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CBL & Associates Properties, Inc (NYSE:CBL)

Q1 2011 Earning Call Transcript

April 29, 2011, 10:00 am ET

Executives

Stephen Lebovitz - President, CEO

John Foy - Vice Chairman, CFO, Treasurer

Katie Reinsmidt - Vice President Corporate Communications, IR

Analysts

Todd Thomas - KeyBanc Capital Markets

Jay Habermann - Goldman Sachs

Christy McElroy - UBS

Nathan Isbee - Stifel Nicolaus

Craig Schmidt - Bank of America

Michael Mueller - JPMorgan Chase

Rich Moore - RBC Capital Markets

Ben Yang - Keefe, Bruyette & Woods

Quentin Velleley - Citi

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the CBL & Associates Properties first quarter 2011 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, Friday, April 29, 2011. I would now like to turn the conference over to Stephen Lebovitz, President and Chief Executive Officer. 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 first quarter 2011 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 most recent annual report on Form 10-K as amended and management's discussion and analysis of financial conditions and results of operations included therein for a discussion of such risks and uncertainties.

During our discussion today, references 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 available for replay on the internet through a link on our website at cblproperties.com. This conference call is the property of CBL & Associates Properties Inc. Any redistribution, retransmission or rebroadcast of this call without the expressed written consent of CBL is strictly prohibited.

During this 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 financial measure to the comparable GAAP financial measure will be included in the earnings release that is furnished on the From 8-K.

Stephen Lebovitz

Thank you, Katie. We are encouraged with our results for the first quarter and the continued improvement we are seeing in our key metrics across the board. Same center net operating income increased 50 basis points over the prior year. Leasing spreads have continued to recover and we're positive for the first time in nine quarters.

Portfolio occupancy increased 150 basis points from the prior year. John will discuss in more detail later but we have closed on more than $660 million in financing activity so far this year at very attractive rates.

Our year is off to a great start and we are well-positioned to continue this positive momentum going forward. The improving economy continues to benefit our retailers who experience positive sales growth with sales per square foot for the first quarter in our portfolio improving 2.9% over the prior year.

For the trailing 12 months, sales grew 2.5% to $324 per square foot. With generally positive economic indicators and improving consumer confidence, we saw strong sales in our malls in April leading up to Easter and expect the upward sales trends to continue throughout the year.

These positive sales trends contributed to the continued growth in our occupancy and better leasing metrics. For the quarter, total portfolio occupancy increased 150 basis points to 90.3% and stabilized mall occupancy improved 70 basis points to 90.4%. We are still projecting for occupancy to end the year 75 to 100 basis points over the prior year end.

During the first quarter, we completed a tremendous amount of leasing, signing approximately 1.7 million square feet of leases. This included approximately 560,000 square feet of new leases and 1.1 million square feet of renewals with the remainder signed in the new development portfolio.

The first quarter continued our trend of improvement in leasing spreads. Overall, leases in the first quarter were signed at a 30-basis point increase over the prior gross [rep] per square foot. While renewal spreads were still negative, they moved in the right direction compared with previous quarters.

We are still facing difficult renewal negotiations with a select few retailers whose sales have not recovered from pre-recession levels. We are being proactive in replacing underperforming retailers and have used short-term leasing to keep NOI flowing while we secure replacement tenants.

As the economic and retail environment improves, we are seeing retailers boosting their expansion plans and increasing demand for space, benefitting our new leasing activity. New leases are being signed at impressive increases, more than 18% for the first quarter.

As spreads turn more positive, we are pushing to lengthen the lease terms. For the quarter, 55% of leases were signed for three years or less, an improvement of 5% compared with last quarter.

Turning to development, we have roughly 650,000 square feet of new and expansion projects slated to open this year. Construction continues on our 350,000 square foot outlet center project in Oklahoma City. We are nearly 98% lease or committed with a great lineup of retailers such as [inaudible], Nike, Tommy Hilfiger, Polo, Brooks Brothers and J Crew.

The strong leasing results indicate the successful resection this project is receiving in the retailer community and we are still receiving new lease commitments. The opening date is on track for early August.

Stores have started opening at the second phase of Settler's Ridge in Pittsburgh, Pennsylvania. The 78,000 square foot expansion is currently 95% leased or committed with Michael's, Ross Dress for Less, Shoe Carnival and [Alta].

Construction is progressing on Alamance West a 230,000 square foot second phase of our center in Burlington, North Carolina. The project is currently 98% leased or committed anchored by [BJ's Holsa], Club Cold and Dick's Sporting Goods and will open this fall.

