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 Brittain 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 Lebovitz, 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 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 cost. 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 today 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, where customers gather with friends to dine, shop, and be entertained. Consistent with this trend on May 2, we will open Kings Bowling and Entertainment at CoolSprings. We are 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 5 store closures in our portfolio as well as rent reduction for certain stores with excessive occupancy costs. We are 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 high percentage of only game in town properties. Sears is closing one store in Midland, Michigan, with the leases expiring in October.

While we have several replace our prospects given the loan amount and maturity later this year, we are working with the lender on this property.

Department stores in general are performing 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 underperforming retailers and solidify the centers dominant position in their markets for the long-term.

Moving to dispositions, we have made terrific progress on 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 removed $68 million from our pro rata debt balance. Concurrent with the formation of the new JV, we have restructured the non-recourse loans secured by the property, extending the term a total of 5 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 did 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 are selling are similar to River Ridge as the dominant or only mall in their markets generating stable cash flows. Many offer upside through anchor or the redevelopment opportunities.

They play an important role in their communities providing jobs, property and sales tax revenue and enjoy 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 we 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 these properties generate, which we used to fund accretive redevelopment and new development projects.

Our community center portfolio as we see it 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 in the sale of Renaissance Center in Durham, North Carolina for $129 million or $64.5 million at our share.

We also completed the sale of a grocery-anchored strip center in Middle Smithfield, Pennsylvania for $22.3 million. Altogether, we have completed $160 million in community center dispositions at our share since announcing the program in the third quarter last year.

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

I will now turn the call over to Katie to discuss new development and redevelopment activities..

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 feet center opened 97% leased with anchors Costco, Dick’s Sporting Goods, Field & Stream, Marshalls 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, Horizon has been successful in servicing strong outlet projects in recent years that have all met our required return and pre-leasing threshold.

The centers we have developed together are striving and have created significant value for our shareholders. Soon we expect to finalize our documentation and issue the special media release announcing our newest 65/35 joint venture project with Horizon, which will be located in Laredo, Texas.

The 355,000 square feet center will be the only outlet for our 180 miles serving as the 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 nearing 80% with an excellent line up including Michael Kors, Brooks Brothers and Nike, Under Armour and Puma. We expect another strong opening with high interest in the remaining phase. The economics of the projects are favorable as well with an initial un-leveraged return approaching 10%.

The outlet shops at Laredo is under construction and is 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 that locations to bring a more productive and diverse uses. Great example of this is the former JCPenney at College Square in Morristown, Tennessee where we proactively negotiated a lease termination last year.

This will allow us to add both Dick’s Sporting Goods and ULTA with openings planned for later this year. At Northpark Mall in Joplin, Missouri we are replacing a former Shopko box with an 80,000 square foot Dunham Sporting Goods. Construction will start later this year with openings scheduled for November.

At Randolph Mall in Asheboro, North Carolina, a New Ross and ULTA are set to open soon in the former JCPenney locations. And we are expanding Friendly Center in Greensboro, North Carolina adding West Elm and Pieology as well as Cheesecake Factory in freestanding locations. The new stores and restaurants will open later this year.

Construction will begin soon on a Regal Cinema adjacent to Hamilton Place brining the first luxury theater experience to the Chattanooga market. We will also shortly begin our expansion project at Mayfaire Town Center in Wilmington, North Carolina bringing H&M, Palmetto Moon and West Elm to the market.

We are pleased with the positive results from our redevelopment and expansion program and we will continue to prioritize it through our portfolio. I will now turn the call over to Farzana to discuss our financial results..

Thank you, Katie. Financial results for the first quarter were excellent with adjusted FFO increasing 8% to $0.56 per share. Major drivers of our growth in FFO include higher minimum rents and tenant reimbursements from occupancy and rental rate increases in the quarter. Percentage rents also increased $0.5 million as sales improved.

We continue to reduce our overall cost of borrowing and are benefiting from interest savings including a 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 $6 million. Property operating expense declined $0.8 million, partially offset by a $0.3 million increase in relative tax expense and $0.2 million increase in maintenance and repair expense.

Based on first quarter results and our current expectations for the year, we are reiterating our FFO 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 Pac Sun and Aeropostale.

Our guidance assumes a 25 basis point to 75 basis point improvement to stabilize mall occupancy throughout the year and does not include any unannounced dispositions or capital markets activity. 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 refinancings and our new lower spread on our lines of credit.

At March 31, we had over $700 million available on our lines. Since year end, we had raised $96 million in equity from dispositions, which matched off nicely with our mid-year maturities. In April, we utilized these funds towards the payoff of four loans on two malls and two associated centers totaling approximately $100 million.

