Ladies and gentlemen, thank you for standing by. And welcome to the CBL & Associates Properties Inc. Fourth Quarter 2013 Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Wednesday, February 5, 2014. I would now like to turn the conference over to Katie Reinsmidt, Senior VP of Investor Relations and Corporate Investments. Please go ahead, ma’am.

Thank you, Nicky. Good morning everyone. We appreciate your participation in CBL & Associates Properties Inc. conference to discuss fourth quarter and full year results. Joining me today are Stephen Lebovitz, President and CEO and Farzana Mitchell, Executive Vice President and Chief Financial Officer. I will begin by quickly reading our Safe Harbor disclosures and we will then turn it over to Stephen for his remarks. This conference call contains forward-looking statements within the meanings 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 10-K. During our discussion today, references made to per share amounts are based on a fully diluted converted share basis. During this call, the company may discuss non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure will be included in today’s earnings release that is furnished on Form 8-K along with a transcript of today’s comments and additional supplemental schedules. This call will also be available for replay on the internet through a link on our website at cblproperties.com.

Thank you, Katie and good morning everyone. I will first spend a few minutes providing a progress report on our corporate goals and initiatives and we will review our operational results for the quarter. Katie will then provide an update on disposition development and redevelopment progress and Frazana will run through financial results as well as guidance for 2014. We made tremendous progress in 2013 on improving our balance sheet and achieving our goals ahead of schedule. We are now in a stronger financial position, but there is still work to do. Operationally, we took advantage of ongoing opportunities to invest in growing our core portfolio. We strengthened our retail base and increased the focus on our disposition program. We completed the sale of three mature malls and their related associated centers as well as five office buildings during the year. We are focused on these initiatives in 2014 and we utilize our stronger financial structure to reposition our portfolio for higher growth over the long-term. During the year, we made great strides on our tenant upgrade strategy adding a number of new retailers to the portfolio. We expanded our relationship with H&M, Michael Kors and J. Crew and signed a number of firsts such as Athleta and Garage. This contributed to double-digit leasing spreads of 11.8% achieved for the full year. However, the lost income from the downtime between stores closing and new stores opening weighed on our results and we were unable to fully convert our perspective tenant pipeline into the incremental occupancy improvements we had anticipated for the fourth quarter. As you have undoubtedly read, the holiday sales season was lackluster for most retailers. The shorter holiday calendar and the highly promotional environment did not allow retailers to gain the traction necessary for a positive holiday season.…

Thank you, Stephen. One of the improvements you will see in our supplemental this quarter include occupancy on a same center basis, more detailed portfolio segmentation, shadow development pipeline disclosures for projects under predevelopment and other frequently asked for metrics such as weighted average interest expense by maturity and the straight line rents receivable balance. We have added information on leases that are commencing in addition to the information we provide on leases signed and have also converted to cash NOI standard, which will exclude non-cash and non-comp items. Our objective is to help the market better understand our portfolio and our results and we will continue to evaluate additional improvements. Now turning to dispositions and capital markets, many of you have read the report and real estate alert discussing three assets that we are actively marketing for sale. While still early in the process, we have received strong interest as far as the quantity and quality of prospective buyers. We have a number of interested parties visiting the properties and are actively engaging in due diligence, which we view positively. We have another small mall of under $20 million for which we have received and executed letter of intent. Due diligence is ongoing, but we do not have hard dollars in escrow. We will provide a progress report on these deals as appropriate. We opened two expansion projects at existing centers during the quarter at Cross Creek Mall and Fayetteville, North Carolina. We opened 46,000 square foot expansion, a prime example of our focus on investing in our higher growth assets. The districts at Cross Creek allowed us to enter – allowed to us to deliver new to the market retailers including LOFT, Chico's, Reed's Jewelers and White House/Black Market driving new traffic and contributing to a stronger future…

Thank you, Katie. 2013 was a transformational year for the balance sheet. And our hard work yielded many impressive results. We informed the market in November of 2012 that we would begin positioning our balance sheet to achieve investment grade ratings and reached that goal ahead of plan in July 2013. We continue to execute our strategy of creating a more balanced financing structure by retiring more than $280 million in wholly-owned property specific secured loans resulting in the addition of our $650 million of gross book value to our growing unencumbered pool. We closed on more than $130 million of new secured loans for joint venture properties replacing the existing maturing loans and generating approximately $20 million in net proceeds. We also closed on a new $400 million five year unsecured term loan at an attractive rate of 150 basis points over LIBOR. We ended the year with a successful $450 million inaugural bond issuance with more than 70 investors participating. Today our balance sheet is more flexible and stronger than it has been in many years and we are not done yet. Looking forward, we have a clear plan to continue to add high quality assets to our unencumbered pool. In January we prepaid that $122 million loan secured by highly productive St. Clair Square in Fairview Heights, Illinois adding another $125 million in gross book value to our unencumbered pool. Today 30% of our total consolidated NOI is generated by unencumbered assets and that number will continue to increase over time. In 2014 we will retire with unsecured borrowings the $113.4 million loan secured by Mall Del Norte in Laredo Texas. This is one of most productive properties with sales over $560 per square foot. Keeping with a plan of maintaining secured non-recourse debt on our joint…

Thank you. (Operator Instructions) And our first question is coming from Todd Thomas with KeyBanc Capital Markets. Please go ahead.