We have also commenced renovation projects at four of our malls, including Hamilton Place here in Chattanooga, Oakpark Mall in Kansas City, Rivergate Mall in Nashville and Burnsville Center in Minneapolis. The projects are scheduled for completion ahead of the holiday season.

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

John Foy

Thank you, Stephen. Since our last call in February we have closed 11 loans totaling over $660 million. The financings were completed at very favorable rates, with the weighted average interest rate for all 11 loans at 5.42%. The loans include six CMBS loans for 10 year terms, four bank loans for five year terms and one institutional loan for a 10 year term.

We generated significant excess proceeds of more than $115 million. Eight of the properties were previously used as collateral to secure our $520 million line of credit. As we pull properties out of this facility, it has become a revolver that can be used for returning loans that are maturing in 2011 and beyond as well as providing additional flexibility.

At the end of the quarter, we had more than $820 million available on all of our credit facilities. Our financial covenants remain sound with a debt to GAV ratio of 52.7% and an interest rate coverage ratio of 2.38 times for the quarter compared with 2.2 times in the prior year period.

For the first quarter, we reported FFO of $0.63 per share, which included a net impact related to the sale of [Ocala] Mall of approximately $0.15. The net impact included a gain on extinguishment of debt and a loss of real estate which are reflected in discontinued operations.

Total portfolio same center NOI, excluding lease termination fees, increased 50 basis points in the quarter from the prior year period. NOI has benefitted from the increase in occupancy, which improved our rental stream.

Bad debt expense was virtually flat over the prior year in the quarter at $1.4 million compared with $1.3 million. Other major items in the earnings results included G&A as a percentage of revenue was 4.4% for the first quarter compared with 4.2% in the prior year period.

Our cost recovery ratio for the first quarter 2011 was 95.6% compared with 101.0% in the prior year period. Bearable rate date was 14.6% of total market capitalization at the end of the first quarter 2011 versus 18.9% as of the end of the prior year period. Bearable rate debt represented 24.6% of our share of consolidated and unconsolidated debt compared with 28.4% for the prior year period.

Yesterday, we reiterated our 2011 FFO guidance of $2.10 to $2.15 per share. The guidance assumes NOI growth in the range of negative 50 basis points to a positive of 1%. We are pleased to start the year on the right track with improving metrics across the board. The entire company is focused on continuing these improvements throughout the year.

We are also moving forward with potential joint venture activity. We are hopeful that we will be able to announce a transaction in the near future. We look forward to visiting with you at the ICSC recon in Los Vegas as well as [Narate] in June.

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

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Todd Thomas - KeyBanc Capital Markets.

Todd Thomas - KeyBanc Capital Markets

Just circling back, in your prepared remarks you mentioned that there were select few retailers that continue to underperform. I was just wondering which categories those are and what type of replacement tenants you think are fit to go into those spaces.

Stephen Lebovitz

Well, just in terms of categories, the weaker results we saw were in some of the athletic apparel and casual apparel and then in the -- some of the renewals we did with greeting cards and with gift and a novelty category, that was an area of weakness. Some of the juniors, although some juniors are doing really well, but it's uneven just given the competition in that category.

So that was an area where we experienced some difficult negotiations. So those were the main ones. Then as far as where we're doing replacements, that's across the board also but in some of the teen retailers are [inaudible] and Crazy 8 and stores like that. Some of the other juniors are active in terms of doing new deals, Buckle For Over 21, people like that.

Then we're doing a lot with the cosmetics, Sephora, Alta, is a small box but we're doing a lot of deals with them. Then in shoes, Shoe Department, Encore and Finish Line are doing really well. The whole athletic shoe categories had a real strong rebound over the last six months, so hopefully that gives you a little more color.

Todd Thomas - KeyBanc Capital Markets

Just looking at the tenant list, it looked like there were a number of Gaps and Ambercrombies that you lost during the quarter. I was just wondering -- I know that they have announced plans to reduce their overall store counts and shrink their store formats. I was just wondering if you had a sense of where that is in terms of your portfolio and if you have specter, could be more to come still.

Stephen Lebovitz

Well, most of our -- the most of the closings that are going to occur are going to happen in the first quarter because the majority of our lease expirations are in January. So this is the time of year when we'll see the majority of that and, as far as Ambercrombie and Gap, it's really a combination of factors.

