CBL & Associates Properties CEO Discusses Q3 2010 Results - Earnings Call Transcript

Nov. 3.10 | About: CBL & (CBL)

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

Q3 2010 Earnings Conference Call

November 3, 2010 11:00 AM ET

Executives

Stephen Lebovitz – President and CEO

Katie Reinsmidt – VP, Corporate Communications and IR

John Foy – Vice-Chairman, CFO, Treasurer and Secretary

Analysts

Jay Habermann – Goldman Sachs

Todd Thomas – Keybanc Capital Markets

Christie McElroy – UBS

Nathan Isby – Stifel Nicolaus

Jim Sullivan – Cowan Group

Michael Mueller – JP Morgan

Jeffrey Donnelley – Wells Fargo

Craig Schmidt – Bank of America/Merrill Lynch

Quinton Villeley [ph] – Citi

Manny Courtman [ph] – Citi

Sergie Lachance [ph] – Greenstreet Advisors

Rich Moore – RBC Capital Markets

Ross [ph] – UBS

RJ Milligan – Raymond James & Associates

Operator

Ladies and gentlemen, thank you very much for standing by, and welcome to CBL & Associates Properties Incorporated third quarter earnings conference call. During this presentation, all participants are in a listen only mode. Afterwards we will conduct a question and answer session. (Operator Instructions) As a reminder, today’s conference is being recorded on Wednesday, November 3, 2010. It’s now my pleasure to turn the conference over to Stephen Lebovitz, President and Chief Executive Officer at CBL & Associates Properties Incorporated. Please go ahead sir.

Stephen Lebovitz

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties Inc. conference call to discuss the third quarter results. Joining me today is John Foy, CBL’s Chief Financial Officer and Katie Reinsmidt, Vice President Corporate Communications and Investor Relations, who will begin by reading our safe harbor disclosure.

Katie 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, many of which cannot be predicted with accuracy, and some of which might not even be anticipated. 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 annual report on Form 10-K and management’s discussion and analysis of financial condition and results of operations included therein for a discussion of such risks and uncertainties.

During our discussion today, reference is made to per share. Amounts are based on a fully diluted converted share basis. A transcript of today’s comments, the earnings release and additional supplemental schedules will be furnished to the SEC on form 8-K and will be available on our website. This call will also be made available for reply on the internet through a link on our website at CBLproperties.com. This conference call is the property of CBL & Associated Properties Inc. Any redistribution, retransmission or rebroadcast of this call without the express written consent of CBL is strictly prohibited.

During this conference call, the company may discuss non-GAAP financial measures as defined by SEC Regulation G. A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the comparable GAAP financial measure will be included in the earnings release that is furnished on From 8-K.

Stephen Lebovitz

Thank you Katie. As we have discussed in our last few calls, a key focus of ours throughout this year has been to stabilized and grow the NOI at our existing centers. We are pleased that our results for this quarter show significant progress in this area.

Same center NOI for the portfolio returned to positive territory, posting an increase of 60 basis points. We have worked hard to accomplish this by generating new revenues at our centers from various sources, while at the same time, continuing to focus on reducing expenses.

John will discuss details surrounding our guidance a little later, but we have been encouraged by the out performance of portfolio versus our original projections. Our improved results have been primarily driven by substantial gains in occupancy, both in the mall portfolio and overall, increases in specialty retail and branding income, as well as sustained low property operating expenses.

We are also benefiting from the positive mindset and pickup in expansion plans by a number of retailers including several new concepts opening in our centers. Examples include Footlockers two new concepts, CCS and House of Hoops, Jamboree’s Crazy Eight division, Best Buy Mobile, Cotton On, and PS by Aeropostale.

Another highlight of the quarter was opening of our first American Girl store in Oak Park Mall in Kansas City. Junior Anchor retailers are also expanding into mall locations, both for their full size stores and for their new smaller concepts. We are working closely with Dick Sporting Goods, Bed, Bath Beyond, and JoAnne Fabrics, Alta, Shoe Department of Encore Shoes and others.

For the year to date, we have opened 18 new big box stores, totaling roughly 500,000 square feet. The recovery in retail is encouraging, and has resulted in significant increases in occupancy throughout the year. During the third quarter portfolio occupancy increased 180 basis points to 91% compared with the prior year period. In the malls, we recorded a 140 basis point increase to a 91.3% occupancy rate.

Third quarter continued the favorable sales trends that we have seen earlier in the year for our portfolio. Back to school season was healthy and shoppers have been coming out for our many promotions and events including those held in conjunction with the tax holidays in several states.

Year to date we have posted a 2.7% increase in sales per square foot over the prior year period. We are anticipating a solid holiday sales season with increases predicted in the 2% to 4% range, even though retailers are still watching inventory levels closely and are highly promotional.

We are also pleased with the significant improvement this quarter in our lease spreads. On a same space basis, rental rates in the third quarter were signed at an average decrease of 4.8% from the prior gross rent per square foot. We are working hard to get lease spreads into positive territory.

In general, retailers have shown a greater willingness to commit to longer lease terms and lock in more favorable rental rates. For leases longer than three years, the average lease spread increase was nearly 10%. This quarter about 51% of the leases signed had terms longer than three years, which is an improvement compared with 2009.

In total, during the third quarter, we signed over one million square feet of leases, the majority of which are in our operating portfolio. This included 317,000 square feet of new leases and 706,000 square feet of renewals.

We have recently taken advantage of a number of attractive external growth opportunities, including acquiring our partner’s interest in Parkway Place Mall in Huntsville, Alabama. We purchased Colonial’s 50% interest in the property for $38.8 million of which roughly $18 million was in cash. The purchase price represented an attractive high single digit cap rate.

Huntsville is one of the few cities in the country to have already demonstrated significant job growth and economic improvement, in part due to the BRAC program creating direct and ancillary employment. Parkway Place is well positioned to begin enjoying the benefits from this growth. This year the center has generated sales increases just under 10% and is maintaining a high occupancy rate. We expect these trends will continue.

We also recently announced the new partnership with Horizon Group, to develop the Outlet Shoppes at Oklahoma City. This is our first outlet center project and provides us an entry into the outlet center sector which we have been attracted to for some time and that is enjoying much success as consumers continue to see value in their purchases.

This project also allows us to begin building relationships with outlet center retailers who have begun looking to expand into non-outlet projects as well. We also expect that this project will lead to other outlet center development or acquisition opportunities at attractive returns.

Construction on this project is well underway, and executed leases exceed 80% with a great list of retailers. We structured a 75/25 percent joint venture that offers an attractive 10% initial unleveraged return including fees and reserves.

Once open, the center will be the only outlet center for 145 miles, and the only outlet center in the state of Oklahoma. The opening date is planned for late summer 2011.

We are also just completing construction on the first phase of the Forum at Grandview, our 110,000 square foot community center project in Madison, Mississippi. Next week we’ll celebrate the openings of Dick’s Sporting Goods, Best Buy and Stein Mart.

I’ll now turn it over to John for the financial review.

