CBL & Associates Properties, Inc. (CBL) Q3 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the CBL & Associates Properties Third Quarter 2011 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Wednesday, November 2, 2011. I would now like to turn the conference over to Stephen Lebovitz, President and Chief Executive Officer. You may proceed sir. Stephen Lebovitz – President and Chief Executive Officer: Thank you, and good morning. We appreciate your participation in the CBL & Associates Properties, Inc. conference call to discuss third 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 – Vice President, Corporate Communications and Investor Relations: This conference call contains forward-looking statements within the meaning of the federal securities laws. Such statements are inherently subject to risks and uncertainties. Future events and actual results, financial and otherwise, may differ materially from the events and results discussed in the forward-looking statements. We direct you to the company’s various filings with the Securities and Exchange Commission, including without limitation, the company’s most recent Annual Report on Form 10-K. During our discussion today, references made to per share amounts are based upon a fully diluted converted share basis. During this call, the company may discuss non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure will be included in the earnings release that is furnished on Form 8-K along with the transcript of today’s comments and additional supplemental schedules. This call will also be available for replay on the Internet through a link on our website at cblproperties.com. Stephen Lebovitz – President and Chief Executive Officer: Thank you, Katie. Over the past few months, we have seen a disconnect in the public markets valuation of our stock compared with the strength of the fundamentals in our business. While we experienced positive movement over the past two weeks, our current stock price still undervalues our company. It does not reflect the positive results that we have seen in our operations nor the tremendous improvement in our balance sheet. At the end of the quarter, we had over $1 billion of availability on our credit facilities and cash on hand. In October, we closed a TIAA-CREF joint venture further reducing our debt by $486 million. Portfolio performance metrics have been steadily improving with NOI in the third quarter increasing more than 2% for the portfolio and more than 4% for the malls. We are having ongoing success in negotiating positive leasing spreads, up 8% in the quarter. Additionally, portfolio occupancy improved sequentially and from the prior year to 91.3% and we anticipate closing the year to 93%. As a result of this positive momentum, we are increasing our guidance for this year for both FFO and NOI. While headline news has diminished confidence in the economy, the reality is that the consumer is shopping and retail sales are growing. Retailers are expanding their store counts and our portfolio has been benefiting from new store openings both new concepts and existing retailers. We recently announced a new American Girl store opening at Chesterfield Mall in St. Louis in the spring of 2012. At West Towne Mall in Madison, Wisconsin, we opened Dry Goods owned by Von Maur, one of only four openings for this new juniors’ concept. We also opened new mall stores for also Alta, J. Crew, Carters, (indiscernible) and many others. Restaurants boxes in theaters are opening at our malls. Later this week, Cinemark is opening a new state-of-the-art theater at Stroud Mall in Stroudsburg, Pennsylvania. Retailers have generally capped a long-term deal on their businesses and are going forward with store expansion plans. Third quarter leasing results demonstrate this demand and build on the positive momentum we established earlier this year. Overall leases for stabilized malls in the third quarter were signed at an 8% increase over the prior gross rent per square foot. This compares with spreads of negative 4.9% for leases in the third quarter of 2010, a significant positive swing of more than 13%. Renewal leasing spreads were positive, up 80 basis points over the prior rents and new leases were signed at a more than 22% increase of our prior rents, but strong increase. We are happy to see that short-term deals of three years are less or consistent with the reduced levels in the second quarter at 42%. This compares with 55% for 2010. Our leasing volume has increased significantly as well. In total, we signed approximately 2 million square feet of leases during the third quarter almost doubled the square footage signed in the prior year period. This included approximately 700,000 square feet of new leases and 1.3 million square feet of renewal leases. We have been pleased that traffic and sales have steadily increased despite the uncertainty about the economy. Back to school results were solid and we anticipate similar positive trends for holiday sales season. Same-store sales per square foot increased 3% over the prior year during the third quarter. For the trailing 12 months, sales grew 3.2% to $329 per square foot. With GAP’s recent announcement, we thought it will be helpful to provide an update on our conversations with them. GAP is an important tenant for us and we work with them across their various divisions. GAP had a very successful opening in our new Oklahoma City outlet center project and we are working with them on one of only four new old navy stores opening in 2012. We have already completed our renewal negotiations through 2013. Six stores were closed at exploration. But we have new leasings out for signature for two of these spaces and are under negotiations for the other four. In September, we closed our acquisition of Northgate Mall in Chattanooga for $11.5 million. This was an all cash deal with no debt assumption related to the transaction. We purchased a property through an online auction at a very attractive cap rate of 26% on income in place, which is not indicative of the quality of this property. While the size of the transaction is small, this is a terrific deal for us. Prior to the closing, we had received calls from a number of box retailers that are interested in locating at Northgate Mall. We are finalizing our redevelopment plans for this property. Last quarter we opened the outlet shops in Oklahoma City, our first outlet center. Since opening this project has achieved tremendous results, and we have received outstanding feedback from the retailers. We’re exploring opportunities for outlet centers development joint ventures or acquisitions and expect to grow our presence in this area. We opened two expansions recently including the second phase of Settler’s Ridge in Pittsburgh. The 78,000 square foot expansion is anchored by Ross Dress for Less, Alta and (indiscernible) plus and Michaels, as well as 18,000 square feet of stores and restaurants. The expansion opened 100% leased or committed. The 220,000 square feet second phase of Alamance Crossing in Burlington North Carolina opened 98% leased to commit with anchors Dick’s Sporting Goods, Kohl’s, and BJ’s. The expansion also features 13,000 square feet of specialty stores including Five Below and Pier 1 as well as three new all parts of locations. We announced two new construction projects recently. In Waynesville North Carolina, we are under construction for a 128,000 square foot community center anchored by Belk along with PetSmart and Michaels located next to an existing Wal-Mart. The project is expected to open in October 2012. We also started construction on phase-II of our community center project in Madison Mississippi the project is 83,000 square feet and anchored by Alta home goods and Petco with the opening scheduled for summer 2012. We are just now completing the four mall renovations for this year and are seeing a positive reception from both retailers and shoppers to the updating of our facilities. For 2012 we are planning additional renovations with the comparable capital commitment of $20 million. I’ll now turn it over to John for the financial review. John Foy – Chief Financial Officer: Thank you, Stephen. Last month we closed our joint venture with TIA-CREF. We are excited about this partnership and believe our long term goals with growing these properties as well as the portfolios are aligned. We received approximately $220 million in cash of closing, of which $134 million was used to retire the construction loan on Pearland Town Center and $21 million was used to retire the construction loan on the West County restaurant district. We apply the remaining proceeds to reduce our outstanding balances on our lines of credit. Additionally, as part of this transaction, teachers assumed approximately $268 million of property-specific debt. We did not close the transaction in time for these improvements to be reflected in our third quarter balance sheet metrics. Pro Forma assuming the transaction was closed on September 30, our total debt would have been $5.28 billion. All said, we have reduced our debt outstanding by more than $1.34 billion since December 31, 2008. Our coverage ratios are very same and today more than 75% of our debt is non-recourse and property specific. Many investment banks are active in the CMBS market. We’re experiencing very strong demand from institutional lenders and banks for refinancing opportunities. We’re getting new coats on upcoming maturities from a variety of lending sources and believe that the uncertainty in the CMBS market will have little or no impact on our abilities to address these maturities. We also recently completed the extension and/or modification of our three major credit facilities with total aggregate capacity at $1.15 billion. At quarter-end, we had nearly $1 billion of availability on these facilities. We’ve reduced our borrowing cost by more than 250 basis points with the removal of the LIBOR floor on all three facilities and a reduction in the borrowing spreads. During the third quarter, we reported a 2.1% increase in FFO per share as adjusted $2.48, this compares with FFO per share of $0.47 to prior year period. FFO as adjusted exclude an impairment charge of $0.27 per share related to Columbia Place in Columbia, South Carolina. NOI at this mall has experienced declines and after revealing the updated projections we determined that it was appropriate to write-down its book value to approximately $6 million. Year-to-date this mall has contributed less than 30 basis points to the total NOI. We have $28 million of non-recourse loans on this property. Total portfolio of same center NOI excluding lease termination fees increased 2.3% in the quarter from the prior year period. Same center NOI in the mall portfolio increased 4.3% from the prior year period benefiting from the increases in occupancy and rental growth in the leasing. NOI from non-mall properties declined during the quarter primarily as a result of lower income from our third party subsidiary that provides maintenance and janitorial services. Bad debt expense was approximately $460 million versus $1.2 million in the prior year period. Other major items and the earnings results included G&A as a percentage of revenue was 3.7% for the third quarter compared with 4% in the prior year period. Our cost recovery ratio for the third quarter was 100.4% compared with 103.3% in the prior year period. We anticipate that the full year to be in the 100% range. Variable rate debt was 14.8% of total market capitalization at the end of the third quarter 2011 versus 20.1% in 2010. The variable rate debt represents 20.8% of our share of the consolidated and unconsolidated debt compared with 30% last year. The reduction in variable rate debt is a function of the year-to-date financing activities where we have used new property specific non-recourse mortgages to reduce the balances on our credit facility. Based on our results today and expectations for the full year, we have raised our guidance for 2011 FFO per share to a range of $2.12 to $2.15 per share. The guidance assumes NOI growth in the range of 0 to 1.5% and excludes the impact of non-cash impairment charges net of taxes and includes the gain something extinguishment of debt. Our results this quarter validate both our strategy and strength of our properties. We believe that the market has not sufficiently recognized the added value of owning the only or the dominant model in this market. Our properties are well located in growing and dynamic markets. For example, in Chattanooga contributed a third of all the jobs created in Tennessee for the first 12 months. Retailers need and want to be in our models in order to reach a significant population of consumers. We are their first and in many times only choice. We maintain a dominant position by continually improving our properties through expansions, additions, redevelopments and renovations including the four completed renovations in time for the holiday season. To date this year we have already added seven new anchor stores, 19 new box retailers and 11 restaurants across our properties. We are positioned for the future growth and our results this year demonstrate the opportunities across the CBL portfolio. The outlet center business is a new growth we have before us that we are excited about. And we are always looking to take advantages of lucrative acquisition opportunities such as Northgate Mall. While staying disciplined with our capital, we are confident that the CBL portfolio will continue to prove the strength of our company. Thank you for joining us today and we appreciate your support. We are now happy to answer any questions you may have.

