CBL & Associates Properties' CEO Discusses Q3 2013 Results - Earnings Call Transcript

Nov. 6.13 | About: CBL & (CBL)

CBL & Associates Properties, Inc. (NYSE:CBL)

Q3 2013 Earnings Conference Call

November 06, 2013 11:00 a.m. ET

Executives

Stephen D. Lebovitz – President & CEO

Farzana K. Mitchell – EVP & CFO

Katie A. Reinsmidt – SVP - Investor Relations/Corporate Investments

Analysts

Christy McElroy – Citi

Andrew Rosivach – Goldman Sachs

Michael Mueller – JPMorgan

Jeff Donnelly – Wells Fargo Securities

Nate Isbee – Stifel

Ross Nussbaum – UBS

Daniel Bush – Green Street Advisors

Carol Kemple – Hilliard Lyons

Rich Moore – RBC Capital Markets

RJ Milligan – Raymond James

Ben Yang – Evercore Partners

Michael Bilerman – Citi

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the CBL & Associates Properties Third Quarter 2013 Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Wednesday, November 6, 2013.

I would now like to turn the conference over to Stephen Lebovitz, President and CEO. Please go ahead, sir.

Stephen D. Lebovitz

Thank you, and good morning. We appreciate your participation in the CBL & Associates Properties, Inc. conference call to discuss third quarter results. Joining me today are Farzana Mitchell, Executive Vice President and Chief Financial Officer; and Katie Reinsmidt, Senior Vice President, Investor Relations and Corporate Investments, who will begin by reading our Safe Harbor disclosure.

Katie A. Reinsmidt

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 from the events and results discussed in the forward-looking statements. We direct you to the company's various filings with the Securities and Exchange Commission including without limitation, the company's most recent Annual Report on Form 10-K.

During our discussion today references made to per share amounts are based upon a fully diluted converted share basis. During this call, the company may discuss non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure will be included in today’s earnings release that is furnished on the Form 8-K along with a transcript of today's comments and additional supplemental schedules.

This call will also be available for replay on the Internet through a link on our website at cblproperties.com.

Stephen D. Lebovitz

Thank you, Katie.

At the start of this year we set forth a number of strategic priorities and goals. Foremost among these was to upgrade the quality of our portfolio, improve the operating performance of our properties and simplify and strengthen our balance sheet. We made meaningful progress during the third quarter and year to-date in each of these areas. This quarter we completed the sale of three lower productivity malls and related associated centers add attractive pricing both upgrading the remaining portfolio and raising a $176 million of significant amount of equity. We also have a number of major improvements at our existing centers underway including expansions and redevelopments at three of our most productive centers, Cross Creek Mall, CoolSprings Galleria and Fayette Mall.

Once complete these additions will contribute significantly to stronger future growth rates. While the transformation and upgrade of our portfolio will take time, we’ve made material progress. Since 2011, we’ve reduced a number of malls in our core portfolio with sales under $250 per square foot from 12 to 3 and are committed to continuing the strategy. The end result will be a stronger, more resilient and better performing portfolio of market dominant regional malls.

During the third quarter, we generated additional improvement in our occupancy and leasing metrics. Double digit growth in lease spreads has been a major focus of ours this year. We are experiencing healthy rank growth from the new leases we’re signing and improvement in rollover spread as well as occupancy growth and expect that momentum to build overtime.

Increases in top line revenue contributed to same center NOI growth for the quarter offset by timing related adjustments and non cash items. Another major accomplishment this quarter was the redemption of the Westfield Preferred unit and the leveraged neutral basis using proceeds raised earlier this year from our ATM program and assets sales.

This removes a major cloud from our balance sheet. We have also made significant progress in our goal accessing the unsecured dead markets as a result of our two investment grade ratings by Moody’s and Fitch. Portfolio occupancy increased 80 basis points to 93.8% at quarter end. Looking back we have made tremendous progress in growing occupancy over the past three years with 280 basis point increase from the 91% occupancy we reported in the third quarter 2010. Stabilized mall occupancy increased 40 basis points from the prior year and 80 basis points from the second quarter to 93.4%.

We have been encouraged by the ongoing demand by retailers for space and our properties despite the recess slowing in sales. With limited new supply coming online and our consistently high occupancy rate, our leasing metrics have accelerated. During the third quarter leases for stabilized malls were signed at 12.8% increase over the average prior gross ramp per square foot.

New leases were signed at a 26.1% increase over the prior rents and renewal rents were signed at a 9.5% increase. Short term leases as a percent of the total remain roughly in line with last quarter. Retail sales growth has moderated throughout the year including the back to school sale season. We saw weakness from children’s retailers, juniors and family shoes, with cosmetics, eye wear and jewelry posting better results.

Year-to-date sales in our stabilized mall portfolio are down 60 basis points with rolling 12 months sales up 90 basis points to $358 per square foot. We are hopeful the sales over the holiday season will rebound. However, the government shutdown in October and a shortened holiday shopping season made for a difficult start. Retails are definitely positioning to be highly promotional.

Before, I turn the call over to Katie, with all the buzz and rumors circulating around JC Penney recently. We felt it is important on this call to clarify the risk and exposure we have to this retailer. The level of concern that the market is pricing into our stocks surrounding JC Penney is far greater than a level of risk that is actually associated with our exposure. Our 71 JC Penney stores represent approximately $19.5 million or one and 1.5% of total annual revenues and comprise 8.2 million square feet. The average store size is a 115,000 square feet, 38 of the stores are owned by JC Penney and 33 of the stores are leased. The average occupancy cost of the lease to JC Penney stores is less than 5%, allowing the vast majority to be profitable on a floor law basis.

We have equally weighted maturity schedule for the lease locations with four leases on average maturing annually over the next several years. We have either completed or in the process of executing extensions for the four 2014 maturities. We have approached JC Penney on a number of occasions about buying back certain stores and they have not been willing to pursue these sales primarily because the stores are profitable. But we are expecting a positive outcome, we believe that it is prudent to plan for the worst by having contingency plans for all of their locations. We have evaluated our store base and identified a replacement prospect or strategy.

Looking back to the end of 2009, following the multiple anchor in large base user bankruptcy, we reported 35 bank and anchor locations in our 10-K. Today, other than the stories that are currently under redevelopment, we have no vacant anchors in our core portfolio. The replacement opportunities have buried from other anchors, traditional and nontraditional to splitting into boxes and restaurants, to adding additional shops space to creating out parcels. Our redevelopment, we have consistently achieved a solid stand alone on leverage return, generally 7% to 9% in addition to the ancillary enhancement to the mall overall. Anchor closures have always been an opportunity for us to create value in our malls, increasing income and upgrading to tenants mix and we review any closures by JC Penney in that same light.

Co-tenancy provisions are not uncommon in national leases. However, for traditional regional mall for traders are very limited. The vast majority of these provisions would not be activated by one anchor store closing or even two anchors closing. Also these provisions often provide a time to cure before any alternative ran option becomes valid and the retailer immediately returned to full rank if the vacancy is cured. For example, at Hamilton Place Mall in Chattanooga, only one lease would have a co-tenancy triggered of JC Penney closure store. If both JC Penney and series close approximately 80% of the leases would have relevant co-tenancy.