Outside of this we have approximately $130 million of loans on 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 non-recourse loans secured by Chesterfield Mall and $32 million non-recourse loan secured by Midland Malls 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 hold period. We also recorded an impairment charge related to the sale of River Ridge.

As Stephen mentioned, we completed a very favorable restructure of the loan secured by Triangle Town Center reducing the interest 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 non-recourse 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 remained at 5.85%, amortization was eliminated. This restructure increases the cash flow after debt service to fund the repositioning of the malls with large box users.

With the improvements we have 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, strengthening our credit metrics. Further progress on disposition will provide an additional equity source to improve our liquidity.

I will 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 are 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 will now take questions..

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Christy McElroy of Citi. Please go ahead..

Hi, 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 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 the more normal level?.

Sure, Christy. Good morning. So, I would just say a couple of things. First, even though releasing spreads were the word in this quarter’s earnings, please don’t takeaway from what we accomplished with our same-center 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 prioritized occupancy. We saw really good progress on occupancy with a 130 basis point increase there. And we also prioritized same-center NOI growth and we have 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 it to focus at 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 couple of categories that we are talking about for a while primarily juniors and children’s ready-to-wear, where sales in the last couple of years have had decreases.

And when you get a lease up for renewal, it’s really a discussion of occupancy cost 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 in a couple of 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 to 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 challenged.

We are 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 double-digits, 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 in trying to release that space to other better performing retailers? And also is there a difference in sort of the duration of the lease shorter term versus longer term versus where you would do for another – a better performing retailer?.

Yes. I mean, 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 are not back to 100% level we were at the beginning of ‘15. So, we have those spaces to backfill. So, we have said we are going to keep these stores open.

We will go shorter term on the renewals and then in certain cases we have got our right to recapture. And we are pushing to bring in new retailers and 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 the struggling retailers as much as possible.

But in the interim, we will nurse them along, we will generate the NOI and we will give ourselves the flexibility to replace and when we have someone to do so..

Thank you..

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

Hi, thanks. Good morning. Just a follow-up on the leasing, how much of the 409,000 square feet of renewal leasing is included in that portfolio deal buck.

And if you back that out, any idea what the renewal spreads would look like on the remaining square footage renewed?.

Yes. I mean, 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 take 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 – for the 50,000 square feet I guess and where does the renewal rent sort of take down occupancy cost 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 the higher teens, that’s where it impacts us the most.

And the retailers, I mean, there is a lot of stories out there about closing stores, but the retailers still – I mean, they are not in the business of closing stores they are in the business of making money.

And so if the occupancy cost is not aligned and we will work with them, but it’s not about closing stores, it’s more about just making sure they are profitable..

Okay.

And then in terms of the outlets in Laredo, I imagine that’s to the retail hub in that market, but just curious with Mall de 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?.

Hey Todd, it’s Katie. Yes. I mean we definitely have seen on 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 you are drawing from a much broader region with the nearest outlet being about 180 miles away.

So it’s really a regional destination. We have Monterrey 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 have seen from it..

Alright, great.

And just real quick lastly, the $1.6 million impact to 2016 revenue that you are expecting for Pac Sun and the $2 million for Aero that you are expecting, Farzana was any portion of that realized in the first quarter or is that still to come?.

No, that’s still to come. That’s the pro rata that we expect in the next nine months to have 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 Scott..

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

Hi, this is George Hoglund on for Tayo. And then just a question about the disposition market, I mean just in terms of what’s the appetite you are 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 you expect more sort of 100% outright sales?.

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 have been successful in finding creative ways to work around it. And we did a couple of JV transactions, right. 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 with 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 think it’s relative to a couple of months back, are you guys viewing it as sort of incrementally a little bit better or incrementally a little bit worse or relatively the same?.

Sure. Well, I would say pretty much the same with the exception of the Pac Sun bankruptcy and Aero ending bankruptcy. I mean those are two that have been on our list for a while and we have been watching them. But beyond that, we really haven’t seen retailers closing stores.

Sears announced around the closings, but it was primarily K-Marts and there were few Sears. And like I have said we had one of those in our portfolio. But again it’s a lease expiration and we expected it to come. And it’s really pretty healthy overall from the retailers’ point of view.

We are still seeing the retailers that are coming to the properties that are expanding, that are growing whether it’s we are 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 Foot Locker brand is really strong in footwear and cosmetics is strong.

And so we are seeing categories, fitness and lifestyle related. And then we are also continuing to see the interest in the boxes I mean coming out of the properties and the restaurants. And I talked about the entertainment uses. So we have seen this broadening of the mix. It actually is helping us, it’s reducing vacancy and taking some tougher spaces.

So we are very positive. We have got a lot slated for Vegas next month. And we are excited about that and then we follow that up about a month later with our leasing event here in Chattanooga production or we have about 150 retailers that come to 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?.

