CBL & Associates Properties, Inc. (CBL) 2002 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CBL & Associate properties conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded Thursday April 25th 2002. I would now like to turn the conference over to Mr. John Foy Vice Chairman and CFO of CBL & Associates Properties. Please go ahead sir.

Thank you. Good morning. We appreciate your participation in the today's call to discuss the results of the first quarter of 2002. With me today is Stephen Lebovitz our President and Kelly Sargent our Director of Investor Relations who will read our Safe Harbor disclosure.

This conference call contains forward-looking statements within the meaning of the federal securities laws. Such statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which may not even be anticipated. Future events and actual results financial and otherwise may differ materially from the events and results discussed in the forward-looking statements. During our discussion today, references made to per share is based up on a fully diluted converted share. We direct you to the company's various filings with the Securities and Exchange Commission including without limitation in companies annual report on Form 10-K and the management's discussion and the analysis of financial condition and results of operations incorporated are reference for discussion of such risks and uncertainties. I would like to note that a transcript of today's comment including the preliminary balance sheet and comprehensive debt schedule will be filed as a Form 8-K this afternoon and will be available upon request. This call is also available for replay on the Internet through link on our website at www.CBLproperties.com. This conference call is a property of CBL & Associates Properties Inc. Any redistribution, retransmission, or rebroadcast of this call without express written consent of CBL is strictly prohibited.

Thank you Kelly. In the first quarter of 2002, we marked the one-year anniversary of the $1.3 billion acquisition of 21 malls and two associated centers from the Richard E. Jacobs Group. We have completed the successful integration of these acquired properties into our portfolio and continued to see opportunities for growth and value creation in these properties. Highlights during the first quarter included: FFO increased 17% to $1.10 per share. During the quarter, we commenced construction on Parkdale crossing, the first new development opportunity associated with the 21-mall acquisition. Including this new project, we currently have a total of 1.2 million square feet under construction. On March 11, we completed the follow on offering of $3,352,770 million common shares generating approximately $115 million in that proceeds. These proceeds have been used to pay down lines of credit and outstanding construction loans. Other significant financial highlights. For the quarter, our EBITDA coverage ration was 2.64 times interest expense compared with 2.3 interest expense in the same quarter last year. Our cost recovery ratio was 90.8% for this quarter compared to 99.7% for the same period a year ago. The cost recovery ratio has been trending down from the first quarter of 2001 as a result of bankruptcies, store closings, and from new lease negotiations with certain tenants. Historically, our cost recovery ratio has been closed to 93% level and we anticipate that our cost recovery ratio will trend near this level by the end of 2002. Percentage rent during the first quarter of 2002 increased 40%. The percentage rent in the core portfolio was $3.2 million versus $4.2 million for the prior year. This was a result of lower sales, fixed rental increases, and our policy of converting percentage rents into higher minimum rents. The acquired portfolio provided $3.5 million of percentage [rent] income in the first quarter. We would like to note that percentage rents last year represents less than 1.8% of our total annual revenues. Same center NOI growth for the quarter was 2.2% for the total portfolio. NOI was mixed among our property types with our core mall was down 3.8% and our community center is down 5.5%. This was offset by a 4.3% increase for the associated centers and an increase of 9.6% for the acquired malls. Community centers were impacted by the bankruptcy of one home place and one [regal] cinema location. The core model portfolio was adversely impacted by a decrease in percentage rents that accounted for 68% of the NOI decrease. Our FFO calculation excludes out parcel sales. For the quarter, out parcel sales with increased FFO by $0.01 per share to $1.11. Before consideration of out parcel sales, our dividend payout ratio for the quarter was 50.41%; including the out parcel sales the payout ratio was 49.82%. During 2001, we intentionally increased our floating rate debt exposure due to the favorable interest rate environment. At the end of the first quarter, approximately $786 million of our total debt was floating rate. We hedged $220 million of this and $37 million is related to construction properties leaving $530 million applicable to operating properties. This amount will be significantly reduced as we are currently negotiating an approximate of $400 million [CMBS] financing, at fixed rates, which will result in an adverse impact of approximately 350 basis points above the current floating rate. Even so, we feel this is the proper action to take for the long-term and we expect this transaction to close within the next 60-90 days. This financing will place long-term non-re-coursed fixed debt on nine properties. These properties will not be cross collateralized or cross defaulted which is consistent with our belief in managing risk. With the completion of this refinancing, we will be less than $150 million of debt maturities during 2004. During the first quarter, we spend $4.2 million on tenant allowances. 900,000 on revenue neutral capital expenditures and $10 million on revenue enhancing capital expenditures. The revenue neutral and revenue enhancing capital expenditures are primarily remodeling and renovation costs with the majority being recovered from tenants. For the combined portfolio, we are projecting to spend $25 million on tenant allowances, $35 million on revenue neutral, and $62 million on enhancing capital expenditures in 2002. We are now in the second year of our four-year plan to renovate... upgrade the 21 acquired malls, which includes comprehensive interior and exterior renovations. These capital expenditures were anticipated when we acquired the portfolio. This year will be very active as we renovate four of the acquired malls. They are Columbia mall in Columbia, South Carolina, Hanes mall in Winston Salem, North Carolina, Kentuckian Oaks, Paducah, Kentucky, and Parkdale mall in Beaumont, Texas. Of the total capital expenditures and estimates for 2002, $38.6 million are associated with renovating the acquired mall properties. In the first quarter, we increased our stabilized mall portfolio occupancy to 92.9%, representing a 160 basis point improvement over occupancy one year ago. Currently, we have many new retailers under construction for a near-term opening in our portfolio, which will increase occupancy levels. The new stores under construction include retailers such as [Hollister, Hoche, dry eyes, powdery barn, and Josepha banks]. We have been able to maintain occupancy levels at our properties in difficulty economic environments. We believe that the rental rates and the demand for retail space will continue to improve as the economy strengthens. I will now call on Steven to discussing leasing retail sales, developments, and acquisitions.