John Foy

Thank you Stephen. We completed the $109 million follow on preferred stock offering just a few weeks ago. The preferred was issued at an 8% coupon which is great evidence of the improving capital markets and the financial strength of our company.

The offering received very strong demand and demonstrates our ability to access multiple forms of capital and our commitment to deleverage. It is really an amazing statistic that we have been successful in reducing our outstanding debt balances by nearly $650 million since the end of 2008.

We are pleased with the current favorable credit markets and are looking at opportunities to take advantage of the attractive rates through our refinancing. One opportunity that we are exploring is to place property specific loans on several of the properties covered by our $560 million facility.

We would pay down the recourse secured facility with the proceeds from the new permanent fixed rate non-recourse mortgages. This would allow us to essentially swap out floating rate debt into long term fixed rate loans at the current attractive interest rates, and would provide us with further availability on the facility to pay off future maturities.

During the quarter, we retired the loan secured by Strand Mall and Strasburg Pennsylvania, York Gallery in York, Pennsylvania and the Parkdale Mall and Crossing in Beaumont, Texas. The properties were contributed to the collateral pool securing the $560 million credit facility.

As of September 30, 2010 we had more than $438 million available on our lines of credit. Our financial covenants remain sound with a debt to GAV ratio of 54.5% and an interest coverage ratio of 2.3 times for the rolling 12 months.

We reported FFO of $0.47 per share for the third quarter. Major variances compared with the prior year period include a penny lower in out parcel sales and a penny lower of straight-line rents. Total portfolio same center NOI in the third quarter excluding lease termination fees, increased 60 basis points from the prior year period.

As Stephen discussed earlier, this is a function of our ongoing efforts to increase rental income through occupancy gains and aggressive leasing and to control expenses. Other major variances in this quarter results in G&A as a percentage of the revenues was 3.9% compared with 3.3% in the prior year period.

The variance in G&A was related to increases in payroll, insurance travel and legal expenses. Bad debt expenses during the quarter increased $400,000 to $1.2 million as compared with the third quarter 2009.

Our cost recovery ratio for the third quarter was 102.4% compared with 99.2% in the prior year period. Variable rate debt was 20% of total market capitalization as of September 30, 2010 versus 16% as of the end of the prior year period.

As of September 30, 2010, variable rate debt represented 30% of our share of consolidated and unconsolidated debt compared to 22% at the close of the prior year quarter. Our variable rate debt has increased over the prior year as a result of the expiration of $400 million of interest rate swaps at the end of 2009, as well as borrowings under our $560 million line of credit to pay off certain CNBS mortgages.

We are providing higher 2010 FFO guidance in the range of $1.93 to $1.99 per share which represents an increase of $0.06 on the low end and $0.04 on the high end from the guidance provided in the second quarter earnings release.

We’ve also positively adjusted our same center NOI growth guidance to a range of negative 1% to a negative 2.5%. The increase in guidance is a result of continued favorable interest rates positively impacting FFO as well as better than anticipated occupancy gains.

We are now projecting a 200 basis point increase in overall year end occupancy in the range of 92%. One assumption in guidance that we spoke about last quarter was Ocala Mall. We had discussed the estimated gain on extinguishment of debt that we anticipated recording later this year related to the sale of the property and the resulting forgiveness of debt.

Unfortunately, the proposed purchaser did not perform under the contract, but we are still working with the bank to either sell to another buyer or to convey the property back to the bank. We have included the estimated gain of $27 million in our guidance and are hopeful that this will be completed before year end. If the transaction is not accomplished this year, we will anticipate a conclusion in early 2011.

Third quarter results were encouraging and we are optimistic that these positive trends will continue. We are focused on capturing the growth potential in our portfolio, continuing to improve occupancy and taking advantages of opportunities to gain traction in our lease negotiations in order to stabilize and grow same center NOI.

We will also selectively pursue external growth opportunities that meet our strict financial hurdles, and while we have nothing definitive to report today, we are making progress in our effort to sell the packages to supermarket centers we are marketing as well as discussions on joint ventures.

Our balance sheet has consistently improved throughout the year and we have demonstrated ready access to capital. The economic and retail environment is slowly improving and we are well positioned to translate this positive momentum into growth in our portfolio.

Thank you for joining us today, and we appreciate your continued support. We are now happy to answer any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Jay Habermann from Goldman Sachs. Please proceed with your question.

Stephen Lebovitz

Good morning Jay.

Jay Habermann – Goldman Sachs

Morning. Question maybe for Stephen on sort of occupancy versus rate growth. Obviously you’ve seen a nice increase in occupancy this year and it sounds like you’re forecasting 92% for the full year, so some continuation of that trend, but can you give us a sense of when you start to think about pushing rate perhaps a bit more now that occupancy is getting back to a stabilized level?

Stephen Lebovitz

We haven’t not been thinking about that and pushing it. It’s just a question of there’s a lag factor and as the sales decreased in ‘08 and ‘09, now some of those decreases show up in the renewals as we have the negotiations and we think that we’re getting through it. But now we’re starting to see some improvement and the lease spreads were definitely better this quarter than they had been earlier in the year and we expect to see continued progress and we’re pushing it.

With retailers, a lot of the negotiating is based on the health ratio of occupancy cost of sales, and where some retailers had pretty major sales decreases in ‘08 and ‘09, we’re still negotiating on that. Now the good news is that retailers have done a great job of improving their profits and their margins.

So we’re trying to get the discussions away from totally focused on sales in those cases because a lot of retailers are making money at locations that they might not have been doing so well at before, so they’ve turned around.

And also now, retailers are focused more on the top line so they’re looking for opportunities. They don’t want to give up profitable stores or anything like that, so I think that the dynamic is getting better. There was just an ICSC event in Chicago last week and our leasing people came back and said the mood was noticeably better than it has been at any time in the last couple of years, and someone made the comment it’s almost getting to be fun again, so that was a good comment and good to hear.

Jay Habermann – Goldman Sachs

I guess John’s comments; it sounded like bad debt remained roughly flat so it stays at a fairly high level. Can you give us some sense of what are you seeing in terms of risk, I guess store closings as we head into year end and perhaps Q1 of next year?

John Foy

It’s down somewhat Jay, and we think the quality of the tenants financials are improving as well. Needless to say, as margins increase and they make more money the balance sheet is going to increase significantly so there will still be bankruptcies. It’s part of the business, but I think we’re seeing trends that are basically showing that it’s getting better and the availability of capital not just for us, but for other retailers etc., is improving dramatically.

And if you look at the stock prices and what’s happened with regard to retailer stock prices, that is also a significant sign that financials are getting better as well, so I think that we’ll continue to have them, but I think that we’re trending down.

Jay Habermann – Goldman Sachs

OK. And just last question, just on the capital position. I know you’ve got about $300 million of debt rolling in 2011. You mentioned liquidity of roughly $430 million today. But as you think about sources of capital for next year and beyond, can you talk about again asset sales and joint ventures and I guess what should we expect to see in the near term. And I guess just capital position overall, again balancing that debt coming due versus your current liquidity. I mean should we look to see some activity to enhance that position?

