Good morning, and welcome to the CBL & Associates Second Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. Please note this event is being recorded.

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

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties, Inc. conference call to discuss second 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 risk 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 Web site 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. I'll start with a brief comment on the SEC investigation before we move on to our performance for the quarter. The process is ongoing, and we hope to make an announcement in the near term.

We remain confident in a positive resolution, and assure you we are making the utmost effort to put this behind us as quickly as possible. Given the sensitivity of the situation, we will not be making additional comments at this time. We appreciate your understanding, and ask that you limit your questions today to our results and operations.

With that said, I'll move to what we are really here to discuss, our results for the quarter and outlook for the future. I have good news for you this morning. Our second quarter results were excellent across the board.

We built on the strong momentum established in the first quarter with portfolio same-center NOI growth of 3.4%, including a 3.2% increase in the malls. This is the highest increase in same-center NOI we've had in recent years. Adjusted FFO was also well above expectations, going 9.3% to $0.59 per share.

Our success this quarter is due to the hard work and focus of the CBL team, the stability and upside potential of our market-dominant properties, and the impact of progress we have made in our portfolio transformation strategy.

Operational improvements were led by a steady climb in occupancy, with a 150 basis point increase in our same-center mall portfolio to 91.7%. Overall portfolio occupancy increased 160 basis points to 92.6%.

We leased approximately 1.5 million square feet in our portfolio this quarter including 473,000 square feet in our mall portfolio, a 27% increase over Q2 2015. Average lease spreads for the quarter increased 7.8%. New leasing spreads continue to be strong, posting an increase of 26%.

Renewal spreads improved over the first quarter and were essentially flat. Our rolling 12-month same-center sales increased 1% to $377 per square foot, although we saw weaker results in the second quarter. The primary driver of the deceleration is a few malls located in energy-sensitive markets and border markets.

We have seen a recovery in sales in July, and expect a flat-to-slightly positive sales environment for the remainder of the year. Moving to dispositions, we have now sold five regional malls here today, including the sale of two Tier 3 malls last week.

Fashion Square, in Saginaw, Michigan, and The Lakes, in Muskegon, Michigan were sold together for $66.5 million. The buyer assumed a $38.2 million loan secured by Fashion Square as part of the transaction.

With these sales we have now completed transactions on 11 malls over the past 18 months, which will increase to 14 as the complete the lender transactions on Chesterfield, Midland Mall, and Wausau Center. Additionally, we have several properties being marketed, and in various stages with interested buyers.

We are pushing hard to be in a position to make additional announcements as we progress through the year. We also sold two community centers during the quarter. Renaissance Center, in Durham, North Carolina was sold for $129 million or $64.5 million at our share.

And we also sold a grocery-anchored strip center at The Crossings at Marshalls Creek 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.

The transactions have been executed at very attractive pricing as we take advantage of the strong demand for high-quality centers. We are working on additional community center non-core asset dispositions, which we will announce as they are completed. The progress we have made on our portfolio transformation strategy is significant.

And it's worthwhile to review the milestones we've achieved. In April, 2014, when we announced the strategy, 22% of our mall NOI was generated from Tier 3 and non-core assets. With the recent dispositions and pending foreclosures, we will reduce this to below 10%, which has been our stated goal.

Additionally our Tier 1 NOI contribution has grown from 31.4% to more than 43%. We've made meaningful progress towards achieving our sales goal of $400 per square foot, increasing from $356 to $379 per square foot. The headway we've made has also had a beneficial impact on our balance sheet.

Since announcing the strategy, our debt has been reduced from $5.5 billion to $5.1 billion. And our debt-to-EBITDA has improved from 7.2 times to 6.6 times. These are substantial accomplishments that have resulted in CBL becoming a stronger company. And we are not done.

We are investing much of our free cash flow into upgrading our existing higher-growth centers, improving our properties, and de-leveraging. Over the past three years, we have completed or have underway 24 large redevelopment projects, and have opened more than 94 box [ph] in Junior Anchors stores, and more than 60 restaurants.

While we still have work to do, we have made dramatic progress, especially given the various challenges in the market. We are pleased to share this progress and demonstrate clearly this quarter how our strategy is having a positive impact on our results.

I will now turn the call over to Katie to discuss our current redevelopment pipeline in more detail..

Thank you, Stephen. A key priority for CBL is investing in our existing properties, primarily with our substantial free cash flow. These expansions and redevelopment projects are significantly broadening the uses at our shopping centers as they evolve to meet the changing consumer preference.

