Hello and welcome to the CBL & Associates Properties Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Scott Brittain of Corporate Communications. Please go ahead.

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties, Inc. conference call to discuss fourth quarter results. Presenting on today's call are Stephen Lebovitz, President & CEO; Farzana Khaleel, Executive Vice President and CFO and Katie Reinsmidt, Senior Vice President of Investor Relations and Corporate Investments. This conference call contains forward-looking statements within the meaning of the Federal Securities Laws. Such statements are inherently subject to risk and uncertainties. Future events and actual results, financial and otherwise may differ materially. We direct you to the company's various filings with the SEC for a detailed discussion of these risks. A reconciliation of non-GAAP financial measures to all the comparable GAAP financial measure will be included in today's earnings release and supplemental that is furnished on Form 8-K and available in the investing section of the Web site at cblproperties.com. I will now turn the call over to Mr. Lebovitz for his remarks. Please go ahead, sir.

Thank you, Scott and good morning everyone. Our results in 2016 were excellent and I'm proud of the entire CBL team for what we accomplished last year. We achieved portfolio, same-center NOI growth of 2.3% and adjusted FFO growth of 3.9% to $2.41 per share. We had a record year for dispositions with the sale of eight malls, five community centers and five office buildings generating almost $370 million in proceeds. Our balance sheet is stronger than ever with the lowest total debt balance in 10 years and debt to EBITDA of 6.5x, one of the lowest multiples in the mall sector. The strong demand for space in our properties was demonstrated by the 120 basis point occupancy increase in the portfolio to 94.8% and the 50 basis point increase to 94.2% in same-center malls. In total for the year, we leased approximately 4.3 million square feet with average stabilized mall leasing spreads of 7.6% including new lease spreads of 28% and renewal spreads of 1.2%. We expect to achieve some results in 2017. Sales during the fourth quarter were down approximately 2%, gains in late December we are not able to compensate for declines recorded in October and November. For the full year, our portfolio generated sales per square foot of $376 representing a 1.6 decline on the same center basis. Major contributors to the overall decline were two properties in energy sensitive markets which suffered sales declines in the teens as well as declines at certain border malls. With the stabilization in energy prices, we are optimistic that 2017 will be a better year for sales of these properties. Our expectation for the portfolio in 2017 is flat to slightly positive sales growth. We closed on the previously announced disposition of three Tier 3 malls during the quarter…

Thank you, Stephen. Our focus and proactive pursuit of underperforming anchor locations as resulted in an amazing opportunity to reinvent our properties. We have given this data before but it's important to remind everybody that since 2013, we have completed our have under construction 25 redevelopment projects representing an investment of roughly $250 million and generating an average return of 8.5%. This includes six projects completed in 2016 and four more that are currently under construction. These projects create tremendous value at our centers driving new traffic and sales for the entire property. Sales in CoolSprings Galleria increased double digits after completing the redevelopment dramatically improving the properties valuation. During the fourth quarter, we completed the construction on several redevelopment projects at these ten malls in Madison, Wisconsin we opened Plant Fitness in redeveloped space. We opened exporting goods and ULTA Beauty replacing JCPenney at College Square in Morristown, Tennessee as well as Dunham's Sports and a former Shopko in Northpark Mall in Joplin, Missouri. We also started construction on a redevelopment of part of the Belk store at College Square that was previously used for storage. Planet Fitness will open in that space in the spring. We added two expansions to our pipeline this quarter, a Parkdale Mall in Beaumont, Texas, we started construction on the addition of two restaurants on an available pad on the property. At Brooksville Square in Milwaukee, we will soon start construction on a project to add nearly 50,000 square feet of restaurants and shops around the Bob-Ton store. Additions include Bar Louie, ASHA Salon, Lucky 13 pub, [indiscernible] and others. Construction is expected to start this spring and open in spring 2018. We have one ground-up projects underway, The Outlet Shoppes at Laredo, our 65:35 joint venture with Horizon, which is on track to open this spring. The 350,000 square foot center features a terrific line-up including Michael Kors, Brooks Brothers, Nike and Puma. We are approximately 80% pay-lease and look forward to a strong opening. I will now turn the call over to Farzana to discuss our financial results.

Thank you, Katie. We are pleased with our financial results and achievements in 2016. We had a productive year. We generated adjusted FFO growth of 3.9% to $2.41 per share. We achieved the high-end of our guidance range primarily fueled by top-line growth and inter savings which was offset by dilution from $370 million in asset sales throughout the year. There were a number of factors impacting our results for the quarter and I wanted to take a moment to walk through some of the major variances. We ended the year with slightly higher than anticipated interest expense due to the higher LIBOR rates as well as the bond offering completed in mid-December. We completed dispositions of four office buildings, a community center and number of outparcels in the fourth quarter, which had not been previously announced and resulted in additional FFO dilution, weaker than anticipated holiday sales resulted in less percentage rents. The recovery ratio was slightly below our expectation and declined to 98% in the fourth quarter compared with 109% in the prior year period as a result of higher seasonal expense and lower tenant reimbursements. For the full year, our cost recovery ratio was 99.6% compared with 101.7% in 2015. And outparcels sales gains were higher than anticipated as we made the decision to accelerate our sales program given concerns of raising interest rates impacting the overall market for these assets. We achieved excellent pricing on these transaction in the 5% to 7% cap rate range. G&A for the full year was inline with our guidance range at $59.2 million net of non-recurring litigation expense and fees. This represents 5.7% of revenues compared with 5.9% for 2015. Same-center NOI for the portfolio increased 30 basis points bringing full year growth to 2.3%. As we have said previously,…

Thank you, Farzana. We are pleased to report strong results for the year but I assure you we are not resting on our accomplishments. While there will always be challenges, our business is healthy, our retailers are profitable and we are excited about the opportunities we have to transform our centers. We live and breathe retail real estate on a daily basis. We understand both the obstacles and opportunities that face our industry. And we know that we can not sit still. It's from that perspective that I encourage you to ignore the negative headlines. Malls are not dead in fact far from it. CBL's properties are vibrant suburban town centers that hold the dominant position in their markets. There are places to shop but there are also social centers where you can be entertained, eat, workout, hang out and experience life. Our centers are important and unique in their markets and they are getting even better. We are embracing new technologies to better serve our retailers and their customers and looking at new ways to integrate online and N-store. This constant evaluation and search for innovation will allow us to bring new and captivating experiences to CBL centers producing success now and into the future. We appreciate your continued support and we will be happy to take your questions at this time.