We have been encouraged by the recent news from JC Penney reporting of a moderation in the sales decline and rising customer conversions. We believe that the turnaround is achievable. The stores have been upgraded and our malls are reporting improvements in traffic. JC Penney's capital raising activity has allowed them to create sufficient liquidity to fund their operations going forward. While we understand ongoing concerns in the market and we are keeping a close eye on their performance, we believe our risk is more than manageable. I will now turn it over to Katie, for her comments.

Katie A. Reinsmidt

Thank you Stephen. We are pleased to announce our company's largest disposition transaction with the sales three malls and a related associated centers for $176 million. Panama City Mall and the shops at Panama City, Rivergate Mall and the village at Rivergate in Nashville and Georgette [Ph] Square and Georgette Plaza, where still to open by on all cash transaction. Currently, from the sale we are used to reduce outstanding balances on our lines of credit, effectively pre-funding half of the Westfield preferred redemption. The average sales of the three malls are approximately $265 per square foot and they are still bit a cap rate in the low 9% range.

We have an active asset recycling program that uses funds rise from disposition of lower sales of per square feet properties to invest in higher growth assets as well as reduce debt. We will anticipate having one to three mall properties on the market at any given time to gauge pricing and interest levels and we will execute one if we achieve attractive pricing. It is important to keep in mind that these transactions are very sensitive with a number of variables that can impact the certainty of closing. Often times our perspective buyers are listening to our calls.

We understand the importance of transparency with our disclosure and make it a priority to provide the market with color and updates as they are available and we will continue to balance this consideration with the sensitivity of the sales process. Well, we do not include any unannounced dispositions in our projections for modeling purposes, we would expect a reasonable estimate of our annual sales to range from a $100 million to $200 million. Actual result will ultimately depend on the market and the opportunity set. If you are in the Atlanta market, we encourage you to visit our newest outlet center, the outlet shops at Atlanta in Woodstock, Georgia.

The center opened in mid July, 97% lease are committed with 99 stores including stocks [Indiscernible] Columbia sportswear and JC Penney. Since the grand opening, the project has seen tremendous results and it's currently turn into $400 per square feet for first year sales. Our next outlet development the outlet shops at Louisville, between Louisville and Lexington is experiencing excellent retailer demands.

The centers are already 93% leased are committed with a first class line up, including coach, Banana Republic, Brooks Brothers, Chico’s, Nike, Saks Fifth Avenue Off 5th and more. The center is set to open to next summer. Construction of our new development Fremaux Town Center and Lafayette Louisiana is on schedule for an opening on phase one, next spring.

The project is over 95% leased with and it's including TJ Max, Michael calls index. We are also pre leasing the more fashion focused phase two, which will be anchored by Dillard. Construction is expected to start next spring on the second phase. The redevelopment projects include a new 50,000 square feet at spring at source South County, St Louis. This free standing building will be located on a pad side inside the ring road and it's celebrating its grand opening today.

Construction is continuing on the redevelopment as a former Dillard store at Randolph Mall and Asheboro North Carolina into a new Dunham’s Sporting goods store. The store is expected to have its grand opening this month just ahead of the holiday sales season.

Our plans for the tier three redevelopment projects in Fayette mall and CoolSprings Galleria are coming together, we anticipate an early 2014 start of construction and we will announce additional details in the near future. These projects will be significant projects elevating each malls future growth rate. We are pursuing other opportunities to redevelop existing anchor locations and believe this will continue to be one of our best uses of capital going forward.

I will now turn the call over to Farzana to provide an update on financing as well as a review of third quarter financial performance.

Farzana K. Mitchell

Thank you Katie. A year ago, we made the decision to position our company to access the public debt market. We made this bold decision to expand our borrowing options and to reduce our exposure to the volatility of the CMBS market. In addition on encumbering properties greatly improves our flexibility to expand, redevelop, add major tenants or sell without lender involvement or approval. This allows us to be more nimble and provides us with significant cost savings.

In the past 12 months, we have retired $376 million of secured debt, substantially growing our unencumbered pool. With two investment grade ratings, we are poised to access unsecured capital sources at the best time. We are excited about this transformation and believe that having a more balanced structure of secured and unsecured debt will provide us with maximum flexibility to effectively finance our new growth opportunities and lower our overall cost of capital. While in the short term, we’re exposed to a higher level of floating rating debt, our expectation is to quickly reduce this risk. We are working towards executing a $250 million to $400 million bond offering later this year or in early 2014 assuming favorable market conditions. While the government shutdown and related political turmoil made September and October market conditions volatile and unfavorable to complete a transaction. We did take the opportunity to meet many of the fixed income investors and non deal road shows. We will continue to pursue these relationships to support success of a future bond offering. One of our goals, as we execute our financing strategy has been to continue to improve our credit metrics, while the metrics related to percentage of secured debt and unencumbered NOI will naturally improve as we pay off maturing loans over the next few years with unsecured debt, we are also focused on growing our existing asset base, utilizing our retained cash flow.

This allows us to grow EBITDA without adding new debt. Today, our debt to EBITDA ratio is right around 7x. But over time, this will improve as we invest our free cash flow. For example, this year we have invested over $300 million and expanded our portfolio while our debt balance has increased by only $143 million. The $157 million difference was funded primarily to retain cash flow. This quarter, we simplified our balance sheet and capital structure with the redemption of the west field preferred units.

We set out our intentions early this year to selectively raise equity to our ATM program and continued disposition activity to minimize delusion and complete the transaction on a leverage neutral basis. We are pleased to have effectively executed these plans. In July, we closed on a $400 million unsecured term loan at a favorable rate of 150 basis points over LIBOR.

Proceeds were used to pay down outstanding balances on the lines of credit and provide us with flexibility to continue to pay off maturing loans. In December, we anticipate taking advantage of the open to power window, and paying off the $32.9 million loan secured by North Park Mall due in March 2014. In October, we closed on an $80 million nonrecourse loan secured by the outlet shops at Atlanta of 75:25 joint venture with Horizon Group Properties. The loan is for term of ten years at a 4.9% fixed interest rate.

We are trying to – related construction loan of $53.2 million and after deduction of remaining construction and tenant related costs, our share of the net proceeds of approximately $12 million was used to reduce the lines of credit.

With the retirement of the construction loans, the guarantee was eliminated. In 2014, we have a $113.4 million loan maturing secured by one of our most productive properties, Mall del Norte in Laredo Texas that we intend to retire with unsecured borrowings. In addition we expect to refinance a loan for our joint venture property, Coastal Grand in Myrtle Beach South Carolina on a secured basis. Our 50% share of this maturing loan is approximately $38.8 million. We ended the quarter with more than $710 million available on the lines of credit including cash. Our financial covenants remain very sound with the fixed charge coverage ratio of 2.15x as of September 30, 2013, compared with 2.09x last year.

Our debt to total market capitalization was 55.7% compared with 54% as of the same period last year. The increase is primarily due to a lowest stock price. As we mentioned last quarter, we have been working with a special services for the loan secured by Citadel Mall and Columbia Place. We expect a foreclosure sale for Citadel Mall to occur before year end. The loan balance on this property is $68.2 million. The servicer for the loan secure by Columbia Place Mall is also proceeding with the foreclosure. We anticipate this process will take at least until the first quarter of next year. The loan amount secured by Columbia Place is approximately $27.3 million.