Hi, good morning.

Good morning.

Good morning, Stephen. Your comments about not being able to convert perspective leases in the pipeline and actual leases or occupancy in the quarter, is it your sense that they delayed decision to sign leases or they decide against signing these leases all together and sort of what was behind those decision those I was just wondering if you can expand on that a bit?

Hi, Todd. It wasn’t any delay in leases. We just didn’t get the occupancy increases that we had talked over the year. It was a combination of just the some of that was fall out that happened over the course of the year that was higher than we had projected and just taking really a longer time to replace those phases. So, that was related primary factor behind us.

Okay. And then I was just looking at the renewal leasing activity and I see 787,000 square feet of same space, renewal leasing the spread was 3.8%. But there was nearly 1.4 million square feet of renewal leasing in the quarter over on. And sort of looking back there is generally big discrepancy. I was just wondering what the other 600,000 square feet of renewal leasing is why that’s not considered as same space?

Yes, its box leasing over 10,000 square feet, so what we included in there was only the under 10,000 square feet on the space per space basis. And we have been doing a lot of boxes coming into the malls or seeing a lot of boxes coming into the malls. So that’s definitely a factor that’s been helping our overall occupancy.

Can you talk about what the spreads are generally on what’s not in the same space leasing?

Yes. It’s tough to say Todd because usually when we do that we’re taking a combination of vacant spaces, existing retailers that are moving to other parts of the center and even expanding out into parking lots or common areas. So it’s just generally hard to say, I think the best way to evaluate it is the way we evaluate our redevelopments where we are typically getting 7% to 10% return on those. And when we’re looking at the box redevelopments in the projects that’s the return on capital that we’ll typically look for. And that will include the offset of the rents that we are getting from the spaces before. So it’s a net improvement.

Okay and then just one last question in terms of guidance, Farzana. Can you provide a little more detail around how you get to flat interest expense year-over-year? It seem that $450 million bond deal, 5.25% which is primarily used to pay down the line. It’s well over $10 million of additional expense. And just looking at the maturity schedule, it doesn’t look like there is that much that would be available to prepay or open for prepayment, what are you sort of baking in, in terms of mortgage repayments throughout the year?

Hi, Todd. Yes. We baked in paying off St. Clair in that guidance, so that’s we recently paid that off and we made that disclosure in the supplemental. I think our usage of short-term continuing to use the lines of credit to pay more of the secured debt later on in the year earlier in terms of Mall del Norte opened (indiscernible) that also helps us quite a bit. So with all the property – and also with all the property payoffs that we had even though we have $450 million it offset it was pretty much flat.

Okay, thank you.

Thank you.

You are welcome.

Our next question comes from Christy McElroy with Citi. Please go ahead.

Hi, good morning everyone. Hopefully, it’s a lot warmer down there than it is here.

It is.

As you think about non-core asset sales be on the three that you have identified in the sense that you are looking to sort of balance improving portfolio probably with earnings dilution, do you see selling primarily from that Tier 3 bucket? And can you provide some little bit of color on sort of the private market for malls with sales below 300?

Sure. Well, I would say, yes, the primary focus on the dispositions is in the Tier 3, which is for properties below 300. Not all of those malls would be ones that we would be looking to dispose of, because some we expect will be increasing in sales over 3 and hopefully into the mid 3s based on some redevelopment activity that we have done there and some other opportunities, but that’s really the primary focus is those properties where the sales are lower, the NOI growth is less and there like Farzana said, they are really a drag on our overall results. So by selling them then we are able to have a higher growing portfolio with what’s left over. So that’s I think answered your question one. Then as far as the private market, it’s strong. We have, like Katie said, we have these properties out in the market now, the three malls. We have gotten a lot of people looking, a lot of people doing serious due diligence. And it’s I think the financing markets are continue to be open for those properties on a lower loan to value basis, but there is financing available through banks, through other sources that those buyers are able to tap into. And obviously we will know more when we get bids and we see who the real active buyers are over the next 30 to 60 days, but from every indication that market seems strong and we are not the only out there trying to sell properties as well and there has been decent activity in terms of those malls of the $250 to $300 per square foot range trading.

In terms of your comments about the performance differential, can you provide same-store NOI growth and occupancy costs by bucket, just to get a better sense for the difference in performance among the buckets?

Yes. We didn’t include that in the tiering. As you saw, we included the sales and the NOI as a percentage, but it’s definitely lower. The higher sales per square foot tier, has the highest NOI growth. So we are just at the point where we are comfortable disclosing that specific number right now.

Okay. And then sort of looking longer term, what should we expect in the coming years, I mean, you talked about kind of a multi-year plan to transition of the portfolio, what should we expect in terms of earnings dilution from asset sales and reinvestment of proceeds over the next few years?

Well, our goal is to grow and but it’s to take two steps back to go three steps forward. And so we are looking at the dispositions not as a way to shrink the company or create dilution, but as a way to provide the proceeds for us to recycle and invest in assets like Cross Creek Mall like we did last year like the Sears projects at Fayette and CoolSprings where those malls are $500 a foot plus they have strong growth profile going forward. So that’s really the long-term plan. As far as the dispositions, we are a little bit subject to the market and how quickly we can execute. But one of the things we determined is that if we can accelerate it, then we will. And that would be short-term dilutive, but we feel like given the opportunities out there for us that we can overcome that in very quick fashion and put us – ourselves on a long-term trajectory that would be much more positive.