We will now being the question-and-answer session. [Operator Instructions] Our first question comes from Christy McElroy of Citi. Please go ahead.

Hi. Good morning, everyone.

Good morning.

Farzana in your remarks you talked about lower same-store to NOI earlier in the year absorbing the closures from Arrow and Limited in Westfield. I think you originally -- on last quarter you talked about a stream of $3 million in tact from the Arrow closures and rent release. How should we be thinking about the remaining rent loss from the Limited and Westfield? And should the same-store NOI growth trajectory look like for the year, just trying to get a sense for how negative a number if so in Q1, we should expect?

Thank you, Christy for that question. Several parts to your question, I will try to address it. Obviously, in 2016, each quarter we had a pretty strong same center NOI growth and it's -- looking at the same center NOI growth and projecting 0% to 1.5%, you can imagine mathematically that is going to put some pressure in the first few quarters, but we expect to climb from the low end to the high end of our same center NOI projections we are making. Having said that, the tenant follow outs that we talked about between Arrow and Limited and Sports Authority and Wet Seal will have an impact and in aggregate that somewhere in the $8 million to $10 million range. And that is what's going to weigh in our same center NOI. As we continue to lease up and get the stores open quickly that will help to get our same center NOI going in the right direction. One other item that I want to mention that we do expect some pressure on expenses this year on wages and also real estate taxes, we experienced that a little bit in the fourth quarter of 2016. So that trajectory -- we have to expect that with full employment that we are going to see some pressure and with inflation we are going to see some pressure on operating expenses.

Can you just be clear in Q1, are you expecting negative same-store growth, or it should be flat at the bottom end of your range?

Well, we look at holistically. So I don't want to comment on quarter-by-quarter but holistically we are projecting 0% to 1.5%. And so I think we do have very strong comps to overcome, so…

Okay. And then just with the Macy's closings, I was wondering if you could handicap your co-tenancy risk in 2017 that maybe embedded within your current same-store NOI growth forecast and also give us a sense for what's typical in terms of the rent adjustment or kick out rates that some of your tenants may have in these malls being affected by department store closures even when you have replacement tenant and Dillard's, so one of them will there be some downtime there that may have an impact?

Good morning, Christy, I'll take that. So it really is immaterial in terms of any type of co-tenancy impact and yes it's embedded in our guidance in our budgeting in terms of those Macy's boxes before being closed for this year, the one at Layton Hills with Dillard's replacing Macy's later this year will have a minimal impact for few tenants because in that mall we have a smaller number of anchors and normally you have in our malls, the other three Macy's are all parts of malls with multiple anchors and usually a co-tenancy, one anchor doesn't trigger any kind of violation, so it's not really going to hit us.

Okay. So there is not a lot of specific name to co-tendency, one of Macy's specific right name?

No. I mean usually -- I mean look they are across the board different for different retailers, but for the most parts you have to have say two or four department stores and it doesn't name specific ones and then a certain percentage of the mall occupied.

Okay. Thank you so much.

All right. Thank you.

The next question comes from Todd Thomas of KeyBanc Capital Markets. Please go ahead.

Hi, thanks. Good morning. Just a following up on the department stores boxes, Macy's and the Sears boxes that you acquired, you have a low basis on the Macy's boxes at around $10 a foot, and then rent on Sears acquisition is also low in the $5 foot range and I was just wondering if you can just talk about the level of demand for space of these malls now that you have control, what types of tenants or categories you're looking to add to these centers and then can you discuss the expected timing to begin generating income on some of these investments.

Sure, good morning, Todd. So just a couple of aspects to your question and just taking a step back like Katie said and I said that this department store redevelopment opportunity from our point of view is huge because our malls are 95% leased. We don't have the space in the malls to accommodate the kind of users that want to come and also that we need to attract the customers and drive the traffic and so we are looking at these from the point of view, each market stands on it's own, but we've got roughly 20 to 30 acres of prime illustrator or top malls for development. And in our cases, it's pretty much a blank campus that we can do not just with the buildings but with the land. So we can accommodate big boxes like we've done in the past whether it's sporting goods, off-price apparel, beauty and cosmetics. We've done a lot with Dick's and also TJ Maxx and Ross and users like that and they want to come to the mall properties because of the critical mass, because of the great locations, there is demand by restaurants, there is demand by entertainment users like Kings and David Busters, theaters, fitness centers and we're even looking at non-retail whether it's hotels, office, multifamily depending on the market. So these are really opportunities for us to reinvent the properties and that's why we're looking at and we're looking holistically as the whole property is part of this program. Like I said in my comments, we've estimated 150 million to 200 million of our 2 to 4 year period. We have the time with the Sears lease back to work the redevelopments. We have the rent income on our interim basis until we're ready to go forward. So we have that from a planning point of view and our goal is to move these ahead expeditiously, so on a quick basis as we can, but on the other hand it will take sometime and we want to get them teed up and get them right.

Okay. That's helpful. And Farzana, I'm just curious then with regard to that 0% to 1.5% same-store forecast, how much room or can you help us understand maybe how much room there is -- there in that range for additional unexpected store closures or bankruptcies?

Well, as I mentioned just a little bit ago we've embedded what we know and approximately like I said it was about $10 million of impact that we have in the same center NOI. So you just don't know what's -- what will come around, so we don't -- what we don't know we don't budget for it. So right now we are hopeful that we will accelerate our leasing efforts and get the momentum going and turnout better than what we are.

Okay. And then in terms of sort of the trajectory I guess of NOI throughout the year. As we think about occupancy looking back over the last 10 years, the sequential change in occupancy from the fourth quarter to the first quarter is about 250 basis points and then I know that there is a lot of seasonality generally, but just curious if you'd expect to be within -- what you know and what you've talked about, I mean is that within that 250 basis point range or you think we might see a little more occupancy loss in the first quarter.