FFO in the third quarter as adjusted was $0.52 per share. The adjustment was made to exclude an $8.2 million partial litigation settlement we received in the quarter. The partial settlement is related to a law suit fall by subsidiary of the company seeking recovery for alleged property and related damages occurring at the Promenade in the highway road Mississippi. The settlement was recorded in interest and other income during the third quarter. The litigation for this case is ongoing and as such the information we can share is limited.

New properties, rent growth and occupancy improvements as well as interest expense savings contributed to adjusted FFO in the quarter. The growth was offset by two onetime items. FFO on the quarter was negatively impacted by the write-off of straight line rent related to the property sold and was also impacted by the timing adjustments to real estate tax reimbursements. Together this onetime items reduced FFO by approximately $0.02 per share in the quarter, which coupled with a dilution from the property sale account for the reduction in the top and of FFO guidance.

G&A as a percentage of total revenue was 4% for the quarter compared with 4.1% in the prior year period. Our cost recovery ratio for the third quarter was 94.9% compared with 99.3% in the prior year period. The decline was primarily the result of lower real estate tax reimbursements of $1.2 million in the quarter which are onetime adjustments. Our cost recovery ratio for the year is expected to be approximately 99%.

Same center NOI in the portfolio increased 80 basis points with the 60 basis points decline in malls. Year to-date we remain within our guidance range with portfolio NOI increasing 1.3% and Mall NOI increasing 50 basis points. Excluding a prior year one time bankruptcy settlement of $1.2 million year to-date portfolio NOI increased 1.6% and malls grew 70 basis points.

Occupancy improvements and positive leasing spreads fueled rent growth in the quarter and expenses generally remained in line. However, there were several negative variances that impacted same center NOI during the quarter. I’ll spend a few minutes walking through these items, which aggregate to $2.5 million or roughly 150 basis points of NOI.

With the decline in sales experience during the next quarter, the percentage rents in the same center pool decreased approximately $300,000 compared with the prior year period. Real estate tax reimbursements were down $1.2 million compared with the prior year. The decline in real estate tax reimbursements for primarily driven by a few properties in which we recorded unfavorable adjustment to reflect current recovery estimates and actual billings. These are generally one time entries to adjust a close for the actual real estate tax billings. While these adjustments occur regularly and usually balance out as a normal part of the accounting process, this quarter’s NOI results were disproportionately impacted as a higher percentage of billings adjustments for completed.

Finally, at the same time NOI numbers are currently reported based on GAAP, the impact of straight line rent and net above and below market lease adjustments can impact quarterly results. This quarter, these items declined $1 million as compared with the prior year period.

Straight line rent can fluctuate as we complete a high level of new leasing and replace and relocate existing retailers. We are currently evaluating whether we will adjust our NOI reporting to exclude certain non-cash items going forward and would expect to implement any change at the start of the year.

Excluding the non-cash items and the $1.2 million real estate tax reimbursement adjustment same center NOI in the mall portfolio would have increased 1% and same center portfolio NOI would have increased approximately 2%. We are providing FFO guidance for 2013 in the range of $2.18 to $2.22, which incorporates the dilution and related straight line rent write off from the sale of the three malls and the associate centers during the quarter. FFO guidance excludes the impact of the partial litigation settlement included in third quarter results.

We are guiding towards midpoint of the NOI growth range of 1% to 3%, while we are optimistic for our holiday sale season, we are now projecting a decline in percentage rents for the fourth quarter to reflect the current trend in sales.

Now I’ll turn the call back to Stephen for closing remarks.

Stephen D. Lebovitz

Thank you, Farzana. As some of you know, we have just completed a perception study with investors and analyst to help identify strengths and weaknesses in our communication efforts. We appreciate the candid feedback of those that were asked to participate and we will be evaluating the results, identify ways we can better communicate our financing and operating strategy going forward. We are always looking to find ways to do things better and communicate more clearly and you can expect to see improvements in these areas.

Despite the slowing sales environment, the expansion and redevelopment activity, retailing and dispositions, we successfully executed this quarter are positioning CBL for solid growth going forward. We have many exciting initiatives happening across our portfolio.

We are pleased with the progress achieved this quarter towards our debut unsecured bond offering and our position to execute when market conditions are favorable. While transition at this significance takes time, we are confident that the flexibility efficiencies created their access to the public debt market will contribute to our future success. Thank you for your participation in today's call. We will look forward to visiting with many of you at next week. We will now be happy to answer any questions you may have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Christy McElroy with Citi. Please proceed with your question.

Christy McElroy – Citi

Hi, good morning everyone. Farzana, I was hoping to get a little bit more color on the tax reimbursement issue. Was this an issue with the accounting for these revenues? You mentioned that it was a timing issue but then it also impacted full year guidance and full year same store NOI growth. Is it something that will be made up in 2014 or was this sort of a onetime impact? Can you just help me understand what happened little bit better?

Farzana K. Mitchell

Sure Christy. These are as the real estate tax bills comes in you have to show them up and this reduction in the quarter was coupled with higher tax billings we had last year because we didn’t have the real estate tax bills when the tax bills come in, we have billed the tenant on a higher tax bill and then you come back and adjust. So this quarter some of it had to do with the overbilling we had last year so therefore it's onetime adjustment. So generally, it washes out over year-over-year but this quarter it had a impact of -- disproportionate impact because last year a quarter ago, we had a higher real estate tax reimbursement and this quarter it's lower so you see a negative variance.

Christy McElroy – Citi

Got you. So the recoveries are artificially higher in the first two quarters of the year and they sort of made up. Okay. Well said. And then you also mentioned --

Farzana K. Mitchell

Over the last year also.

Christy McElroy – Citi

Okay. Okay. And then you also mentioned that you expect a decline in percentage rents in Q4. Can you -- with regards to what's in guidance, can you say how much of a decline you are expecting and did that – how much did that impact your guidance when as far as the reduction and high end of guidance?

Farzana K. Mitchell

Okay. The reduction of the high end of the guidance was primarily the result of the sold properties. So that's just really waited and the straight line rent but not so much but when we guided you to the same center NOI to the mid to lower end that's really the impact of percentage rent that we are guiding you on the same center NOI, so we really haven’t changed our top end guidance because of the percentage rent. We are just saying the FFO range is 218 to 222 now. Just taking off the top end for the sales and the state line rent.

Christy McElroy – Citi

Okay, got you. And then, just lastly following up on your asset sales in the quarter and comments that you made Stephen regarding continuing your strategy of upgrading the quality of the portfolio. I know that you still have the remaining three malls under 250 per square foot in sales. Are you actively marketing those assets today or are you done selling for now or that maybe falling to sort of Katie, I think you talked about 100 to 200 million sales bucket going forward maybe that falls into that bucket for 2014?