We had some that expired and a couple that where we did terminations to replace them because of their sales performance and it was a mutual decision. But of the seven Ambercrombies that we lost or that closed during the first quarter, we have replacements for five of those. So then prospects working for the others. So in those cases we had a good sense that they were going to be closing. We've had time to work on the leasing and be proactive to replace them.

With Gap it's similar. A couple of the Gap situations, they just consolidated their Gap and Gap Kids stores, so one of the stores in those was part of that closing. Then one was a center that we sold and then the others were just where the lease expiration had occurred and we have replacements for them.

With Gap, of the eight, we have six of those where we have replacements. So, again, we've known it's coming with them and we've got great relationships with those companies. We're in constant communications as far as stores that are doing well and aren’t doing so well. We watch the occupancy cost ratios carefully so we can be ahead of the curve with them.

Todd Thomas - KeyBanc Capital Markets

Then just lastly, looking at development, at Alamance and the Oklahoma City outlet shops, slight uptick in the expected yields. I was just wondering if that's related to better rent economics or is it related to costs or to fee structure?

Stephen Lebovitz

It's really the rents are coming in better. Oklahoma City, we're exceeding pro forma on the rent levels and given the occupancy that we're at in preleasing, we're able to take advantage of that and negotiate better deals. Alamance is really a combination. We had a little bit of cost savings there and then income has improved a little bit.

Operator

Your next question comes from the line of Jay Habermann - Goldman Sachs.

Jay Habermann - Goldman Sachs

John, you mentioned on the joint venture front that obviously hoping to announce something soon. I'm just curious given that values in real estate have appreciated in the last year or so, are your phone calls starting to pick up and are you getting closer to announcing something? Just curious where you guys are in that process at this point in the cycle.

You also mentioned, obviously, the refinancing market is improving as well on the CMBS front but just, again, tying it back to the ventures and your thoughts there.

John Foy

Yes, we've had a lot of calls with regard to joint venture partners. We've been very selective in who we want to create this joint venture with. When we do we want to do it with the best of the best and that's what we're focused on.

I think you'll see some results from us in the very near future on this. I think things are moving along on that front very well. So we're excited about the prospects there. Granted, the value of properties have gone up and there's been more recognition by the market of the middle markets and what these malls can do.

So we're very excited about it and think that the joint venture that we're working on that we'll announce in the near future will be a very exciting one for us and our shareholders as well.

Jay Habermann - Goldman Sachs

Then you mentioned as well, Stephen, that renewals still a challenge. Can you just discuss that a little bit? I know the pace of leasing continues to be very strong but perhaps can you talk about maybe some of your better performing assets versus perhaps some of the weaker assets or is it really as you said earlier it's just a few specific tenants that are holding back the renewals?

Stephen Lebovitz

It's more just certain tenants where we did renewals on a portfolio basis, so we did package it and some of those have been more difficult in terms of the shorter term and the results that we've experienced.

When we look across the regions I'll say the Texas has really been the strongest in terms of spreads and the weakest has still been in the upper Midwest so where we have Wisconsin and Michigan malls. Then it's been pretty steady across the Southeast and the lower Midwest and the other regions.

So there is some discrepancy by region but it's -- unfortunately, there are a couple of really tough deals that we decided to do because we felt like it was in the best interest of the center or the NOI but they put a big weight on spreads. We're making progress and the numbers are better and we're really pleased to be in positive territory on a blended basis because we haven't been there in a long time.

But we also feel like we're going to continue to make progress and see better results because we're getting through the worst of it and we're definitely seeing things improve.

Jay Habermann - Goldman Sachs

As you look toward the end of the year, where do you think spreads could move versus that positive 30 basis points that you just recorded? I guess maybe asking a different way, if you strip out some of those more challenging deals, where are spreads on average today?

Stephen Lebovitz

Well, first of all, I can't give you a number for where things are going to be at the end of the year. We're hoping better but I can't tell you exactly what the number would be. We would report signed leases, so we've got a pretty good pipeline and we're pushing hard to improve the terms of the deals, so we definitely want to get everything in positive territory.

Then just looking at -- the longer terms are definitely producing the better results. So as we said, the new leasing is up in the high teens and those for the most part are seven to 10 year deals. So that's really where our biggest priority is is pushing out the terms, getting the long-term commitment from the retailers and realizing the value in those spaces.

Operator

Your next question comes from the line of Christy McElroy - UBS.

Christy McElroy - UBS

Stephen, just following up on your prior comment, you mentioned that the new leasing was primarily seven to 10 year deals. Can you break out the proportion of those between what was the longer-term leasing versus what was three years or less? I think last quarter you said that the spread was influenced by a few music stores that were shorter term deals. So I'm just trying to distinguish between the two quarters.