Thank you, sir. (Operator Instructions) Our first question comes from line of Christy McElroy from UBS. You may proceed. Christy McElroy – UBS: Hi, good morning everyone.

Good morning. Christy McElroy – UBS: John, just with regards to the guidance range, if I am doing the math right, on a comparable year-to-date number, so excluding the impairments but including the extinguishment gains, I am coming with a year-to-date number of 162 which basically implies a guidance range of $0.50 to $0.53, as offer for Q4, is that right?

Yes, that’s correct. Christy McElroy – UBS: Okay. Just comparing that to a year ago and kind of excluding the one-time items you went from $0.47 in Q3 to $0.62 in Q4 with the seasonality. So I am just wondering what I am missing here is there anything sort of one-time happening next quarter?

Somehow for the Teachers acquisition will take a significant portion of that and our partial sales are basically lower this time. As a result of the development pipeline is much smaller and as a result of that the inventory about partial sales is less. So the Teachers transaction was a significant decline in that. But in turn, it’s a great partner and it did remove approximately $500 million of debt from our balance sheet. So, it’s really an interesting thing and that I think basically handles most of those questions. Christy McElroy – UBS: Okay and then just on the balance sheet for the mortgage debt that you have coming due in 2012, assuming you already sort of involved in refinancing talks if wonders on a portion of those loans can you give us an update on who’s coding and what kind of terms you’re seeing.

Yeah, we focus on the fact that we want to keep our maturities pretty flat and so we look at 10-year loans and look at the cost of those. We, I would say we’re approximately almost two thirds of the way through on getting those refinancings finished, we would do what we set in motion and commitments or term sheets that we have in hand. So we are very positive with regard to the results that we’ll see and we’re very bullish with regard to the other floors that we still have to finish up. Christy McElroy – UBS: So, is it mostly your life companies that you are taking to and can you sort of comment on specifics in terms of quotes?

Yeah, I think that it’s all of the institutional as well as CMBS financings as well as banks are doing non-recourse loans as well today. And the terms basically is the institutional lenders are probably better on interest rates, probably a little less on, I mean amount of dollars that they want to commit, but the CMBS lenders show likewise widening their spreads with swaps that come down somewhat. So that’s the market we see and then banks basically have tremendous amount of capital today to do non-recourse loans. And the relationships which we’ve enjoyed with these banks since our company was founded in ’78 gives us an incredible good foundation to depend upon them to give us the best loans that are available in the market today. Christy McElroy – UBS: And just lastly Stephen, any initial performance metrics from the outlets at Oklahoma versus tenant’s expectations and then your early sense for sort of where sales was clarified and occupancy costs will ultimately turn out? I know it’s early.

Yeah, it is early, but sales have been terrific and you know we’re hesitant to put out numbers, but we’re confident we’ll be over 400 a foot in the first year based on sales per day and it’s really going well. We’re 100% leased with permanent tenants. We’re looking at an expansion that is plan for the center where we’re already on the land for that. We’re working actively with a number of prospects for out for the outparcels there. So, we couldn’t be more pleased with how that’s gone so far. Christy McElroy – UBS: Great, thank you.

Thanks, Christy.

Our next question is from the line of Rich Moore with RBC Capital Markets. You may proceed.

Hey, Rich. Rich Moore – RBC Capital Markets: Hello, good morning, guys.

Good morning. Rich Moore – RBC Capital Markets: On the Columbia Place mall, what happens with that exactly at this point?

We’re exploring all the avenues as I mentioned in our comments. We have $28 million non-recourse debt on that and we’ll have discussions with the lender on that project and look to see what can happen with regard to that. We’ve lost two department stores. It probably was one of the two weakest malls when we took over the Jacobs transaction. So, it was an unfortunate thing, but we thought that it was a proper way to report it and we think that we worked through those situations and than that’s the benefit of having non-recourse mortgages.

And we’re also working on some redevelopment plans with some non-retail type users for some of the department store areas that are vacant. So, we still see some opportunity there. Rich Moore – RBC Capital Markets: Okay, okay, good. Thank you. And that mall, Stephen does about 180 bucks of foot, so I’m curious, do you have others in the portfolio that might fall into a bucket like this that there you might do something special with?

I mean we have malls that the sales are in the low 200s a foot but we’ve every mall is different it’s hard to generalize we had the mall in Del Rio Texas we did sales in 180 range and its said pretty fully leased and we are able to sell for a good price last year so it’s just depends on the circumstances of the property and we have within lower sales per square foot I mean we have a mall – foothills mall in Maryville, Tennessee where sales are 220 a foot, I don’t know replacing former Belk store where they have two stores in the mall with the Car-Mart theater that’s under construction. One of the comforting things is that our whole portfolio we are very few taken department stores we have only on today where we don’t have any redevelopment activity going on and we’ve got really good relationships with the department stores when we work closely with them so, we are there looking to rationalize or close the stores consolidate we’re working with them ahead of time to bring in some other use and that’s what we’re able to do with Belk and that’s what we’re able to do with we have (indiscernible) in Monroeville mall, which is higher sales per square foot, but we’re under construction there with the redevelopment of that that we started this quarter. So, we’re really watching all the properties and trying to make sure that we don’t have future Columbia place type situations. Rich Moore – RBC Capital Markets: Okay. In general I’m wondering if you guys would give consideration to splitting into buckets may be for us how you guys view some of these different assets which ones are your sort of core don’t need change assets once that mind have these redevelopment opportunities that sort of thing, is that is it something you guys would think about doing?