Okay, thank you.

Thanks Christy.

And our next question comes from RJ Milligan with Raymond James. Please go ahead.

Hey good morning. Stephen I was wondering if you can give a little bit more color on your discussions with JCPenney that you noted in your opening comments about not anticipating any additional closures this year is that within your portfolio or is that from JCPenney as a corporation?

Sure, RJ. We were actually in Penney’s office not that long ago, so we had the chance to talk to their real estate people and they explained to us that this round of closures was really all they had anticipated for this year at this time. Now we all know things can change. But at the time that you assured us that what we are going to see now is all there is going to be for this coming year and so that’s why I made that statement. We also like I said we are looking at our entire portfolio of Penney and not just Penney, at Sears and trying to be proactive looking at what would do with the spaces if they came back. We know based on sales per square foot, based on profitability which stores we need to focus on more than others. So we are trying to be ahead of the curve and if they do announce more closures then we will be prepared for them like we were for this round.

And can you quantify how many of your Penney’s are not profitable?

No they don’t tell us that, so we don’t know which ones are profitable, but we know just based on their volumes we can kind of come up with our list. And we see very limited risk. I think this whole thing is guiding overplayed. I mean we feel very confident that JCPenney will survive. I wouldn’t say that they won’t close additional stores at some point because they probably will. But we see them having a place in the mall and a place in the retail world given their strategy and we see them doing the right things and slowly coming back and it’s competitive and there are certainly challenges out there. But we don’t stay up a night worrying about getting JCPenney stores back. We see a few out there that we think will be redevelopment opportunities over the next few years. And we have got about four or five leases per year that expire over the next five years. So even if they were closing more stores that were leased versus owned it’s at a pace that we can definitely absorb. So there is just – it’s definitely a big factor out there in the market and given our concentration at JCPenney and Sears it’s an over hang that we have had to deal with. But we see JCPenney on the right track and Sears also doing a lot of things that are heading in the right direction.

Great, thanks Stephen. I guess I just have one related question for Farzana as to whether or not she has had any recent discussions with the credit rating agencies and what their relative comfort level is with the JCPenney and Sears exposure given the recent store announcements and their sort of deteriorating fundamentals at least for Sears and if there has been any recent discussions with them, with the credit rating agencies?

I haven’t had any recent discussions directly on the JCPenney or the Sears stores. They’ve put out their own analysis on that. But it all – as Stephen pointed out it’s property specific, it’s mall specific and how they’re performing in each of these properties. So their overall strategy of improving their portfolio and maybe they’ll close some stores and they will have some critical math that they will work with, but with the rating agencies they don’t seem to be concerned with our portfolio or with our rating. And so, so far I don’t – I haven’t seen anything negative from them.

Great. I appreciate the color guys. Thank you.

Thank you.

Our next question comes from Nate Isbee with Stifel. Please go ahead.

Hi, good morning. Just to clarify the comment about the occupancy pickup not being as strong as expected. I believe last quarter you had $8 million of NOI that was teed up – signed but not yet opened and I think $4 million was supposed to open in the fourth quarter. Can you address those leases where did all those open; did all those open on time?

Hey Nate. In terms of leases opening in the fourth quarter I think what we need to clarify it’s the difference of the old rent versus the new rent. So it’s not the growth rents that needs to be factored again. So we had as I mentioned in my remarks about $2.5 million of base rent increase in the fourth quarter so that’s reflected of the prorated rent for the spread difference. So even on renewal it’s the spread and on the new leases it’s also that you have the stores vacating so that rent is lost. So that’s what goes into our numbers. So $2.5 million of base rent is worth a number that picked up. We picked up however we did have the offsetting percentage rents decline and the operating expenses increasing that muted our results otherwise we would have had a good same-center NOI quarter as we were hoping for.

Sure.

Additionally as Stephen mentioned earlier on the occupancy piece it was not so much that – we were expecting more of a pickup in the occupancy and that did not materialize. The additional spread we would have achieved within our NOI guidance or within the same-center NOI.

Okay. So I mean – so all the leases that were signed last quarter, by last quarter’s call opened on time, would you say?

Yes. They opened as and in the commencement, that commencement dates that we have provided in the additional color that will give you a little bit more color on the commencement date in 2013 and 2014. So again you have to prorate that and they all have opened on time. We do pride in ourselves of making sure these – the new tenants opened on time and we do everything possible to accelerate. The last thing we would like is for any delays and we work pretty hard to get these stores opened on time and if not earlier.

And then Stephen you mentioned the fall-out some of the tenant fall-out. And I guess asking Christie’s question, but definitely would you say that most of that fall-out was in the lower tier and the spread on NOI growth was bigger, was significant I should say?

Yes, it was more disproportionate in the lower tier than it was in the higher tier. You look at the occupancy in the higher tier and it’s over – it’s close to 98%. So those malls for the most part or fall and that’s why we’re trying to come up with the redevelopment to expand them and to create the additional capacity. So the challenges for leasing are definitely more in the lower tier and some of the lower productivity assets.

Okay. And then just going back to the JCPenney question, when could we expect to hear specific lease announcements for those four boxes?

