CBL & Associates Properties, Inc. (CBL) 2016 Q4 法說會逐字稿

Hello and welcome to the CBL & Associates Properties fourth-quarter earnings conference call.

(Operator instructions)

Please note this event is being recorded.

I would now like to turn conference over to Scott Brittain of Corporate Communications. These go ahead.

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties Inc conference call to discuss fourth-quarter results. Presenting on today's call are Stephen Lebovitz, President and CEO; Farzana Khaleel, 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 all the comparable GAAP financial measures 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. Our results in 2016 were excellent and I am proud of the entire CBL team for what we accomplished last year. We achieved portfolio same-center NOI growth of 2.3% and adjusted FFO growth of 3.9% to $2.41 per share.

We had a record year for dispositions with the sale of eight malls, five community centers and five office buildings generating almost $370 million in proceeds. Our balance sheet is stronger than ever with the lowest total debt balance in 10 years and debt to EBITDA of 6.5 times, one of the lowest multiples in the mall sector. The strong demand on space in our properties was demonstrated by the 120 basis point occupancy increase in the portfolio to 94.8% and the 50 basis point increase to 94.2% in same center malls.

In total for the year, we leased approximately 3.4 million square feet with average stabilized mall leasing spreads of 7.6%, including new lease spreads of 28% and renewal spreads of 1.2%. We expect to achieve similar of these results in 2017.

Sales during the fourth quarter were down approximately 2%. Gains in late December were not able to compensate for declines recorded in October and November. For the full year, our portfolio generated sales per square foot of $376, representing a 1.6% decline on the same center basis.

Major contributors to the overall decline were two properties in energy sensitive markets which suffered sales declines in the teens as well as declines at certain border malls. With the stabilization in energy prices, we are optimistic that 2017 will be a better year for sales at these properties. Our expectation for the portfolio in 2017 is flat to slightly positive sales growth.

We closed on the previously announced disposition of three tier 3 malls during the quarter for $32.25 million. Three out parcels related to one of the malls were sold separately, generating another $5.3 million in proceeds. We completed the sale of the community center in Palm Coast, Florida for $8.5 million and closed on the sale of four office buildings in Greensboro there were owned in a 50/50 joint venture, generating $13 million in proceeds at our share.

In total, in 2016 we closed on approximately $370 million in asset sales, including $144 million of related debt retired or assumed, generating net equity of approximately $226 million. These proceeds helped fund our significant year-over-year debt reduction as well as investments in our existing portfolio. As we move forward in 2017, we expect to bring our strategic transformation program to a close, having satisfied the goals we originally set forth.

Portfolio sales have increased from $356 to $376 per square foot and tier 3 assets now are only 6% of mall NOI. With the restructure of that Cary Towne Center loan and the foreclosure of the three lender properties, we've executed transactions of 18 of the 25 malls we originally identified. We are in discussions with potential buyers on several other remaining malls and hope to execute on those transactions later this year.

We have also made the decision to hold back a couple centers from our original list due to improvements in their markets that have created new opportunities for growth. Going forward, we will maintain a normal asset recycling discipline, regularly reviewing our portfolio to make sure we are staying on top of market changes and opportunistically executing transactions.

We're also excited to announce our recent anchor transactions. Last week we completed the acquisition of three owned Macy's stores. We are working of redevelopment plans for each location.

Once we have signed leases, we will announce further details including anticipated cost and returns. The fourth location at Macy's is expected to close as a lease location. We are excited to announce that Dillard's will replace the closing Macy's.

Construction is expected to start in April with an opening anticipated this fall. The Sears transaction gives us control of five stores and two auto centers through a sale-leaseback. Sears will continue to operate all locations on a 10 year lease which we have the right to terminate at any time upon six months notice.

The transaction will generate an immediate return while we finalize plans for redevelopment. These locations are excellent real estate and were selected for their redevelopment prospects. While we are still early in the planning stages, based on our history we anticipate an additional aggregate redevelopment cost for the eight Macy's and Sears stores and two auto centers in the range of $150 million to $200 million over the next two to four years.

The acquisition of Sears and Macy's locations are important in that they provide us with control of prime real estate for future redevelopment. With the completed dispositions over the past two years, our portfolio is stronger than ever. However, the retail environment is changing and the redevelopment of these department stores will provide us with important opportunities to bring exciting new uses to our property as we position them for success in the future.

I will now turn the call over to Katie.

Thank you, Stephen. Our focus and proactive pursuit of underperforming anchor locations has resulted in an amazing opportunity to reinvent our properties.

We've given this stat out before but it is important to remind everybody that since 2013, we've completed or have under construction 25 redevelopment projects, representing an investment of roughly $250 million and generating an average return of 8.5%. This includes six projects completed in 2016 and four more that are currently under construction. These projects create tremendous value to our centers, driving new traffic and sales for the entire property.

Sales at CoolSprings Galleria increased double digits after completing the redevelopment, dramatically improving the properties valuation. During the fourth quarter we completed construction on several redevelopment projects. At East Towne Mall in Madison, Wisconsin we open Planet Fitness in redeveloped space.

We opened Dick's Sporting Goods and Ulta Beauty, replacing JCPenney at College Square in Morristown, Tennessee as well as Dunham's Sports and a former Shopko at North Park Mall in Joplin Missouri. We also started construction on a redevelopment of part of the Belk store at College Square that was previously used for storage. Planet Fitness will open in that space in the spring.

We added two expansions to our pipeline this quarter. At Parkdale Mall in Beaumont, Texas we started construction on the addition of two restaurants and an available pad on the property. At Brookfield Square in Milwaukee we will soon start construction on a project to add nearly 50,000 square feet of restaurants and shops around the Bon-Ton store, additions include Bar Louie, Asha Salon, Lucky 13 Pub, Pieology and others.

Construction is expected to start this spring and open in spring 2018. We have one ground-up project underway, The Outlet Shoppes at Laredo, our 65/35 joint venture with Horizon which is on track to open this spring. The 350,000 square features center features a terrific lineup including Michael Kors, Brooks Brothers, Nike and Puma.

We are approximate 80% preleased and look forward to a strong opening. I will now turn the call over to Farzana to discuss our financial results.

Thank you, Katie. We are pleased with our financial results and achievements in 2016. We had a productive year.

We generated adjusted FFO growth of 3.9% to $2.41 per share. We achieved the high end of guidance range primarily fueled by top-line growth and interest savings which was offset by dilution from $370 million in asset sales throughout the year. There were a number of factors impacting our results for the quarter and I wanted to take a moment to walk through some of the major variances.

We ended the year with slightly higher than anticipated interest expense due to the higher LIBOR rates as well as the bond offering completed in mid-December. We completed dispositions of four office buildings, a community center and number of [out parks] in the fourth quarter which had not been previously announced and resulted in additional FFO dilution. Weaker than anticipated holiday sales resulted in less percentage rents.

