening of the mix that actually is helping us. It's reducing vacancy and taking some tougher spaces. So we are very positive, we've got a lot slated for Vegas next month, and we're excited about that and then we follow that up about a month later with our leasing event here in Chattanooga Connection, where we have about 150 retailers that come visit us so we are feeling good about where things are headed.

Okay thanks.

Thank you.

The next question comes from Lina Rudashevski of JPMorgan. Please go ahead.

Good morning. I was just wondering are you looking to do a bond deal still this year?

Hello Nina. We're looking for the favorable market conditions to issue bonds, but I we can't speculate right now whether will do one this year or next year, but obviously we are vigilant. We're looking in the market and hopefully the market will improve as time goes on. They're still schizophrenic right now, one day up, one day down, so you can't predict how the bond market is reacting, so we -- that's our expectation later this year or maybe next year. And we also don't really need to do one this year, we have pretty much taken care of all of our maturities, and we expect that with potential sales on our community centers as we continue to dispose those that will pretty much give us the liquidity. So we will be very selective when we go out to the market and we want to make sure we print the correct paper in terms of interest rate and where cost of capital would be.

Was there a follow-up Miss Rudashevski?

No thank you.

Thank You. The next question comes from Caitlin Burrows of Goldman Sachs. Please go ahead.

Hello, good morning. I was just wondering on the Laredo outlet project, what drove your decision to move forward with the ground of development there, versus deleveraging or buying back shares

Hello, Caitlin. I don't think deleveraging is off the table and we certainly still look at a stock buyback and our stock is obvious it continues to be very attractive. So it wasn't an either or decision. We are developing the center to a really nice initial unleveraged return nearing 10% and what we've seen from our outlets is, initially they've meet and beat our initial performing return. So we would hope to achieve that here at El Dorado as well. The tenancy there is great, it's got a two level Nike store that's really amazing, and should be a very attractive draw and so we expect a lot of growth for it. So we understand our stock is certainly trading at a deep discount right now but the growth that we expect from Laredo should be above portfolio average. It's in line with our strategy of taking cash flow into position proceeds and redeploying it back into projects that will provide that outside growth. So we feel confident that this is the right decision. We've achieved an 80% pre-leasing level effectively and expected to have a very nice opening. The other outlet center projects that we've opened have been in the mid-90s, so it really derisks the return for us and makes it a tremendous amount of sense.

Okay and then also given the JVs that you guys announced in the quarter and the planned leasing and management fees, how should we expect this number to trend going forward from the roughly $11 million in 2015 and $2.6 million in the first quarter of this year.

Can you just repeat that?

Just in terms of the sales that you've done where you've retained an interest and will continue leasing and being responsible for management, so generating some fees on that; just wondering how we should ask that line item to, I'm guessing increase going forward, if it will?

I mean we'll generate some additional fees, but it's not going to be that material in terms of our overall numbers. And we have picked up some third-party business as well, so it will help in terms of the FFO number, but again it's not going to be anything to move our numbers significantly this year.

Okay, thank you.

The next question comes from D.J. Busch of Green Street Advisors. Please go ahead.

Thank you. I just have a couple follow-up questions. Going back to the Laredo outlets, is that something is that site something that Horizon has been working on for a while and you guys are stepping into partner with, or were you guys part of the site selection as well?

Horizon has been working on it. I mean we've been aware of it in partnering with them in the redevelopment, waiting for them to achieve the right pre-leasing thresholds. We certainly spent a lot of time looking at the site and making sure that it made sense for us and that we were ready to hop in. So that's -- the opening is later this year. Horizon was confident enough in the project that they started construction on it, and we will finalize our documentation here shortly and be officially in the project.

Katie, you mentioned that you expect some near-term sales decreases at Mall de Norte. I think the sales have -- it declined a little bit in 2015, probably due to the stronger dollar or what not, but it looks like this outlet's location is kind of cutting off a main artery to get to Mall de Norte and I would imagine that, that middle income customer is something that's very important to Mall de Norte. How did you guys think about kind of one of your best assets in the portfolio in bringing competitive retail so close, to going back to Todd's question, just a couple miles away.

Hi D.J. it's Steve, and I just say a couple things. First in the market there's enough demand for outlet centers that there was going to be an outlet center built and Horizon wasn't the only party looking so from our point of view, we'd rather be part of it than not part of it, because of the synergies between Mall de Norte and the outlet. And then we been able to work with them to differentiate mall de Norte from the outlet in both in terms of the shopper experience, and also the types of retailers and there's some overlap, but there's a lot of retailers that are going in the outlet, like Katie mentioned, Nike and Under Armour and Michael Kors and Old Navy and brands like that that are going to come into the outlet, and are going to hopefully grow the market overall and then we also are drawing from that broader trade area. And we've seen in a number of markets outlets open, and the impact is kind of that mid single digits low single digits first year but then over time we see positive trends in terms of the overall market because it does grow the customer base.