Well we don’t have the first lease doesn’t expire until August of this year. And then the others don’t expire until next year, next October. So we’re still collecting rent. And I’d say in terms of announcements as to tenants we’re probably looking at sometime late second quarter so, probably even into the third quarter just because it takes time, you know, in terms of getting the leases signed before the retailers are willing to announce and we’re still at the phase where we’re evaluating which retailer we want to put and reach in which location because we do have options with different boxes whether it’s some of the sporting goods guys we are talking to, some of the arts and crafts and other retailers that are growing and the box interest that we’ve got and is something that we’re pleased about.

Okay. And then just one final question, if you could just may be address the decision to raise the dividend this year given the Penney’s closures that were announced and perhaps need to spend upwards the $40 million to back fill them and perhaps even you mentioned that it could be more down the pike and how you wait the desired to raise the dividend, but also its conserved capital on an uncertain royalty.

Well, I mean, our JCPenney exposure from the four leases closing is $1.4 million so in the grand scheme of our revenues over billion dollars it’s not material.

I know the…

Our payout ratio is I think one of the lowest in the business or in our peer group we are in the mid 40% range so, and their decision to raise the dividend was consistent with our taxable income increasing and like we said for a while our dividend tracking our taxable income and it’s not – a day per day tracking in that something that it gets influenced also by the dispositions depending on what happens with them, but that decision was really driven by that primarily and we didn’t see capital conservation being a consideration at all.

Okay, thank you.

Thank you.

Our next question comes from the line of Craig Schmidt with Bank of America. Please go ahead.

Thank you. I’m looking at two of your bigger development CoolSprings and Fayette both targeted for 7% returns. I wonder if there is something specific that was keeping that a little bit lower than some of your other yields.

Hey, Craig, yeah, it’s a combination of factors we had to buy the boxes from Sears. It’s a combination of doing expansions and also redevelopment of those boxes. There is a couple of retailers that are real exciting type retailers that we can’t name today, but the deals are favorable, but their impact into the center will be tremendous to have upside in terms of percentage rents that we don’t include in our pro formas in upside possibility there. So that the 7% is a starting point we see a lot of growth in that and that’s just where we’re going to come out of the box. So, it is lower by when you look at the cap rates of those malls, it’s still a very accretive investment and we’re excited about getting those going and getting them open part of it or getting them opened next year.

Great. And just real quick do you know how many RadioShacks are in your portfolio?

Sure. We have well, I think, it’s 58 stores to be exact and the total growth rents is $0.7 million. We didn’t talk to RadioShack after the rumored closing of 500 stores yesterday and what they told us is, number one and that announcement is pretty mature, number two that they have decided how many stores they’re closing in that if we are impacted at all, it will be very minimal, you look across our portfolio and our occupancy cost is 12% so, it’s very much in line with that type of use and we’ve work with them over the past years to bring that down because it was higher and we’ve also in the past years replaced several of the RadioShack locations. So, they said that really the closings would be for leases that are expiring naturally over the next few months and it sounds like the report just got ahead of where the company was.

Great, thank you.

Thanks, Craig.

Our next question comes from Michael Mueller with JPMorgan. Please go ahead.

I guess when you were talking about 2014 NOI guidance your talking down time as playing factor in that. I was wondering if you talk a little bit about the whole idea of just it seems like the down time to upgrade the tendency. How was that different from down time associated with just kind of replacing tenants with the similar type tenants from before is it your just being I guess more proactive in terms of letting people fall through, letting tenants fall out or is it does it actually take a longer kind build these basis out for this other type of tenant?

Yes. It’s a little of both. It’s I mean definitely we have been more willing to let tenants fall out and to bringing better retailers everything will be right retailers with the store for the malls and more productive over the long-term through. And that we announced earlier this year as it change in our strategy because over the past years we’ve been maintaining occupancy during higher percentage short term leases. So, that’s one component and then the second components it just bringing in the larger users. Whether its H&M we’re doing a lot of business with them those stores are 15,000 to 20,000 square feet lot of moving pieces in terms of retailers having to relocate create vacancy and then it bigger stores who takes longer also we’re doing with an several deals with them. Again similar when we are doing the box deals then more complicate and take longer and it’s an impact in terms of the downtime that’s lowered our NOI growth and I don’t think we adequately projected it earlier this year when we factoring and our NOI growth into our projections. But now we’ve done a lot more research and done a lot more work in terms of building that into the expectations for next year. And then third factor is like Farzana said some of the Tier 3 malls, those are the ones where it just taking longer to release some of the spaces. So, that’s the factor that’s been weighing on the numbers as well.

So, with those types of tenants tier, I guess renewal spread, what you have been generally widening over the past year to in your new leasing spread today start to compress again with this different type of tenants or doesn’t that impact turned?

I think our renewal spreads are going to continue to improve. Our new leasing spreads have been strong and are continue to see – and we’re trying to do more new leasing because of how positive that’s been. And then even through occupancy was flat I think were 95% leased is really no new construction virtually no new construction and we’re seeing good demand and this isn’t any names doom and gloom or a negative scenario. We’ve got a lot of strong fundamentals in our favor the economy is improving and retailers have not slow their expansion plan. So, we seeing just their higher occupancy levels we feel like will be able to maintain and continue to improve the leasing spreads and that’s a top priority again in ‘14.