Thank you John and good morning. In the first quarter, we leased approximately 730,000 square feet in our portfolio. The average renewal rents as compared to prior rents and percentage rents decreased 2.9% in the malls. A significant portion of this decline was a result of remodelings and renovations at certain malls where we converted tenants to percentage rent on a short-term basis. We feel that after the remodelings are completed, we should be able to negotiate better rental increases with certain tenants. At our associated centers, increases for same store leasing was 15.3% and the community centers increased to 6.1%. Based upon the criteria of including only stores of 10,000 square feet and less from all stores, same store sales for the first quarter of 2002 decreased 1.1%. Substantial sales recoveries in February and March offset a 10% sales decline in January. We are optimistic that this positive sales trend will continue. Occupancy cost as a percentage of sales at our malls was 14.3% for the quarter ending March 31, 2002, the same as the quarter ending March 31, 2001. Occupancy cost in the first quarter has historically been the highest of the year and trends down through the year. Department stores and speciality retailers appear to be enable to operate their businesses more efficiently by effectively managing inventory and operating margins. Based up on our discussions with many retailers, there continues to be good demand for retail space. During the first quarter of 2001, we lost 227,000 square feet at our portfolio due to tenants filing for bankruptcy and disavowing leases. For the first quarter of 2002, we lost only 12,000 square feet to bankruptcies. We continued to focus on replacing this square foot with tenants that are stronger and bringing new retailing concepts to our properties. Currently, we have 1.2 million square feet under construction including Parkway place in Huntsville, Alabama and expansion at Meridian mall in Lansing, Michigan, and Parkdale crossing and associated center in Beaumont, Texas. We announced earlier this week that we have started a construction on a new community center Waterford Commons in Waterford, Connecticut a 354,800 square foot development. Last week, we announced the acquisition of approximately 25 acres adjoining the 1.1 million square feet Fayette mall in Lexington, Kentucky for an expansion of this retail complex. This provides us the ability to expand the successful mall, which has sales of approximately $500 per square foot. With the short-term, the sale of [Horizon] has leased back the property at a 10.5% return on the $9.5 million purchase price. Parkdale crossing in the future development track at Fayette mall represents the first the two new development opportunities to be realized in the newly acquired mall portfolio. Although, new developments in this portfolio were not part of our underwriting [and] acquisition, we expect that such opportunities would materialize. The seven projects are currently under construction represented a total investment of approximately $120 million. As of March 31, $36.5 million have been invested. Construction loans and credit facilities are in place for the remaining construction costs. Initial un-leveraged [deals] on this developments are expected to range from 9-11% after management and development fees. Our mall development pipeline includes the mall of South Carolina and [_____] South Carolina. We also have additional projects in the predevelopment phase and expect to announce them in the near future. We will be renovating seven malls this year. In addition to the four malls previously mentioned, we will renovate St. Claire Square in Fairview Heights, Illinois, Parkdale mall in Beaumont, Texas, and Stroud mall in Stroudsburg, Pennsylvania. During the first quarter, we opened two new department stores targeted at Citadel mall in Charleston, South Carolina and [_____] College Square mall in Morristown, Tennessee. We also completed the sale of [_____] department store at Ashville mall to [_____]. _____] will have two department stores at this mall one store will focus on women's apparel while the second will focus on mens, children's, and home furnishings. During the first quarter, we sold one community center Rhett at Remount in Charleston, South Carolina for a gain of $1.2 million. This gain was reflected in the income statement and gain on disposal discontinued operations with operating income from discontinued operations of 35,000 and 26,000 for 2002 and 2001. In late April, we will close the sale of one part placed in Chattanooga, Tennessee, which was our former headquarters. The proceeds from these transactions will be used to reach our debt. The select disposition of assets continues to be a priority for us, but we will only do some of the transaction and enhance shareholder value. While we have no acquisitions, we continued to investigate new opportunities, which meet our criteria. Auditor Anderson has been our auditor since 1978. In light of the present circumstances, our audit committee is meeting with several perspective auditors and we will be making a decision with engagement of an auditor in the near-term. Now, I will turn the call back over to John to discuss our outlook.

Based on our first quarter results and [barring/borrowing] any further disruptions from un-forcing economic events, we are comfortable with the current 2002 first call consensus estimate of $4.27 for the year. For the remainder of 2002, we continued to seek additional acquisition opportunities where our proven expertise in the redevelopment and expansion can be utilized to create additional value. Consolidation will continue not only in the shopping center industry, but in the retail and financial arena as well. We are ready and capable of participating in the consolidation so as to creed at added shareholder value. Disclosure, transparency, and consistency in financial reporting have been our approach since the inception of our company in 1978. We will continue to provide as much information as possible to facilitate all parties reaching their own conclusions from the information we present. Although, regional mall opportunities are somewhat limited, we will continue to pursue new developments in concert with our strong retailer relationships. We appreciate the confidence and support that we continue to receive. Thank you for joining us today and Steven and I will be happy to answer any questions that you might have.

Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledging your request. If your question has been answered and you wish to withdraw polling request, you may do so by pressing the 1 followed by the 3. If you are on a speakerphone, please pickup your handset before entering your request. One moment please for the first question. The first question will come from [Craig] Schmidt with Merrill Lynch. Please go ahead.

Hi [Craig]. CRAIG] SCHMIDT: Hi good morning. I was wondering, can you breakout the run spreads in the malls for new leases and renewals?

Sure [Craig], on the renewal leasing, the mall's core portfolio was a decrease of 4.6%. The newly acquired malls was a decrease of 1.8%.