We are offering more entertainment, more lifestyle and fitness retailers, more dining, and in general, a broader selection of offerings. In many cases we are replacing former under-productive anchors to accomplish this. We have a number of projects underway that I'll take a few minutes to review.

At Friendly Center, Greensboro we are adding West Elm and Pieology, as well as Cheesecake Factory in a freestanding location. The new stores and restaurants will open later this year. We've also started construction on our expansion project at Mayfaire Town Center in Wilmington, Carolina brining H&M, Palmetto Moon and West Elm to the market.

Construction recently started on the redevelopment of the former JC Penney at York Galleria, in York, Pennsylvania, which will include a new Gold's Gym, H&M, and additional stores and restaurants. H&M is scheduled to open ahead of the 2016 holiday season, and Gold's Gym will open in spring, 2017.

We are under construction on Dick's and ULTA in the former JC Penney at College Square in Morristown, Tennessee, where we proactively negotiated a lease termination last year. At Northpark Mall, in Joplin, Missouri, we are replacing a former Shopko box with an 80,000 square foot Dunham's Sporting Goods. Those projects will open this year.

We recently opened a new Ross and ULTA in the former JC Penney location at Randolph Mall in Asheboro, North Carolina. And we have one ground-up development in process. Construction is continuing on The Outlet Shoppes at Laredo, our newest 65-35 joint venture with Horizon.

The 350,000 square foot center will be the only outlet for 180 miles, serving as a regional destination, as well as providing a value shopping option for the 4.5 million people living in Monterrey, Mexico and the nearly one million people living in Laredo and Nuevo Laredo.

The center features an excellent lineup, including Michael Kors, Brooks Brothers, Nike, Under Armour, and Puma. We are 75% pre-leased and look forward to a strong opening in spring, 2017. We are pleased with the positive results from our redevelopment and expansion programs, and will continue to prioritize it throughout our portfolio.

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

Thank you, Katie. Second quarter financial results were outstanding, with adjusted FFO increasing 9.3% to $0.59 per share. The major drier of our growth this quarter was higher top line revenue from occupancy increases as well as rent growth. Percentage rents increased $0.3 million as sales grew.

Interest expense declined by more than $5.6 million due to our lower overall debt balances and a 29 basis point improvement in our average borrowing rate. Operating expenses and maintenance and repairs were also lower compared with the prior year period.

We recorded a $1.1 million in professional fees related to the investigation and related litigation in the quarter. We have excluded the expense from adjusted FFO since this is a non-recurring item. Adjusted FFO also excluded the increase in equity and earnings for the completed foreclosure of Gulf Coast Town Center.

Net of non-recurring fees, G&A for the quarter was $15.4 million or 6% of total revenue for the quarter, compared with 6.4% in the prior year quarter. Our cost recovery ratio for the second quarter was 106.7% compared with 103.5% in the prior year period due to lower expenses.

Same-center NOI in the quarter increased 3.4% for the total portfolio, and 3.2% in the mall portfolio. Total revenue growth of $5.6 million was fueled by higher rents from occupancy increases. We had a net decrease in expenses of $500,000, with improved operating expense offset by higher real estate taxes.

Based on second quarter results and our current outlook for the remainder of the year, as well as dilution from recent asset sales, we are increasing our FFO guidance to a range of $2.36 to $2.40 per share. This new guidance range assumes an increased same-center NOI growth range of 1.5% to 2.5%.

Our guidance also assumes an increased occupancy assumption of 75 to 125 basis point improvement to stabilize mall occupancy throughout the year, and does not include any unannounced dispositions or capital markets' activity. 2016 is a transformational year for our balance sheet.

With the equity raised and debt assumed by buyers in dispositions and reductions from lender-transactions, our total debt balance is more than $385 million lower than the prior year period. Additionally, our rolling 12-month debt-to-EBITDA multiple improved to 6.6 times at June 30, from 7 times at the end of the prior year period.

Our average borrowing rate continues to improve as we refinance maturing loans at lower rates. In June, we closed on three non-recourse loan secured totaling $227.7 million, with a very attractive weighted average from fixed rate at 3.9%.

With a weighted average term of nine years, these loans extended our maturity schedule, and contributed to lower long-term borrowing costs. I'll take a minute to walk through the activity we have on properties on our non-core list. We have engaged with a servicer to move towards foreclosure for the loan secured by Chesterfield Mall and Midland Mall.