Yes. We'll have more the limited stores we had 26 of those, we had 10 Arrows that closed now, Wet Seals closing five stores. So that's they can see and just closings are going to impact our first and second quarter and hopefully like Farzana said over the course of the year we'll make some progress impact on filling those, but it's going to be lower than typically is.

Okay. So more than that 10 year average you think the 250 basis point just adding into the first quarter here.

Correct.

Okay. All right, got it. Thank you.

Thanks Todd.

The next question comes from Rich Hill from Morgan Stanley. Please go ahead.

Hi guys, good morning. I just want to maybe start off with just a quick question on the reported for the quarter. It looks like you reported the $15.1 million gain on sale, but maybe going backed at about $1.5 million out of FFO. I was wondering if we can maybe get a little bit of an understanding on what drove that difference.

One sec. Hi, Rich, can you just tell us where you're looking and so we can make sure we…?

Why not, we can follow-up on that after the call, that's easier.

Okay.

Do you want to follow-up?

Yes.

Farzana can.

I think you're talking about the $15 million of gain on sale of real-estate and we backed out $1.5 million…

Yes. That's right.

So that -- since between the two is outparcels. The one that we backed out $1.5 million that has to do with asset sale that's depreciable asset sale and there are couple of small projects we sold that's depreciable properties, so that's the reason we've backed that out, but we don't back out the whole thing because generally they're all outparcel sales under ground lease in the non-depreciable properties.

Got it. Okay, that's helpful. And I know you've talked about some of the CapEx and that quarter is really helpful. If I understood correctly about the 150 million to 250 million over the next four years, just maybe to give us a sense what sort of rate increases are you expecting on that, is it -- is it double or is it quadruple and maybe said another way what's our development -- what's our sort of redevelopments yields are you expecting on that?

Yes. So we are expecting and we consist that and we don't really look at in terms of rent increases because the anchors aren't paying much rent, we're buying real-estate and even the Sears is structured based on the return. So it's not necessarily -- I mean we check this up -- the square foot levels and make sure they are reasonable, but there was primarily financially driven and over the past three years we've averaged 8% to 10% returns on these redevelopment projects depending on the asset, some are higher and some are lower and I think we'll be in that range based on where we're now, our planning is early and our budgets are rough, but that's our track record over the past 20 plus projects that we've done. So that's a good estimate to use.

Got it, that's helpful. And then just one other I guess higher level question, there is obviously been some discussions in various different reports about potential projects on the border with Mexico, have you thought about maybe sort of how you're positioning those with maybe Grotto?

Yes. We have thought about it and it's very difficult to predict exactly where things are going, I'd say the biggest impact that has hit us in terms of sales has been the devaluation of the Paso which has been over 15% and that's responsible for some of the sales decreases that we've seen a quarter malls sense the November timeframe and that's what we're watching the closest. Beyond that I think it's really hard to predict how things could go and there could be a lot of new construction jobs, there could be a boom to the local economies, it's really hard to tell how this is all going to play out. So we're really focused primarily on the Paso and the impact of that and the positive is that these malls are successful and even with the sales decreases they are still performing well and the retailers are profitable and we haven't done any indication from retailers of any kind of pullback.

Got it. That's helpful and guys as always thank you for your transparency and congrats on the nice headline quarter.

You're welcome. Thank you.

The next question comes from Jeff Donnelly of Wells Fargo. Please go ahead.

Good morning folks, maybe just a question on Sears transaction to understand some aspects a little bit better. It sound like I mean the deal was done contemplating that Sears would be in place until the redevelopments get underway. Obviously I'm sure you see that there is lot of chatter in the market that Sears could see to exist sooner than that maybe a baseless rumor, but I guess I'm wondering how you think about the risks like such as co-tenancy or conversely protection as you might have and the event you get these boxes back sooner than you maybe underwrote?

Yes. I mean Jeff, there is so much, I think chatter is a good word. And I think we feel like Sears is going to find way to continue to write it out the way they have in the past few years. And even if they had some kind of event they would still have a lot of good stores and a lot of good assets that they have to continue to operate the company in some way so we're not -- we're not obsessing over that we think about it and we protect ourselves in any way we can. And one of the benefits of this transaction is we are -- we are giving ourselves an earlier path for the redevelopment of these five stores and so we're -- potentially we do think our Sears exposure sooner rather than waiting for something to happen that we don't control.

It's helpful and maybe I'm asking sort of an earlier question too in a different way, but do you think that roughly 6.5% to 7% yield that's implied from the Sears leased $5 million in rent on the $72 million investment is maybe a good guide for the final yield you'd expect from these projects once the incremental $150 million to $200 million is invested.

I mean it's a 7% yield, it really -- that the two or three related honestly but the redevelopment projects have to stand on their own in terms of the cost of those and the uses that we bring in and like I said we're anticipating those returns to be in 8% to 10% range like our others have been.

Okay. And then maybe just stepping back, I'm just curious what your perspective is on where market rents are and where they're headed. I think coming out of ICSC in December, I think the talk from retailers is just obviously retail sales have been relatively sluggish in the industry the last two to three years. You certainly have in place rents continuing to bump up with inflation as they maybe roll up to market terms. And I think that's putting pressure on retailers. I guess I'm just curious, how do you think about the direction of asking rents or market rents from today going forward? Do you think they're going to remain relatively flattish just given the directions of sales the last two years?

Yes. I mean we said in the call that we expect renewal spreads for 2017 will be comparable, I mean, not just renewals, leasing spreads will be comparable to 2016 and 2017 so the mid single-digit, mid to high single-digit type increases including both new deals and renewals. Renewal spreads are the toughest and like we said the past few quarters we are prioritizing occupancy and NOI and we're not as focused on spreads on the renewal deals and then the new leasing as where we've got in the really strong spread and that's where we're generating the increases in rent. So I think it's going to continue in 2017 similar to 2016. There are sales decreases in the fourth quarter are definitely a challenge in headwind, but we're still bringing new tenants and we're doing new leasing and we're bringing and try to uses their attractive and doing well and replacing some of the stores that where there were just too much capacity and too much supply and giving the tenant mix and the place that needs to be.