Okay. And just two other quick ones here. I was wondering if you get you talked about laying out the 3 tiers in the supplements. If you just thinking about market pricing I mean what’s right cap rate or the market cap rate for malls to falling to those 3 buckets. And then secondly with the stock I guess down again I mean do you consider buying stock back in some point?

Well, we are not planning on buying stock back just in terms of our capital users. We feel like the best use of capital even at the stock price is to invested in our assets, our higher productivity assets to create that long-term growth and the stores for that is not issuing equity, but it’s a disposition to the lower tier assets like I said. And as far as cap rates, it depends on if you are buying or selling, I mean, obviously for selling we want a more attractive cap rate and a lower cap rate and when you look at these assets, there are factors that are going to influence the cap rate whether they have debt in place, what the rate is, how long that debt is there, I mean that’s going to influence the pricing redevelopment prospects. There is just a lot of different factors that come into play. So I don’t really want to get out there and start cutting cap rates, Green Street likes to do that. You can check their reports.

Thanks.

Our next question comes from Ben Yang with Evercore. Please go ahead.

Hi, great. Thanks. Another question on the disposition strategy, Steve, you mentioned possibly accelerating the pace of sales if the market is there, but you also mentioned the private market is strong and financing is actually still there as well. So I just don’t quite understand, I mean, why subject your investors to this water torture kind of dribbling out to me the four malls of the year? I mean, why not just rip the band off and try to sell, I don’t know, 15, 20 malls as aggressively as possible. One of your peers obviously was very successful with that strategy last year, so I just don’t understand why it wouldn’t be successful for you guys either?

Well, we apologize for the water torture. That’s certainly not our intent. We are looking at accelerating like I said. We only were successful in our first large disposition of malls last fall. And it unfortunately takes time when you are dealing with private buyers and our private process. And there is a lot of properties out there in the market. And we feel like that over a three-year, three to four year timeframe we can get this done. We would love it to happen faster, but we are trying to be realistic with our communications on this. And I know other peers have done things little differently. And some things have worked better than others, but we think that we would like to set expectations at that level like we talked about. And if we can do better, then we will certainly communicate it and that would be our goal to accomplish this transition as soon as we can, because it’s going to be better for us, because it allow us to have that faster growth profile.

And the three or four malls that you are marketing, is that in your guidance currently, the dilution or will that impact your numbers once those deals close?

Yes. It’s in our numbers. We don’t know what the timing is going to be. We don’t know what the ultimate pricing is going to be. So we figure it’s better not to include it. And then we will update as we make some progress.

Okay. And maybe last question switching gears a little bit, I definitely appreciate your comments on the mall traffic, but the other big story during the holidays was obviously the rise of e-commerce, so just wondering if you could maybe share your views on this dynamic and maybe specifically address how e-commerce might impact B malls differently from A malls if that’s the case at all?

It was certainly a major topic. And it’s something that everyone is trying to get a handle on and understand what we feel like is our malls given that they are the dominant or the only mall in their markets that it’s more than just a shopping experience. It’s a social experience, entertainment experience. They are town centers in our communities. And their role has evolved in terms of adding restaurants, adding experiential uses, adding more events and programs. So those are the types of things that we are focused on in terms of “competing” with the internet, is to make the mall experience as compelling as possible to our shoppers. And like I said, we didn’t really attribute the decrease in sales to traffic, I know a lot of retailers have jumped on that bandwagon in their comments over the last month or so, but our food courts were for the most part higher in sales. Our restaurants were busy. The types of impulse uses that we see in the malls, their business was up. So the sales decreases we didn’t see coming from traffic. We saw it coming from the highly promotional sales environment, from deflation, from discounting, from all that types of things. And then from the juniors and other people talked about it, but we have a higher percentage of juniors and of children’s, American Eagle, Arrow, Abercrombie, Buckle, Hot Topic, those kind of – those retailers which as has been documented out there, their sales have been down just given all the competition and then some of the fashion preferences out there and other struggles like teen employment issues like that. So we don’t see traffic being the problem. And the internet is it’s a double-edge sword, it’s got a lot of positives in terms of what retailers are doing to adapt. And our peers have talked about it in their calls as well, but the retailers are really investing in making Omni channel work and putting their inventories online, allowing shoppers to buy anywhere, pick anywhere, have good celebrity anywhere, make it a seamless transaction. We have looked at the same day delivery that GDP and Macerich and Simon and Westfield have. And we think that’s got possibilities as it expands to other parts of the country. And it’s all about providing good service for the customer. And retailers have been very innovative. They have got the footprint. They have got the bricks and mortars locations that they can use whether it’s for distribution or for giving customers the opportunity to return goods. So we don’t see this as a negative. We think it’s something that’s going to help our business over both the short and the long-term.

Well, I guess maybe more specifically, I mean are you at all concerned that maybe retailer might not need a store presence in the only mall in town if they can get the same presence on the internet. I mean, are you having those type of conversations, maybe that’s something that’s not really going to impact your business longer term?

I mean, we think it will be the opposite. We think the retailer want to maintain their store in the way where it’s only one mall in the market, because that’s part of the experience giving customers the opportunity to touch and feel the merchandise to return it. And so it’s just in the markets where you have got seven or eight malls or five or six malls where they might not need as many locations. So those are the more vulnerable situations from the retailers.