Okay. And then in the supplemental, you last quarter -- you excluded the lender malls, which makes sense, but it looks like there was some other excluded malls in the most recent disclosure, as it relates to the minority interest properties and repositioning. I know it's probably immaterial to the same property NOI growth that you reported, but why are you removing some assets from the same property pool, just can you give us a rationale for that?

Hi D.J. Yes, the minority interest properties we own 25% or less, so we felt like it's not core to our business. We were successful in disposing of the vast majority of that, and so we don't think it reflects the true growth of our core portfolio. So you're right, it does have some contribution but it's not meaningful and we report over 94% of our total NOI on a same-store basis, which is better than most of the peer group out there.

And then what about the repositioning assets?

The repositioning assets are assets where we have some major redevelopment plans that we are considering, so the growth in those properties is not truly reflective in the near-term of what the long-term growth would be. So once we figure out whether we're going to proceed with the redevelopment and put those plans into motion, then we can reconsider putting those back into the same center pool.

And are those repositioning assets, were those part of the assets that were in the disposition program?

They were considered long-term dispositions. Some of them have a couple of anchor redevelopments and things like that, that we need to finalize plans for. And we will keep working those through and making sure that the redevelopments make financial sense, that we're appropriately allocated capital to those assets if necessary, and we have some -- one of the properties has some financial assistance from the community there that we are working through. So there's a number of things that -- moving pieces on those that we would need to finalize before moving on a final decision on those properties and whether to move forward with the redevelopment.

Okay and last question if I may. Stephen you mentioned the demand for some of the assets that you're trying to dispose of. It's there and its solid and some of the cap rates that we've seen and we can all kind of I guess, guess what transactions you speaking to because some of your peers have that much more aggressive in price takers on dispositions. If the demand is there, how come we haven't seen more transactions? Is it just simply the spread between the bid in the ask, I guess, still too wide from how much you believe these assets should trade for, and what the going price is for the buyers?

Well I'd say a couple of things. I mean there's no question there's been softness in cap rates and some of the peer transactions haven't helped the overall marketing, but that really hasn't been the barrier. The financing markets are still the biggest challenge and even on loan assumptions the timeframe that it's taken has been significantly longer than we would've even expected worst-case, and the servicers are difficult when we have a loan assumption involved. And so that's been a challenge it's taken longer and like I said we're pushing this. We do have good interest from regional and local private buyers. Some of it depends on whether financing is required or not. The CMBS market has come back and that's helping us and we are seeing financing available from regional and local banks too. And so, the financial markets overall are better today than they were, say in our last call, in its top priority for us and as soon as we have news to get out there, believe me, you'll be the first one to hear or maybe the second.

Okay, thank you guys.

Thanks.

The next question comes from Carol Kemple of Hilliard Lyons. Please go ahead.

Good morning. In the first quarter of 2016 how did your same-store sales compare to the first quarter of 2015?

So in the first quarter of 2016 sales were not up as much. First quarter of 2015 was very strong because we had a calendar year adjustment, we had an extra week in the quarter for sales. This year we are back to a more normalized calendar, and this year was kind of a little bit of a roller coaster. January was soft just because there was a lot of bad news out there in the press, but then February picked up, and March was decent with the early Easter. But we, like I said, we are up overall in our rolling 12-month sales, almost 280 a foot, I mean, 380; excuse me. And 2.5% gross so we are seeing good growth in our sales overall. Certain retailers who had been having negative results have stabilized and started to turn things around and we expect a healthy environment through the rest of this year.

So I guess overall in first quarter would you say sales were about flat or down a little?

I know they were up. They were definitely up.

Okay and then I noticed on the income statement your other expense line item was up significantly over last year. Is there anything one-time in that or is that a good first quarter run rate?

Hello, Carol. That was a one-time item. It was a AR for third-party business that our subsidiary that we own. They had an AR write-off, so that was a factor one-time factor, it should not continue next quarter or subsequent periods.

So we can think of first quarter of 2017 similar to first quarter of 2015?

Yes, that's right.

Thank you.

Thanks Carol.

The next question comes from Floris Dijkum of Boenning. Please go ahead.

Thank you. I had a question regarding the occupancy gains that you guys had which was pretty impressive at 130 basis points. Could you tell us a little bit more on which segment of your mall portfolio that was focused?

Sure, Floris. It really was the biggest gain that we had was in Tier 2. And it was a couple factors behind it. We had the H&M's from last year come online and even though they don't go into occupancy because they are over 20,000 square feet, we used up some of the prior vacant spaces as part of those, so that helped us. And then just the releasing of the bankrupt spaces from last year when we had lost over 300 basis points in the first quarter, and so the progress we've made, and that really isn't any one retailer. It's a diverse group of retailers that were able to use to bring into that. And so the gains were really pretty consistent, but Tier 2 definitely led the way.

Great. And have you guys on your portfolio deals, would you consider doing leasing to, say someone like an H&M, in some of your lower productivity malls purely on a turnover basis or have you done in that in the past, or how do you look at that?