The recovery ratio was slightly below our expectation and declined to 98% in the fourth quarter compared with 109% in the prior-year period as a result of higher seasonal expense and lower tenant reimbursements. For the full year our cost recovery ratio was 99.6% compared with 101.7% in 2015. And [out] parcel sales gains were higher than anticipated as we made the decision to accelerate our sales program given concerns over rising interest rates impacting the overall market for these assets.

We achieved excellent pricing on these transactions in the 5% to 7% cap rate range. G&A for the full year was in line with our guidance range at $59.2 million, net of nonrecurring litigation expense and fees. This represents 5.7% of revenues compared with 5.9% for 2015.

Same center NOI for the fourth full-year increased 30 basis points, bringing full-year growth to 2.3%. As we had said previously, we anticipated that fourth quarter NOI growth would decelerate while base rents and other income were robust, increasing $5.4 million, tenant reimbursements were down by $2.7 million and expenses were higher by $2.2 million. The increase in expense was driven by higher seasonal expense as well as higher real estate taxes from increased assessments.

For the full year, growth in the same center pool was driven by occupancy increases in rental growth with revenue improving $17.3 million partially offset $0.9 million increase in operating expense. 2017 FFO guidance is in the range of $2.26 to $2.33 per diluted share and same center NOI growth of 0% to 1.5%. Our FFO guidance incorporates the dilution from an asset sale, rent from the sale lease back transaction with Sears and high interest expense but does not include any unannounced transactions.

Dispositions in 2016 will result in approximately $0.09 per share of FFO dilution for 2017. We are projecting stabilized mall occupancy to be relatively flat from prior year-end but expect that we will have a decline in the first part of the year as we absorb the January store closures from The Limited, Wet Seal and Aeropostale. 2016 was a transformational year for both our portfolio and our balance sheet.

We ended the year with a total debt balance of $4.9 billion, representing a $440 million decline from 2015 and a $1.7 billion declined from year-end 2008. We made substantial progress reducing our overall leverage, achieving net debt to EBITDA multiple of 6.5 times compared with 6.8 times at the end of the prior-year period. We anticipate a further reduction of debt of $190 million as the three malls in receiverships are returned to the lender.

The foreclosure of the $32 million secured loan by Midland Mall was completed this week. The foreclosure of Wausau Center in Chesterfield Mall are expected to be completed within the next few months. We have extended our maturity schedule through 2026 with the successful completion in December of the $400 million unsecured bond issuance at a fixed coupon 5.95%.

Proceeds from offerings were utilized to reduce our lines of credit resulting in an outstanding balance of only $6 million at year-end, leaving us availability of $1.1 billion. Our floating rate debt at year-end was reduced 19% of total debt from 27% at quarter end. In 2016 we unencumbered eight properties.

We retire the related property level loans totaling $210 million with a weighted average interest rate of 5.5%, primarily through net proceeds from dispositions. At year-end, over 51% of our consolidated NOI was unencumbered. We completed four loan modifications in 2016, reducing the weighted average interest rate from 6.3% to 4.75%.

In December we completed the extension and modification of the $70.8 million loan secured by Greenbrier Mall. The loan was extended to December 2020. The interest rate was reduced from 5.91% to 5% interest-only.

The increase cash flow from the property will fund several leasing upgrades. We also completed the extension and modification of the $46.5 million loans secured by Cary Towne Center. The term was extended through March 2021.

The interest rate was reduced from 8.5% to 4% interest-only. Similar to Greenbrier, the increased cash flow will fund improvements and redevelopment activities. In December we closed a $60 million nonrecourse loan secured by the shops at Friendly Center in Greensboro, North Carolina which is owned in a 50/50 joint venture.

The new loan has a term of six years and a fixed interest rate of 3.34%. Proceeds were used to retire the maturing $38 million loan which had a fixed interest rate of 5.9%. Our share of $11 million in net proceeds was used to reduce our lines of credit.

In 2017 we have $336 million of loans maturing. Year-to-date we have retired three property levels -- property specific loans totaling $70 million secured by associated centers next to three of our best malls. We added these properties to our unencumbered pool.

We are evaluating whether to retire or refinance the loans secured by Layton Hills Mall and Acadiana Mall with an aggregate balance of $216 million and plan to refinance the $62 million loans secured by the Outlet Shoppes at El Paso. The progress we have made over the past 24 months in reducing our debt balance, lengthening our maturity schedule and reducing our variable rate debt with variable rate exposure provides us with the flexibility to fund our business and take advantage of the various opportunities ahead.

Our priorities going forward are to continue the progress we made to enhance our credit metrics, grow EBITDA and reduce debt. I will now turn the call over to Stephen for concluding remarks.

Thank you, Farzana. We are pleased to report strong results for the year but I assure you, we are not resting on our accomplishments. While there will always be challenges, our business is healthy, our retailers are profitable and we are excited about the opportunities we have to transform our centers.

We live and breathe retail real estate on a daily basis and we understand both the obstacles and opportunities that face our industries. And we know that we cannot sit still. It is from that perspective that I encourage you to ignore the negative headlines.

Malls are not dead, in fact, far from it. CBL's properties are vibrant, suburban town centers that hold the dominant position in their markets. They are places to shop but they are also social centers where you can be entertained, eat, workout, hangout and experience life.

Our centers are important and unique in their markets and they are getting even better. We are embracing new technologies to better serve our retailers and their customers and looking at new ways to integrate online and in-store. This constant evolution and search for innovation will allow us to bring new and captivating experiences to CBL centers, producing success now and into the future.

We appreciate your continued support, and we will be happy to take your questions at this time.

(Operator instructions)

Christy McElroy, Citi.

Good morning, everyone.

Good morning.

Farzana, in your remarks you talked about lower same-store NOI earlier in the year, absorbing the closers from Arrow and Limited and Wet Seal. I think you originally -- unless quarter talked about a $3 million from the Arrow closures and rent release. How should we be thinking about the remaining rent loss from The Limited and Wet Seal? And what should the same-store NOI growth trajectory look like through the year? Just trying to get a sense for how negative a number, if so in Q1, we should expect?

Thank you, Christy, for that question. Several parts to your questions I will try to address it.

Obviously in 2016 each quarter we had a pretty strong same-center NOI growth. And it's looking at that same-center NOI growth and projecting 0% to 1.5%, you can imagine mathematically that is going to put some pressure the first few quarters. But we expect to climb from the low-end to the high-end of our same-center NOI production we are making.

Having said that, the tenant follow out that we talked about between Arrow and Limited and Sports Authority and Wet Seal will have an impact and an aggregate that is somewhere in $8 million to $10 million range. And that's what's going to weigh in on our same-center NOI. As we continue to lease up and get the stores open quickly, that will help to get our same-center NOI going in the right direction.

And one other item that I want to mention, we do expect some pressure on expenses this year on wages and also real estate taxes. We experienced that a little bit in fourth quarter of 2016. So that trajectory -- we have to expect that with full employment that we are going to see some pressure and with inflation we're going to see some pressure on operating expenses.