Stephen D. Lebovitz

Well, we are actively marketing one of them and are hoping to have a contract on it shortly. So one of those three hopefully will come out I don’t know for the close this year but hopefully in the first quarter and then the other two fall onto that bucket as far as the ones that we will look forward for next year and also our intent is once we take care of 250 and under to move up to the 275 and even in some cases 300 and under, and when we see that they don’t have necessarily as higher growth rate in NOI as we would like then we can sell them and reinvest in properties or redevelopments or new developments where we can generate a higher growth rate. So it's something that it's an evolution and it doesn’t happen overnight. But we have made a commitment to make that strategy happen and be more proactive in making it happen and we have been in the past and I think it makes lot of sense. And overtime it will result in us having a better growth rate and I don’t know in our FFO.

Christy McElroy – Citi

Great. Thank you.

Stephen D. Lebovitz

Thank you Christy.

Operator

Our next question comes from the line of Andrew Rosivach with Goldman Sachs, please proceed with your question.

Andrew Rosivach – Goldman Sachs

Hi, good morning. I was – this has been a lot focus in the market on your sales preferred, can you give a sense of where sales preferred would have been if you excluded low sales properties with non-recourse debt, I’ll just give you a few and maybe get the color like Chester field 299 a foot, 140 million in that recourse, Cary Towne Center, 275 a foot, 55 million, Alamance 230 a foot, 50 million on non recourse debt?

Stephen D. Lebovitz

Well, I think I understand your point. We don’t have that number at our disposals right now. We can certainly calculate it and look at it. The low sales and the debt it's not a direct relationship that you can necessarily say. In some cases all that has sales below 300 a foot might have some upside because of the redevelopment and in the middle of, in other cases it might not. So it's just hard to generalize on that front. But like I said earlier, we are looking at the malls with sales below 275 and 300 foot to evaluate whether they make sense for disposition and the timing of that and it will provide us with funds to reinvest in higher growth opportunities and nonrecourse debt in those situations, gives us optionality depending on where the property stands, although the properties that we have identified are the ones that we are in discussion with the lenders, the others that we have really are positive cash flow and we see those going forward in situations that will continue to be viable.

Andrew Rosivach – Goldman Sachs

And maybe if the follow if you could talk about some of the malls that are in the year-over-year numbers, I am not sure Kirkwood is in the year-over-year numbers. The color that you gave on the letter that I feel like I am the only one who read a month ago about what was going on in Atlanta. How are those properties trending?

Stephen D. Lebovitz

You are absolutely right. Kirkwood is not in year-over-year because we just closed on it, at the, hand in a full year for two years for four year cycle. So that's not part of it. Atlanta, is not part of it because that just opened and those properties are going to help us next year because of the higher NOI growth we are going to see there. I mean both Kirkwood and Minot when we bought that actually cost of roughly 9% and so, we are experiencing good NOI improvement there, good lease spreads and so that is going to help us. Atlanta, we had almost a 12% on leverage return on cost on that project and we executed a very favorable financing on that project, basically took all our cost out of it, all the equity, so the return on equity is virtually infinite and we still have the growth growing forward. So that's a tremendous deal for us and for our shareholders and the outlet centers, in general have worked out very well for us. So we have phase two that we’re working on and phase three at Oklahoma City, and additional phase at El Paso, which is really strong sales growth.

So we got a lot of, like I said, in my comments, we have a lot of real strong initiatives, exciting initiatives going forward with the company, the Sears redevelopments something we talked about a little bit last quarter in terms of purchasing stores from Sears but these things are -- they didn't show up this quarter but they position us for good growth going forward. And they helped the properties, they helped the overall portfolio and definitely going to help our numbers in the future.

Andrew Rosivach – Goldman Sachs

So, neither Kirkwood nor Minot in the same store NOI numbers now?

Stephen D. Lebovitz

That's correct Andrew.

Andrew Rosivach – Goldman Sachs

Great, thanks a lot guys.

Stephen D. Lebovitz

Thank you.

Operator

Our next question comes from the line of Michael Mueller with J.P. Morgan. Please proceed with your question.

Michael Mueller – JPMorgan

First, thanks for the color on JC Penney. Couple of questions there, you were talking about the idea of replacing boxes, replacing anchor tenants and then also kind of redeveloping. I was wondering if you look at those 70 stores, I mean what do you think the split would be between the situations where you have talked to people and you have kind of potentially theoretically lined up versus something where it would be a little bit more drawn out. Maybe either script the box and kind of start from scratch or do something else?

Stephen D. Lebovitz

Yes. It's a little hard to answer that Michael because it’s hard to have definitive conversations with retailers until you know you have time to work with and there has -- to make commitments and really move things into their planning cycle, until they know there is some reality. So we made this plans on a contingency basis. We come up with alternative strategies, I would say, this is really more of an estimate but two-thirds of those stores would be readily re-developable through the different strategies that I talked about whether you are replacing with boxers, jobs out parcels carving them up. And then, the other third will take more time and again it depends on the pace, if we have a manageable pace of two or three at a time and that certainly gives us the ability to work through them. So that's really from a planning point of view. Like I said and we talked to JC Penney at the time there, they are not in the mode of closing source, they renewed leases, their numbers are getting better, their sales are stabilizing, so we are making these plans on a worst-case basis and we feel like that's the right thing to do but we really don't see them closing stores, haven't given any indication that they are going to, and maybe that sounds like I am being naive, because of with some of their results have been but we talk to them a lot, our peers had said similar things and we are making our plans, if we need to but we see them continuing as an ongoing viable and getting stronger anchor properties.

Michael Mueller – JPMorgan

Okay. And shifting gears here for a second, going to Columbia Mall in Citadel, which sounds like you may kind of hand the keys back on those. What's the aggregate NOI associated with those properties and did you say they could theoretically both go away in Q4, Q1, was at the timing?

Farzana K. Mitchell

Yes, the Columbia Place Mall and Citadel Mall, we don't even include any of their numbers in our NOI because it's a cash flow negative, basically break even proposition because they sweep all the cash flow, they get all the cash flow. So the lender really has the economic benefits of the two malls and the aggregate loan balance is combined is 99 some million dollars. 90 plus million dollars that will go away from a balance sheet, once they foreclose, so they really, we have no basis in the property in terms of the NOI.

Michael Mueller – JPMorgan

So, on the income statement, there is no NOI on your associated with these properties in Q3 and there's no interest expense associated with it?

Farzana K. Mitchell

Definitely, no interest expense, we have NOI and expense that zero each other out.

Michael Mueller – JPMorgan

Okay. Great. Thanks.

Operator

Our next question comes from the line of Jeff Donnelly with Wells Fargo. Please proceed with your question.

Jeff Donnelly – Wells Fargo Securities

Good morning guys. Maybe Farzana just building on the last question, more assets that might fall into similar few bucket as a Columbia and Citadel that are either approaching foreclosure or might be in foreclosure right now, I am asking mainly because I am thinking from any of these standpoint, just to be sure, I kind of thinking about it correctly?

Farzana K. Mitchell

The two that we just mentioned, they are the ones, they are in the process of foreclosure. As you know evaluate every quarter and look out our properties consistently and constantly to see where the cash flows might be negative, so you recall we are in discussions on gulf coast with the lender servicer, so we are ongoing discussion there and we don't have a resolution yet. We are working on with the servicer. So not any other than that that we need to do, we know of today but we obviously evaluating every quarter, we look at the trends, we look at what's coming up, we look at what tenant improvement allowances, we have to put in. We evaluate so many different variables, so at the moment, these are the only three.