Great, thanks Stephen.

Okay, Ben. Thank you.

Our next question comes from Carol Kemple with Hilliard Lyons. Please go ahead.

Good morning. During the call, you mentioned that Sears was doing some things that made me think the company was heading in the right direction? Can you share those with us?

Sure, Carol. Good morning. Well, Sears invested a lot in their online, in their loyalty programs. They have got some strong brands that everyone, whether it’s Kenmore or Die Hard or other craftsman or other brands like that that they have really been focused on. And the strategy has certainly had its challenges in terms of some of the losses that they have had. But what they have been able to do in a number of their locations in terms of subleasing them and bringing in retailers like Whole Foods or Dick’s Sporting Goods or stores like that are downsizing or rightsizing their footprint to the right level is something that we find encouraging. We have one of our properties in Greensboro, North Carolina friendly center where Sears subleased the Whole Foods. They own the building. They renovated their store. Their sales are equal to or even better what they were from the larger footprint and point of view the Whole Foods is the new anchor and drives a lot of traffic. So that’s the type of thing that I was referring to earlier when I made that comment.

Okay. And then do you have any thoughts on calling our preferred D shares at this point?

Not at this time, which should be we are still sticking with the rate and unless and until we have an opportunity to refinance at much lower coupon that when we would consider it.

And if you disposition strategy you are able do it a lot quicker than – would you all just speed up redevelopment in your mind or would you call those preferred shares?

We will use those proceeds temporarily to pay down our lines of credit or and otherwise that money will go right into developments and expansions that you have seen in our supplemental. We have a very robust pipeline and also with our shadow pipeline. So, those are the funds we anticipate earmarking to recycle into our properties.

Okay, thank you.

Thank you.

Our next question comes from Daniel Bush with Green Street Advisors. Please go ahead.

Thank you. Just going to back to CoolSprings and Fayette quickly now that they are on the development schedule or the shadow schedule, can you share with us what the cost of data are that’s in the developments in progress line item?

One second. Yes, we’ll get back to you after the call, but we have literally just – we haven’t even started construction in CoolSprings. It’s probably premature.

And staying on that points just think about Sears JCPenney boxes, as I think about – when you think about your portfolio how far down the productivity spectrum, I guess does the return makes sense for you to purchase the boxes, but is it really just reserve for your Tier 1 assets or is there some opportunity to the Tier 2 as well?

Yes. Each one really we have to look at individual, we are purchasing the JCPenney’s releases. So, it’s more a question of investing the capital to do the redevelopments and bring in the boxes and also creating out parcels and other uses. So, we would look at them. And even if our goal is to sell the asset, it might makes sense to go ahead and either tee up or do the redevelopment, because then we’ll create a higher income stream, we’ll create more stability in the property long-term. So those are the types of things that we are thinking about.

Okay. Just the one last question I guess, just thinking about the tier – the three different tiers, not speaking really about what the NOI growth was, but as you think about you spoke the profile for the Tier 1 is obviously materially better than the Tier 3. What do you think or can you quantify what the long-term NOI growth profile is between the three tiers?

No, we haven’t really got into the specifics as to what the differences in the NOI growth, but it’s clearly higher for the Tier 1 than the Tier 2 or Tier 3.

Okay, thank you.

Thank you.

Our next question comes from Rich Moore with RBC Capital Markets. Please go ahead.

Yes. Hi, good morning. Good afternoon guys.

Good morning.

First of all, thank you for the extended disclosure in the supplemental, that’s all very good stuff and much appreciated from my standpoint. The first thing I have for you is as you think about that Tier 3 group, Stephen, I mean some of those assets I understand what you are saying, you could do some redevelopment, you could push the sales per square foot perhaps in the 350 level or higher, but there is going to be – just doing the math there is going to be probably half of those anyway that you probably can’t do that with. So, I mean what are you thinking in terms of the total size of the disposition group. Is it 20 assets? Is that what we are talking about?

Well, I think last quarter I said we had roughly 20 assets that we were looking at and it’s not a list that is set in stone and certain properties if might have different factors that way in, but I would say that’s roughly the number that we’re looking at and like then said it’s not going to happen quickly at the phase we’re going, but if we can find the way to make it happen quickly then we will.

Okay. So, if your, I mean, if you’re thinking about 10% plus of the NOI of the company, it seems like you should may be give us some guidance as to what you’re thinking because I mean, you had $0.06 of loss earnings this year just from the disposition you did last year that was a smaller poll so, I’m thinking that it’s a bit of an overhang I guess if we don’t have some guidance is to what you’re thinking and I understand that they may that fluid and you may get pricing but some kind of guidance might ultimately be helpful just as a thought for you.

We’ll take that into consideration. That’s a good point.

Yes, I know traditionally you don’t give guidance for acquisitions and dispositions and I understand the rationale behind that. What are the three assets that are for sale, I mean, the three in the non-core group or is it three different ones.

Actually one is York Galleria which is not, which is in Tier 2, (indiscernible) Mall and Randolph Mall are the three that we’ve got listed right now.

Okay. And then you said there was one other that you had.

It’s Lakeshore Mall in Sebring Florida. And that’s in the tier 3.