Well, I think we look at that Rich a retirement, it’s such a fluid type of situation, it’s hard to determine what you’re going to do with each of the at least specific assets, but it’s something that we look at inside but because it changes so much and the fact that it could be misunderstood by certain people in the analyst community, I think we haven’t done it thus far, but we’ll continue to monitor that and consider it. Rich Moore – RBC Capital Markets: Okay, good and thank you John. And then one last thing guys, the drop in the office same store NOI, what was that exactly, the big drop?

It’s a big percentage drop but it’s roughly a $1million. So it’s not that big of a dollar amount and it related to primarily to some revenues from like John said from the subsidiary, it does maintenance and security and so, it’s really we don’t think it’s that material on the grand scheme of things. Rich Moore – RBC Capital Markets: Okay, so those office properties will remain buyable in your opinion?

Oh, yeah, the office properties are doing well. I mean look the markets are not easy and we’re working up hard but we contain this on sound leases and most of them are around friendly center in Greensboro and they’re doing well and they’re definitely buyable. Rich Moore – RBC Capital Markets: Okay, terrific, thank you guys.

Thanks Rich.

Thanks Rich.

Our next question from the line of Ben Yang from KBW. You may proceed. Ben Yang – KBW: Good morning.

Hi Ben, good morning. Ben Yang – KBW: Can you actually roughly walk with how you get the 4.2% same store NOI per your malls, obviously a rent growth was a big reason, but given that the mall occupancy actually sell a bit in your leasing spreads and renewals were also down, it seems like there was may be something else that was quite driving that strong result and it also doesn’t look like nearly same are that good enough new leasing to drive that growth. So, I just curious I mean in the attempt to farm conversions anything else that contributing to that result for the quarter?

I mean it’s really, Ben, it’s really a combination of things, definitely the boxes and the restaurants helped because we’re able to fill a lot of vacancy and get higher revenues from that. So, I can’t tell you what percent of the 4% that was responsible for but that was definitely a factor. We gotten to benefit from the improved leasing and even though the spreads have just turn this year, we had been making progress last year and we like we said we pushed hard to maintain occupancy and so when the leasing spreads started turning we got an immediate benefit from that. And then on the expense side we haven’t let up the pressure to manage our calls very closely and areas like utilities and other expense areas we’ve been very vigilant pushing those down as much as possible and working it hard. So, we’ve been really focused on NOI growth for this year and like we said earlier in the year our top goal internally has been to turn positive on NOI same-center growth and I think what you’re seeing is a result of a full force effort across the whole organization to move NOI in a positive direction. Ben Yang – KBW: And I think you’d previously mentioned about 90% in the tenants on this that to the extent that you can lower cost obviously that helps the NOI I mean should we be concerned at all that, those expense savings might reverse at some point and that it could be a drag on the NOI, maybe next or beyond?

I think it will be harder to achieve further decreases because we’ve made that a priority but we don’t see exposure to higher cost, I mean there is areas that we don’t control like never move on all that. But we feel like we can maintain the levels that we’re at. Ben Yang – KBW: Okay. And then, just here today, your same-store NOI is above your new guidance range, are you being overly conservative, are you, is there anything coming in the fourth quarter that could drive that same-store NOI number much lower than what we saw this past quarter?

Well, last year’s fourth quarter we had a real strong finish with same-center NOI. So, we are going up against the tough comp, and so, we are trying to be realistic and looking at just where the projections are compared to that. Ben Yang – KBW: Okay. And then just final question, I know you had previously made comments that you intend to sale some community centers and you obviously sold Settlers Ridge but you continue to invest in this part of the business it currently represents about half of your investment. What’s the game plan here? Are you trying to diversify away from the malls and from community centers? Are you intending to develop with the intention to sale and kind of capture that spread on the business?

I think where we are they been (indiscernible) we have sold some of our community centers and as we see the opportunity to do so to monetize and pay down debt, we’ll continue to do so. I’m not so sure that we spend that much money on acquisitions of community centers. We did that those were expansions basically of Settlers Ridge and some of the others. We are building (indiscernible) community centers as Stephen mentioned and we see that that’s an opportunity for us, that’s where the business is headed way. I don’t think there is any regional malls or lifestyle centers underdevelopment of construction today. So I think that we see that as an opportunity and the relationship we built over the years with Belk has set up opportunity to build those for them and make some significant profits if we ultimately sell those assets. So I think it’s basically goes back to our roots where we were when we built, started the company we built community centers to sell those to generate equity so I think what worked for us a years ago works again this year. Ben Yang – KBW: I though may be going back to that merchant building model that you used to be with that plan?

Well I don’t know that we’ve classified as merchant building I think we’ve classified as taking advantage of the opportunities to build those relationships with our tenants while at the same time making profits for our shareholders. Ben Yang – KBW: Okay great. Thanks guys.