Jeff Donnelly – Wells Fargo Securities

Okay. Are maybe it's the same answer but if I ask differently, you think there are many assets that, you know, that if you apply to cap rate the NOI they produce, it might apply there is low equity in them?

Farzana K. Mitchell

Depending on the cap rate, I guess. And you put on the NOI, so it's always that possibility but I think the valuation is more cash flow based. If the cash flow is positive, we are servicing the debt that's one thing. If it's a negative debt service, that's totally different and then we of course evaluate but we want to invest money in those properties and if we believe that future is not that bright and we are not going to get our return on our investment, then obviously that's when we make the decision as to what’s the best thing to do with this property.

Jeff Donnelly – Wells Fargo Securities

I apologize, I might have missed your remarks on this, but I think in prior calls you guys discussed doing a larger unsecured offering in this year and I think in your remarks you were talking about doing something smaller next year. Can you just, I guess, maybe clarify for me, the market conditions that drove that shift with the some specific to CBL and maybe just tell us what the fixed income investors were giving you guys advice?

Farzana K. Mitchell

Sure. We’ve been trained our unsecured bond offering at least the debut will be somewhere in the $250 million to $400 million range and that's what we expect to do as I mentioned in my script a little bit ago later this year, we have just couple of months left or part of two months left and we hope if market conditions are correct will be issuing a debut bond and later next year where the market conditions and the needs for our capital in terms of reducing our exposure to the floating rate loans, we would consider again next year. We want to be a frequent issuer that's how we expect for the trading to take place and to have a market for this issue, unsecured bonds.

Jeff Donnelly – Wells Fargo Securities

Thanks. And just maybe a last question on leasing. Maybe two parts, one is, what happened in the quarter with your non mall assets, it's so significantly boosted into NOI and then, maybe just a question on page 15 in the supplemental just about the total leasing activity the same store of the 1.7 million square feet that was leased in the quarter. How much that is small shop space?

Stephen D. Lebovitz

Okay. Sure, well, on the non mall assets, since it's not that big of a portfolio then when we lease up a couple of boxes, it can make a big difference in those numbers. So that's really what happened and that was the factor that can for the increase and community centers, we had a 500 basis point occupancy increase, but again that's just leasing up a few boxes that they came online. So and that's still a small percentage of our overall portfolio. So it doesn't move overall needle that significantly. So is that your first question, that's what I would say. On the second question, the vast majority is in the same center pool of small shops, and was not included is larger boxes of anchors. So which we are seeing is primarily small shops there.

Jeff Donnelly – Wells Fargo Securities

Okay, thank you.

Stephen D. Lebovitz

Okay. Thank you.

Operator

Our next question comes from the line of Nate Isbee with Stifel. Please proceed with your question.

Nate Isbee – Stifel

Hi, good morning. I am just calling back to the same NOI numbers. Even excluding those one timers was about 1%. Leasing trends are positive, I guess two parts, would you say that was below your expectations and given the positive leasing trends that happening quarter-over-quarter. Why is that not showing up in terms of better same-store growth?

Farzana K. Mitchell

Hi, Nate. We did see a solid positive base strength growth this quarter and as I mentioned it was offset by these onetime items. Majority of these leases, other than renewals, the renewals have been at a lower spread increase but the new leases take time and there is a lag. So, you will see more and more of this rent growth showing up in the ensuing period and ensuing quarters. So that surely where why you are not seeing a big pop as you would have like to have seen.

Nate Isbee – Stifel

I know, but I mean, you have occupancy growth, you have some built-in bonds, you have some leasing spreads, renewals tab and positive generally for less, these quarters, where there anything else in the numbers that was laying it?

Farzana K. Mitchell

I don't think so. I mean I think the lease spreads will show up when the tenants open and the new tenants take time to open as opposed to the renewals. The renewals have been, as you know in the single digits but the double digits are coming in from the new leasing and that takes time, it's anywhere from six to twelve months. We have quite a few new leasing, new leases that will open next year and some that will open in, in the following year, in 15 and 16. So, it takes time some of these larger tenants that we are bringing in do take time to open. And you will start seeing impact as we go forward it's just there is a lag.

Nate Isbee – Stifel

What is the current spread between leased and physical occupancy?

Farzana K. Mitchell

I can't give you that number, Nate. I don't have that exactly the difference between lease, the physical occupancy versus the executed lease occupancy.

Stephen D. Lebovitz

But there is Nate, there is a little over 200,000 square feet of leases that we reported in our lease spreads that haven't opened yet. So and that's new leasing and that really backs up with what Farzana was saying so that's close to $8 million in rent and it will kick in about half of it, it's through the fourth quarter and half of it is going into 14. So that's really, as that kicks in there is the lag but that will help our numbers going forward.

Nate Isbee – Stifel

All right. And then Steve, you spoken in the past, I am sorry if I miss this, about the temp leasing and how that's been trending?

Stephen D. Lebovitz

Yes. It's really the same, virtually the same this quarter as it was last, so in the high 20, low 30% range. So that's really stabilized to come down to more normal levels, and yes that's something like I talked about it and other calls this year. We may lease spread to priority and it's probably heard our numbers short term in terms of having more down time, taking more time for some of the better leasing to kick in, but again, we are looking ahead and we feel like these results will help us down the road. We are getting, we are getting better retailers, more productive retailers that replacing some of the lower productivity stores and we do suffer the downtime but it's the right thing to do for the properties we feel and given the better leasing environment, we are seeing better demand from retailers. We haven’t really, we haven't experienced any type of slackening off on demand, even though sales have gone softer, we are still seeing good demand in terms of leasing from retailers which that is encouraging.

Nate Isbee – Stifel

All right, thanks. And then there is a lot of moving pieces in the bottom end in your portfolio between possible sales talking to lenders etcetera as you look out, maybe two to three years down the road, how many malls would you expect to own in total?

Stephen D. Lebovitz

I don't see our total portfolio being different because I think as we sell malls, we are – we have the new developments. We have projects like Slidell, it's not an enclosed mall but it's got a fashion anchors, it got boxes, it's going to have specialty retail, it's going to be dominant in its market, it will replace an existing mall that we don't own. So we got that property, we have Louisville coming online next year. So I don't see our total portfolio size diminishing what our goal is just to have higher quality, higher sales per square foot and higher growth.

Nate Isbee – Stifel

Okay. I mean as differently I mean your existing portfolio how much of it would you expect to own in two three years?

Stephen D. Lebovitz

We’ve got roughly 25 malls there under 300 flat and those are the ones that we are looking at and ideally we would sell probably a lot of those and reinvest in other properties.

Nate Isbee – Stifel

Okay, thanks and then the final question, you briefly touched on the two Sears boxes, when could we expect to see the definitive plan for those two boxes?

Stephen D. Lebovitz

We should have for one of the two definitely at the next call in February and for the second one possibly then, but if not the call after.

Nate Isbee – Stifel

All right, thank you.

Stephen D. Lebovitz

Thanks Nate.

Operator

Our next question comes from the line of Ross Nussbaum with UBS, please proceed with your question.