John Foy

I think the indication was with the preferred that we just offered was one indication of it. Likewise, we have sold off two of our lowest performing centers in Del Rio, Texas which was the first project we ever built, and it was $169 a square foot in sales.

And then we just completed in the fourth quarter the sale of Pemberton which is our lowest performing mall which was $129 a square foot. So I think what you’ll continue to see from us is that ability to sell those assets off to other people who see potential with them.

Also I think that we’ll see some other opportunities to hopefully sell some of the other lower performing assets which we’re focused on as well. So I think we’re going to continue in that mode. We don’t have to do anything fairly significantly.

We also, as I alluded to in the comments, is we’re taking our $560 million credit facility that we had to take care of all of our CNBS loans, and we’re refinancing those now so that we basically have that availability for next year and for 2012 going forward to take care of those maturities as they go.

So our financial flexibility is really improved dramatically and we think that over the next couple of months it’ll continue to improve. The relationships that we have with the financial institutions just continues to flourish and we’re really enjoyed a great relationship with them, and I think that’s an indication of that goes really back to when we did what everybody else said could not be done, was when we extended all those credit facilities in probably the most downturn economy, and we kept the full amount of those.

So that relationship was great then and it’s only getting better.

Jay Habermann – Goldman Sachs

Great. Thank you guys.

Operator

Thanks for your question sir. Our next question comes from the line of Todd Thomas from Keybanc Capital Markets. Please proceed with your question.

Stephen Lebovitz

Hey Todd.

Todd Thomas – Keybanc Capital Markets

Good morning. I’m on with Jordan Sadler. Hey John, just sticking with your plans to refinance some of the debt that’s on properties or pledged against the line, what kind of underwriting assumptions are you seeing today that the lenders are using? What are your expectations there?

John Foy

I think what we’re seeing is that they’re really focused on debt yields and if you look at our portfolio and the numbers we’re running, we are really in a good, good position on those. What we’re also seeing is that appraisers are now feeling more comfortable with regard to retail properties, so that their appraisals are becoming more realistic.

So I think the way we’re underwriting, we’re underwriting in our capital plans on a conservative basis, but we’re seeing a benefit of more than what we thought we would see at this time. So I think the underwriting that we experienced when we did the $180, $190 million with Goldman Sachs, that underwriting continues to prevail today and the competition’s probably getting even more fierce with regard to the ability to place those loans.

So I think that, as well as coupled with the conservative approach we’re taking puts us in an excellent position financially and with what’s going on with our properties, we’re feeling very good about the outlook.

Todd Thomas – Keybanc Capital Markets

OK. So right now the $560 million line, is that about 3.1%. Would you think that there’s been about a 200 basis point negative spread there on some of those refinancing. Is that reasonable?

John Foy

Yeah, it would. I think it’s reasonable Todd. I think what it also does is it really, what we have talked about a lot with you guys is the fact that this is non-recourse debt that we’re going to put on these assets whereas the $560 million credit facility is recourse.

And in our opinion, there’s a big tremendous difference between recourse and non-recourse debt and we think that when you do that, you look at return on equity which is really, really important. So we’re focused on that and think that it’s a great tool for us versus basically risking the capital of the company on every project that’s done.

Todd Thomas – Keybanc Capital Markets

OK. And then switching gears, and regarding your entrance into the outlet space, how much room for growth do you think is out there for CBL and as you sort of think about your involvement, do you think it will be more on the development side or are you also looking at acquisitions?

Stephen Lebovitz

Like I said during the conference call during my comments earlier, this is really an entry for us and we have a great partner. The project makes a lot of sense financially because the returns are attractive. The pre-leasing is over 80% with all the right retailers.

So this is the kind of project that we felt is a great way to get into the business, and we don’t have dollar amounts that we’ve allocated to spend on outlet projects going forward or firm plans, but we want to continue to be opportunistic and we’ve already gotten phone calls from people who have presented opportunities for us for both development and acquisitions that we’re going to look at.

We have the relationship with Horizon and we’re hoping that we can build on that. And there is a lot of opportunity also to work with the retailers like I said, in our existing properties. We’ve seen some of that in a couple of properties in the past year as the outlet retailers have rebranded stores.

They don’t call them outlet, they sell value merchandise which is basically the same thing that they’re selling in outlet centers, but they’re selling them in conventional malls, and so strengthening those relationships and giving us new retailers to talk about, talk to.

One example is Tommy Hilfiger, who owe have here in Hamilton Place, and this is, Hamilton Place doesn’t have a Macy’s, and they’ve said that they will look at malls that don’t have a Macy’s because they don’t have the same overlap. And so they have a store here that’s doing really well, and there’s other names as well.

So I think it really opens a lot of doors for us and we’re really excited about the prospects for the business.

Todd Thomas – Keybanc Capital Markets

OK. And at Oklahoma City, how much are the fees that are baked into the 10.3% initial yield? I was wondering what the stabilized yield would look like excluding those fees.

John Foy

Basically the fee structure is very typical of what we did in our own projects. We put in a management fee and we put in a development fee that basically a portion of it is capitalized, but a portion of it is not, and then our partner shares in that fee as well.

So it does carry the normal typical fees that we carry in our mall pro forma’s, and possibly a little more because we do have a partner where we’re sharing the fee with.

Todd Thomas – Keybanc Capital Markets

OK. All right. Thank you.

Operator

Thank you for question sir. Continuing on, our next question comes from the line of Christie McElroy with UBS. Please proceed with your question.

Christie McElroy – UBS

Hi, good morning.

Stephen Lebovitz

Hi Christie.

Christie McElroy – UBS

We’ve been hearing from some specialty apparel retailers, especially in sort of the teen category that having recognized that they overextended their traditional concepts, they plan to continue to close underperforming stores and focus on new concepts and locations that have historically been more successful for them. I’m wondering if you’re seeing that as well and in some of your locations that have below average sales productivity, if you’re worried about the continued loss of national tenants.

Stephen Lebovitz

You know Christie, we’ve heard that talk too, but then when it comes to the actual discussions, we really haven’t seen it materialize. When we get down to specific locations, then given how the retailers have improved their margins so much and cut their costs that they’re making money and they just haven’t had the interest in closing stores where they’re making money.

And like we’ve said for a long time, one of the advantages at CBL is low cost of occupancy, especially compared to a lot of the peers so the retailers, even though they don’t do as much sales per square foot, they’re still making money, and it’s about profitability, and so we just haven’t had the experience like you’re talking about.

Christie McElroy – UBS

Are you finding that when they do come to the table and they’re willing to stay in the location, are they fighting tooth and nail on the rent?

John Foy

Yeah, they always do. I think every retailer does, and they’re no different from that perspective, and I think that what they have to realize and what they do realize is that we’ve got the distribution network in markets where they can’t penetrate.

If you go to Atlanta, we use this example oftentimes where one retailer has said to us, they felt that they had to be in every mall in Atlanta, but now they’ve come to recognize that their brand and they could probably be in three or four malls, and cover the Atlanta market area, but to be in Chattanooga or Huntsville, they’ve got to be in a CBL mall.