We are targeting completion by year end. Additionally, we have decided to return Wausau Center to the lender. The property is secured by a non-recourse $17.6 million loan. We have been working with the city on a redevelopment plan for the property, but determined not to move forwards when returns didn't meet our thresholds.

As a result, we recorded an impairment charge of $10.7 million during the quarter. With the conclusion of these foreclosures and the resent asset sales, our debt balance would be further reduced by $250 million, bringing the total reduction compared with the year-end 2015 debt balance to over $555 million.

During the quarter, we utilized disposition proceeds to fund the payoff of four loans on two malls and two associate centers totaling approximately $100 million. At June 30, we had over $711 million available on our lines. With the dispositions completed last week increasing the availability further.

Our remaining 2016 maturities total only $134 million. We have a $71 million loan secured by Greenbrier Mall. We're in discussions with the lender and are seeking to extend the maturity, and utilize free cash flow to invest in new leasing at the mall. It is a solid Tier 2 center, and we hope to conclude a favorable restructure with the lender.

The remaining two maturities include a $55 million loan secured by Dakota Square, and a $7 million loan secured by Governor's Square, an unconsolidated property. The debt yields on these loans are well north of 20%, and we plan to retire this loan, and add Dakota Square, a Tier 1 mall, to our unencumbered pool utilizing our line.

As we look forward in 2017, we're in a great position with our balance sheet. We have tremendous flexibility to address to our maturities, utilizing the most favorable source available.

We have reached a number of near-term goals with regards to our unencumbered pool and have the optionality to refinance maturing debt or add high-quality properties to our unencumbered pool. I'll now turn the call over to Stephen for concluding remarks..

Thank you, Farzana. 2016 performance year-to-date has been exceptional. And we are focused on continuing these strong results in the second half. We've made great strides towards achieving our strategic objectives this year. Our balance sheet is stronger and more flexible.

And as our stellar results this quarter demonstrate, our portfolio is higher-quality and higher-growth. We are positioning the company to not only perform well today, but to perform well over the long term. Thank you again for joining us this morning. And we'll now take questions..

Thank you. [Operator Instructions] And our first question will come from Todd Thomas of KeyBanc..

Hi, thanks. Good morning. First question, on the renewals, you mentioned there was an improvement from last quarter, but still a challenging environment.

Were there any portfolio deals done in the quarter? And do you see the pressure on the renewal side easing at all or should we expect that to be ongoing?.

Good morning, Todd. So, yes, like I said, the renewal spreads did get better this quarter over the first quarter. And we're also continuing to increase our rental amount and our average rents. And that's a positive that gets reflected.

Like we said, for the past two quarters we anticipated that renewal spreads would be tougher this year compared to last year.

There are some portfolio deals primarily with some of the juniors whose struggles have been well-documented and well-publicized, that have created some challenges, but we've had a lot of positives, and we're seeing all the strength out of other categories to offset it. The other thing we've said is that our priority is occupancy and NOI.

And we're not as focused on lease spreads. And so those are really the primary drivers that we're looking at. As far as looking ahead to the rest of the year, I'd say we expect some improvement similar to what we had this quarter over first quarter, but it will still be a comparable environment.

There are still some retailers that are trying to improve their sales but they haven't yet. And as those renewals come up then that impacts our negotiations. We don't have as high a degree of renewals over the rest of the year as we do in the first half. And our new leasing spreads have been really strong, and we look for that continuing.

So overall we feel really positive about where we stand..

Okay, that's helpful. And then in terms of the sales environment, you noted sales were a little bit weaker in the quarter but recovered in July. Can you just provide a little context around that in terms of the trends that you saw through July? And I think in the past you've talked about quarterly comp sales growth.

Are you able to share what that was in the quarter?.

Well, not exactly. Although you can do the math and get a sense that second quarter had decelerated from where we had been over the past year, just given where we end up on a rolling 12 months compared to where we were at the end of the first quarter.

And like I said, there were really a few malls that are border malls or in some of the energy-sensitive areas, North Dakota, Texas, where the results from the economies there drive down our overall portfolio. And for the most part across most of the portfolio we're seeing pretty good stability on sales.

I wouldn't say it's robust growth, but it's consistent growth. So taking those outliers out the results are pretty good. But obviously we include everything. And one of the things is that we're almost through the first to full year of impact of lower oil prices and the stronger dollar. So as the year continues we should see some stability there.