Stephen Lebovitz

Well, there were a few music deals in this quarter but actually those were pretty much flat. So that wasn't as much of a challenge this year. There were a couple of other deals more in the junior apparel category that were big negatives and that hurt us.

Then as far as your first question, Christy, the seven to 10 year deals was roughly 40%, so that's -- and that's where we're getting the real positive spreads, the high teens, 18% and then 55% was less than three years.

So that's where we're still trying to improve and bring that6 number down. We did bring it down somewhat, 5% from where it had been but we want to get that number down even lower from where it is and we'll hopefully make progress there.

Christy McElroy - UBS

What was the average duration of the new leases signed in the quarter versus the renewal leases?

Stephen Lebovitz

I don't know specifically what the number is but the range is int hat seven years plus.

Christy McElroy - UBS

Then just on the 900,000 square feet of space that's over 10,000 square feet that you released in the operating portfolio, can you give us a sense for what kind of cash spreads you saw in that space? So what's not represented in the table here?

Stephen Lebovitz

Could you just repeat that again? I'm sorry.

Christy McElroy - UBS

Sure, in terms of the 900,000 square feet of space that you leased in your operating portfolio that's not represented in this table, so that's over 10,000 square feet, can you give us a sense for what kind of cash spreads you saw on that space?

Stephen Lebovitz

It was probably in the flat range. It's a little -- we don’t have it at our fingertips but some of it was renewals of anchors and in those cases those are pretty flat. Every once in a while we'll get a little bit of a bump but they're per the leases.

Then the other is where we're bringing in boxes and that's hard to measure because we combined existing space and vacant spaces and sometimes it's even common area or storage space to create for the boxes. So it's -- we usually look at it more on a return on investment and target double-digit returns on those. So that’s more the way we look at that leasing.

Christy McElroy - UBS

Then just I'm wondering if you could weigh in on the discussion of the extent to which Apple and Apple Store influences sales and sales growth over the last year at malls on average.

Stephen Lebovitz

Yes, we'd like to have a few more of those to weigh in our sales. Their volumes are amazing. They're doing over $25 million, $35 million just incredible volumes, so they're a great booth for a mall. We have four in our portfolio. We're talking to them about more.

We actually have a couple of licensed Apple stores -- one's in Chattanooga, one's in Nashville -- and those do well. They don't do as much as the standard Apple but they're a huge success and we'd love to have more.

They definitely drive your sales per square foot up and it can be almost a 10% impact on the mall's square foot. The other thing is that whole category of electronics with Best Buy Mobile -- we've done a lot of Best Buy Mobile deals. They're doing really well. Just having that category in the mall I think is really important.

A few years ago everyone was doing buying electronics off the mall and now for them to be able to buy them inside the mall is a real improvement. We're pleased with that.

Christy McElroy - UBS

For the malls that you have an Apple store, to what extent has that store contributed to year-over-year sales growth at those malls that they're in over the last year?

Stephen Lebovitz

Yes, it's not that much for us because we just don't have that many of them. So when you look at our sales growth it's coming across the board. Apple isn't big enough in our portfolio to really make that much of an impact.

Christy McElroy - UBS

Right, I guess I'm just thinking about the particular malls that they're in. So just if you look at that mall, how much has the Apple store contributed to the growth?

Stephen Lebovitz

I don't know. We'd have to get that for you. We can get it and talk to you later about it. But it's probably 1% to 2%. I don’t think it's swayed it that much.

Operator

Your next question comes from the line of Nathan Isbee - Stifel Nicolaus.

Nathan Isbee - Stifel Nicolaus

Just going back to the JV issue, over the last few months there's been a number of middle market malls that have come to market or about to come to market. Can you just talk about how your discussions with the potential partners might have changed to where the venture would go out and possibly purchase some of those malls that are coming to market, leveraging your platform?

John Foy

Nate, we from the get go have basically said that we think there are two different types of joint venture partners. One is the one that's more driven to the institutional type of approach, which we've worked on that side of it. That partner we likewise wanted to be in a position to continue to make acquisitions with us as well on that same type of format that they're interested in.

So we think that's one joint venture partner. Then on the other side of the equation we think there's another type of joint venture partner who's more interested in the middle markets and what you can drive as far as dividends. So we are basically looking at both of those and working on those. So, yes, I think that there is that possibility and we have discussions with both partners.