So the distribution network for these guys is very, very important to them as well.

Christie McElroy – UBS

With regard to releasing spreads, I’m wondering if you could give us a sense for what the spreads were on a net basis or at least some sense for what kind of cam is being underwritten in the new leases versus the prior leases. Trying to compare the rents on your new leases to in place or expiring rents is difficult because you disclosed those on a net basis.

Stephen Lebovitz

We don’t disclose it, but it shouldn’t make a material difference in the trend and whatever the comparable should be, whether it’s last year or last quarter, should be similar net versus gross because the cam and tax reimbursements haven’t really changed that much.

Christie McElroy – UBS

So the percentage change in – so the releasing spread would still be the same on a percentage basis if you shift out the cam?

Stephen Lebovitz

We calculate it on a gross basis. We stopped doing on a net basis a few years ago, trying to be similar to our peers, and there’s really – there’s still no consistency in lease spreads. We include every deal on a comparable basis.

We don’t take out centers that are under redevelopment or anything like that, and we don’t take out centers that have sales below a certain amount of square feet. We don’t limit the term on deals. We include every deal, and there’s not consistency.

So the real value I think from your point of view is seeing the trends, and the numbers are relative. So the improvement we’ve shown this quarter is what we’re focused on and like I said, we’re pushing hard to get this into positive territory and we’re pleased with the direction that we’ve gone this quarter.

Christie McElroy – UBS

OK. And then just lastly, how many models are you currently classifying as non-stabilized and can you sort of put those in a different buckets of what you would eventually like to sell. Are there any malls remaining that you would like to hand the keys back and are there – what else remains in terms of where you can potentially get the occupancy back up.

Stephen Lebovitz

There’s two malls in the non-stabilized and they come off as a period of time elapses and they meet certain criteria. So that’s where we are. As far as a target list of what we’re selling off etc., I think we look at it on a one off basis and we look at opportunities to meet demands that people have basically shown to us.

So we don’t really have a list of specific centers that we’re doing and we basically look at opportunities to basically see that, and I think that that’s what happened with regard the other two assets that we sold. We didn’t actively pursue those, but we were able to really get good pricing on those two assets even at those sales per square foot numbers.

So we’re unique from the standpoint that a lot of our properties are in market areas that serve just a unique population and a unique investment community.

Christie McElroy – UBS

Thank you.

Operator

And thank you for your question. Continuing on, our next question comes from the line of Nathan Isby from Stifel Nicolaus. Please proceed with your question.

Stephen Lebovitz

Hi Nate.

Nathan Isby – Stifel Nicolaus

Good morning. Just focusing on the occupancy, can you just disclose how much the sequential occupancy gain was in long term leases versus shorter term?

Stephen Lebovitz

No. We don’t have that number, so I can’t – we just don’t have it right now.

Nathan Isby – Stifel Nicolaus

OK. And then just focusing on the shopping centers that are for sale, it seems like it’s taking a little longer than expected. Is it just that you haven’t reached bids that you think is an appropriate value? What is holding up the process there?

Stephen Lebovitz

I think some of the negotiations have been a little longer than what we want them to be. I think that people are taking a period of time to do their due diligence. I think their financing – oftentimes we’re seeing them holding off as long as they can to go out for an application on a loan because interest rates have continued to go in the right direction for them.

So I think that’s what has happened, but it’s not a fast process. It’s a slow process, but I think we’re making headway and we’re not giving these assets away. We’re realizing good value for those assets as well.

Nathan Isby – Stifel Nicolaus

OK. And who are dealing with? Are you typically talking to other public or private REIT’s or more of private buyers?

Stephen Lebovitz

I would say it runs the gamut from the standpoint of certain assets are going to go to some funds that have a lot of money and are looking for returns. As we pointed out, there’s different types of joint ventures also. There’s joint ventures of people who are looking for – they’re out driving yields with high leverages, and then there’s other people who are looking at lower debt numbers, but with less yield, but maybe more upside.

I think the same applies with regard to possible buyers, and probably institutions aren’t going to buy a Del Rio or Pemberton, but specific people who have that niche in that market area and who have had great success, those are the guys who are coming at us to buy those assets.

The buyer on Pemberton has expressed a lot of interest in some other assets, so it’s creating that relationship with those people and working with them to do it, and also cooperating with them so that they can make the best deal they can on financing and therefore we get the best deal for us as far as pricing.

Nathan Isby – Stifel Nicolaus

All right. Thank you.

Operator

Thank you for your question. And our next question comes from the line of Jim Sullivan from Cowan Group. Please proceed with your question.

Stephen Lebovitz

Hi Jim.

Jim Sullivan – Cowan Group

Morning. Two questions. First of all, on the same store NOI, year to date same store NOI as you reported was negative 1.5 and your full year guidance has a midpoint of 1.75 and I just wonder if you could address the trend as we move from Q3 to Q4, and on the face that would suggest that your same store NOI might recede in the fourth quarter. Am I reading it wrong or not?

John Foy

I think where we are is we’re being somewhat conservative with regard to that Jim, and I think what’s happening is it’s a wait and see type of situation. When we originally did these estimates of NOI growth where we were using the higher spreads, we’ve been pleasantly surprised by the economy and what we’re seeing and therefore in the fourth quarter, we’re still using somewhat of what we’ve done up to the third quarter, but we’ve adjusted it somewhat as a result of that.

And I think as we see things occur, we feel more comfortable and confident, but I think the fourth quarter – you know everybody says that the holiday sales should be good this year. It’s a wait and see type of situation. Our specialty and sponsorship guys are getting some traction, but it’s a wait and see and we hope that the fourth quarter is going to be strong, but that’s why we’ve basically held, we’ve adjusted it somewhat but not significantly.

Nathan Isby – Stifel Nicolaus

So it’s not that you have any concerns about any significant increase in bad debt in the fourth quarter or anything like that?

John Foy

No, I don’t think so. I think that as we mentioned earlier, the retailers are starting to see, are enjoying much better margins and their financials are getting better. And even the local and regional guys are feeling more comfortable and confident, so no, I don’t think we feel that there’s going to be a significant increase on bad debt or a significant amount of bankruptcies.

It’s crazy. I mean years and years ago, as a result of being in this business so long, is that you never saw anybody go out in the fourth quarter, but with the new bankruptcy rules and everything, everybody basically has become more transparent and you’re seeing the results.

But we don’t think that we’re going to see much in the fourth quarter and the trends so far in the month of October have been pretty good.

Nathan Isby – Stifel Nicolaus

OK. If I could switch over to the factory outlet center initiative John and Stephen, the size of center that you indicated in the supplement here is 325,000 square feet and I think it’s a 65 acre site. Typically you can get much more coverage on a parcel that big I think and I’m just curious whether there’s incremental phases that could be built onto this initial 325 or whether there’s a lot of out lots or something else about the topography here that limits you to that size.