And maybe a question for Farzana. I'm curious, when you think about your 2017 guidance, what are some of the levers that maybe bring you to the top or bottom end of that range? Is it just leasing velocity? Is it occupancy rate? And I guess related to that, what is embedded in that guidance for contractual lease bumps or, like you said, the leasing spreads you have assumed?

The best answer I can give you is this, leasing for vacancies accelerates and we get the stores open sooner and get a really junk start from a leasing departments that they already focused on it and that's really where it's going to come from and if the operating expenses can be controlled and maintained that's another favorable aspect of the same center NOI.

Actually, just one last question maybe on disposition. And I know you -- it's not guidance. And, Stephen, I'm sure you were very happy to step away from the earlier comments on disposition goals the last few years, but you have had good success in selling out of assets in the last 12 months or so. I guess I'm just curious, while it's not in your guidance, do you feel that there's a window right now in the market where you want to kind of keep that pace going and you might look to monetize additional assets or do think you are sort of done for a period of time?

Hey Jeff, it's Katie. We do have some assets that are out there in the market with, I think we aren't definitely trying to get this program last rather than later, so we're pushing that progress and then we'll look at the market to engage opportunities if there is additional assets that we're going to sell on a more regular basis, but we do feel good about ramping that program up later this year based on what we're seeing today.

Great, thank you.

Thanks, Jeff.

The next question comes from Haendel St. Juste of Mizuho. Please go ahead.

Yes, good morning. Stephen, I guess first the question is for you. Following the theme I guess of you're closing remarks, the focus of CBL the past three years has clearly been selling your lower tier malls and strengthening your balance sheet. And you have been largely successful, selling 18 of the 25. Maybe you're not getting the total amounts you initially thought but you have improved the portfolio and your balance sheet. But yet the stock continues to trade at a sizable gap to peers and a consensus NAV. So I guess my question is can you give us a bit more color on what you and perhaps the board see as the key strategic imperatives for leverage you need to execute over the next couple years to help close that gap? And maybe it would be helpful if you provide a few guideposts about how should we think about where you plan on taking the Company the next few years? Is it getting sales of 500 square foot -- that EBITDA down to six times? So some thoughts on that would be appreciated.

That's an easy question, thank you. There is a lot to that and I'd say that we're very focused on how we can narrow the gap in evaluation, how we can get the credit for what we've accomplished, we're frustrated with the stock price, we talk about it with the board on a regular basis and we are confident in our strategy, we're confident in our product type, there is a lot of headlines and a lot of narrative about being B and C malls that is over generalized and we get caught up in that and we're very frustrated by it. But we would not at all ascribed to the theory to B and C malls are going away or that a lot of the market seems to be embracing. And we feel like the best formula for us going ahead is to execute on the strategy we've had success with the dispositions, we've upgraded the portfolio now we have a great redevelopment program, I think that as we continue to put out consistent results and solid results the market will gain confidence in our properties in our strategy and focusing on execution is a number one, as a far as our goals for this year and going forward. As far as some of the other questions, the goals we said we want to get to 400 a foot on the portfolio is difficult to given some of the retailer sales that honestly we don't control some of those factors, but that's still our goal has a portfolio and we're determined to get there debt to EBITDA, we closed the year at 6.5 times and we want to get down to six times and we feel like just the amortization and dispositions we've got a clear path and to get there and look we as management owned over 10% the stock of the company so we are absolutely shoulder-to-shoulder invested and trying to get our stock price up and to get growth out of the company and we feel like with this redevelopment program that gives us the path to do that.

Okay. I appreciate that. And on the asset sales, the focus for the asset sales proceeds the last couple years has been to pay down some debt. And I guess given the improvement in your balance sheet metrics, are you at or close to a point were stock buyback can become part -- a more normal part of your capital allocation?

Well, we're still focused on deleveraging and that's our primarily use of capital from the dispositions and we want to make more progress reducing leverage and that's what we've heard primarily from that all, but a lot of investors as they like to see as continue to progress that we made to give us the cushion in case. There is a recession or in case the credit markets get that there is less equity or less availability so that's -- that's the priority and also investing in our portfolio and we've used our free cash flow which is -- the cash flow after the dividend it's roughly $200 million we use that to fund our redevelopment program and our CapEx. So we haven't had to borrow additional to do that and our plan going forward is to continue to do that as a way to improve our balance sheet and manage our leverage.

Got it, okay, one last one for me, roughly minor question, but I guess first on the plants for the Sears auto centers, what do you see the future -- how should we think about the spend for box and in investment returns, are they similar comparable to what you've been able to do with some of the Sears and other larger boxes.

Yes. Those are really attractive in terms of the locations they are right on major roads, we've got interest from restaurants, sit-down, best casual and other service type uses and there has been a robust resell market, we sold our outparcels last year and had a really successful year in terms of selling those so we can develop them initially on a high single-digit basis, the cap rates like Farzana said have been or Katie said have been 5% to 7% for those or and so there is good profit opportunity embedded in those, restructured those as triple that leases so they are attractive to those kind of buyers.

But you say high single-digit return expectations?

Yes.

Okay. Thank you.

Thank you.

The next question comes from Craig Smith of Bank of America Merrill Lynch. Please go ahead.

Thank you. What is the least trade at Laredo and what number of stores do you expect to be opened at your opening this spring?

Yes. We're roughly 80% lease Craig on the stores for Laredo and we expect those open within the first few months of the grand opening in March, so that level and then we'll probably have some temporary as well that will give us above that.

Great. And then given the potential pressures on the pricing of outparcel sales, may we expect that to be a front loaded over the course of 2017?

No we will be -- we will have normal outparcel sales and we project we've gave guidance between $8 to $12 million for the full year or so. I don't necessarily think it's going to be front loaded, that will be out probably spread over the year so we will go back being having more phenomenal outparcel sales not like we had in the fourth quarter in 2016.

And we accelerated some of the sales in 2016 because interest rates are raising and there is a lot of uncertainty were tax laws are going with 10-31, so we try to accelerate what we could into 2016 so we got the trend less of the pending transactions closed by year end and there were strong demand so like Farzana said we'll have a more normalized level for our guidance for this year and that will be spread across the year.

Great, thank you.

Thank you, Craig.

The next question comes from Andrew Rosivach of Goldman Sachs. Please go ahead.