So just to be clear, in Q1 are you expecting negative same-store growth or it should be flat at the bottom of your range?

Well, we look at holistically. So I don't want to comment on quarter-by-quarter, but holistically we are projecting 0% to 1.5%. And so I think we do have very strong comps to overcome.

Okay. And then just with the Macy's closings, I was wondering if you can handicap your co-tenancy risk in 2017 that may be embedded within your current same-store NOI growth forecast. And also give us a sense for what's typical in terms of the rent adjustment or kick out rates that some your tenants may have in these malls being affected by department store closures. Even when you have a replacement tenant at Dillard's for one of them, will there be some downtime there that may have an impact?

Good morning, Christy. I will take that. So it really is material in terms of any type of co-tenancy impact. And, yes, it is embedded in our guidance, in our budgeting in terms of the Macy's box is the four being closed for this year. The one at Layton Hills with Dillard's replacing Macy's later this year will have a minimal impact for a few tenants because in that mall we have a smaller number of anchors than normally you have in our malls. The other three Macy's are all parts of malls with multiple anchors. And usually in a co-tenancy, one anchor doesn't trigger any kind of violation so it's not really going to hit us.

Okay. So there's not a lot of specific name co-tenancy for Macy's specifically?

No. Usually -- look, they're across the board different for different retailers. But for the most part, you have to have say two or four department stores and it doesn't name specific ones and then a certain percentage of the mall occupied.

Okay. Thank you.

All right, thank you.

Todd Thomas, KeyBanc Capital Markets.

Thanks, good morning. Just following up on the eight department store boxes, Macy's in the Sears boxes that you acquire, you have a low basis on the Macy's boxes at around $10 per foot rent on then the Sears acquisition is also low in the $5 per foot range. And I was just wondering if you can talk about the level of demand for space at these malls now that you have control. What types of tenants or categories are you looking to add to these centers and then can you discuss the expected timing to begin generating income on some of these investments?

Sure. Good morning, Todd. Just a couple of aspects to your questions and just taking a step back, like Katie said and I said, this department store redevelopment opportunity from our point of view is huge because our malls are 95% leased. We don't have the space in the malls to accommodate the kind of users that want to come and also that we need to attract the customers and draw the traffic. So we're looking at these from the point of view each market stands on its own.

But we've got roughly 20 to 30 acres of prime real estate at our top malls for development. And in all cases, it's pretty much a blank canvas that we can do, not just with the buildings but with the land. So we can accommodate big boxes like we have done in the past whether it is sporting goods, off-price apparel, beauty and cosmetics. We've done a lot with Dick's and Ulta and T.J. Maxx and Ross and users like that. And they want to come to the mall properties because of the critical mass, because of the great locations.

There's demand by restaurants. There's demand by entertainment uses like Cane's and Dave & Busters, theaters, fitness centers and we are even looking at nonretail whether it's hotels, office, multifamily -- depending on the market. So these are really opportunities for us to reinvent the properties. And that is the way we're looking at them and we're looking holistically at the whole property as part of this program. Like I said in my comments, we've estimated $150 million to $200 million over a two to four your period.

We have the time with the Sears leaseback to work the redevelopments. We have the rent income on an interim basis until we are ready to go forward. So we have that from a planning point of view and our goal is to move these ahead expeditiously, so on a quick basis as we can, but on the other hand, it will take some time and we want to get them teed up and get them running.

Okay. That's helpful. And, Farzana, I'm just curious then with regard to that 0% to 1.5% same-store forecast, how much room or can you help us understand maybe how much room there is there in that range for additional unexpected store closures or bankruptcies?

Well as I mentioned just a little bit ago, we have embedded what we know. And approximately, like I said, it was about $10 million of impact that we have in the same center NOI. So you just don't know what will come around so what we don't know, we don't budget for it. So right now we are hopeful that we will accelerate our leasing efforts and get the momentum going and turn out better than where we are.

Okay. And then in terms of the trajectory I guess of NOI throughout the year, if we think about occupancy, looking back over the last 10 years, the sequential change in occupancy from the fourth quarter to first quarter is about 250 basis points. And I know that there is a lot of seasonality generally. But just curious if you would expect to be within -- what you know and what you've talked about -- is that within that 250 basis point range? Or do you think we might see a little more occupancy loss in the first quarter?

We will have more with The Limited stores. We had 26 of those. We had 10 Arrows that closed, now Wet Seal is closing five stores. So that vacancy and just closings are going to impact our first and second quarter. Hopefully, like Farzana said, over the course of the year we will make some progress on back filling the others, but it's going to be lower than it typical years.

Okay. So more than that 10 year average you think -- the 250 basis points just heading into the first quarter here?

Correct.

Okay. Alright. Got it. Thank you.

Thanks, Todd.

Rich Hill, Morgan Stanley.

Hi, guys. Good morning. Just wanted to maybe start off with just a quick question on the reporting for the quarter. It looks like you reported a $15.1 million gain on sale, but maybe only backed down about $1.5 million out of FFO. I was wondering if we could maybe get a little bit of an understanding of what drove that difference?

One second. Hi, Rich, can you just tell us where you are looking so we can make sure we --?

Yes, why don't -- we can follow-up on that after the call if that's easier?

Yes, I think you are talking about the $15 million of gain on sale of real estate?

Yes, that's right.

The two is out parcels. The one that we backed out -- $1.5 million -- that has to do with the asset sales that's depreciable asset sales. And they are a couple of small projects we sold that is depreciable properties. So that is the reason we back that out. But we don't back out the whole thing because generally all our partial sales under brown lease and they're non-depreciable properties.

Got it. Okay. That's helpful. And I know you have talked about some of the CapEx and that color is really helpful. But I understood correctly about $150 million to $250 million over the next four years. Just maybe to give us a sense, what sort of rent increases are you expecting on that? Is it double? Is it quadruple? And maybe said another way, what sort of redevelopment yields are you expecting on that?

So we are expecting them to be consistent. And we don't really look at it terms of rent increases because the anchors aren't paying much rent. We are buying real estate. And even the Sears is structured based on a return. So it's not necessarily -- I mean we checked the square foot levels to make sure they are reasonable but it was primarily financially driven.

And over the past three years we have averaged 8% to 10% returns on these redevelopment projects depending on the asset. Some are higher and some are lower and I think we will be in that range based on where we are now. Our planning is early and our budgets are rough but that is our track record over the past 20 plus projects that we've done. So that is a good estimate to use.

Got it, that's helpful. And then just one other higher level question, there has obviously been some discussions in various different reports about potential projects on our border with Mexico. Have you thought about maybe sort of how you are positioning those with maybe Grotto?

Yes, we have thought about it. And it's very difficult to predict exactly where things are going. I would say the biggest impact that has hit us in terms of sales has been the devaluation of the peso, which has been over 15%. And that is responsible for some of the sale decreases that we have seen at boarder malls since the November timeframe. And that is what we're watching the closest. Beyond that, I think it is really hard to predict how things could go.