And, you know, [Craig] the way we compete this is the base rent for the last year including percentage rents. So that's how we compare. So you really get a true and accurate picture of what that comparison is. CRAIG] SCHMIDT: And do you think that this spread will reverse itself by the later part of the year or will it take longer for that?

Now, we think that it will improve as the year goes on. CRAIG] SCHMIDT: Okay. And do you have share count at the end of the quarter for common and [OP] units?

Yes we do. That's share count [Craig] is $54,102,000. CRAIG] SCHMIDT: Okay. Thanks.

Thank you [Craig].

The next question will come from [Ann Melnick] with AG Edwards.

Hi [Ann].

ANN MELNICK]: Hi good morning. I was wondering if you could provide additional details on the Waterford Connecticut project as far as the estimated costs and what everybody's role is with your two joint venture partners?

Sure [Ann]. Hi, how are you?

ANN MELNICK]: I am doing well. How are you?

Good. This is a project that's just over 350,000 square feet. It has five anchor tenants that [are] execute leases and the total cost is $33.5 million. It will be opening in September of next year and we are working on completing the remaining development which is for the most part complete since the project starting construction and then handling the construction process as the project is built and then we are working with [St. Louisans] associates which is one of the partners on the leasing. They are primarily responsible for the leasing, but we are working side-by-side with them on that.

ANN MELNICK]: Okay what is [pacquert] role in this, packet development.

Pacquert] development was, he is a partner with Samuels. They handle most of the land assemblage in the permitting which was complete prior to us getting, us taking this over. So, their involvement is not that significant in going forward.

ANN MELNICK]: Okay that is all I have for right now. Thank you.

The next question will come from [Gerald Goodman] with Legg Mason. Please go ahead.

Hai good morning. I have got [_____] I have just got a couple of questions.

GERALD GOODMAN]: The fundamental question I guess for John or Steven is your core business fundamentals. You know your sales were down. Your sequential reads are down. Your cost recoveries have come under pressures here. You keep in your numbers. You keeping a great job, a lot of it is offset by the CBL portfolio, but you seem to think it allow these factors that are under pressure here and surrounds [via] this year and I am just wondering what you are seeing out there. What you are hearing from tenants and as you go into the next 50 days of key leasing for the holiday this year regard to the [_____] support. What do you expect to happen in Vegas? What you had keyed up that makes you feel better in the rest of the year?

A couple of things that I would say and then I am sure John can shine then, but I think the economy in the past year, primarily in the South East, has been very tough. I think that some of the rental and sales results are the impact of that; that we are still feeling. The sales actually for February and March we were strong in the portfolio. In January we feel was primarily the result of retailers having brought their inventory levels down so low in the holiday that they did not have anything left to sell. They were coming against the January 2001 that was up double digits because of the offset problem. So, yeah the quarter sales were down, but the trend we feel good about and the economy. The economic news that we are seeing out of a lot of our markets is that things have bottomed down. We do not see any tremendous recovery, but we do not see any decreases. So we feel good about the trend in the sales. On rents again there is some lag, but also it is hard for us to focus too much because some of these numbers are a little misleading. There is not as a percent of our total small shops. We really did not have that huge level of renewals or new leasing occurring in the first quarter. Like I said in the script there was some leasing that was intentionally done on a short-term basis where we were revolving over tenants and those Malls are under renovation because we think we will be able to do better when we re-negotiate those leases next year after the renovations are complete. So I guess we are just not that concerned about what you recall the fundamentals because we feel good about the trends, and in money that we are investing, and the properties that it has got to be paid back. It is going to be a small investment overtime.

GERALD GOODMAN]: That is [very good] answer. The relative question, you are giving percentage by DOs as sort of the debt on the rehab were yo do not want to commit for the tenants at this stage not be looking to pay the whole rent or want to first rehab scenario. How much exposure do you have there? Or you are talking significant dollars that you are looking to have these trends come back with next year? In sort of how much space you are talking about the real question?

David]. Less than 50,000 square feet. The prime example was in Hickory Hollow where we do a major renovation there and we think that by doing these percentages rent deals we can go back and get these tenants to see what a great job in the traffic pickup etc there and see some additional benefits as a result of these renovations. So that is the reason and total overall percentage rent wise it is less than 50,000 square feet the total overall portfolio. So, it is an is not significant thing.

GERALD GOODMAN]: Okay can you comment on capital rate trends. You are out there, what is going on and I wanted discussion about may be capital rates starting to come down a little bit. What are you seeing?

I think that on the sale of our, as you know, we have sold some of our community centers and we have seen capital rates they are to basically stay about flat somewhat coming down a little. I mean we have been very fortunate in some of those sales. I think it is a result of the fact that we do not have to want to sell those assets and we are able, to in a stronger position and negotiate. As far as acquisition of properties on the regional mall sector, Steve and I would say that we are basically seeing may be some trend down.

Yeah I think the capital rates are coming down. I think there was not a lot of activity and acquisitions last year because of our capital rates were not now, I think there is going to be a lot more product on the market this year because sellers see capital rates being more attractive from their point of view. Interest rates are still low and I think capital rates are going to come down.

I think that you are also going to see a lot of tax driven things I mean we were very very fortunate to have this relationship with the Jacobs organization to acquire these malls. Lot of that was tax driven. With the growth of our company and what has happened with regard to the stock and our ability to show to partners and new investors the ability to grow our company and handle these acquisitions. We think they are going to be minimal opportunities along lines that are tax sensitive transaction. Capital rates are somewhat impacted by that and we think that the Jacobs transaction was a sensational transaction for us as well as for our partners, the Jacobs group.