I think one we're probably farther along with regard to the discussion of an institutional type of partner that would like to go out and acquire more mark and dominant malls in those specific areas. That I think we've made a lot of progress on.

We're having discussions and we're pretty far along on the other side of the equation as well because, as you alluded to, the fact that there are a number of portfolios that are coming up that basically fit our cup of tea as far as their middle market and our ability to add the management expertise to those to see the growth potential there as well.

Hamilton Place still has electricity and we think that that should bode well for the sales here and thanks for your expression on that.

Nathan Isbee - Stifel Nicolaus

Just going back to the JVs for a second, have you spoken to the sellers yet? Are you underwriting any of that stuff yet?

John Foy

We look at everything. We continue to I guess involve some type of underwriting as well. So, yes, we do look at it. We do work on those numbers to see if it makes sense for us or for our perspective partners.

Operator

Your next question comes from the line of Craig Schmidt - Bank of America.

Craig Schmidt - Bank of America

Could you tell me what drove the strong same store NOI in the community centers this quarter?

John Foy

Occupancy increases in those areas were the big motivating factors there. As an example here in Chattanooga, [The Terrace] we present at [Alta] and we put in the SW Shoes and so that helped tremendously and we put -- an academy took over an old Circuit City story. So they came online and that was basically one of the big things.

They're doing extremely well in this location and I think that just bodes well of our ability to develop not only regional malls but the associated centers that surround the malls so that we can meet all the retailers' needs.

So I think that we're going to continue to see some good results on that. There was a 600 basis point increase in occupancy in Q1 versus the prior year, so that drove it as well.

Craig Schmidt - Bank of America

Was that the mini anchors or junior anchors primarily or was it -- ?

John Foy

Yes, yes, it was the junior anchors like the [Altas] and the Academy Sports, which is doing phenomenal business in this market area.

Craig Schmidt - Bank of America

Then I know in the past you've stressed locations in your state capitals. I just wonder, coming the GDP news, the biggest drag was a plunge in government expenditures, down 5.2%. Have you seen any of that translate to sales of those malls that are near the state capitals?

John Foy

No, I don't think so. I think what we're seeing in those market areas is that they continue to attract additional people to those market areas. A lot of these areas, like for instance Madison, Wisconsin is a big university town. So even though you're seeing tuitions rise in those universities you're also seeing their enrollments go up as well. So I think that that bodes well for those towns as well.

I think like in Nashville, Tennessee, it's health and university town as well, so you're seeing that mix there and there is stability still, notwithstanding the fact that these states are going through a lot of turmoil and budget constraints. But I don't thin it's impacted that as well.

I think if you look at Meridian Mall in Lansing, Michigan, with Michigan State being there, etc cetera, you've got a stability in jobs and hopefully seeing some job growth occur, not necessarily at the state levels but like in Huntsville, Alabama, where the military cut back then you saw the incubation of a lot of private enterprise going into various companies such as [Integraph] was started as a result of the cutback from government.

So I think that the market areas where we are are extremely good.

Craig Schmidt - Bank of America

To sum up, you're not worried about maybe an extended contraction of state government in those markets.

John Foy

No, I think you watch it and you're careful with regard to it but I think it has not been a problem but we're focused on the ability to watch that and see and work to overcome any setbacks that occur there.

Operator

Your next question comes from the line of Michael Mueller - JPMorgan Chase.

Michael Mueller - JPMorgan Chase

First of all, John, going back to your comments on the different JV types, you mentioned the one going after market dominant centers, the one going after middle market centers. Are these discussions you're having with the same partner about different strategies and you're going to pick one or could we see you come out with two different announcements with two different strategies? How should we be thinking about that?

John Foy

I think you identified it pretty well, Michael. I think there are two different strategies and I think that there will be two different types of approaches. I think we have discussions at the same time with both parties but one is more focused on the institutional side of it versus the other who is focused on our ability to add value to those properties as well.

That's not to say that we can't add value to the institutional properties because we've got that ability as well. So I think that it's two different partners.

Michael Mueller - JPMorgan Chase

Both of the, theoretically, we could see those JVs with existing assets to get it going?

John Foy

Yes, I think so. I think that, yes, that's definitely a potential but it's easier if you basically go out and buy additional properties for that guy who's focused on bigger returns.

Michael Mueller - JPMorgan Chase

Then secondly, John, you mentioned -- I'll stick with you for a second -- you said recoveries -- just looking at the recoveries down year-over-year. If we're thinking about full year '11 versus '10, do you expect any dramatic change in recoveries?