Ross Nussbaum – UBS

Hi, good morning. My questions are on the mall same store NOI growth, if we strip out the straight line issue in the tax reimbursement issues this quarter we are talking about 1% cash, same store NOI growth and well that certainly better than the headline number certainly not where I think you would likely to be and certainly not where your investors would like it to be as we look ahead over the next year, how should we be thinking about that number improving because I think the stumbling block for lot of people is your occupancy was up year-over-year, your releasing spread were good, if you got contractual rent growth, so all of those components are working for you yet the number was still not what I think everybody would have hoped for, can you help us understand how do we get that number up to be closer to 2.5%, 3%?

Stephen D. Lebovitz

Well, I would say first of all we definitely agree with your statement, yes, we are not happy at 1% when you take up the adjustment, so that’s clearly something that we feel strongly about and we are focused on doing what we need to do to improve those numbers. We’ve got, really it’s a combination of factors I wish there’s just one kind of magic portion that we could spread that would obviously tried and pushed up to that level, but it’s really the combination of factors that’s going to lead to it, it’s the dispositions of the lower sales per square foot malls, the redevelopment and expansions which contribute to better growth. It’s the least spreads, the focus on lease spreads and getting higher lease spread on renewals. Yes renewals is an area where this quarter we’ve had the best renewal spreads since and I think in April it is, since 2005 and that’s a long time, but we’ve made that a priority and earlier this year, initial lease spread have been low single digits, so it’s not really helping us grow as much as now being in the high single digits, it’s going to help us. So that’s the big factor and I think it all comes together as a package to push us into that 2% to 4% range and set 1% to 3% and also like we talked about back to school sales were lousy, we have a lot of juniors and lot of children and family stores in our malls because of them middle market and those with the stores that suffered the most lack luster sales during the quarter, I mean during the back to school season and so that heard our same center NOI for this quarter and in the fourth quarter we will see hopefully things will be better October actually we’ve heard is better than we’d expected it to be.

So maybe with that in mind we’ll do better in the fourth quarter and sales will be better and percentage rent will be better, but was definitely away this quarter because sales were down and we went back with 10% percentage ramp when you compared to where we were last quarter this time, it’s even a more significant swing, so all those things come into play and I can assure you we are completely focused on this metric of the NOI and making it improve.

Ross Nussbaum – UBS

All right. I appreciate that. One suggestion as you think about modifying your cash same store NOI disclosure for next year if possibly you could breakout some of the components between rental revenues, reimbursement expenses I think that might give all little more insight into just how those pieces are coming together in that calculation? Thanks.

Stephen D. Lebovitz

That’s great. We appreciate that and like we said it’s hard to do in the middle of the year, but once we start the new year we can try to get all those stuff reported more like our previous due and also provide better clarity, so that’s a great suggestion, thanks.

Operator

Our next question comes from the line of Daniel Bush with Green Street Advisors. Please proceed with your question.

Daniel Bush – Green Street Advisors

Thank you. We’ve talked a lot about the dispositions strategy of lower quality, lower productivity malls, where these, what is community centers or associated centers fall into that strategy, you guys, where do see that investment, is it going to be shrinking over the time?

Stephen D. Lebovitz

Well, the associated centers really go with the malls, so like we sell the three malls each of them had an associated center, so we sell them together, so depending on the malls these associated centers will go down and we’re not investing a new associated centers, so I would expect that category to decrease and there’s good pricing in those assets, so depending on the situation we can look at them on standalone basis. The community centers in the office buildings again it’s primarily related to timing, most of those assets came online in ’07, ’08, ’09 so we are leasing them up, we’re making progress, we definitely want to take advantage of the value creation opportunity that still there because the markets are improving. We also have JV partners for couple of those, so we are working with them to establish the best timing, but on those we deal with noncore and overtime our strategy will be to sell those and generate equity and provide us with the source without having go out and sell more stock.

Daniel Bush – Green Street Advisors

And just -- did you say that you would be -- there would be an opportunity to use separately associate so much from the mall if the pricing was right or --?

Stephen D. Lebovitz

I said we would look at it, it’s probably not the most like thing because we get so much, there’s so many synergies leasing those with the malls and that there’s value to keeping them together, but if we got a great offer for an associated center and that was just to sell it separate from the mall then it definitely something we would entertain and we will look at that, we are now looking at the portfolio though which I think is what you are getting to.

Daniel Bush – Green Street Advisors

All right. You know that make sense and just move on associated tenant as well is there being, have you seen with the newer portfolio retailers from the associated centers become more interested in moving across the street into the mall?

Stephen D. Lebovitz

We’ve seen a little of both. We’ve seen some retailers want to move from associated centers into the mall probably offers the biggest one where we’ve them in some malls, we’ve them in some associated centers, Dicks is another one that is very happy to be and anchored from all today, but is then certainly an associated center. So we have looked at that in Monroeville mall and I’ve got Pittsburgh where living decks from the associated center and to the lower levels of former box and we just opened the Cinemark Theatre there which is doing really well. JC Penny relocated a year ago into a smaller store and a lot more productive store and now pix opens next year then we will back fill their existing space in the associated center. So it's something we talk to with the retailers all the time and in certain cases it is happening.

Daniel Bush – Green Street Advisors

Okay. And then I guess one question. Can you remind us what type of occupancy cost ratio are you able to sign a new lease is that at your outlet centers and how does that compare to I guess the mall average, your portfolio mall average?

Stephen D. Lebovitz

Yes. I mean that well for a new outlet center, it's hard to say because it's new but in general, the outlets in our occupancy is 9% to 10% so the lower cost of occupancy for the retailers, the malls, we are roughly 12.5% when we are signing the new leases, the tire, just because the run is going to grow overtime and the sales will grow overtime. So but in the outlet centers it's definitely 200, 300 basis points lower from the retailers point of view, and that plays into the retailer strategy being more promotional and the pricing in the outlet center and just in general running a lower cost operation.

Daniel Bush – Green Street Advisors

Right. And then just to be clear, the 12.5% that's kind of what the average is. What are you able to sign new deals that or new lease at? What's kind of ball, is it 14, 15?

Stephen D. Lebovitz

It depends on the category. I would say closer to 15, 14% to 15% range, certainly category. It's going to be higher because jewelry can support a higher cost of occupancy. So in category, it's going to be lower. So yes that would range 14-15, is a good one to use.

Daniel Bush – Green Street Advisors

Okay. Thank you very much.

Stephen D. Lebovitz

Thanks.

Operator

Our next question comes from the line of Carol Kemple with Hilliard Lyons. Please proceed with your question.

Carol Kemple – Hilliard Lyons

Good morning. If you were to do a bond offering tonight what kind of rate would you think it would be at?

Farzana K. Mitchell

Good morning to you also. In the low 5% range and of course it depends on – in the lower 5% of course that also includes the fact that we have a debut bond so there is small pricing premium on the debut bond.

Carol Kemple – Hilliard Lyons

Okay. And then I know on the call we have talked a lot about dispositions. Are there any – how is the acquisition market? Is there anything you are interested or do you think you are just not be a player in that for a while?