GERALD GOODMAN]: All right, last question from me are if you do really have [pay] ratio being as lower as it is and the fact that you have got sort of a catchup situation of the dividend on the Jacobs special shares. What do you ancipitate for this year when you can talk about publically?

I think the Jacobs transaction was very tax sensitive transaction and we continually uptake that to trap our net taxable income which is that basis for the dividend pay ups. So we trapped that. We basically think that for the remainder of this year that that dividend will stay about where it is and we are okay for the next year or so on the net taxable income front.

GERALD GOODMAN]: You have to increase it unless you are bouncing up against the required [increase].

Well I think that is the board decision that the board would make, but I think that the ability to have the capital to grow the company is an important element as well. And I think all of those circumstances will be taken into consideration by the board and making that final decision, but I think we think that what we have been able to do with our capital and the growth we have shown over the 17% our [sale] growth has been great and all of that just got to be taken into consideration by each of the board members when they make their deliberations.

GERALD GOODMAN]: Very nice job guys.

Thanks [David]. Thanks [Gerald].

The next question will come from Jay P. Leupp with Robertson Stephens. Please go ahead.

Good morning. Here with [David Ronco] as well. Could we explore a little bit further on the percentage rents issues was up 59% year-over-year. Could you break out for us as best as you can? What part of that growth came from short-term percentage rent deals versus what came from the newly acquired portfolio versus what came from the original core portfolio? And then the second part of our question would be given your outlook for same store sales what do you see percentage rents doing here over the next year or so?

Hai Jay, this is Stephen. None of the percentage rents includes the short-term rents. That goes into base rents. So just to clarify that and then as far the percentage rents for the core portfolio versus the newly acquired mall we see the both of them continuing to be roughly at the levels that they are out for the first quarter. The core portfolio was 3.2 million this year versus 4.2 million last year and as John said part of that is because we really are pushing our leasing people to convert as much percentage rent to base rent as possible and the acquired portfolio provided 3.5 million of the percentage rents in the first quarter.

Okay and then with your comments on acquisitions that you see more product come in the market this year. The capital rates coming down. Can you talk a little bit about how your acquisition targets and goals are going to change if at all this year specifically with respect to capital rates?

Well, we have never had any specific acquisition budget or projections, we are opportunistic on acquisitions. There are a couple of properties out there that were focussed on that if we can complete the transactions and they make sense then we will announce at it appropriate time, but we have had a great track record with acquisitions even prior to the Jacobs deal. We have had over 200 basis points of improvement in the malls that we have bought in the 97-98 timeframe and discontinues to be redevelopment and other opportunities to add the value with those properties and then I think the results on the Jacobs acquisitions speak to themselves. So we think it is a great business for us to continue to be active and to creat value for the shareholders.

Okay thank you John and Steve.

Thanks Jay.

The next question will come from [Tod Woy] with [Gliffwood Partners]. Please go ahead.

Hai Tod.

TOD WOY]: Good morning. I was just wondering if you could let me understand what is the interest and other income?

Yeah. Basically, what that is made up of are various other entities etc or related operations that we have in the company such as we provide some janitorial services and things such as that. Some interest income that we generate off for cash flows and cash management things such as that to generate the additional revenues force.

TOD WOY]: Is there any lease termination fees in that?

No lease termination fees are not in there.

TOD WOY]: And then did you have any lease termination fees or [_____] during the other line item.

Not significant this quarter.

TOD WOY]: Okay. What is the increase in 93% the cash balances on an increase of 22%?

We had some interest income on some centers that we sold basically are also in that, but I did not mention earlier. So that was part of it. The ability to generate revenues out of these entities basically increased somewhat. This janitorial company that we have an affiliation with basically has picked up some outside contract income that generated some significant income to that company. So that basically accounted for a lot of that income as well as just I think our cash management systems are getting better and that basically attributes close to that.

TOD WOY]: $1 million in the janitorial services and some income from.

Yeah approximately half a million or so from the janitorial. As I do some airport janitorial work and some other things such as that which generate some significant revenues for them. They do some specialty type of work on hydraulic and things such as that and that are uncommon with what we reduce in our malls.

TOD WOY]: Okay and then also our management development in lease increase, that was also up a lot?

I think part of that is the fact that we have the joint venture with colonial properties in Huntsville and some of these other joint ventures that where we have just generated additional fees and revenues offer those.

TOD WOY]: Is there any non-recurring fees in line item.

I think the non-recurring fees would occur when it comes time when the Parkway Place Mall is out really opened and developed, then the development fees would go away as to that particular asset. In turn that they would be some joint venture development fees as a result of Waterford Connecticut, but that basically has been our mode of operation since starting the company and under gap accounting.

TOD WOY]: Okay. Great thanks.

Thank you.

The next question will come from James W. Sullivan with Prudential Securities, Inc. Please go ahead.

Thank you good morning. John, I found your comments on the acquisitions market is very interesting. Can you tell us the guidance that your giving us treat today for the level that you are comfortable with. Should we assume that there are no acquisitions in that number?

Yeah, we have talked about one earlier on in the year and I think that is probably the one that is in there. As I think you know Jim things are pretty fluid and there are opportunities, but we do not budget those, in turn we did the common offering, so if some come along they could help that numbers somewhat because it was dilutive somewhat to issue those new shares in the 115 million we have raised, but basically by and large we do not budget to do acquisition in our numbers.

That leads to my second question. What is the equity offering and what is they assumed to be completed I guess [CMBS] issue. What kind of capacity do you estimate the firm would have in terms of acquisitions in terms of total dollars?