Our next question is from the line of Carol Kemple from Hilliard Lyons. You may proceed.

Hey Carol good morning. Carol Kemple – Hilliard Lyons: On the acquisition front are you off the scene leasing out there and was the acquisition of Northgate being an online auction. Is that a pretty rare opportunity?

Well we’ve never participated in an online auction and to our knowledge we don’t have any other malls that have transacted that way. So it was definitely unique opportunity we were being Northgate in our Chattanooga our hometown we knew the asset it was originally developed by a private sets of companies CBL. So it’s a property that we’ve known over the years, we followed closely and we were pleased with the price we were able to buy it at and like we said in the script there is a really redevelopment opportunity for it add boxes and we are comfortable with its long term liability we were just with Belk this week and they want to renovate their store. So we’re really excited about that, we’ll look for opportunities like that, I mean we look at everything and if we see something that we feel like it’s a great opportunity and with the risk reward ratio is makes sense then we’ll definitely pursue it. But I think those opportunities to get to 26% initial cap rate are pretty extraordinary. As far as the rest of the acquisition activity, the pricing has been really expenses for the property that is transacted this year, the (Taubman) acquisition and GGP for (indiscernible) and so we’ve looked at things but we don’t feel like that’s the best use for our capital. Carol Kemple – Hilliard Lyons: Okay and did you say earlier in the call you expect occupancy to be 93% at the end of this year?

In that range, that’s correct. Carol Kemple – Hilliard Lyons: Okay, thanks.

Thanks.

(Operator Instructions) Our next question is from the line of Jim Sullivan from Cowen and Company. You may proceed.

Hey Jim. Jim Sullivan – Cowen and Company: Thank you, good morning. Two questions from me, first Stephen, if you could talk about the outlook for seasonal revenues in the first quarter this year in terms of temporary tenants pop ups, and other specialty revenue sources?

Sure Jim, thank you. The specialty leasing has actually been running a little bit ahead for the most part of the year, but we’re expecting it to flat down the fourth quarter, it’s been tough for the local retailers to get financing for their businesses just because of the state of the banks and so we’re feeling that little bit. And so we are still seeing strong demand and strong activity but it’s tough to get the increases likely it had gotten in the past. Jim Sullivan – Cowen and Company: So you say it’s flattening, how do you mean flattening year-over-year or sequential?

Year-over-year and you know also as our occupancy moves up there are fewer spaces in line available so that’s exit as well. Jim Sullivan – Cowen and Company: Okay and then the second question you talked about uses for your capital and you know better uses versus some of the pricing in the acquisition market clearly you do have some assets which are 100% occupied in markets where the recent UAW contracts it just increases an economic activity, I wonder to what extent with assets like CoolSprings and may be some others and I know CoolSprings of course is in TIAA joint venture, but to what extent there are opportunities for meaningful expansion here. I know you returns on your when your re-development tend to be in the low double-digits and wonder about the potential for that as we look forward to 2012 and 2013?

Yeah, I mean CoolSprings is the great example. We’ve been working closely for an expansion there to add about 75 to 80,000 square feet and we are in pre-leasing. So we haven’t announced anything as far as any retailers or anything like that. But we are hopeful that we can make some progress there and we look at all the properties to see if there is opportunities to add value and the re-development of former (indiscernible) it’s a good example and that’s not a Mall that’s a 100% leased but there is opportunity there so, its not just the top Malls where we see that opportunity. And, there is the retailers are really limited as far as their expansion opportunities because of the slowdown in new development. So they were focused on the malls, boxes like also (indiscernible) we have done a lot of business with them bring them into the malls and previously, they were focused more on opening their centers. And there is also opportunity for us Jim, with certain of our outparcels that we haven’t sold to develop those. And we're under construction and (indiscernible) maybe with the small 6000 square foot project on our outparcel that had been sold but that’s the project that will open in the next month or so. So there is, there is lots of opportunity that we’re always looking at to create some more value at the properties. Jim Sullivan – Cowen and Company: Okay, thanks.

Thank you, Jim.

Our next question is from the line of Jeffrey Donnelly from Wells Fargo. You may proceed. Jeffrey Donnelly – Wells Fargo: Hi, good morning guys. Stephen, I apologize if you touched on this, got on little late but retailers have been expending the store counts. But we’re also rethinking your prototype, do you guys have a sense of how store counts might compare to net square footage growth or absorption potential over the next two to three years how do you think about, I guess quite, your net absorption trends of (indiscernible) hear about?

Well, I mean we've, I mean you are right, I mean, a lot of retailer are should looking to be more product at a less space and we’ve seen the most in the with some of the boxes, like staples for example our office depot. We have one of those is coming in the next couple of years, and we’re going to down size the office depot. But it gives us an opportunity to add, the retailers we have two other retailers that will put in the former office depot space that they’re not going to use anymore and that will give us opportunity, to generate more revenue or may be we’ve work with them that an example of a retailer that has been on a right sizing program and there, they downsized their average store from say, 25,000 to 15,000 to 18,000, but, we again we can recapture that space and use that and hopefully we get more rents. And then with some of the retailers it’s helping as we’re doing a lot with Best Buy Mobile for example in the malls and that was we use to, we didn’t have any stores with them three years ago and we have over 20 of those that were working on throughout the portfolio so in that case it’s benefited us. Jeffrey Donnelly – Wells Fargo: And I’m saying in practical times how does that, how does that actually play out because on paper when a retailer says I want to go from the 25,000 square foot of prototype to an 18,000 square foot prototype, it make sense but curving sometimes 6,000 or a 7,000 square feet out of the box that’s pretty deep, doesn’t only lend itself to a necessarily a leasable space or kind of a normal space, I mean how you found that in practice, I mean do you think it works in most situations or you think you ultimately gets the result by this, the tenants staying in their existing box and just paying those rents?