Hi good morning, this is Caitlin Burrows. I was just wondering, we've heard some debate about ticks and it seems like some of the feedback from the power center operators is that Dick's struggles and enclosed malls, but then we heard differently from you guys in other mall operators that they do well and being at there your six largest tenant by revenue so I was wondering if you just had any thoughts on that.

Sure, I mean we just met with Dick's, I was in the office last week, we went through our portfolio of existing stores, we went through new opportunities with the department stores, they have a very strong interest and I think if you ask Dick, they will say they do well in both types of locations and their customers over 70% female. So they've got a lot of their shoppers coming to the malls and in strip centers they are more destination oriented but they are successful as well and we have both in our portfolio. We have on that as part of malls as anchors we have them interim associated centers we think there are great retailers, they are really well-managed and it's too competitive category especially in the southeast with academy and they are focused on getting the best real-estate, so they can be most effective when there is competition and be most successful overall.

Okay. And then just if I look at -- it looks like now you have a 27 of them which is actually down one from the end of the 2015 so I was just wondering it sounds like you do maybe have planned openings, do you expect that number to generally increase.

I think that it was just from a disposition how we did where Dick's was part of that so it was in our closing.

Got it. And then just last kind of have been talked about but in terms of the mall anchor space that you guys have and possibly are showing with Dick's and other big box retailers, would you say that -- that space is competitive for big boxes.

Yes. I mean we've had really strong demand from the boxes and that's really -- that's been where the most growth has been in terms of retail and it's either new entries into markets where they are in some cases, it's repositioning because the existing stores are too big or the locations aren't as attractive as we can offer them, but we're having portfolio meetings with all the boxes and that just one piece of it and other locations we're not doing as much boxes, but there is entertainment, theaters, restaurants so it really is market dependent.

Okay. So it sounds like in some situation the add of Dick's or other big boxes make sense whereas in others it might be more theater or restaurant other use type thing?

Correct.

Okay. Thank you.

Thank you, Caitlin.

The next question comes from Jim Sullivan of BTIG. Please go ahead.

Thank you. Good morning. Stephen just to make sure I have a number, I do talked about the store count for closings in the first half from the three retailers, I quickly jotted down 35 stores, is that the right number?

Yes.

41.

I'm sorry. Yes. No. It's 9.

It's okay.

Okay. 26 Limited stores, 10 Arrows and then five Wet Seals that just got announced.

Okay. So it's 41 altogether. And I know you don't like to dwell on individual tenant productivity numbers, but my understanding is that relative to average productivity within the portfolio as some of your peers their limited on what's -- both had below average productivity -- sales productivity for a while where zero has been above, is that right?

I mean, Arrow has made some progress in the fourth quarter, but they also we're having this basically going out of business sale where they were clearing all the inventory. So it's hard to see to talk about that as a trend because that was a one-time event. Now they've got the new source open, the new merchandized and we're hopeful I think the stores look great and we're optimistic, but really isn't enough of a trend to comment, Limited and Wet Seals were clearly weak and that's why they ended up where they are.

And are you aware, are there any -- is there any definite plans for Arrow to, in addition to remerchandising the stores generally in terms of inventory, actually invest in terms of visual merchandizing and have they spoken to you about that whether it's lighting or facades or any other type of investment spent.

Well, they did a lot of that -- they renovated the stores as part of their new format in the stores to take out, so they look good, they have different signage, the lighting levels are good, the merchandized looks nice so we are positive and it seems like the management intent on trying to make them a survivor in a very competitive category.

And finally, where they concessions requested and granted for the stores that they are going to be keeping up with?

Yes. Jim, we'd said last quarter that it was a $3 million impact last year, which included closures on nine stores and then we had the other 10 stores that are closing this year which is another $2 million. So from where we were at the beginning of 2016 to where we are now it's roughly $5 million between the two closures and rent reduction.

Okay, very good. And then the maybe you could share with us, I know the comments about how this will impact on a sequential basis over the year of the closings. But one of the prospects on how confident are you Stephen in terms of being able to have most of that space released for the second half of the year and maybe on/off if there is any whether you've already kind of reserve some space for tenants who are looking to move into a particular center of location, maybe you can share with us what kind of progress you can report already.

Well, I mean we look at -- they can see as they can see and so we've got roughly 5% of the properties, and then we have these additional 41 stores and working with retailers to fill the toughest locations and to get them into the locations that make sense. So I'm not going to comment on how -- how many of the 26 Limited we've got replacements for because I don't think that's really relevant. And I'll say that we're continuing to see good demand in certain categories we have another set of H&M deals that were opening this year; we've done 8 or 9 in the past couple of years and we've got a similar number this year and they -- their results in our markets have been really terrific, we're just announced them in Chattanooga, they are opening later this year and everyone is really excited about that. And in the middle markets they really -- they get the customer very excited and the results are great and then beyond that a lot with Elle brands in terms of Victoria's Secret and Bath and Body and Pink and White Barn Candle, the cosmetic category doing really well with Sephora, ULTA and other uses like that and then they are other retailers -- results that they reported yesterday, so there is retailers they are doing well and there is one that we know they are struggling and our goal is just to continue to bring in the best retailers and to upgrade our mix and to replace the ones that aren't doing as well.

Good. Thanks for that and then maybe either Stephen or Farzana, when talked about the lower operating cost recovery rate in Q4 and cited specifically some real estate tax increases, which have been kind of theme across many different real estate sectors for a few quarters now. I guess really two part question, is there any scope to get these real estate tax increases abated, I'm sure you look it all the time. But, number one and number two, is the lower recovery rate in Q4, especially given the hierarchy of [fancy] [ph] rate, is it just a timing issue or should we be anticipating a lower operating cost recovery rate going forward for the next several quarters?

Jim to your first question regarding real estate taxes, of course, we are constantly appealing real estate taxes, but all of that takes time once they increase the taxes going for the appeal process. It's not an overnight thing. So, it will go up, we will appeal it and then takes 8, 10, 12 months to get the appeal, get the taxes back down. So it's just a -- it's an ebb and flow in terms of the real estate taxes, so it's hard to tell you exactly how this all works out. But, generally speaking real estate taxes have gone up and we continue to appeal it. To your second part of your question about the cost recovery ratio being 98% in the fourth quarter. We did have higher seasonal expenses that we didn't anticipate as I mentioned and of course real estate taxes was another area. We also are spending in the operating cost in other areas to enhance the overall leasing for the mall, so all of that just comes in to play. So that's part of why the 98% in Q4. But going forward I think we should be considering high 90% recovery ratio and the full year on a holistic basis that's why we will be 98%, 99%.