I do not think we have ever been handcuffed in anyway in our business as a result of capital. Our relationships with the banks and financial institutions have always provided us with that access. I think what this offering has done for us and also the fact that the stock price is up significantly took our total debt-to-market capital numbers down to around 53.9% in that range. So I think from the perspective of leverage we were down now where we have tremendous financial flexibility and we have always had that, but it now gives us that additional maximum flexibility. So I think any acquisition that we want to make that we think make sense and adds value to our shareholders. The financial capacity is there and the financial flexibility is there to make that.

Okay did you, recall, did you provide the timing on the [CMBS].

We think it is within the next 60-90 days. It is as early as 45-90 days in that range.

Okay very good. Thanks guys.

Thank you Jim.

The next question will come from [Ross Nussbaum] with Salomon Smith Barney. Please go ahead.

ROSS NUSSBAUM]: Hai good morning Steve and John. I wanted to dig down on the percentage rent issue a little more. My understanding was January was an odd month because you had a four-week reporting period this year versus the five-week period in 2001. And that is what probably accounted for much of the drop because as I look at the [ICSE] monthly mall merchandizing that was down 12% in January and it was almost exclusively did a calendar issues. Is that what was really going on as a pose to just 10% drop sales in January?

I am not sure totally understand what you are saying, but the sales comps sales January to January were down for us 10%.

ROSS NUSSBAUM]: Retailers, most retailers reported January sales including four-week results whereas year ago they reported five weeks of results in January just due to timing differences. And so the January results were a little really screwy so I am wondering if that was really at the hard of it.

While ours were calendar month to calendar month. So I mean what we attributed to was really just the fact like I said during the conference call that there is no merchandise. Retailers have gotten into the holiday season with a lot lower inventory levels and they did not have anything left to sell. They did not have these in 2001. They had these huge roll out sales right after January 1st and 2001 sales were up over 10%. So I think it is [_____]. I do not think it is a story reporting occurrence like what you are talking about. It was calendar month to calendar month in our portfolio that we were down.

ROSS NUSSBAUM]: Can you help me understand the same store like growth in the Jacobs portfolio. I think you said it was up 9.6% in the first quarter. Is that correct?

Yeah, we were very pleased with that number and I think you got to look at a couple of things. First is the renewal leasing was good. We had a double-digit increase. Second was the temporary tenant program especially a program, first quarter of 2001, we were just giving our [feed] on the ground and had not gotten new [_____] cards employees at the mall now that program is in gear. Those properties are [really firing on all cylinders] now.

ROSS NUSSBAUM]: Okay then may be I had misunderstood the numbers earlier before. On the releasing spread when you were talking about renewal that part you had said earlier that the Jacobs properties was down 1.8%.

Yeah, I was talking the leasing that we had accomplished during the past year Ross and not referencing the first quarter numbers much. So sorry for the confusion.

ROSS NUSSBAUM]: Okay. So it was really a function of what happened kind of in the thrilling four quarters.

That is correct in giving the [_____] levels are up.

ROSS NUSSBAUM]: Okay and final question on John on the expense recovery rate you indicated that you thought was going to return towards the historical trend of 93%. Are you saying that is what you think it is going to average for 2002 or it is going to reach 93% by the end of 2002.

We think it will average that over the year. As you get closure to the end of the year that number will significantly increase so that total overall average come in historically like we have been at 93%.

ROSS NUSSBAUM]: Okay John, revenue neutral capital expenditure I missed that number for the quarter.

Revenue neutral capital expenditure was 900,000 for the quarter.

ROSS NUSSBAUM]: Okay great.

Thanks Ross.

The next question will come from [Matt Ostrorer] with Morgan Stanley. Please go ahead.

Hai Matt.

MATT OSTRORER]: Hai. My questions are actually been answered thanks very much.

The next question will come from [Robert Bowser] with Prudential Securities. Please go ahead.

ROBERT BOWSER]: Hai Robert. Good morning. Just a couple of questions. First, your G&A line has been trending up. It is up half a million sequentially. Is there any single item or item in particular that is driving that number up?

I think in the first quarter you will see the results of our move into our new headquarters here we consolidated all of our operations in Chattanooga that accounted for a significant portion of that. And then also benefits and increases health benefits etc have been escalating and I do not think that is unique to us alone. So those basically are the biggest contributing factors to that increase.

ROBERT BOWSER]: Is there any one-time item?

One time item will basically be the move into our building here, which was around $300-350,000 million in systems and moving everything as such. So that was probably the one time item.

ROBERT BOWSER]: Okay my second question could you indicate sale price on one part place.

We have not indicated the sales price on one part place, but it is around $4 million.

ROBERT BOWSER]: And then finally what percentages of your leases rolling over in 2002 has been a renewed at this point.

We have estimated that 75% of those have been the negotiations have been finalized and are executed.

ROBERT BOWSER]: Great that is all my questions. Thanks.

Thanks Robert.

The next question will come from Steve Sakwa with Merrill Lynch. Please go ahead.

Hai thanks good morning.

Hai Steve.

Just a couple of housekeeping things and then some I guess certainty back to the financial, you talked about the [CMBS] deal. Could you just tell me what is you waited average interest rate was in the first quarter?

Steve let us grab, we are trying to grab the earnings release, and I will get that for you in just a minute. While you go on with your second question.

Okay I just wanted to go back to [Tod Woy] questions on kind of the management and interest question. Are you suggesting that the first quarter numbers of 13 and 19 are sort of good run rates for the next at least through this year and possibly sort of perpetuality or those inflated and may come back down to more normalized levels.

We think that is a good run rate. Then with regard to the waited average, the waited average interest rate was 6.31% compared to 7.44% in the prior year.

Okay, so basically if I do my map why the interest rate will be going up by about by 50 basis points in total on this [pulling right] that component going to the [CMBS].

We have estimated I think in the script that we said Steve that we thought it would because we are taking floating rate debt and converting it to fixed that we thought it was a 350 basis point increase.