John Foy

We think it'll be down just a little from the prior years just because you're seeing some utility increases that are costing you a little bit. But this quarter is probably a little -- we hope that this quarter is off a little but the 100% maybe is a little high, so we want to come in a little around that area. So the fix [cam] is continuing to be the direction that we're going. I think 85% there and 90% there, so as we can convert all of those it helps us as well.

Michael Mueller - JPMorgan Chase

Then last question, I think you said the mix of leases as of the first quarter that were less than three years was about 55%. If you go back to pre-downturn, what was the normal mix of that sub-three-year lease?

Stephen Lebovitz

Well, we actually didn't really measure it. We didn't keep track of it as much because it wasn't as much of an issue.

Michael Mueller - JPMorgan Chase

So it was pretty nominal it sounds like then.

Stephen Lebovitz

That's correct.

Operator

Your next question comes from the line of Rich Moore - RBC Capital Markets.

Rich Moore - RBC Capital Markets

John, on the [Fayette] mall, did the extra $100 million of excess proceeds, did that go to paydown the line of credit further?

John Foy

Yes, it did. As of today, we've probably got on our lines of credit an availability in the range of almost -- I think it's about $980 million. So it gives us tremendous flexibility and so we continue to watch that.

[Fayette] is just a good example of what we've been able to accomplish with that property since we bought it from [Jacobs]. Great releasing there; the institutional partner who put the mortgage on it was -- had it before and wanted to keep the asset as well. It's a great market area.

It's a great asset and we think that the fact that we were able to finance in excess of $150 million in proceeds speaks well of our portfolio because today's world is that everybody's underwriting in a much more difficult way and with more care and so I think we were pleased that we were able to finance over $150 million and bring down those interest rates.

Rich Moore - RBC Capital Markets

So basically with $1 billion of free capacity you could pretty much put anything coming due on the line of credit while you wait to see if you could finance it with a mortgage.

John Foy

Exactly. That's the beauty of what we did with that $520 million line was to create it as a revolver so that we can take care of those opportunities as they come up. If the markets lock down on us we've that availability as well.

So from the standpoint of flexibility and the ability to run the company going forward, we've got maximum flexibility and we feel very, very comfortable and confident as to where we are.

Rich Moore - RBC Capital Markets

On the disposition front, everybody else is selling properties. Have you guys got any more that you want to sell?

Stephen Lebovitz

We've been marketing some of the community centers and we sold some stuff last year and we have a couple of other things that we're working on and so we've always got a few things that we're talking about.

We're not taking a big portfolio and listing it or anything like that. We feel like our best strategy for selling things is to do it on more of a targeted basis with local buyers or regional buyers and we'll get the best pricing.

So we've been doing it I guess in a more low-profile way but we're always looking at dispositions as a way to upgrade the portfolio. Certain properties for various reasons, like the community centers, we've sold them as a source of equity and that's worked well for us and we'll continue to do that.

Rich Moore - RBC Capital Markets

Any lower end regional malls that you might sell?

Stephen Lebovitz

There's a couple of malls that we think are good targets for disposition. We sold a couple last year that are in the lower sales per square foot range and also we didn't see any growth opportunities because they were maxed out. So those we felt made sense and we're not just limiting to the community centers. There are a couple malls as well that might make sense to sell.

Rich Moore - RBC Capital Markets

Last thing I have is help me understand the short-term lease situation. I would have thought -- and maybe this is just naïve -- but I would have though as the economy got better here that the volume of short-term leases would have shrunk very quickly in conjunction with an improving economy and it seems to be going down but going down very slowly. What is the strategy, I guess, behind so many short-term leases?

Stephen Lebovitz

Well, it is getting better and there's just a lag that takes time for it to get it to the level that we want it to be. So it's fewer now than it was a year ago and these are signed leases, so the negotiations occurred probably three to six months ago in a lot of cases, so as things get better, as sales get better, just in general, that's going to improve.

We want it to happen faster also but unfortunately it just doesn't turn on a dime. So it's a big push for us to get down that percentage. Like I said, the lease spreads are the worst for the shortest term leases, so the better we can do in terms of lease term, the better our lease spreads will be. It'll translate into NOI growth and that's really our goal and I'd say we're on the same page with you on that.

Rich Moore - RBC Capital Markets

So by year-end would you be 25% or lower or is that unrealistic?