Stephen Lebovitz

Yeah Jim, that’s a good question. The site’s flat so there’s nothing with the topography. We do have some out parcels for some development for restaurants and a hotel that are part of the overall project, and we also have some expansion possibility there that’s not in the initial square footage, so the site definitely has potential for additional development.

Nathan Isby – Stifel Nicolaus

So when you forecast the initial yield here of just over 10% and your share of the cost of $60 million, is that 10% on the full 60 or are is it on a somewhat smaller number that’s allocated to the center alone?

Stephen Lebovitz

No, it’s on the full cost of the land and the site work, so any expansions would be accretive on top of that and would help that yield. It does include conservative assumptions on selling off some of the out parcel land though.

Nathan Isby – Stifel Nicolaus

Oh, okay, so you do get some of the benefit of that in that yield.

Stephen Lebovitz

Correct.

Nathan Isby – Stifel Nicolaus

OK. Great. Thanks.

Stephen Lebovitz

Thank you.

Operator

Thank you for your question sir. Continuing on, our next question comes from the line of Michael Mueller from JP Morgan. Please proceed with your question.

Michael Mueller – JP Morgan

Hi, good morning.

Stephen Lebovitz

Hi Michael.

Michael Mueller – JP Morgan

I’ve got a few things. First of all, I just wanted to clarify. John, did you say earlier that on your 2011 mortgage refinancing your just thinking of your pro rata share of everything that you expected a negative 200 basis point spread. Did I hear that correctly?

John Foy

No, what we were talking about was on what’s in the $560 million line today is basically where we refinance those. Those basically, that $560 line has a floor in it and it floats over LIBOR so the difference is probably a little less than 200 basis points depending upon what happens in the swap market or treasuries for this quarter.

So it should be pretty good in that respect. I don’t think it’s going to be a full 200 basis points, but...

Michael Mueller – JP Morgan

OK. Got it. And then touching on the outlets one more time, on a go forward basis, should we expect more activity on the acquisition side or development side on your own or in conjunction with partners over the next few years.

Stephen Lebovitz

I can’t really say at this point. I mean it will really just depend on the project. I mean we don’t have today the experience or the track record so I would guess that initially it’ll be with partners, but it also just depends on the type of project.

And there’s a lot of consultants out there, a lot of brokers and other services that we can take advantage of and we have the capital. We were able to get financing on this project with the construction line which is committed and we’re really pleased with that. That was an important part of the project because we felt like it really gave it the credibility in the markets that it wasn’t just something we were just using our equity on.

Another goal is for us to build direct relationships with the retailers. So we’ll look at really whatever makes the most sense as those opportunities come along.

Michael Mueller – JP Morgan

Great. And then just going back to the asset sales for a second, I just want to make sure I’m thinking about this the right way. It sounds like there are three buckets of things that are on the table where they could be used to de-lever some. One, starting a JV, seeking a JV, two, selling I think you said the community center, package of community centers and then three, just noncore malls. Are those the right buckets to think of of what you’re considering?

Stephen Lebovitz

I think that’s a great analysis and a very simplified way of looking at it. I think that’s exactly what we’re doing. As you recall, our history is basically, we did develop community centers and power centers in the past to sell those off to generate equity, so it’s back to the basics.

Michael Mueller – JP Morgan

OK. Can you help us either frame either by bucket or just overall, just roughly to give us some sort of sense as to how much is potentially on the table from sales either from either the noncore or what you’re thinking about on the JV side or a rough number of what the community center could be, either again, the whole thing together or by segment.

Stephen Lebovitz

Well what we did do is we don’t budget for any sales in our projections etc., so it’s almost impossible for us to give you a number because we don’t have that number in our own mind, but we just see opportunities develop that we can take advantage of those opportunities.

And so people have approached us with regard to community centers of a specific type. The people on Pemberton who bought that mall, basically has said you know, this is the type of mall in this type of market area, give us a chance to look at some of the others.

So what we’ve done Michael, is we haven’t really budgeted for that, and just as we see those opportunities coming around and available, what we do look at is if that is a means of de-leveraging, but also we look at our financial statements and look at the recourse versus the non-recourse debt and what we can do to grow the company in that respect.

So we don’t have a number in our own minds, so I couldn’t give you one. Sorry.

Michael Mueller – JP Morgan

OK. That’s fair. Thank you.

Operator

Thank you. And our next question comes from the line of Jeffrey Donnelley from Wells Fargo. Please proceed with your question.

Stephen Lebovitz

Hi Jeff.

Jeffrey Donnelley – Wells Fargo

Good morning folks. John, you referenced earlier that retailers’ stocks are doing much better as their sales have come back, but I’m curious if you can differentiate between what you’re seeing for the national, difficult small shop run chains versus the more local stores. I’m curious if the recovery is translating to their stores and even in their propensity to open new stores. Are there any discernable trends that you can talk about between the national and local shop tenants?

John Foy

Yeah, I think about six months to a year ago we were seeing a lot more activity out of the locals basically because they saw that the rental rates etc. were now in a position where they really could step in and take advantage of those situations.

I think that same thing is continuing to occur, although I think now a lot of national retailers Stephen alluded to with new concepts and new ideas, are stepping up and basically saying we want to take a lot of this space as well.

So I think we’re getting some traction. I think we hope that the pricing power continues to come in our direction, and as we fill up our occupancy levels increase, we basically will see some opportunities to do that as well.

And then when you see some big spaces in these malls, you’re seeing some of these retailers like the Pet Store operators are basically downsizing their boxes so they can come into the malls and see that as a traffic generator.

Add to that like a Jo-Ann Fabrics who basically sells crafts and fabrics, it’s a great opportunity for them also to come into the mall. So I think that pricing power is starting to swing in our direction, and the leasing trends, although they’re not where we want them to be, definitely coming in the right direction.

Jeffrey Donnelley – Wells Fargo

And how are the retailers getting these stores financed to open? Are they coming to you with the cash to handle some of the build outs? Is that something that you guys have been having to increasingly fund and I guess to the extent, you guys see your own credit checks, and I guess what are some of their own working capital look like getting stores open?

Stephen Lebovitz

Jeff, it’s Stephen. A lot of the spaces are already built out so it doesn’t demand a lot of investment, especially for a local to start up a new store other than the inventory and the fixtures, and they’ve been good opportunities for them to pick up that stuff at discounts as well.

So we’re not seeing big allowances or anything like that, and we are continuing to see some really good demand from strong locals and regional’s and we’ve challenged our leasing staff to continue to push that because we think it adds an element to the mall that is important for the customers. So that’s just as important today as it has been over the past couple of years.

John Foy

I think one of the things also that you’re seeing is that cash flows of these retailers, even the local guys are so much better because what happened is, a lot of these vendors were extending out where it used to be net 30. They’re now extending that out to net 60, 90 and 120 days, so the cash flows of even these local retailers is getting to be so significant that that’s a growth vehicle for them.

So everybody’s managing things much better and everybody’s managing their cash flows much better.