No, I mean it usually gets worked out, I mean we’re like we said in our conference call script which you might have missed but we have GAAP or may be is I think our fourth largest retailers, so we’re always working with them on multiple deals and we might work with them on one situation where it helps them and they’ll help us on, on another, so that’s the benefit of having the portfolio approach to business with these folks, we can create situations that help them and help us and at the end of the day work for both parties. So, and then a lot of times the spaces, they’re bigger but they’re not paying that much rent. So, we can we don’t have to use 6,000 square feet, we might be able to use two or three government square feet and we’re still be ahead of the game from an income point of view. Jeffrey Donnelly – Wells Fargo: That’s helpful. And I just wanted you a housekeeping questions, just considering leasing activity in the quarter or year-to-date that’s you detailed on page 14 of your supplemental. What’s roughly the average lease term of the new and renewal leases that you’re doing? Is that still five to seven years for self leases or is this longer, I’m just curious how that’s what?

That’s roughly five to seven years probably the renewals are at the low end of that range in the new leases they were at higher end. Jeffrey Donnelly – Wells Fargo: Okay. And just have last question I’m not sure if it’s for you or for John, just concerning the capital markets you touched on for the low sales productivity malls. Do you find that lenders on those properties say malls that are in that $200 to $300 of square foot range tend to want limit their LTVs or keep financing maybe to a certain for square foot amount?

I think they’re looking at for debt coverage ratios as well and I think they’re looking to see how both malls have operated in those specific market areas over the year and that yield is a significant thing to. So, I think there with the abundance of capital out there chasing deals and the relationship, I don’t think that this per square foot sales basically impact them tremendously. Jeffrey Donnelly – Wells Fargo: And where do you say like the debt yield are from mall is doing 275 of the square foot versus 375 of square foot. Is there a material difference?

I’m not so sure, this is a significant one. There’s may be a couple of hundred basis points difference. Jeffrey Donnelly – Wells Fargo: Okay.

Yeah, but we paid those step downs so low that we still are capable of refinancing those. We advertise about $90 million year just principle amortization because, take down almost everything longer we’ve got some amortization built in it. So, each year we’re pulling down those gap levels by that amount so. Jeffrey Donnelly – Wells Fargo: Okay, okay. Thank you.

Thanks Jeff.

Our next question is from the line of Michael Mueller from JPMorgan. You may proceed.

Hey Mike. Michael Mueller – JPMorgan: Hi, couple of things, first of all mechanic question, you just talked about the tax provision in the quarter and its always take that going forward?

It will be a provision going forward that it didn’t properly make some changes with regard to how we account for the management on the tax structuring basis. So, that was the impact this time and it will be a significant going forward. We basically had a management company where we want to get into a provision where we’re showing that it effects on the money. Michael Mueller – JPMorgan: Okay. On the outlet side, does you feel like you have any enhancement in 2012, either on the acquisition side stuff you’re looking at or new developments?

Yeah. I think it’s a very (indiscernible) market and we’ve shown that discipline to basically look at those at assets; we were interested in the couple of assets Tom involved but not those acquisition levels. So we think that there’s going to be some opportunities.

No but there’s – on the outlet part, we’re optimistic and we got really good results what Horizon and Oklahoma City and we’re definitely looking at other opportunities both development and acquisition so we definitely hope to have some announcements in 2012. Michael Mueller – JPMorgan: Okay and may be going back to John one more time going back to a prior question on the implied fourth quarter guidance I mean taking a look at fourth quarter last there wasn’t a lot of one time type stuff in the numbers and gains where nominal if best at least term anything. Do think that Craft JB was only a mildly dilutive so is there really anything else weighing on the fourth quarter guidance this year or anything particularly say the bad debts or anything else that would be pushing it down.

In addition to the teachers we had sold some other assets that basically will pull that number down somewhat Mike. So it’s just not the Teachers prep thing we sold up Settler’s Ridge and we did some of those others. So that impacts us in atomic comparable basis when you look at on a quarterly basis. Michael Mueller – JPMorgan: Okay great. Thank you.

Great, bye.

Our next question is from the line Quentin Velleley with Citigroup. You may proceed. Michael Bilerman – Citigroup: Hey it’s Michael Bilerman in Quentin. How are you?

We are good Michael. Thanks.

Good. Michael Bilerman – Citigroup: Good. Just if I may just continue on Mike’s question. Just looking it from a same store perspective your same store again is 0 to 15 for the year but you’re 17 year-to-date, 16 overall. So what’s happening in the fourth quarter on a year-over-year basis if occupancy is up percentage rents have been tracking a little bit up. What’s driving that would obviously be a pretty big negative number to get you 0 to 1 in the half of the year?