And there could be a lot of new construction jobs. There could be a boom to the local economies. It's really hard to tell how this is all going to play out. So we are really focused primarily on the peso and the impact of that. And the positive is that these malls are successful. And even with the sale decreases, they are still performing well and the retailers are profitable. And we haven't gotten any indication from retailers from any kind of pull back.

Got it, that's helpful. Guys, as always, thank you for your transparency and congrats on the nice headline quarter.

You're welcome. Thank you.

Jeff Donnelly, Wells Fargo.

Good morning, folks. Maybe just a question on Sears transaction to understand about some aspects of it a little bit better. It sounded like the deal was done contemplating that Sears would be in place until the redevelopments get underway. Obviously I'm sure you see that there's a lot of chatter in the market that Sears could cease to exist sooner than that. That may be a baseless rumor, but I'm wondering how you think about the risks such as co-tenancy or conversely protections you might have in the event you get these boxes back sooner than you maybe underwrote?

Jeff, there is so much, I think chatter is a good word. And I think we feel like Sears is going to find a way to continue to ride it out the way they have the past few years. And even if they had some kind of event, they would still have a lot of good stores and a lot of good asset, that they have to continue to operate the company in some way.

So we are not obsessing over that. We think about it and we protect ourselves in any way we can. And one of the benefits of this transaction is we are giving ourselves an earlier path to the redevelopments of these five stores. And so we are potentially reducing our Sears exposure sooner rather than waiting for something to happen that we don't control.

That's helpful. And maybe I'm asking an earlier question or two in a different way, but do you think the roughly 6.5% to 7% yield that's implied from the Sears lease, the $5 million rent on the $72 million investment, is maybe a good guide for the final yield you would expect from these projects once the incremental $150 million to $200 million is invested?

It's a 7% yield. The two aren't related, honestly. The redevelopment projects have to stand on their own in terms of the cost of those in the uses that we bring in. And like I said, we are anticipating those returns to be in th 8% to 10% range like our others have been.

Okay. And then maybe just stepping back, I'm just curious what your perspective is on where market rents are and where they're headed. I think coming out of ICSC in December, I think the talk from retailers is just obviously retail sales have been relatively sluggish in the industry the last two to three years. You certainly have in place rents continuing to pump up with inflation as they maybe roll up to market terms. And I think that's putting pressure on retailers.

I guess I'm just curious, how do you think about the direction of asking rents or market rents from today going forward? Do you think they're going to remain relatively flattish just given the directions of sales the last few years?

We said in the call that we expect renewal spreads for 2017 will be comparable -- I mean, not just renewals, leasing spreads will be comparable to 2016 and 2017. So the mid-single-digit, mid to high single digits type increases, including both new deals and renewals, renewal spreads are the toughest. And like we said the past few quarters, we are prioritizing occupancy and NOI and we are not as focused on spreads on the renewal deals.

And then the new leasing is where we've gotten a really strong spread. And that is where we are generating increases in rent. So I think it is going to continue in 2017 similar to 2016.

The sales decreases in the fourth quarter are definitely a challenge and headwind, but we're still bringing new tenants and we're doing new leasing and we're bringing in the types of uses that are attractive and doing well and replacing some of the stores that where there was just too much capacity and too much supply and getting the tenant mix in the place it needs to be.

And maybe a question for Farzana. I'm curious, when you think about your 2017 guidance, what are some of the levers that maybe bring you to the top or bottom end of that range? Is it just leasing velocity? Is it occupancy rate? And I guess related to that, what is embedded in that guidance for contractual lease bumps or, like you said, the leasing spreads you have assumed?

The best answer I can give you is leasing for vacancies accelerates and we get the stores open sooner and get a really jumpstart from a leasing department that they are already focused on it. And that's really where it is going to come from. And if the operating expenses can be controlled and maintained, that is another favorable aspect of the same-center NOI.

Actually, just one last question maybe on disposition. And I know you -- it's not guidance. And, Stephen, I'm sure you were very happy to step away from the earlier comments on disposition goals the last few years. But you have had good success in selling out of assets in the last 12 months or so. I'm curious, while it's not in your guidance, do you feel that there's a window right now in the market where you want to kind of keep that pace going and you might look to monetize additional assets? Or do think you are done for a period of time?

Hi, Jeff. It's Katie. We do have some assets that we're out there in the market with. I think we're definitely trying to get this program wrapped up sooner rather than later. So we are pushing that progress. And then we will look at the market and gage opportunities and see if there is additional assets that we want to sell on a more regular basis. But we do feel good about wrapping that program up later this year based on what we're seeing today.

Great. Thank you.

Haendel St. Juste of Mizuho.

Yes, good morning. Stephen, first the question is for you. Following the theme I guess of you're closing remarks, the focus of CBL the past three years has clearly been selling your lower tier malls and strengthening your balance sheet. And you have been largely successful, selling 18 of the 25. Maybe you're not getting the total amounts you initially thought but you have improved the portfolio and your balance sheet. But yet the stock continues to trade at a sizable gap to peers and a consensus NAV.

So I guess my question is can you give us a bit more color on what you and perhaps the board see as the key strategic imperatives for leverage you need to execute on over the next couple years to help close that gap? And maybe it would be helpful if you provide a few guideposts about how should we think about where you plan on taking the Company the next few years? Is it getting sales of 500 square foot -- that EBITDA down to six times? So some thoughts on that would be appreciated.

That's an easy question, thank you. There's a lot to that and I would say that we are very focused on how we can narrow the gap in valuation, how we can get the credit for what we have accomplished. We're frustrated with the stock price.

We talk about it with the board on a regular basis and we are confident in our strategy. We are confident in our product type. There's a lot of headlines and a lot of narrative about B and C malls that is over generalized and we get caught up in that. And we are very frustrated by it. But we would not at all ascribe to the theory that B and C malls are going away or are dead that a lot of the market seems to be embracing.

And we feel like the best formula for us going ahead is to execute on the strategy. We've had success with the dispositions. We have upgraded the portfolio.

Now we have a great redevelopment program. I think that as we continue to put out consistent results and solid results, the market will gain confidence in our properties and in our strategy. And focusing on execution is a number one as far as our goals for this year and going forward. As far as some of the other questions, the goals, we've said we want to get to 400 a foot on the portfolio. It's difficult given some of the retailer sales that, honestly, we don't control some of those factors. But that is still our goal as a portfolio. And we are determined to get there.

Debt to EBITDA -- we closed the year at 6.5 times and we want to get down to 6 times. And we feel like just through amortization and dispositions, we have got a clear path to get there. And, look, we as management own over 10% of the stock the Company. So we are absolutely shoulder to shoulder invested in trying to get our stock price up and to get growth out of the Company. And we feel like with this redevelopment program that gives us the path to do that.