Stephen Lebovitz

Yes, I don't think it's going to go that extent. There's always a certain percentage of it and it's not 25%. There's probably always going to be a third that we want to be short because we want to move people around. We want to give ourselves flexibility. We can't -- our definition of the value of the space is different than the retailers so we want to keep the space occupied while we find someone else.

So I think even when things are booming there is still a pretty good percentage that is going to be shorter term, just not as high as it is now.

Operator

Your next question comes from the line of Ben Yang - Keefe, Bruyette & Woods.

Ben Yang - Keefe, Bruyette & Woods

You guys were the first mall [read] without an outlook platform to announce plans to develop an outlet and you have about six months under your belt. You're about to open up your first project in a few months and it looks like that's going to be very successful.

So I was wondering if you maybe can talk about your expectations for additional outlet opportunities in the coming year, maybe how many developments you see CBL participating in and whether Canada might also be part of the game plan.

Stephen Lebovitz

Well, we're not looking at Canada, so I can tell you that. As far as other projects, our way of doing any announcement of a new project is we don't announce it until it's real. So I can't give you any definitive numbers on that. We do -- we are looking at other projects in the outlook space.

As a lot of people have commented, it's become a more crowded space and more competitive. But we do think there will be opportunities for us. We have Horizon who is active in the outlet space. There's our partner in Oklahoma City, so there's things that we can look out with them or we can look at things separate.

So we've got good opportunities. We've got a lot of good relationships that we've been able to develop through Oklahoma City with the outlet retailers. Then there's just a lot of conversion. So in a number of cases it's the same people that are doing conventional retail and outlet retail with the retailers.

So we've started talking more. We've gotten calls from property owners and other people that have projects just in light of Oklahoma City and how well that's done. So I guess it's a long way of saying I can't tell you exactly how much but it's something we're committed to and we expect to continue to generate some more projects.

Ben Yang - Keefe, Bruyette & Woods

When you say you won't announce until that opportunity is real, does that mean that you've auctioned the land or that you've actually begun construction somewhere?

Stephen Lebovitz

We don't announce until we're either about to start construction or starting construction. That's just in our practice over the years. Even when you auction land there are a lot of hurtles to get over in terms of preleasing and so we don't want to announce something unless we're confident that it's going to go forward and we don't buy the land until the project is ready to go either, so the auction is only one part of the equation.

Ben Yang - Keefe, Bruyette & Woods

Then you did comment on the space being a little crowded and we're obviously starting to see some of your peers basically compete to build in the same submarket. Just trying to understand what CBL brings to the table and how you might be successful in competing with some of your peers.

Is it going to be the conversions that you think you have an upper hand on or is the Horizon venture strong enough to maybe go head to head with like the [Simon and Tanger]?

Stephen Lebovitz

I think there is different people focused on different markets and we're going to be more focused on the middle markets like Oklahoma City and not as focused on a Phoenix or a Houston or some areas where some of the other companies are competing. So that has been our strategy with most of our projects and our malls over the years and I think we'll be consistent with that with the outlet centers.

As far as what we bring to the table, outlet center business is fragmented with -- other than [Simon and Tanger] -- a lot of small companies that have not a ton of projects and don't have -- are private and don't have access to capital, so I think we bring a stronger balance sheet to the equation and that helps us.

Then our relationships with retailers help a lot. Retailers have always over the years pointed out opportunities and helped us and I think that will help us as well here. So it says the same core strengths, the relationships and the financial strength that have helped us in our underlying business will help us in the outlet centers.

Operator

Your next question comes from the line of Quentin Velleley - Citi.

Quentin Velleley - Citi

Just talking about the leasing spreads again, I know you've had 2.5 years where you've had negative renewal spreads and a lot of short-term renewals. So I assume given that for the 2.5 years that you have some of those rents that you'd cut and signed on shorter-term leases they've coming back into the renewal spreads.

So for the quarter, can you just talk a little bit about any tenants you had that were on shorter-term leases that you resigned, whether you were able to increase the rent, whether you were able to extend the term or whether those tenants are leaving the mall?

Stephen Lebovitz

Yes, we don't track the short-term leases where we're renewing them and we don't know what percentages of the short term have already been on short term but it has to be that a pretty good amount is, although I think the spreads are always going to be taking that hit on the short-term renewal.

But really the strategy is to replace those and it just takes time. We've had some success. We had a Gap deal where we split the space into a couple of retailers at one of our malls in Texas and we got a positive 24% increase there.