So does that mean that perhaps the impact of fixed CAM is limiting the ability to recover all of these cost increases because it seems to me high 90s, isn't that a little bit lower than it has been in the last two years or is it in line?

I think we've had a higher recovery ratio above 100%. But, I think would you get CAM increases, annual CAM increases but sometimes you do have unanticipated expenses that go up. And that's part of -- good news is, we do have fixed CAM and that provides the tenants the ability to know what the cost will be. So, it helps us. It doesn't really hurt us. So we are recovering almost 100%. It's a good number and I wouldn't be complaining about it.

Thank you, Jim.

Okay. Quick, other question on the --

Jim, we have some other people that are in queue, so…

Okay. Go ahead.

We need to give them a chance. Thanks.

The next question comes from Michael Mueller of JPMorgan. Please go ahead.

Hi. Just couple, hopefully quick ones here. Just trying to understand the $8 million to $10 million or the $10 million impact for this year, trying to figure out what's in the run rate or already what's incremental. I think you said $3 million was the impact last year. So that's half of your impact that would be six. Then you get another $2 million that you mentioned for 2017. So, is that the right way to think of it, from this point going forward, it's really a $2 million annualized marginal impact or two to four, is that the right way?

No, no. It's really -- it's the limited stores which weren't in last year. It's the Wet Seal. And then it's just a $2 million of Arrow that is closing -- that closes beginning of this year. So, it's not incremental. It's basically new that puts us back over 1%, 1% to 1.5% of same center NOI.

Okay. But, if that $10 million you have some Arrow impact in there from last year?

We are standing in there from last year and then we have additional in there for this year that total is 5 million.

Got it. Okay. So maybe the numbers 5 to 7 or something like that that's the marginal impact, is there a better way to think if it?

Oh, I think it's 8% to 10% is the impact, the incremental impact.

There are other stores too. We got Sports Authority closed basically in fourth quarter, that's a million. So we didn't secure everyone. But there is others that -- so the 8% to 10% is a right number.

That's the incremental, got it. Okay. That's helpful. And for the three, four closures that you are getting the keys back on. About how much NOI is tied to those assets. Or is it generally wash with the interest that goes way or will there be some drag or benefit?

One has already gone back. So we have got two left. Yes. It's a little bit higher than the weighted average interest rate which was I think was 5.5%, 5.6%. So I think around 6% probably. So it's not a big difference, but there is a difference.

Okay. And then, just the last question. On the boxes, the Macy's and Sears we talked about an incremental $150 million to $200 million of spend, kind of historically got 8% to 10% return on that, is that a 8% to 10% on the incremental $150 million to $200 million, or should we think about as $150 million to $200 million plus $75 million and that's kind of what the current would be based on?

We allocate the initial purchase price also in the 8% to 10%. So, it's basically the forecast including acquisition and redevelopment cost and then the return that we generate on that.

Got it. Okay. That's what it. Thank you.

Okay. Thanks Mike.

The next question comes from Carol Kemple of Hilliard Lyons. Please go ahead.

Good afternoon. Can you all talk a little bit about traffic in your malls in the fourth quarter and if you have any updates on how traffic was in January?

Hi, Carol. January, it's a little early to say, well, it's not early, I guess. But, we don't have a lot of feedback from retailers other than it's been -- it was busy, the first week or so with all the returns that typically happened and gift card redemptions and it's been stable, we haven't see any real differences other than in the past. Then as far as traffic in the fourth quarter, I think that first of all, we do not have traffic counters. So we are dealing more with conversations with retailers. And we get from our more impulse driven uses by food -- then in the food courts or the common area uses, the traffic -- the sales were up. They reported good traffic. Certain stores reported less traffic coming into them. And I think it's part of this changing consumer, this evolving where the consumer is doing more research before they go into certain stores and that's impacting store traffic. But, the malls are busy, if you would have come to our malls between Thanksgiving and Christmas, the parking lots were full, on the weekend the traffic was busy. Then there is a lot that happens at the malls besides just shopping now with more restaurants and more entertainment. So we don't see the traffic trends being nearly as negative as the press portrays it. And we feel like we are still getting really good customer traffic. And keep in mind that over 90% of retail sales are happening in fiscal stores and so the traffic is still coming to the properties and the stores are important part of all the retailers strategies even as there is more online sales occurring.

Okay. And then, some thing some of the other mall you just talked about earlier this week was about etailers that were looking to open physical stores in their malls. Are you starting to see the impact of that yet and if so what retailers are coming in?

So, we have seen that more or less some regionals. We haven't -- we talked to Parker and [Benovos] [ph] and Fabletics and some of those. We haven't done any deals with them but we are working on it. But, it's clearly a trend and we are seeing some regional etailers that have opened in our malls that are looking at the way -- this is the path for them to grow their brand awareness and grow their business.

Okay. Great. Thank you.

Thank you.

The next question comes from Floris van Dijkum of Boenning. Please go ahead.

Thank you. Stephen a question for you, maybe if you can comment on trends in tenant allowances?

Hi, Flores. I would say that there really hasn't been any change in terms of tenant allowances. In the new leasing, we will typically have some level of tenant allowance. Construction cost have remained relatively stable, we will see where that goes going forward and if there is more inflationary pressure, but we haven't seen any change from what we've seen over the past couple of years.

Okay. And for renewals that's basically unchanged or very minimal amounts there as well?

That's correct.

Maybe if you can talk also a little bit about your $40 million of anchor space or what percentage of that is non-owned?

Well, roughly, I would say roughly two-thirds maybe a little bit less of our anchor space is owned by Anchors. If you look at just -- on certain Anchors like now, Sears is roughly half and half with the transaction that we did. Dillard's owns the majority of their locations, Penny's about half and half. So Macy's is about two-thirds, one-third. So, say in that 60% to 65% range overall is owned by the department stores.