Okay. I appreciate that. On the asset sales, the focus for the asset sales proceeds the last couple years has been to pay down some debt. Given the improvement in your balance sheet metrics, are you at or close to a point were stock buyback can become a more normal part of your capital allocation?

Well, we are still focused on deleveraging, and that is our primary use of capital from the dispositions. We want to make more progress reducing leverage, and that is what we have heard primarily from, not all, but a lot of investors is they would like to see us continue the progress that we have made to give us the cushion in case there is a recession or in case the credit markets get -- there's less liquidity or less availability. So that's the priority.

Also, investing in our portfolio -- and we've used our free cash flow, which is the cash flow after the dividend, is roughly $200 million. We've used that to fund our redevelopment program and our CapEx, so we haven't had to borrow additional to do that. Our plan going forward is to continue to do that as a way to improve our balance sheet and manage our leverage.

Got it. Okay. One last one for me -- a roughly minor question. But a question on the plans for Sears Auto Centers. What do see as a future read of uses? How should we think about the spend per box and investment returns? Are they similar or comparable to what you have been able to do with some of the Sears and other larger boxes?

So those are really attractive in terms of the locations. They are right on major roads. We've got interest from restaurants, sit down, fast casual and other service type uses and there's been a robust resale market.

We sold our out parcels last year and had a really successful year in terms of selling those. So we can develop them initially on a high single-digit basis. The cap rates, like Farzana said, have been, or Katie said, have been 5% to 7% for those. So there's good profit opportunity embedded in those. Restructure those as triple net leases so they are attractive to those kinds of buyers.

Sorry. Did you say high single digits return expectations?

Yes.

Okay. Thank you.

Thank you.

Craig Schmidt of Bank of America Merrill Lynch.

Thank you. What is the lease rate at Laredo? And what number of stores do expect to be opened at your opening this spring?

We are roughly 80% leased, Craig, on the stores for Laredo. And we expect those to open within the first few months of the grand opening in March. So that level and then we will probably have some temporaries, as well, that will get us above that.

Great. And then given the potential pressures on the pricing of out parcel sales, may we expect that to be front loaded over the course of 2017?

No, we will have normal out parcel sales and we project -- we gave guidance between $8 million to $12 million for the full year. So I don't necessarily think it's going to be front loaded. They will be all probably spread over the year. So we will go back to being -- having more normal out parcel sales, not like we had in the fourth quarter in 2016.

And we accelerated some of the sales in 2016 because interest rates were rising and there was a lot of uncertainty over where tax laws are going with 1031. So we tried to accelerate what we could into 2016. So we got most of the pending transactions closed by year-end. And there was strong demand so, like Farzana said, we will have a more normalized level per our guidance for this year and it will be spread across the year.

Great, thank you.

Thanks, Craig.

Andrew Rosivach, Goldman Sachs.

Good morning, this is Caitlin Burrows. I was just wondering on -- we've heard some debate about Dick's. It seems like some of the feedback from the power center operators is that Dick's struggles in enclosed malls. But then we hear differently from you guys and other mall operators that they do well. And being that they are your sixth largest tenant by revenue I was wondering if you had any thoughts on that?

Sure. We just met with Dick's. I was in their office last week. We went through our portfolio of existing stores. We went through new opportunities with the department stores. They have a very strong interest. And I think if you ask Dick's, they will say they do well both types of locations.

And their customers are over 70% female. So they've got a lot of their shoppers coming through their malls and in strip centers they are more destination-oriented. But they are successful as well. And we have both in our portfolio. We have them in part of malls as anchors. We have them in some of our associated centers. We think they are a great retailer. They are really well-managed and it's a competitive category, especially in the Southeast with Academy. And they're focused on getting the best real estate so they can be most effective when there's competition and be most successful overall.

Okay. And then just if I look, it looks like now you have 27 of them, which is actually down one from the end of 2015. So I'm wondering, sounds like you do maybe have planned openings? Do you expect that number to generally increase?

I think that it was just from a disposition that we did where Dick's was part of that, so it wasn't a closing.

Got it. And then just last, it has kind of been talked about. But in terms of the mall anchor space that you guys have and possibly are filling with Dick's and other big box retailers, would you say that that space is competitive for box use?

We have had really strong demand from the boxes and that's been where the most growth has been in terms of retail. And it's either new entries into markets where they aren't. In some cases it's repositioning because their existing stores are too big or the locations aren't as attractive as we can offer them. But we are having portfolio meetings with all the boxes. And that's just one piece of it. In other locations we are not doing as much boxes. But there is entertainment, there's theaters, there's restaurants. So it really is market dependent.

Okay. So it sounds like in some situations the add of a Dick's or other big box use makes sense, whereas in others it might be more theater or restaurant other use type thing.

Correct.

Okay. Thank you.

Thank you, Caitlin.

Jim Sullivan, BTIG.

Thank you, good morning. Stephen, just to make sure I have the number right, you talked about the store count for closings in the first half from the three retailers. I quickly jotted down 35 stores. Is that the right number?

Yes. I'm sorry, yes -- no, it's not. 26 Limited stores, 10 Aeros and then five Wet Seals that that just got announced.

Okay. So it's 41 altogether. And I know you don't like to dwell on individual tenant productivity numbers, but my understanding is that relative to average productivity within the portfolio of some your peers, The Limited and Wet Seal both have below average productivity, sales productivity for a while where zero has been above. Is that right?

Aero has made some progress in the fourth quarter, but they also were having this basically going out-of-business sale where they were clearing all their inventory. So it's hard to see -- to talk about that as a trend because that was a one-time event.

Now they've got the new stores open, the new merchandise and we are hopeful. I think the stores look great and we are optimistic. But there really isn't enough of a trend to comment. Limited and Wet Seal were clearly weak and that's why they ended up where they are.

And are you aware -- is there any definite plans from Aero to -- in addition to remerchandising the stores generally in terms of inventory, actually invest in terms of visual merchandising? And have they spoken to you about that, whether it's lighting or facades or any other type of investments spend?

Well they did a lot of that -- they renovated the stores as part of their new format in the stores that they kept. So they look good. They have different signage. The lighting levels are good. The merchandise looks nice. So we are positive and it seems like their management is intent on trying to make them a survivor in a very competitive category.

And finally, were there concessions requested and granted for the stores that they're going to be keeping open?

Yes, Jim. We had said last quarter that it was a $3 million impact last year, which included closures of nine stores. And then we had the other 10 stores that are closing this year which is another $2 million. So from where we were at the beginning of 2016 to where we are now, it is roughly $5 million between the closures and rent reduction.

Okay. Very good.

And then maybe you can share with us, I know the comments about how this will impact on a sequential basis over the year -- the closings. But what are the prospects? How confident are you, Stephen, in terms of you being able to have most of that space released for the second half of the year? And maybe -- I don't know if there's any -- whether you have already kind of reserved some space for tenants who are looking to move into a particular center or location, maybe you can share with us what kind of progress you can report already.