Okay, good. Thank you. And then the only other thing I had was the percentage of rent changed year-over-year as you guys noted that was down from last 4Q. Is that just sales or is there something you changed structurally in your leases, I mean, you don’t got – you got fewer you know recaptured percentage rents as base rents kind of thing?

It is the sales, that’s just a function of sales and with the lower sales, low breakpoint, not meeting the breakfast for the sales – percentage sales declined.

Okay, so the sales pickup this year, Farzana, we could bump those back to the historic.

And department stores were, I mean JCPenney was a big part out it because their sales decreases and in the leases with them, we were getting decent percentage rent.

That’s great.

A lot of the other cases with the small shops then we’ll convert the percentage rent to base rent so that we don’t see as much of impact on percentage. That will impact percentage rent but then that transfers base rent so, we are able to absorb that.

Okay, alright, great. Thank you guys.

Our next question comes from (indiscernible) with Goldman Sachs. Please go ahead.

Hi. We kind of touched on this earlier, but just on the topic of being the only mall in the market. Do you have any view on whether it could potentially be a negative from the standpoint that it would be more difficult and expensive for retailers to distribute to the center?

Hi, we haven’t seen that in terms of the retailers mostly even though, it’s the only mall in the market that geographically they organized into regions and so haven’t indicated that they have this distribution issues and in one situation we’ve been working with department store on the location and for a pure retail store their evaluation has changed because now they’re looking at the stores, not only for retail, but also for distribution for internet sales so, they view it as a gap in the market and so it’s something where they feel like they can justify the store on that basis where maybe they wouldn’t have just on sales line. So, that’s more the way we see playing out.

Got it. And then just second question you mentioned that you wouldn’t want to necessarily dispose of all your Tier 3 properties because some of them could ultimately achieve at least $300 per square foot in sales. I was just wondering if you could comment on whether Monroeville, Foothills and Northgate fall into that bucket as the three are currently under redevelopment or were recently redeveloped.

Yes. Those are all good examples, Monroeville really the sales had been over 350 or in the 350 range. Then we had a closed department store for a couple of years. And so now with the new activity, the new theater that opened, Dick’s under construction, H&M opened, we have made some really good inroads on vacancy there. So, that’s one that we definitely see progress. Northgate, we bought it at 23% cap rate in an auction 2.5 years ago and we have been having boxes and expanding it and redeveloping the property and it’s very accretive to our shareholders. And Foothills is the property where with the Sears lease expiration, we were able to replace them. And so we feel like it’s positioned now for either to retain it in the portfolio or something that if we decide to sell we have got that flexibility. We also have a supermarket coming in just across the street. So that’s an opportunity for us.

Okay, great. Thank you.

Our next question comes from Ross Nussbaum with UBS. Please go ahead.

Hey, guys. I am here with Jeremy Metz. Two questions. One is I understand the explanation along the same store NOI growth with respect to some of the elevated expenses on marketing securities no removal. What I guess I don’t understand is why those were not recoverable under CAM pools and why that actually had a negative impact on same store NOI. Shouldn’t the tenants have reimbursed you for that?

Hi, Ross. You would expect that if we were on a pro rata CAM that, that would happen, but we have converted majority of our leases to fixed CAM. And we do have 3% annual incremental increases that will get in the future and any new tenants that come in, we build that into our CAM pools. So their new fixed CAM numbers are indicative of higher cost. So it’s a matter of timing. Of course in future, we pick it up, but as of the quarter that doesn’t happen.

So, basically your OpEx went up more than your fixed CAM adjustment did?

That’s correct.

Okay. Question number two is sort of related to that as we look at the positive healthy releasing spreads and then I think about the sort of CAM reimbursement ratio. Are you – I don’t want to say intentionally, but is there any sacrifice going on between top line rent in the terms that you are getting on the CAM pools in these leases?

Well, we of course have certain leases that we will do on a gross basis. It just it all depends at lower tier, the Tier 3 properties tend to have that pressure on the recovery on the fixed CAM whether we do and grow, so whether we end up separate fixed CAM with base rent. So, it’s all a combination. It’s hard for us to kind of tell you today how all of this plays out, but if you look at our occupancy cost ratio, overall it’s – it is less than last year, but because of the operating expenses, however it’s still above 95 – close to 97%, 98%. So we are recovering a lot of the cost.

Okay. Stephen on the asset sale front, what is plan B if these malls don’t actually sell for whatever reason whether it’s lack of buyer interest or buyer and seller are too far apart on price then what?

Well, that’s a good question. Certainly, the plan A is our preference and that’s the direction we are heading, but the plan B is to continue with running these properties and maximizing the rents and the operations in the NOI. And we have done that over our history successfully. This is more of a unique couple of year period that, that’s created the slower growth in portfolio. But we don’t feel like these assets are long-term problems, we just don’t see them having the growth over the next couple of years and so we wanted to be able to transfer the portfolio into a faster growth portfolio by doing those dispositions.

Okay. Lastly on Madison Square where you took the impairment, can you just walk through what specifically prompted the timing for taking impairment, maybe start with that and how did you come up with the resulting value that you did for the asset?