One other point to make is, last year we had really strong sales growth across the board. So the comps are tougher that we're coming up against. So that's a factor as well..

Okay. And then shifting over to the balance sheet, one question; Farzana, you have the Series D preferreds outstanding. There's 7.4% yield, those are redeemable. Is that something that you could chip away at with the new issue? It looks like the Series E preferreds are trading at a 6.6 [ph].

So just curious if you have any sense where you would be with the new issue today?.

Well, in order for us to redeem them and reissue we really need a meaningful spread differential. So at the moment we don't see that. It is improving definitely. The preferreds are coming back in strong, there's a lot of demand. We'll continue to look at it in the future, and we're monitoring it, but we haven't made any decisions today..

Okay. Thank you..

Thanks, Todd..

The next question comes from Christy McElroy of Citi..

Hi, good morning everyone. Stephen, you mentioned in the remarks that you're pushing hard to be in a position to make additional announcements on asset sales. You also said in the release that you expect an acceleration into the back-half of the year. That seems like a little bit more -- more of a positive outlook for sales than it's been recently.

Can you give us a sense for sort of anything that's changed in recent months, whether it's buyer demand or deal financing or your willingness to be more flexible on price?.

Well, a couple of things I would say is, first of all, as we've maintained from day-one, we're not -- price has not been the obstacle to any transactions. It's been having buyers on the other side that can execute. And we've been at this over two years, and it takes time. And we're finally seeing the results that we've been talking about.

We sold five malls this year. We've got different properties at different stages of negotiation with buyers. It's still very difficult to get a loan assumed. The Fashion Square loans; that whole transaction took about six months longer than we thought it would, but we got it done.

And I think that's what counts, is you look at what we've accomplished, and it's damn good. You know, 11 out of 25 malls in that original portfolio are now taken care of and there will be 14 when you include the three that are working with the lenders on.

So we have made these progress, and like we said, from the beginning, we are going to exceed on this program and get it behind us as quickly as we can..

What were the cap rates on the deals that you just announced?.

We don't give cap rates on the transactions. They are market transactions and that's really what we are working with is all these transactions we've done better than certain of our peers in our execution. We have been able to find the right buyer.

On Bonita Lakes we found a really strong local buyer, and it was a good execution and we are pleased with the cap rate there. The two that we just announce again, we haven't stated the cap rates. But given those properties, given where the trends are we feel really good about where we executed the deal..

Can you give a range where it falls for the -- single digit, double digit, low double digit, high double digit? And just a sense for what the buyers are doing with those assets?.

How about double digits? What was the second question? I am sorry..

I was interested, are these buyers -- are these assets being purchased for a reposition, are they from an operating these as ongoing entities?.

I mean buyers on Lakes and Fashion, they are opportunistic buyers. They bought other malls over the past few years from peers in the business. And I think for the most part, they are planning to continue to run these properties. There is not major repositioning involved.

It's just more holding NOI at levels where it is, blocking and tackling expense management. And I am pretty sure that's their strategy, but I am really speaking for them.

And from our point view, these were tier III properties that were part of the pool that with slower growth, not -- as we said these are stable but they didn't have the growth profile that we wanted to company. So it made sense for us to sell them..

All right, thank you..

Thanks, Christy..

Our next question comes from Caitlin Burrows of Goldman Sachs..

Hi, good morning.

I was just wondering if you guys good comment on your occupancy which obviously was up nicely this quarter, on the types of tenants that are filling that space to what extent they are traditional retail and/or whether either restaurants or some other types of uses that does happen?.

Outfitter that is a store out of Chattanooga that's expanding across Tennessee and more in the Southeast, and the sporting goods are delta category and outdoor-oriented and fitness. So, it's really a combination that we are seeing..

Okay.

And then, maybe for Farzana on the capital market side, what do you see as the potential for doing a debt offering?.

Hi, Caitlin. Well, as I mentioned in my prepared remarks, we are opportunistic. Our debt balance is -- our debt balance sheet is in an excellent position now. And by year-end, it will even get better. So, we have the option to access the best source of capital that we see. We have loans coming up next year as well.

We had the opportunity and they are all strong assets. And whether we pay them off or whether we get secured financing, it will just depend on what capital access we have.

We hope that with all the credit metrics improving and our balance sheet improving and a strong performance we've had thus far and continuing with that performance, that we will be able to access the public bond market as well. But sometime in 2017, if something comes up, we have an opportunity this year, we will look at it..