Well we look at vacancy as vacancy. And so we've got roughly 5% of the properties and then we have these additional 41 stores. And we're working with retailers to fill the toughest location and to get them into the locations that make sense. So I'm not going to comment on how many of the 26 Limiteds we have got replacements for because I don't think that's really relevant. I will say that we're continuing to see good demand in certain categories. We have another set of H&M deals that we are opening this year.

We have done eight or nine the past couple of years and we got a similar number this year. And their results in our markets have been really terrific. We just announced them in Chattanooga and they're openings later this year and everyone is really excited about that. And in the middle markets they get the customer very excited and the results are great. Then beyond that, along with L Brands in terms of Victoria's Secret and Bath & Body and PINK and White Barn Candle, the cosmetic category doing really well with Sephora, Ulta and other uses like that.

Then there are other retailers. Azimi's had great results that they reported yesterday. So there's retailers that are doing well and there's ones that we know that are struggling. And our goal is to continue to bring in the best retailers and to upgrade our mix and to replace the ones that aren't doing as well.

Good, thanks for that. And then maybe for either Stephen or Farzana, when you talked about the lower operating cost recovery rate in Q4 and cited specifically some real estate tax increases, which have been kind of a theme across many different real estate sectors for a few quarters now. I guess really a two-part question: is there any scope to get these real estate tax increases abated?

I'm sure you looked at this all the time. And number one and number two, is the lower recovery rate in Q4, especially given the higher occupancy rate, is this just a timing issue? Or should we be anticipating a lower operating cost recovery rate going forward for the next several quarters?

Jim, to your first question regarding real estate taxes, of course we are constantly appealing real estate taxes. But all of that takes time. Once they increase the taxes, going through the appeal process, it's not an overnight thing. So it will go up, we will appeal it and then it takes 8, 10, 12 months to get the appeal, get the taxes back down. So it's just an ebb and flow in terms of the real estate taxes. So it's hard to tell you exactly how this all works out.

But generally speaking, real estate taxes have gone up, and we continue to appeal it. To your second part of your question about the cost recovery ratio being 98% in the fourth quarter, we did have higher seasonal expenses that we didn't anticipate, as I mentioned. And of course, real estate taxes was another area.

We also are spending in the operating cost, in other areas to enhance the overall leasing for the mall. So all of that just comes into play, so that is part of why the 98% in Q4. But going forward, I think we should see, considering high 90% recovery ratio, and the full year on a holistic basis, that's where we will be -- 98%, 99%.

So does that mean that perhaps the impact of fixed CAM is limiting the ability to recover all of these cost increases? Because it seems to me, high 90%s. Isn't that a bit lower than it has been the last few years, or is that in line?

No, I think we've had a higher recovery ratio, above 100%, but I think we do get CAM increases, and your CAM increases, but sometimes you do have unanticipated expenses that go up, and that's part of -- the good news is if have fixed CAM. And that provides the tenants the ability to know what their costs will be. So it helps us, it doesn't really hurt us. So we are recovering almost 100%. So it's a good number, and I wouldn't be complaining about it.

Thank you, Jim.

Okay. A quick other question on the outparcel sale --

Jim, we have some other people that are in queue.

Okay, go ahead.

So we need to give them a chance. Thanks.

Michael Mueller, JPMorgan.

Hi, just a couple, hopefully quick ones here. Just trying to understand, the $8 million to $10 million, or the $10 million impact for this year, trying to figure what's in the run rate already and what's incremental? I think you said $3 million was the impact last year, so if that's a half a year impact, that would be $6 million. And then you get another $2 million that you mentioned for 2017. So is that the right way to think of it, from this point going forward, it's really a $2 million annualized marginal impact or $2 million to $4 million? Is that the right way?

No, not, it's really, it's the Limited stores which weren't in last year. It's the Wet Seal, and then it's just the $2 million of Aero that is closing -- that closed at the beginning of this year. So it's not incremental. It's basically new, that puts us back over 1%, 1% to 1.5% of the same-center NOI.

Okay. But of that $10 million, you have some Aero impact in there from last year?

We had some in there from last year, and then we have additional in there for this year, that totaled $5 million.

Got it. Okay. So maybe the number is $5 million to $7 million or something like that, that's the marginal impact? Is that a better way to think of it?

No, I think it is $8 million to $10 million is the impact, the incremental impact.

There are other stores too, like we had our Sports Authority closed basically in fourth quarter, that's $1 million. So we didn't go through every one, but there's others that -- so the $8 million to $10 million is the right number.

That's the incremental. Got it. Okay, that's helpful. For the three foreclosures that you're getting the keys back on, about how much NOI is tied to those assets? Is it a generally a wash, with the interest that goes away, or will there be some drag or benefit?

One has already gone back, so we've got two left. Yes, it's a little bit higher, than the weighted average interest rate which was I think was 5.5%, 5% or 6%. So I think around 6%, 7%. So I think around 6% probably. There's not a big difference, but there is a difference.

Okay. And then just last question on the boxes, the Macy's and Sears where you talked about an incremental $150 million to $200 million spend. And if you've historically gotten an 8% 10% return on that, is that an incremental 8% to 10% on the incremental $150 million to $200 million? Or should we think of that as $150 million to $200 million plus your $75 million, and that's kind of the return will be based on?

We allocate the initial purchase price also in the 8% to10%. So it's basically, the full cost including acquisition and redevelopment costs, and then the return that we generate on that.

Got it. Okay. That was it. Thank you.

Okay. Thanks, Mike.

Carol Kemple, Hilliard Lyons.

Good afternoon. Can you all talk a little bit about traffic in your malls in the fourth quarter, and if you have any updates on how traffic was in January?

Hi, Carol. January, it's a little early to say. Well, it's not early, I guess, but we don't have a lot of feedback from retailers, other than it's been -- it was busy the first week or so, with all the returns that typically happen, gift card redemptions, and it's been stable. We haven't seen any real differences, other than in the past.

And then, as far as traffic in the fourth quarter, I think that first of all, we do not have traffic counters. So we're dealing more with conversations with retailers. And we get -- from our more impulse driven uses, like food, and the food courts, or the common area uses, the traffic, the sales were up. They reported good traffic.

Certain stores reported less traffic coming into them. And I think it's part of this changing consumer, that's evolving where the consumer is doing more research before they go into certain stores. And that's impacting store traffic, but the malls are busy. If you would have come to our malls between Thanksgiving and Christmas, the parking lots were full, on the weekends, the traffic was busy.

And then, there's a lot that happens at the malls besides just shopping now, with more restaurants, and more entertainment. So we don't see the traffic trends being nearly as negative as the press portrays it. And we feel like we're still getting really good customer traffic. And keep in mind, that over 90% of retail sales are happening in physical stores. And so, the traffic is still coming to the properties, and the stores are an important part of all the retailers strategy, even as there's more online sales occurring.