Jeffrey Donnelley – Wells Fargo

Maybe you can help me out on tenant allowances. Maybe correct my logic because there might be some timing differences. But if I do look at your tenant allowance expenditure that you have in the quarter versus just the total leasing you do in that quarter, the figure has been steadily increasing I guess on a square foot basis over the course of this year and it’s even up year over year. I guess I’m trying to figure out if that’s, is there a true trend there? Is there a timing difference? Because at the very least it just seems like the TI allowances just remain high if you will. I guess any comment on what you’re seeing in concession trends?

Stephen Lebovitz

Well part of it is the boxes which we put in and like I said, we’ve opened 18 boxes in the malls this year, so there’s some build out work and some allowances that typically go with that in converting the space and the chunks are bigger just because the spaces are bigger.

So that’s probably the biggest factor behind that. The other thing to keep in mind is that with our occupancy going up, we’re just doing more leasing and so that’s a good thing. But as there’s more leasing, there’s going to be more allowances, so that’s a big part of it.

From a timing point of view, the allowances get paid when the spaces are open and paying rent. So it doesn’t really track the leases that go into the lease spreads, so it’s hard to have a direct correlation. There’s definitely a lag there.

And we’re looking also really closely at tenant financials when we’re doing allowances, and so that’s a factor that we’re careful about. And I guess one other thing that I forgot is restaurants, and you know we’ve added a lot of restaurants to our properties, just 17 alone this year and restaurants do involve more of a tenant allowance because of the build out.

Again, we look very carefully at the financials and are cautious before we make those investments, but that’s a factor in what you picked up on.

Jeffrey Donnelley – Wells Fargo

Just a final question. I’m just curious, you have 74 JC Penny’s in your portfolio. Have you ever had any discussion with them about just given that they’ve been getting some more interest if you will from Pershing Square and Grenada, any kind of feedback you’re hearing from them on what their thinking is there?

Stephen Lebovitz

We’ve talked to them. We were just out there actually right before the Pershing Square, Grenada investment was announced and we’ve talked to them since then. And from an operational point of view, they haven’t announced any changes. They’re still looking to add new stores like they said, $1 billion new sales to the company in five years.

We have a great relationship with JC Penney because we have so many stores with them. We’ve worked closely for a lot of years. They’re interested in remodeling a number of stores. As everyone’s read, they’re adding four, (inaudible) department, a mango department and doing a lot of innovative things with their stores. So we think their management is doing a great job and we value that relationship a lot.

Jeffrey Donnelley – Wells Fargo

That’s helpful. Thank you.

Operator

Thank you sir. And our next question comes from the line of Craig Schmidt from Bank of America/Merrill Lynch. Please proceed with your question.

Craig Schmidt – Bank of America/Merrill Lynch

Thank you.

Stephen Lebovitz

Hi Craig.

Craig Schmidt – Bank of America/Merrill Lynch

Hey, pre ‘06, ‘08 your defer maintenance MPI’s were running about 14% of NOI and then in ‘09 and year to date, 2010, those same measures are running about 7.4%, and while I would understand why you’d want to conserve on cash during the credit squeeze, can we look forward to maybe some catch up on the deferred maintenance in the quarters ahead?

John Foy

Most of that money, the changes is we’ve done very little renovations and remodeling. We’re really kept up with our deferred maintenance so that our properties are up to date and we’re not seeing a significant problem with any of the deferred maintenance.

We’re spending money as need be on the deferred maintenance and we would envision that as the economy steps up and improves and as we see these leasing spreads increase, we’re going to start doing some renovations and some remodeling of these projects as well and what we we’re counting on in a lot of instances is some assistance with the cities and the governmental people that we’re working with in these municipalities because it’s important to keep in mind that we are the golden goose that lays the sales tax dollars for them.

So they want to see our properties up to date, etc. So I think the biggest thing that you saw there was the renovations and the remodeling. We toned that down significantly.

Craig Schmidt – Bank of America/Merrill Lynch

OK. And then I guess in the same vein, I guess September 11, St. Louis Galleria adds it Nordstrom and they will have a new Apple store. Is there anything you’re doing to try to minimize an impact of West County Center like a renovation or face lift or do you not think that’s a serious competitive threat?

Stephen Lebovitz

We feel like we got ahead with the renovation. I mean the mall is in great shape. We redeveloped the Lord and Taylor building into Barnes and Noble and the three restaurants in (inaudible) that opened last year. West County is really strong. It’s taken market share away. The trade area is growing.

A lot of the financial, a lot of the population growth that’s happening outbound of West County and so people aren’t going to drive by to go to Galleria. We added an XXI store February 21 that’s doing really well in the center and we’ve added a lot of new stores as well so we feel really comfortable in that center’s position in the market even though what you’re saying about St. Louis Galleria will definitely be a factor.

Craig Schmidt – Bank of America/Merrill Lynch

OK. Thank you for that.

Stephen Lebovitz

Thanks Craig.

Operator

Thank you. And our next question is from Quinton Villeley [ph] from Citi. Please proceed with your question.

Stephen Lebovitz

Hey Quinton.

Quinton Villeley – Citi

Hi there. Just a quick one. I just wanted to clarify something on the leasing spreads and with the renewals, which were sort of still down about 10%. I think you said earlier in the prepared remarks that about 50% were on the short term renewals and if you excluded those, the leasing spreads would have been positive 10%. I’m not sure if I heard that right because if that was the case, it would be about a 30% decline for the short term renewals. Is that right? I just wanted to clarify that.

Stephen Lebovitz

Well the part about the 10% for the leases three years and longer is correct. I’m not sure the math on the short term is exactly right, but you are right. With the longer term leases are getting better spreads and we’re also seeing the retailers more willing to commit to longer terms.

And what we’ve been doing with the short term leases is consistent with what we’ve been doing the past year where we’re giving ourselves more time to replace those stores or to work out a longer term renewal and get the kind of increases that we need

Quinton Villeley – Citi

OK. And I know that the amount of short term leasing has come down, but I guess what sort of needs to happen going forward for that short term leasing on much weaker rents, what needs to happen for that to sort of go away from the numbers?

Stephen Lebovitz

Well it’s really I think sales picking up and that’s what we’re starting to see, and that’s a real favorable trend from our point of view. And like I said earlier, there’s a lag factor with some of the stores that they might have had sales decreases in ‘08 and ‘09 and the renewals are just coming up now.

So that’s really the biggest contributor to the continued decreases. But as sales start to recover and the sales recovery for some stores that had been down, has been really encouraging, so we’re optimistic that it’s going to continue to move in our favor.

And also, just with occupancy picking up and more retailers looking to expand, there’s better demand and we’ll go back to econ 101 with supply demand that will help work in our favor.

Quinton Villeley – Citi

OK. And Manny Courtman [ph] here, he’s got a question for you.

Manny Courtman – Citi

Hey guys. Good morning. Could you just give us some details on what’s going on with equity and earnings of unconsolidated affiliates. Typically it’s run kind of stable and positive and this quarter it’s been a bit negative.

John Foy

We had a joint venture with the partnership in a couple of projects that we’ve changed the capital structure that resulted in some changes. Katie can give you more definitive details on that if you want it, but it was just basically a change in some partnership capitalization things that we did with the partner.