I am sorry, but the overall interest rate 63 goes to 69?

That is probably about right.

Okay. I guess I am just confused there is a lot of numbers. There is a lot of different same stores and rent spread. Can you just kind of walk me through. You said same store NOI was up 2.2%. I guess I am just having a hard time understanding how FFO rose 17%. Do you have some sort of breakout that you could may be give us because you talked about some of the metrics rent spread being down and I just can seen put all the pieces of the [puzzle] together.

I think in our percentage rents was one of the aspects of it. The second aspect was we had one additional month of Jacobs this year than we did last year. Basically, we had some significant increases with regard to the Jacobs portfolio adding to our income levels as such. The interest rate savings were basically another place where we gained a lot of momentum in our FFO numbers. I think it is just a combination of things. I think that we view our businesses as a multi-fasted business. Leasing finance specialty incomes, sponsorships, and various things such as that also will generate significant dollar force.

Okay and then I guess I did not quite understand you talked about the malls I guess the spreads on [manuals] in the core portfolio were down 46 and on newly acquired it were down 18, but I guess you are attributing them as some special factor. I guess I have not seen many mall companies reporting sort of declines on rent spread. I am just wondering how do these figures sort of compare with where the numbers have been over the last couple of years?

Well what we do Steve in our numbers, as we compare it against the last rent that they are particular tenant paid which includes percentage rents. So what happened this time in our negotiations we did not recapture a 100% of various percentage rents that we basically had. So we think if those sales continued like the tenants were doing, we will pick those up in percentages rents, but normally what we have been able to do is pick that up in fixed [rental] manual rents we just are doing what we have attempted to do. So may be that contributed somewhat to do it. Stephen you might add some.

Yeah another thing Steve is when on the newly acquired malls prior to the acquisition Jacobs have done a fair number of short-term like one or two year renewals on leases. So if we are renewing a lease at 7-10 old there is a lot more built in increase in the renewals in the rents than for lease it is only one or two years. So we did not have the same duration or whatever the technical term would be for lot of a leases that we have typically had and that we expect to have going forward once we add work through. This was really more of a one-time occurrence because this is the first quarter that we have really been handling leasing of those properties.

Okay thanks.

The next question will come from Richard C. Moore with McDonald Investments Inc. Please go ahead.

Hai guys great quarter. Just a followup little bit on the G&A question. Are you saying John that the 5.7 million may be comes down 300,000-400,000 for the second, third, and fourth quarter that kind of any? Because usually in the first quarter it seems the G&A is higher and then it drops off for you guys. What would you anticipate?

Okay as far as occupancy cost and occupancy at the acquired assets the Jacobs assets, are you seeing the gap close on both of those metrics with your core portfolio?

Yes, yeah. It will take sometime for to close just as the tenant leases come up for the renewal and so no. I think the really interesting and important thing is that what we have done in Beaumont Texas by creating this additional value with that. This additional acquisition of line land and [_____] fabulous mall and the ability to get this land from the [_____] and by down the way we have done it. This is a great impetus to us. It is a 2-3 year leases with them so that gives us a plenty of time within which to develop to finalize our plans with regard to the expansion of the mall maximize the returns and everything. So I think those are the hot key things that we think are really important and then I think that number of the square footage in bankruptcies first quarter of last year versus where we were this year, is just incredible. 250,000 square feet of approximately versus 12,000 square feet this year. So, those numbers impact us.

Yeah. Sure. Definitely. Okay, great thanks. And last thing is, I was wondering, if you guys [I always] hearing about the number of bankruptcies in various tenants. Have you got examples of tenants in your portfolio that are adding stores this year as things get better?

Yeah. There is Steven you have got that list.

Yeah. We went through with our leasing folks, but for example limited is doing well and we have got a fair number of limited in their different divisions and then the limited two which they span-off the [wet seal], some of the [aero-post] sale, American Eagle, Buckle Bombay, these are stores that we have in a lot of locations in the portfolio, but we continue to work with them on expanding to other malls in giving a greater presence [Avercombe] has this division called [Hollister] which you are starting new stores from them and we have got our first of those opening up. So, there really is a good level of activity with those kind of stores build there. I am sure you have seen in St. Louis there is continuing to expand in other malls and it is a pretty good story.

Right. Thanks guys.

Thanks Rich.

Ladies and gentlemen, if you would like to register a question please press the 1 followed by the 4. The next question will come from [Jay Haberman] with Credit Suisse First Boston. Please go ahead.

JAY HABERMAN]: Good morning. Just a question on Jacobs. At the time of the acquisition, the new portfolio had fewer Jewellery stores versus CBL core portfolio and also generated lower ancillary income per mall. Just wanted to get a sense what progress has been made to-date there?

The ancillary income has really increased Jay. I think our guys are focused with regarding to those re-tenanting, I think as an example the West Towne mall in Madison, Wisconsin [_____] which in turn will bring in a lot of those different tenants as well. Yeah, I think that there is a focus in evaluation on a monthly basis as to what they want on a wish list have added into those malls. So, we think that we are going to continue to see great improvements in those malls as well as even in our core portfolio.

JAY HABERMAN]: And just a second question. What are the yields you are targeting on the Jacobs redevelopment?

On the ones, basically, we think that the initial ones are going to be in the 9-10% range and then they will grow from there.

JAY HABERMAN]: Okay. Thank you.

Thanks [Jay].

The next question will come from [Patrick _____] with [Invest _____].

PATRICK _____]: John, I am just, but I am just trying if you could walk us through again why such disparity homeyness CBL core portfolio and Jacobs portfolio again. You had mentioned, the economy being a lot tough in the South East, which is where most of the malls are and then may be a functional there was a lot more upside available in the Jacobs portfolio. Is there anything else I missing there?