Hi Lina. We are looking for the favorable market conditions to issue a bond. So I – we can’t speculate right now whether we will do one this year or next year, but obviously we are vigilant. We are looking at the market and hopefully the market will improve as time goes on.

There is still schizophrenic right now one day up, one day down, so you can’t imagine, you can’t predict what’s – how the bonds 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 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 rates and where our cost of capital would be..

Was there a follow-up Ms.

Rudashevski?.

No. Thank you..

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

Hi good morning.

I was just wondering on the Laredo outlet project, what sort of your decision to move forward with the grant up development there versus de-leveraging or buying back shares?.

Hi Caitlin. Well, I don’t think de-leveraging is off the table and we certainly still look at a stock buyback. Our stock is obviously continues to be very attractive. So, it wasn’t either our decision. We are developing this center to a really nice initial leverage returns nearing 10%.

And what we have seen from our outlets is initially they meet and beat our initial pro forma returns that we would hope to achieve that here at Laredo as well. The tendency there is great. It’s got a two level Nike store that’s really amazing and should be a very attractive draw and that 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 the portfolio average. Well, it’s in line with our strategy of taking cash flow into position proceeds and redeploying it back into projects that will provide that outsize growth.

So we feel confident that this is the right decision. We have achieved an 80% pre-leasing level effectively and expected to have a very nice opening the other outlet center projects that we have opened have been in the mid-90s. So, it really de-risks the return for us and makes 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 roughly $11 million in 2015 and $2.6 million in the first quarter of this year?.

Can you just repeat that?.

Yes.

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

I mean we will – we will 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 – to move our numbers significantly this year..

Okay. Thank you..

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

Thank you. I just have a couple of follow-up questions.

Going back to the little rate of 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 you guys part of the sight selection as well?.

Horizon has been working on, I mean we have been aware of make it in partnering with them in redevelopments waiting for them to achieve thereby pre-leasing threshold. We certainly spent a lot of time looking at the site and making sure that it made sense for us and that we are 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?.

And then Katie you mentioned that you expect some near-term sale decreases at Mal de Norte I think, but sales have gone – it declined a little bit in ‘15 or probably due to stronger dollar or what not. But it looks like this outlet’s location is kind of cutting off main artery to get to Mall de Norte.

And I was imagining that that middle income customer is something that’s very important to Mal de Norte, how would you guys think about kind of one of your best assets in the portfolio and bringing competitive retail so closer going back to Todd’s questions just a couple of miles away..

Hi D.J., it’s Steve. I mean I would just say a couple of things. First in the market there is enough demand for outlet centers that there was going to be an outlet center built.

And Horizon wasn’t only party looking, so from our point of view we would rather be part of it and not part of it because of the synergies between Mall de Norte and the outlets.

And then we have been able to work with them to differentiate Mall de Norte from the outlet in terms of the shopper experience and also the types of retailers .And there is some overlap but there is a lot of retailers that 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 have 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 – I think last quarter you were excluding the lender malls which makes sense, but it looks like there is some other excluded malls in the most recent disclosure as it relates to the minority interest properties in 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. They were – we were successful in disposing of a vast majority of that. And so we don’t think it reflects the true growth of our core portfolio. So you are 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 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 surely reflective in the near-term of what the long-term growth would be.

So once we figure out whether we are going to proceed with the redevelopment and put those plans into motion and then we can reconsider pretty in those same center pool..

Are those repositioning assets were those part of the assets that were in the disposition program?.

They were considered long-term disposition. Some of them have a couple of like anchor redevelopments and things like that that we need to finalize plan for .And we will keep working those through and making sure that the redevelopments make financials and that we are appropriately allocating 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 is a number of things that have moving pieces on those that we would need to finalize before making a final decisions on these properties and whether to move forward with the redevelopment..

Okay.

And then last question if I may, Stephen you mentioned that the demand for some of the assets that you are trying to dispose off, is there and its solid and some of the cap rates what we have seen and I guess, guess what transactions you are speaking to because some of our peers have been much more aggressive and price takers on dispositions, but is it if the demand is there how come we haven’t seen more transactions is it just simply the spread between the bid and ask, I guess still too wide from how much you believe these assets should trade for and what the going prices for the buyers?.

Well I would say a couple of things. I mean there is no question there has 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 our loan assumption, the timeframe that it’s taken has been significantly longer than we would review and expected worst case and the servicers are difficult where we have a loan assumption involved. And so that’s been a challenge, it’s taken longer and I can say we are 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 helped us, that’s helping us and we are seeing financing availed from regional and local banks too. And so the financial markets overall are better today than they were say in our last call.

And it’s top priority for us. And as soon as we have news to get out there, believe me , you will be the first one to hear or maybe the second..