Right. And then something some of the other mall REITs talked about earlier this week was about e-tailers that are looking to open physical stores in their malls. Are you starting to see the impact of that yet, and if so, what retailers are coming in?

So we have seen that more with some regionals. We haven't -- we talked to Warby Parker and Bonobos and Fabletics and some of those. We haven't done any deals with them, but we're working on it. But it's clearly a trend, and we are seeing some regional e-tailers that have opened in our malls, that are looking at the way -- that this is a path for them to grow their brand awareness, and grow their business.

Okay. Great, thank you.

Thank you.

Floris van Dijkum of Boenning.

Thank you. Stephen, a question for you, and maybe if you can comment on trends in tenant allowances?

Hi, Floris. I would say that there really hasn't been any change in terms of tenant allowances. In the new leasing, we'll typically have some level of tenant allowance, construction costs have remained relatively stable. We'll see where that goes, going forward, and if there's more inflationary pressure. But we haven't seen any change from what we've seen over the past couple of years.

Okay. And for renewals, that's basically unchanged, or very minimal amounts there as well?

That's correct.

Maybe if you could talk also a little bit about 40 million square feet of anchor space, and what percentage of that is non-owned?

Well, roughly, I'd say two-thirds, maybe a little bit less of our anchor space is owned by anchors. If you look at just on certain anchors, like now Sears is roughly half and half with the transaction that we did. Dillards owns the majority of their locations. Penney's is about half and half. So Macy is about two-thirds, one-third. So say, in that 60% to 65% range overall is owned by the department stores.

So call it, 13 million square feet of potential space that at some point, would you be looking to buy that back, if you could?

I think that it -- I mean, in certain locations, yes, but I mean, we are still believers in department stores. [Belk], Dillards, are -- have great results. Macy's has done the right thing by pruning the lower productivity stores. So we don't see department stores going away.

There's definitely a rationalization process going on, and that we think makes a lot of sense, and those are the ones that we're focused on. The ones that aren't doing that much business, and aren't helping the mall, and it's difficult for us to lease outside of them. And it gives us that capacity for redevelopment, so in certain instances then that's definitely something we want to do. But it's not like we go across the board, and look at all of them as properties we want to buy.

Right. So as investors think about your portfolio, you have almost 50% of your NOI comes from malls that do between $300 to $375 a square foot. Is that -- would you be looking to buy, a that part of your tier 2, or would you be looking mostly at the upper tiers to buy the space back there?

I mean, just from the five Sears that we did, it's a mix. Some are tier 2. Some are tier 1, I think one was tier 3. So it really depends on the real estate, and it depends on the market.

And that's what we looked at is, where the demand is. I mean, these parcels are very valuable, and from all of our properties. And with the disposition program that we have done, we still for the most part, we want to complete that as Katie said, later this year. We sold the properties that we don't think are the keepers, and the ones that we have we think are good reinvestment opportunities, and ones that have, we want to have in the portfolio long-term.

Okay. One final question, I guess, for it -- I was a little bit -- as we look at the operating expenses, you've obviously been -- you did a very nice job last year, in trimming a lot of the lower tier of assets. And you've got a couple more to go this year.

Typically, what I would have expected to have seen, I think, what most of the investors would have expected to see, is that actually -- because the operating expense recovery on those malls tend to be lower, that you should see an improvement. Is this just a temporary, a blip in the operating expense recovery ratio for you guys, or how do you think about that?

And how do you think about that, maybe not this upcoming year, but in three years time? How should this portfolio perform, relative to how it's performed over the last two years?

So Floris, Q4 was a little bit of a blip, like I mentioned there were operating expenses that were extraordinary. We experienced real estate tax increases, we also experienced other operating expenses, increased due to seasonal expenses. So I understand your question, that we have disposed of assets that have lower recovery ratio. But all in all, as the expenses do go up, on a fixed CAM basis, we still would be around 98%, 99% type coverage ratio. So I can't predict three years from now, but as we are looking ahead for 2017, that's sort of what we look at.

Thank you, Floris.

Great, thanks.

Linda Tsai, Barclays.

Yes, hi. Along the lines of blurring retail formats, and finding productive uses for department store anchors. You're putting in Dick's, movie theaters. One of your peers aggressively courting grocery stores. Understanding that it's all location specific, are grocery stores also relevant for some of assets in your portfolio?

Sure, I think that's a great use. We talk to them. We haven't done that much, but we have had some conversations. We have one situation, where we are actively talking to a grocery store about replacing a department store. And like you say, it's market dependent and location specific. And they're great traffic drivers, and we would welcome to do more.

Thanks.

Thank you.

Tayo Okusanya, Jefferies.

Yes, good afternoon. Just a couple for me. First of all, just in regards to the balance sheet, can you just talk a little bit about in 2017, appetite to do more unsecured financing or possibly preferred?

Yes, Tayo, I will answer that question. We really have great capacity on our lines of credit today. Our balance at the end of the year was $6 million, so we have $1.1 billion. So we continue to look at our use, as time goes on, and the appetite is always there, but we have to be thoughtful on issuing our unsecured, and also thoughtful on preferred. We're not -- we generally are not looking to issue any new preferred, but perhaps refinance if the market is favorable.

Got you, okay. That's helpful. And then second of all, just the classification of your malls. This quarter, there was a lot of movement, a couple of malls going from tier 2 to tier 1, others going from tier1 to tier 2. Can we just talk a little bit about just that movement, and why the reclassification happened?

Yes, Tayo, So I would say, that really there were -- for the majority of cases, they were properties that were on the cusp, that moved one way or another between tiers. There were two malls, Acadiana mall and Dakota Square that moved from tier1 to tier 2, where we had an impact from oil prices and the economy. And that's been the case really for the past 18 months in those. And like we said in the call, with the stabilization of oil prices, we expect those to firm up.

And then, one of the other ones that moved from tier1 to tier 2, there was a new Albertson that opened in the market, where there was a lot of overlap in retailers. And again, our typical experience is this a short-term decline, but then those bounce back.

Got you. Okay. That's helpful.

Tayo, we actually reclassify those every year in fourth-quarter, just based on the sales results. So that was the impetus for reclassification.

Okay. That's very helpful. And then lastly, retail demand in general, I hear your points that you made [earlier] on the call. But could you talk about again, when companies that have been expanding in the past like H&M, suddenly now say things, that they want to focus more on e-commerce and improving store profitability, and they're not expanding store count anymore. I mean, when you hear something like that, do you think it's very unique to them? Do think it's endemic of what you're likely to see over the next year or two, as retailers are facing new reality? And what does that basically mean, for your portfolio?

Yes, I think what H&M said, is they're not going to try to grow 10% to 15% a year, but they're definitely still going to add stores in markets where they don't have a presence. And that's the beauty for us is the markets they're coming into, they're 20, 30 miles away from any type of competition. And they're still taking in new deals, and we're seeing good demand from retailers.