So, let's call it 13 million square feet of potential space that -- at some point would you be looking to buy that back, if you could?

I think that, I mean in certain locations, yes. But, I mean we are still believers in department stores, Belk, Dillard's are -- have very great results. Macy's has done the right thing by printing the lower productivity stores. But, we don't see department is going away. There is definitely a rationalization process going on. And that we think makes a lot of sense and those are the ones that we are focused on, the ones that aren't doing that much business and are helping the mall. And it's difficult for us to lease outside of them and it gives us that capacity for redevelopment. So in certain instances then that's definitely something that we want to do. But, it's not like we go across the board and look at all of them as properties you want to buy.

Right. So, as investors think about your portfolio you have -- almost 50% of your NOI comes from malls that do between 300 to 375 a square foot. Is that -- would you be looking to buy in that part of your Tier 2, or would you be looking mostly at the upper tiers to buy the space back there?

I mean just from the five Sears that we did, it's a mix, some are Tier 2, some are Tier 1, I think one was Tier 3. So, it really depends on the real estate and it depends on the market. And that's what we looked at is, where the demand is, I mean some of -- these parcels are very valuable. And from all of our properties and with disposition program that we have done -- send the most part, we want to complete that with KT Satellite this year. We sold the properties and we don't think are the keepers, the ones that we have we think are good with investment opportunities and ones that we have -- want to have in the portfolio long-term.

Okay. One final question, I guess for -- I was a little bit, as we look at the operating space, you have been obviously been -- you did a very nice job last year and trimming a lot of the lower tier of assets. You got a couple of more to go this year. Typically what I would have expected to have seen it, I think most of the investors would have expected to see, is that actually, could the operating expense recovery on those malls tend to be lower that you should seen an improvement. Is this just a temporary a blip in the operating expense, recovery ratio for your guys or how do you think about that? How do you think about that maybe not this upcoming here, but in three years time, how should this portfolio perform relative to -- to how it's performed over the last two years.

So, Floris, Q4 was a little bit of a blip like I mentioned there were operating expenses that were extraordinary we experienced the real estate tax increases. We also expenses other operating expenses increased due to seasonal expenses. So, I understand your question that we have disposed off assets that have lower recovery ratio. But all in all, as the expenses do go up on a fixed CAM basis, we still will be around 98%, 99% type recovery ratio. So, I can't predict three years from now, but as we are looking ahead for 2017, that's sort of what we look at.

Thank you, Floris.

Great. Thanks.

The next question comes from Linda Tsai of Barclays. Please go ahead.

Yes. Hi. Long the lines of blurring retail formats and finding productive uses for department store inkers, you are putting Dick's, movie theaters, one of your peers is aggressively quoting grocery stores, understanding that it's all location specific. Are grocery stores also relevant for some of the assets in your portfolio?

Sure. I think that's a great news. We talked to them. We haven't done that much but we have had some conversations. We have one situation where we are actively talking to a grocery store about replacing a department store. And like you say, its market dependant and location specific and they are great traffic drivers and we would welcome to do more.

Thanks.

Thank you.

The next question comes from Tayo Okusanya of Jefferies. Please go ahead.

Hi. Yes. Good afternoon. Just a couple from me. First of all, just in regards to the balance sheet, could you just talk a little bit about in the 2017 appetite to do more on secured financing or possibly different?

Yes, Tayo. I will answer that question. We really have great capacity on our lines of credit today a balance at the end of the year was $6 million. So, we have $1.1 billion. So we will continue to look at our use as time goes on. And the appetite is always there. But, we have to be -- we are thoughtful issuing or unsecured and also thoughtful on preferred, we are not -- we generally are not looking to issue any new preferred. But perhaps refinance if the market is favorable.

Got you. Okay. That's helpful. And then, second of all, just the classification of your malls this quarter there was quite -- a lot of movement, there was a couple of malls going from Tier 2 to Tier 1, others going from Tier 1 to Tier 2 to use. Could you just talk a little bit about just that moment and by the way classification happened?

Yes, Tayo. So, I would say that really there were a few -- the majority of cases they were properties that were on the cost that moved one layers another between tiers. There were two small KT Animal on Dakota Square that moved from Tier 1 to Tier 2 where we had an impact from oil prices and the economy and that's been the case only for the past 18 months in those and like we said in the call with the stabilization, oil prices, we expect those to firm up. And then, one of the other ones that moved from Tier 1 to Tier 2, there was a new outlet center that opened in the market where is a lot of overlap in retailers and again our typical experience is a short-term. Decline but then those bounce back.

Got you. Okay. That's helpful.

Tayo, we actually reclassified this every year in the fourth quarter just based on new sales results. So that was the impetus for the results.

Okay. That should be helpful. And then, lastly just retailer demand and general, I hear your points that you made earlier in the call. But could you talk about, again, when companies that are being expanding in the past like H&M, suddenly now see things that they want to focus more on ecommerce and improving stock profit ability and they are not expanding store count any more. I mean, when you hear something like that do you kind of think it's a very unique to them, do you think it's endemic of kind of what you're likely to see over the next year or two as a retailer just kind of face the reality. And what does that basically mean for your portfolio?

I think what H&M said, is that, they are not going to try to grow 10% to 15% a year. But, they are definitely still going to add stores in markets where they don't have a presence. And that's the beauty for us is, the markets are coming into their 20, 30 miles away from any type of competition. They are still taking new deals and we are seeing good demand from retailers. And then the other thing that's driving demand is the broadening of uses and it's not just conventional retailers, its service users like I said, it's cosmetics, wellness, fitness centers. We have done a lot with Planet Fitness and they are continuing to look at doing more in our properties and other fitness users. So the demand is coming from different places. But, that's really typical in our business there is always a lot of variation and over time we see certain users that are popular become less popular and we place them with others. And that's just been -- that's nothing new from our point of view.

Got you. All right. Thank you.

Thank you.

The next question comes from Collin Mings of Raymond James. Please go ahead.

Thanks. Just one follow-up for me. You touched on modest positions and continue to engage in capital recycling efforts going forward. But, can you maybe just directly update us on your thoughts around additional associated and community sales this year. Just given that the progress delevering last year and just maybe how your thoughts around selling some of those community and associate centers as evolved?