Okay. Thank you guys..

Thanks..

Thanks D. J..

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

Good morning.

In the first quarter of ‘16, how did your same store sales compare to the first quarter of ’15?.

So in the first quarter ‘16, sales were not up as much, first quarter of ‘15 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 roller coaster.

January was soft, just because there was a lot bad news out there. And the process in February picked up. And March was decent with the early Easter, but we like I said we are up overall on our rolling 12-month sales, almost 280 a foot, I mean 380 a foot excuse me and 2.5% growth. So we are seeing good growth in our sales overall.

Certain retailers who had been having negative results have stabilized and started turning 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?.

No, they were up..

Okay.

And then I noticed on the income statement your other income line – 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?.

Hi Carol, that there was a one-time item, there was an AR for third party business that are subsidiary that we owned. They had an AR write-off, so that was factor, one-time factor, it should not continue next quarter or subsequent periods..

So we can take our first quarter of ‘17 similar to first quarter of ‘15?.

Yes. That’s right..

Great. 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 that the biggest gain that we had was in Tier 2. And it was a couple of factors behind it. We had H&Ms from last year come online and even though they don’t go into auction 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 projects with May. And that really isn’t any one retailer. It’s a diverse group of retailers that we 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 in H&M, in some of your lower productivity malls are purely on a turnover base or have you done that in the past or how do you look at that?.

So, we have looked at it and a couple of the Tier 3s to position and better for sale and it is a – it’s not an insignificant investment. But it does give us a more attractive asset from a buyers point of view and it also will bring other retailers in. So that’s something that we have definitely done.

And we have done that with a couple of the department store vacancies where we have released them to Dick’s, Ross also users like that. And then we have got a better property from a marketing point of view to potential buyers..

And buyers don’t look at the floor, we are not getting much income from that or just look at that we have got a tenant, how does – what’s the feedback you have had from potential, I guess it’s been positive, but do they look at more as someone occupying space or they look at as rents that they are receiving?.

Well, they are indirect to rack. So if whatever rack H&M or whoever is going to pay, we are able to get credit for it in the cap rate on the property. And 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 reimburses for the investment.

And then they will get the upside through the rack. So it depends on the specific negotiation. But there is – there is always a component of value you will receive 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 sort of a target over the next 18 months, you have mentioned a couple of obviously Gulf Coast and you mentioned Midland, but are there any potential other assets that we should expect are going to go back to the lenders?.

Hi Floris, this is Farzana. We have listed of course Chesterfield and 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 to the lenders. I don’t foresee anything in the future, but that’s not to say that we won’t change our mind.

So we have to look at a deal-by-deal and asset and loans mature, whether that that deal makes sense in comparison to the cap rate and what’s the investment value in the future in terms of what – how much money we have to invest in retailers as well as if they are investments to make in the property maintenance. So those decisions will come into play.

So we can’t right now this is lift 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..

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

Hey. Good morning..

Good morning..

First question for me, just as it relates to the leasing efforts, I mean it looks like you guys got about 9 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 ever they shifted really almost exclusively with a longer term commitment or are you still spending any time just on kind of temporary and short-term tenants like you maybe were a year ago when the big in occupancy you heard?.

Well, the new leasing depending on the investment and we will make sure we are 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 with even some of the banking spaces where there is 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 our occupancy and NOI flowing, while we are trying to bring in someone else from a new leasing point of view to boost our income..

Okay.

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

Well, we are certainly off to a great start. And as I have mentioned earlier we are cautious as to ensuing quarters and we will see how Pac Sun, Aero those bankruptcies play out.

And we have made some estimates on what that impact would be, but hopefully if it’s not – if we can mitigate the rent reductions and we can mitigate the impact then that would be a positive, so that’s how we are looking at it at our guidance keeping at the same as we had last quarter..

Okay.

So I mean obviously going up I guess maybe an easier comp like you still think there is some potential and this isn’t necessarily be high water market if maybe some of the things fall in your favor as it relates to some of those situations?.

Well, we continue to push our leasing and that’s really the biggest driver. So once we – our top line growth is the most important thing. And this quarter the top line growth is really what contributed to the growth of 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 Pac Sun, while Pac Sun 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 the 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 recognizing there is some limitation around timing just maybe update us on how much more you would like to sell in kind of that community center bucket over the next year or so, I think in February you referenced something like targeting around $100 million equity to CBL from those asset sales, any change in that or kind of revision to that at this point?.

Yes. I mean we still have – I mean there are some other properties that we are in the process of bringing to market of that $100 million is a target now even though we have made a lot of 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 to think over the near year, year and a half or so?.

Yes..

Okay, alright. Thanks very much guys..

Thank you, Collin..

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 read in June. Have a good day..

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