I think where we are Michael is looking at the comps from the fourth quarter of last year was pretty good. So that’s one of the things that impacted us as I mentioned to Mike just a minute ago it’s the number of sales that we’ve done its in fact this is well from the fourth quarter. I mean… Michael Bilerman – Citigroup: The sales are not in same-store NOI if you put that a range of 0 to 1.5 in your 17 for year-to-date that would imply that the fourth quarter would be negative. But sales of Sak’s are not in same-center you talked about occupancy reaching 93%, you were at 92.4 for the fourth quarter of last year percentage rents as percentage of minimums are up a little bit, there has to be something causing same-store NOI to be down year-over-year, and I don’t know if its recovery rate or are you recovering less as a less team relative to the 4Q last year, I was just trying to get specific as to what’s happening? Or you are going to numbers if you put something above your guidance which is fine as well but just trying to understand where the numbers shake out?

Well, I am saying couple of things that I mean the fourth quarter is the biggest number so even if we are between 1 and 1.5 that would reduce where we are year-to-date. So you know for still the range we put out the range of 0 to 1.5%. We are hoping to be at higher end of that range. There is been lot of bankruptcies this year more than we had last year. We had borders that ahead of this year and we are back filling those spaces but that doesn’t come immediately. We just had trade secret this past quarter. We had share and luggage that was over $0.5 million ahead so that to the bad debt it’s going to be bigger factor and like I’ve said earlier we had a really strong fourth quarter last year that pushing NOI to we’re going up against the top comps. So we are just trying to be I think realistic about where we’re going to end up. Michael Bilerman – Citigroup: Is there your recovery rate was 103%, the fourth quarter of last year, I guess what are you forecasting embedded in the fourth quarter, or what are you embedding for the full year, you’re almost 102% last year?

I think what we’re saying it be at a 100% which is where we were for this quarter and that’s where we'll end up for the year, so a little bit lower than we were last year so that’s a factor also. Percentage rents, we push a lot of the percentage rents to try to convert that to effective rents. So I mean that’s not a big revenue number, but it’s hard to get growth there. Michael Bilerman – Citigroup: Right. And then just going back to the portfolio in terms of the assets below 250 a foot or even though below 200 a foot and not seeing you can make money on those assets but how much of the drag is it on your NOI, let me think about that, let’s say 1.5% number did those 17 assets that are producing below 250 a foot, are those negative same store and the (indiscernible) are positive, how should we think about the differential between growth patterns?

Well, we don’t look at it that way, we don’t do it hearing approach to the NOI and the numbers, I mean it’s we look at certain assets though and there’s summary drag and some contribute positively and I can tell you that there’s some in the lower tier that are growing north of 5%, 5% to 10%. So, that helps. Now, it’s a lower NOI. So, it doesn’t drive our overall numbers as much and there are some malls that have higher sales per square foot where NOI growth is flat. So in a sense that to drag on the overall ratio it changes year-to-year and it could be impacted I mean if one of these smaller malls has a vacant box then that vacancy is going to negatively impact NOIs but when it gets leased up, we’ll get a real pop from it. So I mean we hear you and the point you’re making, we’re comfortable with assets below 250 a foot we always have been, we feel like we know how to work them and make money also on them and I know other companies it helped their sales per square foot and that’s great and I think that make sense and it clearly is something that retailers focus on and it’s a big driver risk but there is also a lot of ways to create value and profitability and that’s our number one focus. Michael Bilerman – Citigroup: Well, I gets to that point, do you have a sense when you look at your return on cost in the portfolio and those assets that are below to just a foot call it just under $1 billion of historical investment, what is your current yield on cost of those relative to the current yield on cost of the portfolio?

I don’t think we have that Michael, especially not help the top of our head, a couple of the properties that are below 250 a foot were just open in the past year. So they haven’t stabilized either or they are large opening at centers which that they had good initial returns but they haven’t generated the sales per square foot like a mall does and that’s been really common across the industry, that actually costs lower or lower on notes of the retailers who are still making money and are happy with the performance.

Well, the return on the equity on those project as well because we’re amortizing down by debt. So, if you really look at the return on equity on some of those assets, they could be significantly greater than the returns on the other asset. So, if you bought a (indiscernible) four, five cap rate, what’s your return versus actually bought (Northgate) 26 cap rate. So, I mean you got to look at these returns on equity in our view and the risk that’s taken with regard to these assets. We point out constantly that we develop the shopping center in Mississippi where we’re able to financed a 100% of the asset that still have a positive $700,000 cash flow, that center probably does in the range of $200 square foot. So, it’s an asset by asset and it’s basically a return on equity based upon the risks. Michael Bilerman – Citigroup: Hi, good morning. It’s Quentin here. Just in terms of your leasing spreads which were pretty strong again for the new leases top 8%. I’m just curious, was this driven by previous short-term leases where you’d cap rent significantly over the last two or three years, that tenant had been left, I know you released and back towards market rights, is that a key driver of those strong leasing spreads?