We did most of the ones last year for the community centers and associated centers. So, I think we will look opportunistically at those. But, for the most part, we don't see doing a lot more sales in those areas.

Thanks.

Thank you.

The next question is a follow-up from Christy McElroy of Citi. Please go ahead.

Hey, it's Michael Bilerman here with Christy. Just couple of topics. The first is on the Sears transaction. There was a notice that said they can downsize the 15000 square feet. I'm just curious what sort of format -- what have the stored being envisioned in 15000 square feet and what is the size of the stores today for those five stores?

So Sears opened a hard goods only store in Four Columns, Colorado last year and it was actually -- just over 10,000 square feet and it's been very successful and done well. And the way the [indiscernible] deals were structured, Sears had the right to stay in half of the Sears buildings which are -- say 100,000 to 150,000 square feet on average. So, in our deal we don't have that restriction, we basically have the whole building to work with. And then Sears has the right as part of the redevelopment to go into a -- up to 15,000 square feet of this hard good store in a location that we would mutually agree on. So, it would be -- could be part of the Sears building, it could be on a pad, it could be somewhere else in the mall. So it gives us flexibility to work with the Sears building and the land parcel and also accommodate them, if this new format works out.

And then, in your -- out of those five stores those are the same things, 500,000 and 750,000 square feet in aggregate?

The boxes are 100, I'm just saying on an average there, 100 to 150, I don't have the number in front of me Michael. But --

But, I was just doing that. I was just doing an aggregate.

I do have in front of me, its 915,000 square feet total for the five. So it's little bigger than what I said.

Okay. And that 15, is there -- have you just -- is there a rent or allocation of value for that or that's to be determined, when you determine the space?

Yes. It will be a lease. And we've got broad parameters, but I can't discuss specifically what they are.

Okay. And then, I'm just curious, you obviously talked a lot about the perception that exists between B and C malls and certainly malls are dieing. And it's over generalized and that the market will gain more confidence as you put up solid results. When you look at your same-store stats, there is still a wide gap that exists. You think about your flat to up one this year relative to the 3% to 4% that's Simon and GGP are talking about and even higher in some cases. We are sort of a long time into this. And it sounds like first quarter will be weak. I guess at what point do we start to seeing the results, if it would give the market greater confidence that your malls are not in trouble, right? And so I'm not saying your malls are dieing, but there is this gap in performance that has existed pretty much prior the great recession, and since the great recession?

I mean there is a gap and the results, no question. But there is a larger gap in multiple and stock valuation and the market is not pricing in flat to 1.5% growth from us. It does kind of multiples. And there is just no way. So, as long as we can deliver the results and look we wanted to be better. So we also want to be realistic on February 2nd of the year as far as where we stand. But, there is a huge valuation gap in terms of multiple and it's been that way for a couple of years. But, we have delivered the disposition results, we have improved the portfolio. We have improved the balance sheet and we are going to continue to fight the narrative about our malls being vulnerable because we are really confident that they are not. And as we continue to put up the results with occupancy and NOI, then tell the story, then we feel like we will get the credit. And we will see if we can get upside in our side.

Right. And I think that's the point that other market is valuing your shares and your malls relative to your peers not just a growth profile. But, I guess maybe just a last question, on that valuation one of the things that David Simon talked about in his call, talked about a lot of interesting things, good call for everyone to read. But, you talked about Aeropostale being a private company and how the management team has been unleashed and part not having to focus on what the street was focused on in terms of sales -- same-store sales metrics and really focusing the cash flow and their business and making the right decisions. I'm just curious how you think about the impact that you are talking about in terms of being impacted to your share price and impact to your business. Would you explore being a private company, is it better to go in this transition period over the next couple of years, being a private company and not having quarterly results and dealing with the public market and is there any restriction if that's the right thing to do? Is there any restrictions of not going down the path.

After a hour and a half earnings call Michael, yes, same thing. I mean seriously I mean we are a public company and every public company is for sale everyday. And going private is from our point of view tandem out to selling the company. And we are a public company and so we always evaluate all our options. Do I think being private is better than being public -- public I think there are advantages and their disadvantages. And we operate, it's a public company and that's our going forward strategy. And that's why we win on security with our debt to give ourselves the availability to capital in case, it's variations and fluctuations in CMBS market and now with the way that market has evolved, I think we feel good, that we have got that and we are able to access that market and public companies sure they got their draw backs but they also have a lot of positives and we are in business that is a capital intensive business. And our strategy going forward is going to depend on us having access to capital and that's why we improved our balance sheet and given ourselves the liquidity that we have.

All right. Thanks for the time. Thank you.

Thank you, Michael.

And the next question is a follow-up from Todd Thomas of KeyBanc Capital Markets. Please go ahead.

Hi. Thanks. Just a follow-up on the department store redevelopments. For Steve and Katie, you noted that you completed about 20 Anchor redevelopment over the last several years. And I'm just curious if you have any anecdotes you can offer regarding the impact those projects have had on mall traffic or sales once complete. And then particular I guess in those instances when you bring in an alternative categories to the mall. How that changes tendency -- around the mall, whether traffic -- sales and traffic for restaurants or other entertainment type venues. That you bring in to the mall.

Yes, Todd. I mean it's been -- there hasn't been one that hasn't worked out positively. We have been able to replace the sales multiple-fold in terms of the redevelopment, and the best one that we've had -- maybe not the best but one that's a very good case study, it's CoolSprings Galleria would replace Sears. We put Belk in the lower level and we are able to free up space in the mall for small shops, we put in a American girl, H&M, like sporting goods operator on Rock Creek that's off to a great start that's -- when we put in out of couple of restaurants, Kings, Bowling, which is an entertainment we use. And the project generated a good discrete return of over 7%, so it added a lot of value from an accretion point of view. But it also drove sales increases in double digits for the mall and a lot of occupancy. So I mean it's -- these are great opportunities for us and we are really energized, hopefully as everyone can tell and the track record that we had just gives us the ability to do these successfully going forward.

Okay. Thank you.

Thank you, everyone. We appreciate your participation this morning and we look forward to talking to you shortly again. Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.