Ross, let me make correction, I meant to say cost recovery ratio as opposed to occupancy cost. So and as to Madison, we have been working on a redevelopment plan on Madison Square for some time now. We’ve been working with various different tenants, working with the city. We have redevelopment options and we were considering those as part of our impairment analysis. And we had consultants involved and as once we have determined that this was not a viable option for us we went through the process of analyzing the future cash flow, which is the normal typical process of calculating the impairments and when we determined that the future cash flows will not be there and they will not equal on net book value that’s when we determined what the amount of impairment is. It’s a calculation is a discounted cash flow analysis that we do and we have a terminal cap rate and we determine what the discounted cash flow would be and then compare it to the net book value that determines our impairment loss that we recorded. So it’s up, it’s a mathematical calculation with lot of inputs. And once we determine that that gives us a number.

Should we be expecting any other impairments over this year as you do with similar analysis on other malls that might not get redeveloped?

Well, we have some properties as you know that we’re in discussion with the lender. We took impairments on Citadel and Columbia in the past. We’re in discussion. We have been working with the servicer on Gulf Coast. We’ve been working with the servicer Chapel Hill. We have inputs on all of those as to what potential use might happen in terms of restructuring and if those bear fruition then we would not have an impairment, it just all depends what the ongoing results would be and we do quarterly analysis unless there is some immediate decision that we make on a certain property whether we sell or whether we decide that that’s no longer an option. So at that point in the interim if it’s a big of number then we obviously will report it. But on a quarterly basis that is an analysis we conduct and we will take – make those decisions in the future. But as of right now this is the only one we impaired.

Thanks very much.

Our next question is a follow-up from Christie McElroy with Citi. Please go ahead.

Thank you (indiscernible). Stephen I wanted to go back to something you said in your opening comments and I am not sure if I heard you right, but when you are talking about sort of this multi-year plan, I think you had said something about sharing more details over the coming months. I guess that I hear you right? And I guess what are your plans if that’s the case?

Yes, what we are hoping to do is at some point before the – our next call to have a call with our investors and analysts and just talk more specifically about strategy and about how we plan to execute this over the next three to five years. And when you get into an earnings call there is a lot of other consideration, so what we are hoping to do is to – when we’re ready and we are – like I said we are doing the review right now and we wanted to rush it and we want to do it. So we are prepared to talk about it, but that’s our plan. That’s what I was referring to.

Right. And for something like that will be a much more detail in terms of here is the potential source of the capital that we’re going to raise, here is the potential uses of that capital overtime, here is where we are from our portfolio perspective today, here is where we want to get to be, a very in depth exercise about where the portfolio is and where you want to take it?

We will let you write it for us. You sound like you know exactly what we should say. That’s the type of thing we are thinking about.

Okay I think that would be helpful just obviously there is a lot of questions obviously today surrounding what eventually would come, I do want to come back to sort of the guidance decision you do have the three malls that are listed. And I think Katie mentioned another for $20 million so call it upwards getting close to $200 million and I know you don’t know the pricing of it but I guess what was the decision in terms of not at least layering in some dilution or some potential in terms of an assumption of saying look if we sell these assets in our guidance mid-year and we are going to pay down the line initially it’s going to be X cents dilutive or upwards dilutive to at least sort of guide the street a little bit in terms of what potentially could come in the near-term.

Yes, we hear this suggestion and we will take it into consideration. We appreciate the feedback.

But my question is on the percent of same store NOI in terms of the buckets and I think the disclosure is extraordinary helpful. I know in years past you have provided the sales productivity per asset but having in the supplemental percentage of NOI is helpful, this has percent of same center NOI almost upward of 10% of your NOI is not same store and you marked here the assets that are excluded. What would – how would these buckets change if you were to look at it as a percentage of total NOI. So the Tier 1 today is 30.5% does that go up to 33% and Tier 3 is at just under 20% does that go up when you include some of the assets under redevelopment, I am just trying to understand sort of same center total?

Yes, okay.

Yes, let me answer that, it will be a little bit different not materially different. We understand we use the same center but even if you add back the non-comparable malls, it will not make a material difference probably the 30% might be 28% and that’s sort of number. So it’s not a big difference. But we will clarify that next time.

Okay and I didn’t know what the basis was whether it was the quarter or for the full year in terms of the NOI, I don’t know if you have this but how many of the 80 malls have NOI below $10 million versus above $10 million?

We don’t have that here and we will – most of those malls Michael also are going to – that aren’t in the same center are going to come in ’14, so it’s just a function of ’13, so that will be in the next disclosure.

Okay, that’s helpful, it sounds like if York Galleria is for sale and you are talking with a servicer on Gulf Coast that Tier 2 assets are candidates as well for sale, this sounds like or foreclosure, right I mean not just the Q3 assets that we need to be mindful of?

For our York Galleria I mean when you look to the package we fell like it made sense to improve the overall sales and also cluster it was Straus given the proximity. But for the most part the focus is really the Tier 3 and Tier 2 their assets are stable and the metrics are more favorable and those we view as key for us.

Okay, thanks for the clarifications.

Okay. Michael, thank you.

And we have no further questions from the phone line, so I will now turn the call back to you Mr. Lebovitz.

Thank you everyone for you attention I think we set a record today and we will look forward to hearing form you and communicating in the future. Have a good day.

And ladies and gentlemen, that does conclude the conference call for today. We thank you once again for your participation and ask that you please disconnect your lines.