Okay. And then, last on the share buyback side.

Do you see any potential for that?.

Yes, Caitlin, we are really happy with the progress we're making on our balance sheet in terms of the de-leveraging and improving the credit metrics.

And even though our stock is undervalued and at a discount NAV, the balance sheet is a priority for now in terms of improvement, and so, the stock buyback while it's still out there, unless we have some kind of major transaction on the dispositions front that's not something that we are likely to execute on near term..

Okay. Thank you..

Thanks..

The next question will come from Craig Smith of Bank of America..

Good morning. I am wondering we have had a relatively benign year from Sears and JCPenney store closings.

I just wonder if you think that continues maybe for the next nine months?.

Good morning, Craig. I think it will. JCPenney has had continued strong results, growth in sales, growth in profits, and they have made the statements that they are not looking to close stores. They are looking to grow their revenues and grow their profits and their stores are profitable. They did some closings but that's behind them.

And then Sears is focused on Kmarts and that's where the majority of their closings are, and the conversations I have had with their head of real estate and real estate people is that they are not looking to close Sears stores..

Okay, great.

And then, just the increased pace of being able to sell the assets, has there been change that you would point to or is it just persistence and then you finally gotten through?.

It's really persistence and time. And unfortunately these transactions take longer than we wished they did. But we have been working at it for some time. And now we are starting to see the results. And we haven't changed any criteria. We haven't changed any people. We have been focused on it for awhile and now we are seeing good progress..

Okay. Thank you..

Thanks, Craig..

The next question will come from Jeff Donnelly of Wells Fargo..

Good morning, guys.

On Aeropostale, can you update us on your exposure to their announced closures, and maybe any advances you've made in -- with those spaces?.

Yes, at the end of the quarter, we had 68 Aeropostale. There is a few that -- it will be little less because of some of the dispositions that we have made. And then, that will bring it down to 65. And of those, eight will be closing this year.

And we anticipate -- I mean, like we said last quarter that the hit to NOI will be roughly $2 million for the year.

So, I mean, one of the reasons that when we did our guidance for the rest of year, we are going to start feeling the impact of some of those closings and the rent reductions in Aeropostale because of the restructurings from the bankruptcy there.

So that's an impact that we are going to start to feel and then Faxon [ph] and sports authority and the bankruptcies it happened earlier this year are going to start flowing through to our, our revenues if you get into the third and fourth quarter..

Just kind of bring I guess for my next question is compared to the results as you posted in Q2 for leasing spreads and same store NOI, I guess how should people be thinking about how those numbers looks as you role into Q3 and into Q4 are you able to kind be that fine with your guidance?.

Well, we did the overall let, what the full year guidance is and we do have not Q3 that year was flat but our Q4 was had a robust 2% growth so, that's a tough comp but as Steven pointed out these bankruptcies and the store closure impact of these sells more in the second half of the year so, it was moderate from the strong quarter we've had this year and this quarter and last quarter which is fantastic and we hope to continue with that momentum but it will moderate some so, primarily because of these impact to the bankruptcies and the store closures..

Okay. And just question on the you remark about energy markets you are talking about deceleration that you are seeing in the, I think it was North Dakota and some market with Texas, have you seen actually manifest itself in its leasing appetite or even weakness in sort of leasing terms so, it was just really kind of sales issue with this point..

It's really sales actually the leasing has been strong and we're doing redevelopment expansion at Dakota Square in Minot and we're adding some goof tenants there and we got strong demand. We've got some other retailers that want to get in them, those markets and those malls that we're trying to figure out a way to accommodate them.

So the leasing demand is strong and we had a great right up over the past three years and now on the downside its come back down but the levels are still strong and OXY [Ph] cast is healthy it's not had a line at all so, it's just primarily sales..

And then just last question and I apologize for not heating your request but I guess want to ask is, is the reason behind your expectation for positive revolution on the SEC outcome, that the, that in the internal review has not reviled any material disparity in reporting so, that why you feel sort of component here..

Jeff, I like I said we're not just going to make any comment at this time and we're pushing and doing everything we can to and putting this to resolution and we are confident that it's going to be positive and we want that to happens as quickly as we can and I wish today we had wrapped and above and we could tell you exactly that is behind us.

But it's not and we are going to hopefully get there as quickly as we can and believe me as soon as we have it behind us we will tell you..

Okay, thanks guys..