I don't think so. I think where you see is, where we have got impacted in the core portfolio was in the percentage rent area and that is a result you know basically some of the situations of the markets and sales as such, whereas in the newly acquired portfolio of assets, we had much better percentage rent. In addition to that, the ability for our specialty income people to really focus and make a difference in that portfolio... has had a lot of aspects to contribute to that. So, in our existing portfolio our specialty people have had really focused in the past years on that and their ability to make a difference there and then I think what you are seeing now is they really had a great opportunity to make an impact in the newly acquired centers. I think that is part of, I think just the fact that may be we focused and we are really energetic with regard to the new acquired properties and we are focused again back on those core portfolios. We have always been focused. But may be the excitement of something new generated a little more excitement within our people. So, we think the core is going to do well as well.

PATRICK _____]: And then the next question is, again the rental rates when you are reporting this negative rental rate situation is basically you are taking whatever the base rent was plus the percentage rent and so, if that has backed up a little bit, that is why we are seeing a negative number?

That's correct.

PATRICK _____]: Okay. And then when you are going to reassign leases with these people, are your trying to eliminate as much as the percentage rent as possible, so you are up in the rents?

Yeah. Definitely and we are still keeping in place the percentage rents and sales grow will get future percentage rent. But, to convert that effective rent to fixed rent is definitely and maximize that is the direction we give our leasing people.

PATRICK _____]: Okay. I don't know, if you guys answer this not... Tell me, how that conversation goes? You go to retail and they had a 10 year lease and you look back at it and say the minimum was 10, but every year, you got to 15, so now we are going to move minimum to 15, how that goes?

What we intent [to] leasing guys, [by] looking focused on every renewal at least 12 months in advance when that tenant list comes up. Likewise, the red light comes on when the tenant gets 10% rent and therefore, we think that our leasing guys had been knocking on the door saying to them, look, why don't we re-negotiate your lease, give you some extended term on this, you are doing extremely well. You need to remodel your space, want to upgrade your facilities, we know you want to do it because you are doing extremely well. What we would like you to do is to move your rents up to the market rents and in turn, we want to move the percentage rents within that. Now, as an example, [_____] will basically say to you we will do that, but we are not going to give you a 100% credit for your percentage rents. We will say 90% of it. So, what ultimately happens is we move the [_____] rent up to the market rents including the percentage rents in that number and we should ultimately get percentage rents as well.

PATRICK _____]: Okay. One last question. The Nashville malls now that those projects have been around the while, all the segments, have those come back?

Well, those malls have... I am sorry, you are asking about the mills?

PATRICK _____]: No, the Nashville part of it ...

The malls had a short-term impact on sales, primarily Hickory Hallow Mall, Rivergate Mall, and CoolSprings Galleria had a short-term impact, but they bounced back more quickly and Hickory Hallow Mall had a combination of a major road improvement that was hurting traffic patterns around going on as well last year. So, we feel that the mills has, it is there, it has been there, it is doing very well, but a lot of that is tourist driven traffic. Our malls are very strong and continued to strengthen. We just signed a lease with [_____], which is a very strong addition to Rivergate Mall up in Nashville. Hickory Hallow Mall, we have got the renovation underway this year where we were spending $8 million and there is a lot of excitement there and the whole CoolSpring Galleria market is just and continues to grow with tremendous high-end housing and we have got a lot of exiting leasing activity there. So, Nashville is a great market for us. We just see it continuing to thrive even with the economic downturn in the country, Nashville slowdown, but it still has so many positive things going on in that market and feel very well positioned there with our properties.

PATRICK _____]: Okay. Thanks a lot. Great job.

Thank you. The next question will come from [Jeff Davis with _____].

JEFF DAVIS]: Good morning.

Hi, [Jeff].

JEFF DAVIS]: A few questions to keep as quick to wrapping up the hour. The first one is on the mall in South Carolina, can you provide an update on that?

Yeah. We are working on finalizing the documentation with our partner, with the departmental stores, and on the pre-leasing and we hope to get that going in the next few months. It has taken us a little longer than we thought, but we want to make sure that when we start, we got all of our eyes [_____] cross which has been in and continues to be our way of doing business.

JEFF DAVIS]: Okay and in terms of the Fayette Mall, can you review the sales per square foot for the last 12 months and discuss what's your plan do with the additional 25 acres?

The sales were 495 [per square] foot last year and they were roughly flat and it is just an incredible mall. It has the highest per square foot, and in our portfolio, the department stores do well. This land is that Jacobs have tried to buy forever. It tried next to the mall and the rising was selling there, Kentucky operations to all Altel in the last six months and as part of that transaction, we were able to convince them to dispose off this property because it is truly not essential to their operations going forward. So, it is a great opportunity for us and we are working on a combination of the mall expansion and then an entertainment specialty center on the remainder of that property. We don't have our plans 100% finalized. We have got a lot of renderings and plans that were taking at Las Vegas and a lot of meetings out there with perspective retailers. The [Vorizon] or Altel people are going to need to find a new facility and so we anticipate that it will be 18 months to 2 years before we are able to start construction on anything there.

JEFF DAVIS]: Okay, it sounds good. In terms of the first quarter this year versus first quarter last year as it reflect on last year. It sounds that you had an easier time with store closing this year and going forward in terms of potential names in the queue, or you may get hit with closing such as [Edibower] or others. Can you review what's on your watch list for closings?