There were few and there, but it wasn’t I wouldn’t say that was a primary driver of it Quentin, I mean it really was just new leasing activity with retailers where we’re able to get seven to 10 year terms and they’re good additions to the portfolio. Some of this, like the best buy mobile deals are all, not all but for the most part had good leasing spreads. We did a lot with (Zumiez) they are a junior retailers doing well. They jewelry category has come back, and so we’ve been able to do some good new leasing there, athletic shoes has been very strongest this year. So, that categories has been good so, I think it’s, it’s just driven by certain categories that have bounced back from where their business was a couple of years ago and we’ve been able to benefit that, benefit from that with the new leasing activity we done with those guys. Michael Bilerman – Citigroup: And on my (indiscernible) could you give a portion of leasing that was short-term that you deal over the quarter?

Yeah, it was 42% for this quarter. So last year this time it was 55%, so that’s definitely trended into right direction pretty comfortable it was last quarter. Michael Bilerman – Citigroup: Okay, great thank you.

Thanks (Quentin).

Our next question is from the line of RJ Milligan from Raymond James. You may proceed.

Hey, RJ. RJ Milligan – Raymond James: Good morning guys.

Good morning. RJ Milligan – Raymond James: Could you answer to Michaels question about the same-store NOI guidance be the JVS that’s were contributing a greater proportion of the same-store NOI growth in year-to-date?

Yeah, that’s correct. Good point thank you. RJ Milligan – Raymond James: Okay. And the – just wondering if sales for square foot if you guys can break that out or you seeing any trends in terms of have the higher productivity malls outpace the lower productivity malls in terms of sales per square foot have seen you see it regionally I was just wondering if you could get a little bit more granular on that?

Yeah, I mean the malls with apple stores, which we have for, I mean, that’s definitely a factor and that helps especially with the business they’ve done this year and the iPhone they come out – that’s come out it’s not a significant driver for us that might be put some other companies because we don’t have that many, but I’ll say it’s actually been very even – even across the country, we seen in the border malls have done really well because the phase has been stronger versus the dollar and those have had strong increases, but when you take that out it’s been pretty even across the southeast and the Midwest in terms of the growth and also they found the range of sales per square foot. So, it’s probably the most even spread of sales per square foot that we’ve seen couple of years. RJ Milligan – Raymond James: Okay, great, thanks guys.

Thanks, RJ.

Our next question is from the line of Todd Thomas from Keybanc Capital Markets.

Hey, Todd. Todd Thomas – Keybanc Capital Markets: Hi, good morning.

Good morning. Todd Thomas – Keybanc Capital Markets: A question on the St. Louis market really the large presence, I know that there is some competition over new outlet site in that market and I was wondering first if you look at St. Louis as a potential outlet – for potential outlet say and then also I was just wondering if you’re going to start about the potential impact to the entire retail environment in St. Louis and your malls?

Yeah, I mean there is several sites proposed we had not looked to St. Louis for an outlets in our project. But (Taubman), announced something and there is two couple of others that are working to compete with them. We think that with (Taubman) their focus is going to be on some of the higher end retailers and really the luxury stores and with that would be good for the market to brining those retailers. And it will help the shopping St. Louis in general. At our malls we just announced American Girl do in a new store Chesterfield that’s going to be a (indiscernible) for that West County continues to benefit from the new retailers we’re doing there. And St. Louis held up probably better than any other market during the recession. And so it’s stable and I guess where we feel comfortable about our malls going forward even with some of the new competition. Todd Thomas – Keybanc Capital Markets: Okay. And then I was just wondering and if I missed it earlier in the discussions. But how far through 2012 leasing do you have projections for leasing spreads as you think to address.

I mean it’s, we – our leasing spreads are based on leases signs so it’s not based on when the stores open. So, that’s current information but it’s not something that we can necessarily project. We’re pushing to continue to make the same progress that we made this year and have positive result in leasing spreads. And our leasing activity for next years on tract pretty comparable to last year this time I’d say roughly third. Todd Thomas – Keybanc Capital Markets: Okay. And then lastly Stephen, you mentioned that the beginning of your prepared remarks. So you think that there is a disconnect between the price of your stock in the private market valuation of the portfolio. And I was wondering if you could comment on that a bit we haven’t seen a lot of data points on malls with sales productivity below $400 a foot. So, I was just wondering if you have any thoughts about valuation whether that comments based on your own internal valuation to some extent or if you had conversations with private capital partners or anything else you can point to with regard to valuation.

I think the biggest thing that we think drive that is our multiple to so much lower than we feel like it should be. If you look at our leverage ratio, I mean our debt to EBITDA is just roughly 7.5 times and that’s below average for the whole if you look at all mall peers and we made each progress on leverage. So, we think we should get some benefit from that in our multiple. And then we seem to get doing for low sales per square foot. But we put up results this year with positive leasing spreads and positive NOI growth that repute that. So we just look at our multiple and feel like this room for expansion there. Todd Thomas – Keybanc Capital Markets: Okay, great. Thank you.

Thanks (RJ).

Mr. Lebovitz, I’ll turn the call back to you. You may resume with your presentation or closing remarks. Stephen Lebovitz – President and Chief Executive Officer: Thank you everyone for joining us this morning. We appreciate you support, and we are available if you have any further questions. Have a good day.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and currently asked that you please disconnect your line. Have a great day everyone.