Stephen D. Lebovitz

Well, Carol, we look at everything out there. This year we haven’t bought anything. We haven't seen anything attracted from our point of view. I would say that just given our cost of equity and where our stock price is and our goal to be leverage neutral and as part of our unsecured debt strategy any acquisition we would do would be with the JV partner and it would be very mindful of our debt ratios and our leverage ratios because we have made so much progress in that area. I mean, our debt to EBITDA is now down to roughly 7%. So I mean 7x excuse me and we have transitioned over the past couple of years to one of the higher leveraged mall operator to one of the lower ones. And so, improving our balance sheet is a big goal of ours and acquisitions we just need to make sure we keep that in mind as part of anything we would do.

Carol Kemple – Hilliard Lyons

Okay, thanks.

Operator

Next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed with your question.

Rich Moore – RBC Capital Markets

Hi guys, good morning. Just a couple of quick items. Farzana did you see the straight-line rents go back to where they were before the third quarter, is that right?

Farzana K. Mitchell

No, no. not. Straight-line rents are somewhat on a decline because it all depends on all the re-tenanting we are doing straight-line rent write offs ups and then the new leases that’s coming in depending on the rent bumps they have, they offset what straight-line rents maybe tapering off because they do have a conversion, they start off on the high and then they start converting to be as the term and lease term ends, the straight-line rent starts declining. So typically one will offset the other so we have seen a decline other than the write off so I think next quarter if you compare year-over-year we’ll probably either be flat or down a little bit.

Rich Moore – RBC Capital Markets

Okay. Good. Thanks. And then the last thing is do you plan I guess always leave something on the line of credit, is that the idea, I mean because obviously you have more on the line of credit currently been in your proposed or your planned sizing your bond offering. So will you lease something there or maybe those get taking by asset sales or how do you think about that?

Farzana K. Mitchell

Yes our goal is to really have a big availability on our lines of credit, have bounces, lower the bounce and the way we are going to accomplish that is to reduce our exposure also to the short term interest rate, replace it with the bond -- availability on the lines of credit as well as sales that we conclude in the – the plan we have to sell more assets that will also give us more availability on our lines of credit. So the goal is to have as large availability as possible. Today it is a little bit higher and we use these lines of credit to pay off the secure debt. That's one of the ways we have been recycling it. We will recycle from the lines of credit into the unsecured bonds and it will give us more availability just a mechanism we are using.

Rich Moore – RBC Capital Markets

Okay. So a zero balance or something close to that on the line is reasonable thought?

Farzana K. Mitchell

A zero balance on the lines of credit you said?

Rich Moore – RBC Capital Markets

Yes. Yes.

Farzana K. Mitchell

I don’t think we will have a zero balance on the lines of credit. I always expect us to use that because it's a great source for us to fund our developments equity if we need it. The retained cash flow from our properties also is a -- it fluctuates because depending on percentage rents and depending on many needs we have, we use the retained cash flows. The thing that we do is we use our retained cash flow to pay down the lines of credit so that we have lots of availability all the time and then if we need to draw it, we draw it back up to fund our equity. So that's how we recycle and that's how we maximize these lines of credit that we have.

Rich Moore – RBC Capital Markets

Okay. Great. Thanks guys.

Stephen D. Lebovitz

Thank you, Rich.

Operator

Our next question comes from the line of RJ Milligan with Raymond James. Please proceed with your question.

RJ Milligan – Raymond James

Hi, good afternoon. Just want to follow up on Rich's question on the facility balance. You guys were at 660 now. Pretty clear that you want to take out north park and North probably about 800 million after we get through that even if you – if the unsecured market becomes favorable and you can get the deal done and you do it somewhere in the range of 250 to 400, you still are going to have a pretty large outstanding balance on the facility. I was wondering if in your discussions with the credit rating agencies if that's something they are comfortable with, or if in fact you are going to have to take issues some sort of equity or do assets sales to maintain that investment grade rating?

Farzana K. Mitchell

Yes. The mall north loan doesn’t come due until later next year. So we have ample time. The only loan that’s really short term coming due is that we will pay off is the $32 million loan on North Park Mall. So with the bond issue and we should be able to increase our capacity on our lines of credit and as I mentioned earlier, our expectations is to be in the market with the bond issuance again next year, lateral part of next year depending on how the availability looks. So we will use the unsecured bond issuance to also retire the mall [Indiscernible] which is 113 million which is our highest productivity mall and has a tremendous gross asset values sitting at 20%, 30% leverage right now.

RJ Milligan – Raymond James

Okay. I am just curious if the conditions for the unsecured market don’t improve and you decide to not go with a unsecured offering in the fourth quarter, if the rating agencies in discussions with them they would be concerned about having such a large balance on their facilities.

Farzana K. Mitchell

I don’t think they are concerned with the large balance. I think they want to see that we are issuing the bonds and we are of course, you know, we have the plans for assets sales. We have the ability to do term loans or even go into the private placement market. But because we are poised to access the bond markets with two ratings, I think that's the right course for us to take and we should be successful and we believe we will be successful.

RJ Milligan – Raymond James

Okay. That's helpful. Thank you and my second question is this is a follow-up I guess on what Nate was asking and Ross as well. Is it with occupancy going up and the spreads being pretty positive over the past eight quarters, is it – is sort of the explanation of the slower same store NOI growth does that fall within the 60% of the leases being signed and aren’t considered same sort, can you provide us a color as to what those rents look like and I know it's tough to give spreads since it's not same store, but are you seeing – are rents going down there, any colors you can give us on that pull?

Katie A. Reinsmidt

Hey RJ its Katie. I will handle this question. The vast majority of the additional leasing that we view that's not in the same kind of pull or so on our leasing spread. It’s going to be anchors that are renewing so you will have either 60,000, 100,000, 200,000 square feet that comes in and most of the anchor renewals are done at similar rents that were there before, modest increases. The rest of that it's not really our driver of our NOI growth going forward. The other thing that I would point out is that we do report leases signed in the quarter as opposed to many of our peers reporting leases commenced. So it takes a little bit of time for all those improvements that you are seeing to set our portfolio.

RJ Milligan – Raymond James

And so aside from the anchors, so there is anchor leases that are going into the non same store?

Katie A. Reinsmidt

In the leasing spreads, we only report leasing spreads of 110,000 square feet.

RJ Milligan – Raymond James

Right. So the majority of that is going to be in interest space?

Katie A. Reinsmidt

Yes, the vast majority, junior anchors, you are going to have a 20,000 square foot box that sort of thing. We are getting the spreads on the junior anchors. We are seeing nice improvements there. But it will take a little bit, 10,000 square feet or 15,000 square feet. It doesn’t make it very best hit in that number.

RJ Milligan – Raymond James

So the bulk of that pull you are seeing either modest increases because its anchors or slightly positive increases in the junior anchors.

Katie A. Reinsmidt

Yes, that's correct yes.

RJ Milligan – Raymond James

All right. Thank you very much.

Operator

Our next question comes from the line of Ben Yang with Evercore. Please proceed with your question.

Ben Yang – Evercore Partners

Yes, hi, good morning, thanks. I have a question on the same store NOI as well. When we look at what you guys did in last quarter, what you guys reported for the third quarter, you expected that numbers to fall and not increase which is what you are showing in the current year number or so. Is that solely attributable to change in portfolio mix the fact that you sold the three malls and also went to portfolio or was there anything else that might explain the mode of unexpected year-to-date number?