Well. We are not [_____] that the [_____] will continue. Last year, it was, by far the highest, we have ever had. But even a couple of years before we had significantly more store closings than we have experienced this year and I think most of the closings and the bankruptcies have been focused more on some of the large community center, tenants, the K-Mart, [_____], and peoples like that. We are always looking and checking on the credit, but among our 25 largest tenants in the portfolio, we don't really feel that there is really any major exposure for bankruptcy. There are always certain retailers that want us to close stores because they might be underperforming and if we can find a suitable replacement tenant then we might work with them on that. You mentioned that [Edi Bower] sales have been great, but they are not in our top 25. I don't know it is top of my ahead, but I think we have 7 or 8 in the portfolio, so they are not a significant tenant for us and we will cross our fingers that it continues to be the trend that it has, so we can make some good headway on our leasing. You know last year we did a tremendous amount of leasing, but we have put whole earlier in the year by the store closing. So, we were getting back to the levels that we have been at the beginning of the year and by the end of the year. So, we are hoping to make some inroads in our vacancy this year.

JEFF DAVIS]: Okay. Thanks. Good quarter.

Thanks Jeff.

Thank you.

The next question is a follow-up question will come from [Tod _____] with [Cliff Wood Partners]. Please go ahead.

Hi [Tod].

TOD _____]: Hello. Its kind of a bigger picture question, it is a along the lines of the last question and the previous questions about [_____] over the last year, the retail environment has been highly promotional, just because of the tragedy and the recession. When speaking with your tenants, do you know if they are making any money, meaning profits and I know they are selling a lot of products, but are they making any money?

I think that they are making more money now than they were. Across the board, retailers cut a lot of cost than last year. They really watched their inventories. I think they were focused on their operations, they cutback growth, they are still growing, but they are not totally focussed on new stores. So, I think that there is a healthier retail world today than it was, last year, which ties indirectly with the store closings. You know, like you say, I think from our point of view and I think the market has recognized that the retail mall business is not so bad. Contrary to what the world said about "the Internet is killing us and departmental stores being dinosaurs and all of this". It does not have the volatility. It got the stability. Our malls are dominant in the markets that they don't have the competition. They continued to have traffic and it is a good business and finally a lot of people have realized that.

I think that one of the things that I think may these retailers are focused on margins more so than sales to a certain extent. In the past, we have looked at comp store sales and that to a certain extent could be impacting the fact that our sales are somewhat down, but look at the margins. Look at serious profits this last quarter. We are up significantly chasing pennies up significantly. And therefore, I think people are focused on margins. We are visiting with the major store group who basically said that they figuring out [waste] increase their margins, by how they are producing their product and so on. And I think everybody is focussed on that and are focussed on the ability to have what the consumer wants at the time they want it.

TOD _____]: It does sounds like a healthy kind of transition in they way look at their business. What does that all mean for future demand, I guess, I do agree with you that probably bankruptcies closings may be mitigated. But what does that mean for leasing your malls to 94-95%.

But I think that just as we grow as a company these retailers are likewise focused on the fact that they are public companies and want to show shareholder value and I think they are focused on the ability to may be reorient the investor interest looking not necessarily comp store sales, but lets look at bottom-line profitability of these companies and I think that as a result of that, there may be condensing down their square footage, they are finding ways of cutting their overhead, they are finding ways of getting better on-time delivery and I think in turn that is going to result in better margins and therefore, they need to grow just like we do to make certain that their shareholders are happy and I think they will continue to grow. They will be very conservative with regard to their growth pans, but in turn they see that our malls the economies don't swing violently in any one direction, and therefore the middle markets are excellent opportunities for us.

TOD _____]: It is a kind of the finalization of lot of the negotiation that is going on currently. Do you have a sense based on your negotiations today and over the last couple of months? How strong [ICSE] is going to be for you?

Well, I think that the convention should be good. I think that everybody has stated and everybody as Steven point out everybody said that regional malls are going to get killed and so on and I think there is not a group of people who are more entrepreneurial and more creative. In the shopping center developers and the retailers who are part of those shopping centers. I think that in turn results in a positive atmosphere, but a realistic atmosphere today. I think that, years ago, everybody could just see great blue skies and so on. Now, I think we are very, very bottom-line oriented and focussed with regard to this and the retailers are as well. I think we have all come to that realization.

I think Las Vegas is a huge deal. I don't want to minimize it. But it is a part of the process of making completing deals and that some deals get initialized there, some deals get completed and some get to moved along. And it is a great opportunity because everyone is there. So, it is a very productive session. But we had in the past two weeks, we had three major national retailers here. We have KB [Toys], we have [Finishline], we had [Regers], all of whom are major stores in our portfolio. We are going to [do] the whole portfolio with them, and we are making deals. We are our visiting retailers constantly and doing the same thing whether new retailers or existing retailers and our philosophy is that everyday is critical on the leasing front and that's what we feels like drives our results.

TOD _____]: Thanks and I appreciate your answering.

Thank you.

The next question is a followup question and will come from [Gerald] Goodman with Legg Mason. Go ahead. GERALD] GOODMAN: Hi, again real quickly on the mall South Carolina last call you said you expect to begin construction in the next 90 days and you say that it has been delayed obviously, but is there anything that in particular that is causing the delay?

No, I think, we are trying as Steven pointed out, we are just making certain that we have all of our ducts lined up for [I's started and T's] cross and everything is the profit way to go about it and the bond issues and so on closing the finances are lined up. So, no significant concerns.

Do you have a new expected start date for construction?

Well, we don't have an exact day. We are still looking at an opening in late spring or summer of 2004 and so we have to ... to accomplish that.

Okay. Thank you.

Thanks Joe.

If there are no other questions, we really appreciate the time that everybody took to spend with us today. We are very excited and pleased with the results that we have for this quarter. Every quarter-after-quarter, we always invite people to come and visit us and Chattanooga visit our properties and so on and again thank you. We appreciate the confidence that our shareholders continue to show in as well as the retail community and we look forward to visiting with you again at the end of the second quarter. Thank you very much.

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and as such you please disconnect your lines.