Okay, thanks Jeff..

And our next question comes from Rich Hale of Morgan Stanley..

Hey, good morning guys, just start can you tell us what the sales per square foot were on the properties that you financed in June?.

Yes, I can three more Town Centre and ambassador we don't really report the sales for those large community centers and Hamilton Place Mall is a Tier 1 property over $400 of square foot I believe by year end it was 402 at year end that….

Okay, thank you.

So, going hand on hand with that you guys have obviously made some pretty great success - over the past couple months and selling some of your Tier 3s, how important do you think it is, to the market right now to have consumable financing and so I'm just sort of specifically thinking about Fashion square and still having six years left on that loan was that something that was particularly interest to, of interest to your buyer how should we think about that going forward, are you going to be more acts to sell Tier 3s with loans on them, how should we think about that?.

I mean, it really cut stroke ways because rights there low today and debt markets have come back beneath the likes was free and clear and as the desire were able to get financing from regional bank and the fashion had the loan in place, I can assure you it was a lot of work to get that assumed and prolonged the transaction but given the terms of loan it was attract to sit out buyer and the rate was below 5%.

So that was favorable to them. So I guess that's way we think that it cuts both ways and some of the properties in our disposition pool have financing and some don't and we're going to try to work through with the buyers in both circumstances to make the transactions happen..

Yes, so just one more question from me.

So are you hearing from the market mall doing less than $300 a square foot or getting financing?.

Yes, I mean it's happen, it might not be CMBS. But the properties that we've sold, the buyers have been able to get financing. I don't know what terms are and what kind of financial guarantees or whatever financial resources there to provide, but it's not - I don't think it is institutionally driven financing.

But you can there's still a lot of spread where you look away the cap rates are, and where underlying interest rates are, even if you get some conservative level financing if past returns on equity for these buyers and their private buyers, so I think start think from their point of view it's pretty attractive if they can do that..

Yes, 40% leverage probably gets a lot of people interested. All right, thank you guys, I appreciate it..

And the next question is from Tayo Okusanya of Jefferies..

My question has actually been answered, congrats on a great quarter..

Thank you. We appreciate it..

And next we have Haendel St. Juste of Mizuho..

Yes good morning. Two questions from me. First things are like was better than expected in the quarter benefiting from some decline in operating expenses.

Can you talk about was driving that decline in the sustainable?.

Can you repeat your question -- repeat your question and we couldn't here you completely..

Okay. Notice that there was a reduction in operating expenses year-over-year.

Can you talk about what's driving that and it's a sustainable?.

Yes, I mean, if you probably saw the headlines most of it came from organic growth in the top line. Base rent drove it, percentage rent to some extent. We had strong top line growth the expense savings were comparatively a lot less compared to that revenue growth.

So $0.5 million of expense savings and $5.6 million of revenue growth, so if you just compare that two top line growth drove it and as a result of occupancy growth as well as rental percentage growth that we have and all new leasing that have kicked in..

I certainly acknowledge and understand that just was curious if there's anything perhaps who should be thinking on the expense line item there?.

No I think expense line item is do vary. We may have some exposure to higher expenses in the upcoming quarters no removal in the item that could impact us real estate taxes could impact us just those are the variables that we can't control. But to the extent that we have been able to manage the operating expenses they are pretty stable now..

Okay question on potential bond offering, what do you think you could price a ten year bond offering today and how does play into your thoughts of potentially redeeming maybe your some of the 2017 early and incurring the prepay?.

Like I said earlier, we would be opportunistic in accessing the bond market. So today I don't really know that's spread that way and we want it to be. So we will continue to look at the bond market and be very selective, because we do have the flexibility to access when we want it and we do have some secured loans coming up.

But they upgrade assets like I said earlier and we also have flexibility on our lines of credit, because we do have over $700 million available. In addition we continue to -- if we continue to make asset sales that will provide us with additional liquidity.

So again with all the different sources of capital we have, we feel pretty good about making our right choices and driving up costs of capital down..

Okay, thank you..

The next question comes from Carol Kemple of Hilliard Lyons..

Good morning. Congrats on a nice quarter..

Thank you..

Loan on absolute amount but on a percentage amount, the management developed in leasing fees increased the like year-over-year since the first quarter is the $4 million of good run rate or is there something special about this quarter..

Yeah, there was a little something special this quarter. We had done some financings along with our joint venture partner on Ambassador Town Center and Fremaux Town Center and Basel financing fee that the management company was able to earn so, we have about a $0.5 million or so plus financing fees.