And then the other thing that's driving demand, is the broadening of uses, and is not just conventional retail, it's service uses. Like I said, it's cosmetics, wellness, fitness centers. We've done a lot with Planet Fitness, and they're continuing to look at doing more in our properties, and other fitness uses. So the demand is coming from different places, but that's really typical in our Business. There's always a lot of variation. And over time, we see certain uses that are popular, become less popular, and we replace them with others. And that's just been -- that's nothing new from our point of view.

Got you. All right. Thank you.

Thank you.

Collin Mings, Raymond James.

Thanks, just one follow-up for me. You touched on mall dispositions, and continuing to engage in capital recycling efforts going forward. But can you maybe just directly update us on your thoughts around additional, associated, and community sales this year, given the progress delevering of last year, and how your thoughts around selling some of those community and associated centers has evolved?

Yes, we did most of the ones last year for the community centers, and associated centers. So I think we will look opportunistically at those. But for the most part, we don't see doing a lot more sales in those areas.

Thanks.

Thank you.

Christy McElroy, Citi.

Hey, it's Michael Bilerman here with Christy. Just a couple of topics. The first is on the Sears transaction. There was -- I noticed that it said, they can downsize to 15,000 square feet. And I'm just curious what sort of format, what type of store do they envision in 15,000 square feet? And what is the size of the stores today, for those five stores?

So Sears opened a hard goods only store in Fort Collins, Colorado last year, and it was actually 10,000 -- just over 10,000 square feet, and it's been very successful and done well. And the way the stereotype deals were structured, Sears has the right to stay in half of the Sears buildings which are say, 100,000 to 150,000 square feet on average. So in our deal, we don't have that restriction.

We basically have the whole building to work with, and then Sears has the right as part of the redevelopment, to go up to 15,000 square feet of this hard goods store, in a location that we would mutually agree on. So it could be part of the Sears building, could be on a pad, could be somewhere else in the mall. So it gives us flexibility to work with the Sears building and the land parcel, and also accommodate them, if this new format works out.

And you're out of those five stores, those are the same thing, 500,000 to 750,000 square feet in aggregate?

No, no, the boxes are 100,000 -- I'm just saying on average, they're 100,000 square feet to 150,000 square feet I don't have the number front of me, Michael, but I'm sorry

I was just doing an aggregate.

I do have it in front of me, 915,000 square feet total for the five. So it's a little bigger than what I said.

Okay. And that 15,000 square feet is there a rent or allocation of value for that, or that's to be determined when you determine the space?

Yes, it will be a lease, and we've got broad parameters, but I can't discuss specifically what they are.

Okay. And then, I'm just curious, you obviously talked a lot about the perception that exists between B and C malls. And certainly, malls are dying, and it's over-generalized, and that the market will gain more confidence, as you put up solid results. Yet when you look at your same-store stats, there's still a wide gap that exists.

Think about flat to up 1% this year, relative to 3% to 4%, the timing and GDP you're talking about, even higher in some cases. We're a long time into this, and it sounds like fourth quarter will be weak. I guess, at what point, do we start seeing the results that give the market greater confidence, that your malls are not in trouble? Right? And so, I'm not saying your malls are dying, but there is this gap in performance that has existed pretty much prior to the Great Recession, and since the Great Recession?

I mean, there's a gap in the results, no question, but there's a lot bigger gap in multiple and stock valuation, and the market is not pricing in a flat to 1.5% growth from us, at those kind of multiples. And there's just no way.

So as long as we can deliver the results. And look, we want to be better, but we also want to be realistic on February 2 of the year, as far as where we stand. But there's a huge valuation gap, in terms of multiple. And it's been that way for a couple years, but we have delivered the disposition results.

We've improved the portfolio, we've improved the balance sheet, and we're going to continue to fight the narrative about our malls being vulnerable, because we're really confident that they're not. And as we continue to put up the results with occupancy and NOI, then we'll tell the story, then we feel like we will get the credit, and we will see some good upside in our stock.

Right, I think that's the point, is how the market is valuing your shares and your malls relative to the peers, not just the growth profile. But a last question, just on that valuation, one of the things that David Simon talked about in his call, he talked about a lot of interesting things. It was a good call for everyone to re-read, but he talked about Aeropostale being a private company. And how the management team has been un-leashed in part, not having to focus on what the Street was so focused on, in terms of same-store sales metrics, and really focusing on cash flow, and their business, and making the right decisions.

I'm just curious how you think about the impact -- and you're talking about it, in terms of being impacted to your share price, an impact to your business, would you explore being a private company? Is it better to go in this transition period over the next couple years, being a private company, and not having quarterly results and dealing with the public markets? And is there any restrictions, if that's the right thing to do, is there any restrictions of not going down that path?

Well, after an hour and half earnings call, Michael, yes, it is tempting. (laughter) I mean, seriously, I mean, we're a public company, and every public company is for sale every day. And going private is, from our point of view tantamount to selling the company, and we're a public company. And so, we always evaluate all our options.

Do I think being private is better than being public? I think there are advantages, and there are disadvantages. And we operate as a public company, and that's our going forward strategy. And that's why we went unsecured with our debt, to give ourselves the availability of capital in case there's variations and fluctuations in CMBS market.

And now, with the way that market has evolved, I think we feel good that we've got that -- we were able to access that market. And public companies, sure, they've got their drawbacks, but they also have a lot of positives. And we are in a business that is a capital intensive business. And our strategy going forward is going to depend on us having access to capital, and that's why we've improved our balance sheet, and given ourselves the liquidity that we have.

All right. Thanks for the time, Stephen.

Thank you, Michael.

Todd Thomas, KeyBanc Capital Markets.

Hi, thanks. Just a follow-up on the department store redevelopment for Stephen or Katie. You noted that you've completed about 20 anchor redevelopments over the last several years, and I'm just curious if you have any anecdotes you can offer, regarding the impact those projects have had on mall traffic or sales once complete?

And in particular, in those instances when you bring in alternative categories to the mall, how that changes tenancy around the mall, whether traffic, sales and traffic for restaurants, or other entertainment type end use that you bring it to the mall?

Yes, Todd, I mean, it's been -- there hasn't been one that has worked out positively. We've been able to replace the sales multiple-fold, in terms of the redevelopments. And the best one that we've had, maybe not the best, but one that's a very good case study is CoolSprings Galleria. We replaced Sears, we put Belk in the lower level, and we were able to free up space in the mall for small shops.

We put in American Girl, H&M, a sporting goods operator, a Rock Creek that's off to a great start that -- and we put in Ulta, a couple restaurants, Kings Bowling which is an entertainment use. And the project generated a good discrete return of over 7%. So it added a lot of value from an accretion point of view, but it also drove sales increases in double-digits for the mall, and a lot of occupancy. So I mean, it's -- these are great opportunities for us, and we're really energized, hopefully as everyone can tell. And the track record that we had, just gives us the ability to do these successfully going forward.

Okay. Thank you.

Thank you, everyone. We appreciate your participation this morning, and we look forward to talking to you shortly again. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.