Manny Courtman – Citi

OK. And one more. What do you expect your expense recovery rate to look like going forward. I know you’re at 102% in 3Q. What can we expect for 4Q and then maybe into 2011 if you have some details.

John Foy

I would say it’s probably going to be 100% in Q4 and I think you know the trends probably will not be any exceptional things in ‘11 going forward.

Manny Courtman – Citi

Thanks John.

Operator

Thank you for your question. Our next question comes from the line of Sergie Lachance [ph] from Greenstreet Advisors. Please proceed with your question.

Sergie Lachance [ph] – Greenstreet Advisors

Thank you. Just going back to the JV’s a little bit, John could you specify for us what you’re trying to do with the JV’s at this point? Is it a, you’re trying to contribute properties into a JV so that you can seed an expansion that would include a number of acquisitions as well, or are you just trying to sell a stake in some of your properties and therefore move them off balance sheet with a different partner but without trying to acquire more assets?

John Foy

I think what we’re attempting to do with regard to our joint ventures is to fill the need and to get the best pricing and the best opportunities for us, and so what we look at is, what is our partner want out of those ventures.

And so if he wants highly leveraged properties and he wants current yield, then we can fulfill that obligation so long as it’s in line with our expectations. If on the other hand, they want quality etc., that’s not to say that these with high leverage are not quality properties, but it’s a different perspective from the investor standpoint.

So I think the great thing about it is that we’re able to fulfill the needs of any partner based upon their demand. So we’re fortunate in that respect and whether they want to go into regional malls, power centers or grocery anchored centers, we can do that as well.

But I think what we probably will do with grocery anchored centers or power centers would be probably sales because that probably makes the most sense. So I think that we want to build a relationship with the partner, whether he’s sensitive to yield or whether he is sensitive to basically a long term perspective and I think we can sell the desires for those folks in any respect.

Sergie Lachance [ph] – Greenstreet Advisors

And then have you made progress with any partners at this point in one direction or another?

John Foy

Yeah, I think we continue to make progress with them. I think that depending upon the partner, the institutional guys move much, much slower than the other guys and we continue to have discussions. We continue to explore different perspectives on that.

As far as those who are highly leveraged and desirous of yield or IRR driven, those from our perspective, we’re in a much better position because timing is on our side. We don’t have to do it, and I think that a lot of these guys have a lot of capital that they need to get out, so hopefully they will come to the realization that the retail market is changing dramatically and that what their expectations were 12 months ago have definitely change significantly so I think what we’re doing, we’re not playing hard to get, but we’re not playing easy roll over guys either.

Sergie Lachance [ph] – Greenstreet Advisors

And earlier you made a comment on recourse versus non-recourse debt, but then you suggested that non-recourse had a beneficial impact on return on equity. Can you help me understand that a little bit?

John Foy

I can give you a specific example. We built a center in South Haven, Mississippi, which is just across the state line from Memphis. The project was a big success. We were able to put non-recourse debt on the project and finance out 100% on a non-recourse basis and actually took out some excess financing proceeds and still have a significant cash flow on that asset.

So if you basically said that I should run my company totally based upon debt related situations, then you probably maybe we wouldn’t have done that transaction. But if you basically look at return on equity, the return on equity on that project is infinite. And our risk with regard to that project is zero.

So that’s why we think to a certain extent that debt is not always equal. Non-recourse debt is definitely much, much better for us in our program than recourse debt. And therefore, what is that actual return on equity going to be and what are the risk factors involved in it. And I think all of that goes into consideration.

Sergie Lachance [ph] – Greenstreet Advisors

(Inaudible) pricing right now between recourse and non-recourse?

John Foy

Basically zero. There’s basically no difference. I think that the people that are in this business today, fund to rent the properties in a good cautious way and I think they’re comfortable with it. I think that it depends upon the market area and the management team and what you’ve done with these lenders in the past. We have no experienced any differential between recourse and non-recourse debt.

Sergie Lachance [ph] – Greenstreet Advisors

OK. And in terms of debt yields, earlier you mentioned that the lenders are underwriting on debt yields. What kind of debt yields are they trying to achieve at this point?

John Foy

Well in all honesty, when we did the Goldman Sachs deal that yield was higher. Now it’s basically coming down like in the 10% range.

Sergie Lachance [ph] – Greenstreet Advisors

OK. And in regards target from debt to EBITDA perspective, where would you like to be from a debt to EBITDA standpoint?

John Foy

Well I think it depends upon the circumstances. I think it depends upon whether you take recourse or non-recourse debt into that. So I mean we look at it and we basically view it from the standpoint of what makes the most sense for us and for our shareholders and the risk/reward ratio’s.

And so we’re continuing to pull the leverage down and we’ll continue to do so, but we also are very cognizant of the risks involved in doing so when you go out and take into crazy deals just to pull down that leverage when you don’t necessarily have to do so.

I think we’re very, very cautious with regard to that, and we want to maintain the value for our shareholders and our properties are maintaining their values as well. And I think the sale, if you look at Del Rio and Pemberton Plaza, two of our lower producing assets, and the cap rates and the sale prices on those were very, very good, and so I think it just is more productive.

Sergie Lachance [ph] – Greenstreet Advisors

OK. Thank you.

Operator

Thank you for your question. And continuing on, our next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed with your question.

Stephen Lebovitz

Hi Rich.

Rich Moore – RBC Capital Markets

A couple things for you. First, on the outlet center side of things, I’m trying to figure out, is this going to be sort of a passive kind of venture that you’re, not the one in particular, but the whole outlet center business if you will, is that going to be passive or are you going to set up a department inside the company to look at outlet centers to scour the country for additional sites, that kind of thing, be more active would you say.

Stephen Lebovitz

Rich, we’re by nature, we’re more active than passive about everything that we do, so we’re not looking to add a ton of overhead. We’ve got some good people internally that can look at opportunities in conjunction with other things that they’re looking at.

We’ve maintained a right level of staffing in our development division, but we’ve got capacity there to go out and work on projects and similar with our development leasing folks, we have people there. So I don’t think you should expect us to be passive in any way.

Rich Moore – RBC Capital Markets

OK. So how about the scouring the country sort of thing Stephen, is that kind of what you guys are doing? Are you looking for sites actively for outlet centers or planning to?

Stephen Lebovitz

We’ve never been the scour the country type either. I mean, we’ve always relied on the relationships with the retailers and opportunities have come to us and I think that will be the same with this.

You know, we’ve had people call us. We have a good building relationship with Horizon and so I think that’s been a better way to generate opportunities. When you kind of go out there and scour the country, then you’re not quite sure you’re going to end up with something that’s going to make sense and when it comes from the retailers, you’ve got a big leg up in starting a project.

Rich Moore – RBC Capital Markets

OK. Good. Thank you. And then the Associated center seem to have the strongest same store NOI to growth. It actually seemed unusually strong. Is there anything going on in the Associated centers in particular?