So we've looked at it in a couple of the Tier 3's to position them better for sale and it is -- it's not an insignificant investment but it does give us a more attractive asset from a buyer's point of view, and it also will bring other retailers in. So that's something that we definitely have done. And we've done that with a couple of the department store vacancies where we released them to Dick's, Ross, Ulta, users like that and then we got a better property from a marketing point of view to potential buyers.

And buyers don't look at that Stephen in terms of, we're not getting much income for that, or it do they just look at that we've got a good -- what's the feedback you've had from potential? I guess it's been positive, but do they look at it more as similar occupy space or do they look at it rents they are receiving?

Well, they underwrite the rent so if whatever rent H&M or whoever's going to pay, we're able to get credit for it in the cap rate on the property, and you know it also depends, it can go either way. In some cases we can adjust for the investment and then that gets counted and the buyer will reimburse us for the investment and then they'll get the upside through the rent. So it depends on the specific maybe negotiation but there's always a component of value received, either avoiding the cost or the income.

Okay. Thanks. I guess in terms of dispositions I guess, you say you can't obviously forecast the dispositions, but in terms of the hand backs do you have sort of a target over the next 18 months? You've mentioned a couple of obviously Gulf Coast and you've mentioned Midland but are there any potential other assets that we should expect are going to go back to the lenders?

Hello, Floris, this is Farzana. We've listed of course Chesterfield in Midland, and Gulf Coast, those are the ones that we know today we are targeted, where we believe it's the right decision for us to return them to the lenders. I don't foresee anything in the future but that's not to say that we won't change our minds so we have to look at it deal by deal. And as the loans mature, whether the debt deal makes sense in comparison to the cap rate and what's the investment value in the future, in terms of how much money we have to invest and end retailers, as well as, if there are investments to make in the property maintenance. So those decisions will come into play, so we can't right now this is the list, and as things change we will let you know or put it in our supplemental and talk about it.

Great thanks Farzana.

You're welcome.

Thank you Floris.

The next question comes from Collin Mings of Raymond James. Please go ahead.

Hello, good morning.

Good morning.

First question for me, just as it relates to the leasing efforts. It looks like you guys got about nine years in term on new leases in the quarter. Just at this point can you maybe speak to as far as the new leasing efforts? Has that really shifted almost exclusively to longer-term commitments or are you still spending any time just on temporary and short-term tenants like you maybe were a year ago when the big hit in occupancy occurred?

Well, the new leasing depending on the investment will make sure we're getting as close to a 10 year lease as possible, and I mean that's not a change. That's been consistent with our strategy on that in the past and that's the results that you see. For some of the renewal leasing, we will go shorter-term and then even some of the vacant spaces where there's no tenant allowance required, we will go shorter-term either to bring in a retailer that we want to see how they do and give us the flexibility or to keep occupancy and NOI flowing while we're trying to bring in someone else from a new leasing point of view to boost our income.

Okay. And then, just kind of how as we think about guidance and the results here in the first quarter, should we expect us to probably be the high point of same-store NOI growth during the year?

Well, we certainly are off to a great start and you know, as I mentioned earlier we are cautious as to our ensuing quarters and we will see how PacSun, Aero, those bankruptcies play out and we have made some estimates on what that impact will be, but hopefully -- if we can mitigate the rent reductions and we can mitigate the impact, that would be a positive. So that's how we are looking at it in our guidance, keeping it the same as we had last quarter.

Okay. So I mean going up, I guess it's easier comp, but you still think there is some potential. This isn't necessarily the high water market, maybe some of the things fall on as it relates to some of those situations?

Well, we continue to push our leasing and that's really the biggest driver, so once -- top-line growth is the most important thing and this quarter the top line growth is really what contributed to the growth, the 2.8% growth, and it is pretty strong and all the hard work is coming into play and we hope that process will continue. But we just need to have a cautious outlook with the ensuing bankruptcy of PacSun, well PacSun is already filed, and Aero is expected to be filed. So we need to be cautious, and that's what's impacted. And I understand that Q2 and Q3 are easy comps, but Q4 is a big comp for us because we had 2% growth last year in the fourth quarter.

Okay. And then I guess just switching gears to asset sales, Stephen, can you update or recognize that there are some limitations around timing, just maybe update us on how much more you'd like to sell and kind of that community center bucket over the next year or so? I think in February you referenced something like targeting around $100 million of equity to CBL from those asset sales. Any change in that or kind of revision to that at this point?

I mean we still have -- I mean there's some other properties that we are in the process of bringing to market, so that $100 million is a target now, even though we've made a lot of truck progress we still have another roughly that amount that we are working on.

Okay, so even from this point on probably another incremental $100 million is reasonable over the next year, year and a half or so.

Yes.

Okay, thanks very much guys.

Thank you Colin.

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

Thank you again, everyone. We look forward to seeing those of you that are out in Las Vegas for recon and others that may [see] in June. Have a good day.

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