We had another Gap deal in one of the malls in the Midwest where we placed with another juniors retailer but we got a positive double-digit spread there. So where we're replacing them we're getting the results and it's -- worse case it's flat but most cases we're getting some improvement there and we're also looking to expand some adjacent stores into some of these spaces.

So because of the timing, we'll do a shorter-term renewal to get that expansion time to play out. So it's frustrating how long it takes for us and how slow things are in terms of really getting the progress but we are encouraged that we're moving in the right direction and 30 basis points is positive and we feel like that's a good thing compared to where we've been and we see it continuing to improve and we've got some good momentum and our markets - the sales are better despite some of the headwinds with gas prices and food inflation.

Still the economies are better. We've been doing a lot of mall tours the past month or so and unemployment has come down 200, 300, 400 basis points in a lot of markets because of the destabilizing the economy and the job growth really takes precedence over some of these other factors and we feel like things are definitely improved and are going to continue to help us in our leasing activity.

We did a lot of leasing -- like I said, we did 1.8 million square feet, so big volume of leasing in the first quarter because so many of our renewals happen this time of year.

Quentin Velleley - Citi

But I guess in coming quarters what we should expect to see in the leasing spread batter is a moderate improvement int h renewal spreads but strong positive spreads in the new leases as you replace some of those short-term leases that come off. Is that fair to assume?

Stephen Lebovitz

Yes, that's fair. That's the way we see it going and that's what we're looking for.

Quentin Velleley - Citi

Then just secondly, just a comment on replacing Ambercrombie and some of the Gap stores. I assume they occupy some of the better space in some of your malls. Have you been replacing those spaces with existing tenants in the mall or are you able to get external or new tenants into the space?

Stephen Lebovitz

For the most part it's bringing -- its' new retailers coming into the mall. A couple of them we're expanding existing retailers but I'd say primarily it's new retailers. One of them we replaced when we did Apple at [Fayette] mall. It was part of an old Gap space and Gap relocated and consolidated into the Gap Kids, so there is just a lot of moving pieces always.

But Gap has done a lot to refine their strategy over the past few years. They have been very public with the fact that they are shrinking their US fleet of Gap stores and they have too much square footage. We have some malls that have an Ambercrombie, they have an Ambercrombie Kids and they a [Hollister] and they've got 15,000, 20,000 square feet of square footage and we don't expect them to operate that amount of square footage in the future.

So we're being proactive and working with them and talking to them about situations where it makes sense to consolidate or replace certain stores. So that's always been part of the business and it's going to continue to be like it was this quarter.

[Michael - Citi]

Has the mix shifted between national, regional and local over the last three years?

Stephen Lebovitz

I don't think it's shifted that much. We're still over 80% nationals and large regionals and that's been pretty consistent. We did do more - we were more aggressive in late '08, '09 bringing in some local retailers and being more aggressive on rents because we wanted to keep occupancy levels at a higher level, so we had more locals at that time and we view having locals a good, important part of the mix, although mostly the locals end up being the temporaries and so that's -- and that stayed pretty consistent as far as the percent of mall space that they occupy.

[Michael - Citi]

Then just on the joint venture where you're selling assets to a partner, can you just give us size-wise what are we talking about in terms of gross asset value and effective equity proceeds that you're trying to draw out?

John Foy

I think that those are the things that we continue to discuss with our partners and we sort it out to meet each others' needs and do it the best way possible. So as far as the ability to define or tell you that, I think it's so much driven by what we think is best for us and what we think is best for our partner and what we think we can do going forward together as partners.

So there's no fit criteria; there's not set idea. We think that what we're attempting to do and what they're attempting to do we can meet in the middle and basically come out in the best position for both of us so that we can see growth in those joint venture opportunities.

[Michael - Citi]

But there's no sense of where this is a $250 million, $500 million or $1 billion just so that we get a sense of what to expect as these things unfold?

John Foy

I think, [Michael], where we are on that is that we're continuing to discuss and sort through those various questions that you raised. It's something that we address and continue to have conversations with our partners. When the opportunity to present ourselves to the market -- there will be some identification at that time.

But I think where we are is that we're focused on the outstanding partner who basically shares our same vision as to what we want to accomplish, where we are having great discussions and we think we're getting closer with the best of the best.

Operator

Mr. Lebovitz, at -- there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Stephen Lebovitz

We'd like to thank everyone and, again, we appreciate your support. We look forward to seeing you at the recon in Vegas and [Narate] in New York over the course of the next few weeks. 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. Have a great day.

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Source: CBL & Associates Properties' CEO Discusses Q1 2011 Results - Earnings Conference Call

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