Stephen Lebovitz

It’s really Rich, the pickup in the occupancy there and we had some of the newer projects that have come online that are in the Associated centers that have pickup up in occupancy and also some of the boxes. So that’s really the biggest factor there.

Rich Moore – RBC Capital Markets

OK. All right, good. Thank you. And then the last think I had been when did Pemberton close and how much was that disposition?

John Foy

Rich, we didn’t disclose the amount because the buyer did not want us to do so and it closed in the fourth quarter, closed I think right around the first of October, mid-October.

Rich Moore – RBC Capital Markets

So for modeling purposes John, should I kind of take a guess and put something in there?

John Foy

You know, what’s a significant NOI to us and if you look at the cap rate, it wasn’t a huge loss of FFO and the sales price was not a huge number either, so it’s basically immaterial, but I think if you looked at the cap rates, it was material from the standpoint it was pretty good.

Rich Moore – RBC Capital Markets

OK. Got you. Very good. Thank you guys.

John Foy

Thanks Rich.

Operator

Thank you. And our next question comes from the line of Christie McElroy from UBS. Please proceed with your question.

Ross – UBS

Hey, guys, it’s Ross [ph] here with Christie. I’ve got a couple of follow ups. The first was going to be on Pemberton, but it sounds like you don’t want to disclose there, but just in terms of the cap rate, if there wasn’t much FFO contribution that would, was there debt on the property?

John Foy

No, there was no debt on the property.

Ross – UBS

OK. So there really then wasn’t a heck of a lot of NOI which would mean the cap rate becomes a little less relevant?

John Foy

I think it’s not the most relevant thing, but in turn, it’s the ability to see that there is growth potential on, that there is a market for that type of approach.

Ross – UBS

On the community centers, because I think you’ve talked about those as a potential disposition. How much do you really think you can pull out at the end of the day in terms of net cash proceeds? If we’re talking about a 2.5 million square foot portfolio that has $100 million’ish of debt against it, it wouldn’t seem to move the needle all that much.

John Foy

Ross, I think what we don’t really do anything as far as our budgeting process or anything. I think what we do is we look at those opportunities when we see somebody want s something. So it depends upon the asset. It depends upon the timing. It depends upon a lot of circumstances.

So I couldn’t give you a number on that. So I think there is good potential there. We managed to create this company in 1978 and did a lot of that type of opportunity to basically sell off those community centers and do that type of approach, but as far as a dollar amount and so on, we just don’t have one budgeted or have one in mind.

Ross – UBS

OK. On Parkway Place, I think Colonial disclosed that it was a 9.1 cap rate. Is that a number that you’d agree with or is that any different between what the seller and the buyer would characterize it at.

John Foy

It’s in the ballpark.

Ross – UBS

The ballpark. Do you think, I mean when I look at that mall, obviously we all struggle in the mall industry for data points on valuation? It was clearly a partial interest in a proportion. The property does do below average sales relative to your portfolio. How do you think that valuation stacks up against what you’d think about for the rest of your portfolio? How should we all be thinking about that data point?

John Foy

I think we would buy at that cap rate and not sell at that cap rate. I think there were a lot of extenuating circumstance. The fact is that we were buying a partnership interest. There was debt in place on that asset. I think that that asset, we made a good deal, and I think Colonial, from their perspective made a good deal, so I think both partners were happy with regard to it.

And we think that there is great upside with regard to leasing. They were doing the leasing on the project. We’re taking over the leasing on the project and as you know, they’re moving out of the retail sector of the business.

They don’t have a big retail operating platform, and so that was an opportunity for us, and I think if you talk to Tom and Reynolds, I think that they were happy with the pricing, and we think it was a good deal for us.

But we don’t think that the cap rate that is in the ballpark is definitely not indicative of what’s going on in the market today, and that’s what we’re seeing from people who are talking to us about joint ventures and other things.

Ross – UBS

As a follow up to Cedric’s question on the debt to EBITDA, it would seem to be that to get to that number back down to where some more of the peers are heading, we’ve got to be talking at least one turn lower on the debt to EBITDA, which would imply a good $800 million’ish of de-levering. Is that , I mean we’re all sort of sitting here trying to bogey how much is left to really get to where you want to be.

John Foy

I think in our perspective there’s tremendous capacity to get where we want to be and taking into consideration all the risk factors etc. So I think, I can’t substantiate your number or whatever, but I think we’re looking at that and we continue to de-lever and we’re comfortable with what we’re doing.

We don’t feel any pressure to do it. We don’t have to do any stupid or crazy deals, and we’re watching out to make certain that our shareholders are protected. We still have management, probably has one of the biggest ownerships of anybody in the REIT industry in this company, so we’re not going to do anything foolish. But we’re also going to do what we think is proper for all of our shareholders.

Ross – UBS

And does the upward movement of the stock of late shift your thinking in terms of how to accomplish that? I mean obviously the valuation has moved to a level that’s far more attractive than it was three or six months ago.

John Foy

Well, I think that the market’s coming to realize that our relationships and what we’ve done in the past is indicative of what we can produce to our shareholders, and I think a lot of our shareholders are from Missouri. We’ve just got to show them that we can continue to do what we’re doing and we can grow this company..

I think we’ve done it in the hardest of times and we’ll continue to do it. So we’re appreciative of where the stock is, but we still needless to say, we still think it’s tremendously undervalued.

Operator

Thank you. Our final question comes from the line of RJ Milligan from Raymond James & Associates. Please proceed with our question.

Stephen Lebovitz

Hey, RJ.

RJ Milligan – Raymond James & Associates

Good afternoon guys, John, just a quick question for you. For the CNBS loans paid off this quarter with the line, and your discussions to put permanent financing back on those properties, would there be any sort of pay down equivalent?

John Foy

I think it would be roughly equal, and we’re penciling it out. It’s probably going to be pretty close to equal to the dollar amounts that we can get in the CMBS market versus where those loans are and the line of credit. So I don’t see any significant use of our capital to do that, and we basically – what we oftentimes overlook is how important in our view, the recourse versus the non-recourse is.

So I think that that’s great, and I think if you look at the spread that’s basically going to occur, we’re going to take a little hit this year, but next year, those lines of credit on that $560 million line goes up somewhat, so that spread is a little less if you look at it, and that happens in August.

So it makes a lot of sense for us to do this and it gives us tremendous, tremendous flexibility financially to take care of any demands that occur in ‘11 and ‘12 if the markets change dramatically. So we’re excited about it, and we think it’s great for our shareholders, RK.

RJ Milligan – Raymond James & Associates

Thanks a lot John.

John Foy

Thanks RJ.

Operator

And thanks for your question Mr. Milligan. And Mr. Lebovitz, I’ll turn it back to you for your concluding remarks. Thank you.

Stephen Lebovitz

Sure, thank you. We’d just like to thank everyone for their questions and their attention this morning. We’re looking forward to seeing you at May REIT in a couple of weeks, and thank you for your continued support of CBL.

Operator

Thank you sir. Ladies and gentlemen, that does conclude the conference call for today. Thank you all for you participation and ask that you please disconnect. Thank you once again and have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!