And then we do have management fees that have gone up because we are managing some third party business so as that continues, we will hopefully have a good continuation of the management fee income but to the extents of these financing fees that sort of one time item..

So going forward like $3.5 million per quarter sounds like this run rate..

I don't really know may be around $3 million I guess per quarter but it is, it fluctuates so….

Okay, that helps. Thank you..

Thanks..

The next question comes from Floris van Dijkum of Boenning..

Thanks. I think across all things -- I think it looks pretty good. I had a question to you on the, on your sales if I look at sales for Tier 1 malls they were essentially flat but the actual, the increase came in your Tier 2, when your Tier 3 malls, can you may be comment on that do you expect to take up and as well going forward..

Yes, Floris, good observation. The Tier 1 sales, the malls that I've talked about the energy sensitive in the older markets are in the Tier 1, so that's where we had the biggest impact on the negative side was offset by some good growth in other areas of the country which is why we are flat.

And then the Tier 2 really to speaks to the stability that the only game in nature versus properties and Tier 3, there some volatility, some of the Tier 3 is taking out some of the stores that were less productive so, that helps them and also just a lower grade so, it's easier to move the needle there..

Great.

And I guess in my other question is regarding your expensive -- ratio it picked up during the quarter and Farzana I think you were suggesting that, that means we should be expecting this 100 percentage recovery ratio going forward as well, is that correct?.

Well, if the expenses pick up in the second half due to snow removal or something else, I would think that it would moderate but I'd think on a full year basis around 100% recovery is a good run rate for us..

Okay, great. Thanks guys..

Thanks, Floris..

And the next question is from Richard Moore of RBC..

Hello, guys. Good morning.

I just wanted to make sure I understood is nothing yet from PacSun aero or sports authorities in 2Q right so, everything you would talk about before still to come is that right?.

That's correct. I mean, there is a little bit in Q2 but it really kicks in Q3 and Q4..

Okay. That's what I thought and then on Farzana on the planning side, I'm trying to understand you do both mortgages and bonds or sort of how you are just going to go to bonds all the time when you have the chance especially on your better assets is there some strategic reason I guess to mixed too..

Well, Rich, we've set all along we would balance it between secured and unsecured and be a opportunistic but we were focused on unsecured in the beginning because we needed to get the secured ratio down and we've dramatically bring that secured ratio down to around 30% and that's we continued to pay off more loans that would continued to come down so, we have the flexibility to take opportunity in the marketplace based on the cost of capital on the depth side of force.

And also look at when we can issues the bonds be opportunistic about it. And we now have the flexibility, we've been working very hard to get the unencumbered NOI up around 50% or more and we continue to make progress on that. And so of course is also making sure that the market is a right juncture for us to access..

Okay. All right, I got you.

And then you guys if I could on the Sears side of the equation; I can't remember, do you have any that -- I guess, [indiscernible], and if you do, are you guys doing anything with them to look at those?.

Yes, we have seven [indiscernible] in our portfolio. Sears did [indiscernible] in our portfolio.

And we're talking to them on a regular basis and they've got actually some interest in a couple of the stores in terms of taking the app of the Sears that they have the ability to take back and we're working with them, whether they do it, or we do it together.

It's a positive for the center to bring in those new users and have the Sears based more productive. We've got a great relationship with Dan and his team and I think are very supportive of other strategy..

So Stephen, in the given notice yet to Sears to anything take six months before you can actually do anything after that can notice..

I don't know Rich..

Okay and that's fair.

And then last thing is the parcel sale or maybe those multiple parcel sales, where were those this quarter, it just Laredo it agent something there on a personal?.

It's just the combination it wasn't just at one property there were just a few from one that contributed to it, and yes that's a really healthy market a lot of 10:31s and net lease buyers that are looking for yield and even in the pricing is very attractive. So we're able to tap into that..

Okay, great. Thanks, guys..

Thank you, Rich..

I'm sorry. The next question will come from Michael Mueller of JPMorgan..

Hi, going back to the store closings you were talking about little bit earlier Europe for starting everything.

What's the total NOI that's expected to go away from that whole grouping that's not already reflected in the second quarter run rate? And then conversely when do you think you're through all that you have tenants back in paying at the hit the other side of it?.

So it's about $2.5 million little more than $2.5 million is what the net impact is that we're projecting..