Farzana K. Mitchell

Hi, Ben. Majority of it had to do with the properties we sold. All three of the malls had negative NOI as well as – as you mentioned that's really where the bulk of it came from.

Ben Yang – Evercore Partners

And can you quantify what that negative NOI was for those malls just to get an idea of how these malls are performing in this part of the cycle?

Farzana K. Mitchell

I don’t have the number precisely for you on that but we can get that for you if you can call Katie back she will have the number for you. We should be able to point it to you where exactly how it had become positive because we have sold the properties that had a negative trend on the NOI and that has been one of the reasons why we sold some of these properties and we continue to focus on those assets sale.

Ben Yang – Evercore Partners

Okay. So there was really nothing else other than just that, right?

Farzana K. Mitchell

That's correct.

Ben Yang – Evercore Partners

Okay. Great. And maybe switching gears, how many of your peers had recently commented how, the slowdown in sales doesn’t necessarily mean that NOI growth has to slowdown as well given maybe the opportunity to replace underperforming retailers and I was wondering if you could maybe comment on how that dynamic plays up for you guys or maybe what your expectations are given you know arguably you guys are still maybe protecting fee to some extent, so you guys feel like you can continue to grow your NOI maybe at a slower pace in your peers, but still keep it positive even the sales were slowdown or stay flat over the next few quarters?

Stephen D. Lebovitz

Yes, we will – yes some of the decreases in sales by retail self inflicted, their material cost have come down so they have been more promotional and they are lowering their price points but they have also been able to hold margins. And I think that's where our peers were referring to in terms of the continued demand of our retailers for new stores. Also there are occupancy at the level and even our peers, everyone is really had strong gains in occupancy and there is hardly anything new being built.

So just that supply dynamic allows us going forward to continue to have strong demand from retailers and we expect to see continue growth of NOI and our goal is to get that number up more to our peers level and like I said earlier, right now we are below it but we are focused on increasing that.

Ben Yang – Evercore Partners

Okay. And maybe just final question. Why did you guys put the long term financing on Atlanta given the fact that it's still stabilizing? Was there any reason you didn’t want to wait a little longer or was there any compelling reasons to do that deal now?

Farzana K. Mitchell

Hi, Ben. When we had put the lawn on Atlanta outlet the shop at Atlanta, the underwriting includes a fully stabilized NOI because it’s 97% leased, they include all executed leases any out for signature leases that nearly being executed we credit for that. So the underwriting for that mall was fully underwritten, stabilized, even though it shows up maybe in the non-stabilized category in our metrics however, the loan proceeds we believe. We wanted to also stay within a certain leverage ratio so we did get the full value as well as we came in at the leverage level that we would like to remain and be profitable cash flow and also have a very good spread because it's all contingent of the LTV the spread, the yield, we didn’t want to over leverage it and want to make sure that our spread is within the range of what we like all in coupon to be and we were really very glad to have closed it at the time when the swaps were down.

Ben Yang – Evercore Partners

Got it, makes sense. Thank you.

Stephen D. Lebovitz

Thanks Ben.

Operator

Our next question comes from the line of Christy McElroy with Citi. Please proceed with your question.

Michael Bilerman – Citi

Hey it's Michael Bilerman, I appreciate you guys are sticking around. I guess part of this investor communication answering everyone’s question. So just on same store NOI, Steve I think you mentioned the drag with some lower productivity assets, if you look at the mall portfolio and you were to put them into like quartiles, what would that spread be between your sort of highest productivity assets to your bottom tier assets? So it averages one in the quarter on a cash basis, are the top quartile doing three plus but the bottom quartile is negative five or something? What is that spread within the portfolio?

Stephen D. Lebovitz

Well, we don’t disclose that for our portfolio. So it's a little tricky for me to answer that question but I think it's safe to say that with the malls that are over 350 square foot or 300 of foot even we be in more of a 2 to 4 range versus our 1 to 3 range, so the ones under 300 are in flat for the most part a few down, not down 5% but maybe down in the 1% to 2% range. So that's kind of a more of a general description as to specific description but hopefully gives you a sense of how the portfolio breaks down.

Michael Bilerman – Citi

And then if you went like above 400 because you do a number of assets that are doing that sort of productivity would that be in the further an excess of 2 to 4, I mean is there really a strong correlation that you are finding between same store NOI and sales productivity. And I just said because your portfolio even though you have assets that are let's say head for lower productivity, they are in markets where they are only game in town and so I am just trying to reconcile that versus sale --?

Stephen D. Lebovitz

Yes. You really don’t see that. It's not a direct straight-line correlation like that. Some of the best NOI growth is coming from malls that are lowers sales per square foot but because of market specific factors, redevelopment, re-tenanting it can really drive the NOI in the right direction and it might be going, it's a better comparable. So I wouldn’t say that 400 and above is markedly outperforming 350 to 400 and 350 to 400 is doing damage better than 300 to 350 but the 300 line does seem to be the one where we have kind of drawn as far as where we feel like the property is below that are the ones that should – there are more opportunities for dispositions and above that the ones that we should – we want to invest our money and we see the growth going forward.

Michael Bilerman – Citi

And the last question. You have talked about sort of stock valuation the number of times in this call, you have talked about in the letter in September being depressed. I am just curious, a number of the mall companies are trading at more depressed valuations than they had in the past. I guess how do you sort of see yourself differently than the broader mall set and what sort of actions are you willing to take if the valuation doesn’t correct itself?

Stephen D. Lebovitz

I am sure everyone in our position is frustrated with the stock price given what happened since May and kind of broader market decreases. When we look at our multiple compared to our peers in the cap rate of our assets on an NAB basis, we see a disproportionate discount being applied to both of those factors and we acknowledge that specially this year our growth is slower on an NOI basis then our peers but it deals like the discount is unjustifiably greater than it should be. So that's really what I think our biggest frustration is that we are not going to argue that a mall doing 350 a foot is worth to same cap rate as the mall doing 600 a foot and that definitely plays into our valuation but we are focused like I said earlier, on generating better growth in NOI cost of portfolio, and we have got the redevelopments and the other growth initiatives to drive our FFO as well. And I think in terms of are we prepared to do whatever it takes. I am not exactly sure what that means but we are definitely being more proactive on the disposition for us and that should allow us to have a stronger portfolio going forward.

Michael Bilerman – Citi

Do you have a sense based on all the leasing that you have completed because you already have a far way done for 14 what same stores sort of a shaping up to be assuming you don’t have any sort of these onetime type events. I would assume it should be greater just based on all the leasing that you have done that you show in the supplemental?

Stephen D. Lebovitz

It's a little hard to say. We are just finishing up the first cup for next year, but like I said, we have got over 200,000 square feet of leases that are going to kick in, in the fourth quarter and going into the next year which is almost $8 million in rents so that will help us and we’ve got these factors that are moving in our favor.

Michael Bilerman – Citi

All right. Thank you.

Stephen D. Lebovitz

Thanks Michael.

Operator

Mr. Lebovitz there are no further questions at this time. I would like to turn the call back over to you.

Stephen D. Lebovitz

All right, well for everyone who has hung in there, thank you. We appreciate your time and we look forward to visiting with you at [Indiscernible] and answering any further questions that you have and as always we appreciate your time and your support. Thank you.

Operator

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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