And that's an annualized number, correct?.

That's for the second half of the year..

Okay, two and a half, so basically a million on a quarter, a quarter roughly?.

Yes, roughly..

And then what do you think release didn't have tenants back in you think about a year little over?.

Well, the Aeros, I mean for the most part Aero impacts and keeping most of their stores. Sports authority is - yeah we'll backfill that sports authorities about $1milion on an annual basis. And we'll backfill those pretty quickly, because we have deals in place.

And then the arrows in the PacSun those will take six months a year to backfill them, but there are eight Aeros closing and four PacSun. So a lot of that impact is just the reductions that we have been to negotiate as part of the restructurings in the bankruptcy..

Got it, okay.

But on the closings you think the closing component within year or so?.

Right..

Okay.

And then I guess tied to that as well the renewal spread pressure now that you threw a lot of this and we looking to the back half of the year do you see improvement in renewal spreads?.

I mean we're obviously trying to get it, there are still some retailers out there that their sales are not where they want to be, and we have renewals with them, they bring us down and other hand we've got some that are doing well. So our sense is that we'll continue to see some improvement, but it's not going to dramatic..

Got it, okay, that's it, thank you..

Thanks a lot..

And our next question comes from Collin Mings of Raymond James..

Hey, good morning.

Just a quick question Stephen, just curious how you think about the recent pickup and just disposing of some of these Tier 3 malls? Does that change your thinking at all about additional community center sales or what you might sell on that front?.

Well, we started selling the community centers and -- or the effort to sell community centers in non-core last fall, and the pricing has been strong. And we got some others that are in the pipeline that we're working on. And I don't see any reason to stop on that. The execution has been good, the demand is good.

It helps improve our credit metrics and our liquidity, so it's in that positive. If we look at them and we don't see, really, the growth in NOI it's a good time to sell. And that's really what we're taking advantage of..

Okay, thanks for the color, Stephen..

All right..

And our next question comes from D.J. Busch of Green Street Advisors..

Thank you. Just a follow-up on Collin's question just now, Stephen, you're making good progress on the Tier 3 dispositions. I think the community centers have -- there's been appetite for those for a while.

And I think you've touched on the past, but is there any more appetite to maybe move up into the Tier 2s and potentially -- not do an outright sale, but do some larger joint venture to raise more proceeds to de-lever?.

I'd say we're focused on getting through the strategic transformation, the 25 malls as quickly as we can to get that behind us. And that's the priority, that's where we've made the progress. And I think the results are driven by that focus. I wouldn't rule out looking at other areas in the spectrum for joint ventures or other capital.

And if we could find an attractive transaction and it helps us in terms of narrowing the NAV discount and the gap there, and improving credit metrics, then that's certainly something that we'll always explore, because we're really motivated to narrow that discount as much as possible, and get our stock trading where it should be..

Okay. And then on the new leases [technical difficulty] obviously the spread was quite strong.

And forgive me if I missed it, but is there any certain categories of that have -- are driving those leases higher?.

You mean which ones are helping us, D.J? I'm sorry….

Yes, exactly.

Sure, you know, in those new leases, is some of that you know, restaurants or other uses outside of maybe traditional apparel that is probably a little bit weaker at this point?.

It's really -- I mean still even though we're doing more restaurants, a lot of those aren't in the lease spreads, because they're not comp spaces. And also some of the non-traditional uses, those are larges boxes, like a King's or a Dave & Buster's. So it's really driven by the retail.

And it's some of the categories like I was talking about, L Brands, and Footlocker, and jewelry, athletic shoes, just some of the -- cosmetics, eyewear. Yes, just some of the traditional categories. I mean, the biggest struggles really have been some of the juniors. And yes, we're working through that.

We're reducing our exposure to a lot of those retailed releasing that space. But otherwise there's really good results on the releasing spreads and sales, and good stability in those other categories..

So if you were to -- you disclosed it as gross rent on a base rent or even a net affective basis, what would the spread look like? Would it still be quite healthy in the double digits? So TIs are more or less stable?.

Yes, our TIs are pretty much what they've been the past few quarters on a comparable basis. Maybe a little bit higher, but nothing material. And, yes, gross is consistent with net. So there's nothing really distorting it..

Okay, great. Thanks so much, Stephen..

Thanks, D.J..

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 for your time this morning. And as you can tell, we are thrilled with our results, and looking forward to continuing to have strong results over the next few quarters. Have a great weekend..

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