CBL & Associates Properties, Inc. (CBL) 2003 Q1 法說會逐字稿

Good day and welcome to the CBL & Associates Properties Incorporated conference call. Today's call is being recorded and will be available for replay starting today at 2 pm Eastern Time and running through April 29th, 8pm Eastern Time by dialing 719-457-0820 and entering confirmation code 770395. At this time, for opening remarks, I would like to turn the call over to the President, Mr. Stephen Lebovitz. Please go ahead, sir.

Thank you and good morning, we appreciate your participation in today's conference call to discuss our results for the first quarter of 2003. With me today are John Foy, Vice-Chairman and Chief Financial Officer and Kelly Sargent, Director of Investor Relations, who will first read our Safe Harbor disclosure.

This conference call contains forward looking statements within the meaning of the Federal Securites Law. Such statements are inherently subject to risk and uncertainties, many of which cannot be predicted with accuracy, and some of which might not even be anticipated.

Future events and actual results, financial and otherwise, may differ materially from events and results discussed in the forward looking statements. During our discussion today, references made to per share are based upon a fully diluted converted share. We direct you to the company's various filings with the Securities and Exchange Commission including, without limitation, the company's annual report on form 10-K and the management's discussion and analysis of financial conditions as a result of operations, incorporated or referenced therein is a discussion of such risks and uncertainties.

During this call, the company may discuss nonGAAP financial measures as defined by S.E.C. regulation G. An explanation of each nonGAAP financial measure discussed in a reconcilliation of each measure to the comparable GAAP financial measure will be included in the form 8-K. I would like to note that the transcript of today's comments, including the preliminary balance sheet, additional schedules along with the earnings release will be furnished to the S.E.C. as a form 8-K and will be available on our website. This call is available for replay on the Internet through a link on our website at cblproperties.com. This conference call is the property of CBL & Associates Inc., any redistribution, retransmission or rebroadcast of this call without express written consent of CBL, is strictly prohibited.

Thank you, Kelly. As our earnings announcement shows, 2003 is off to a successful start. Some significant accomplishments during the first quarter were, FFO for the quarter increased 11.2% to $1.19 per share. Same center NOI for the portfolio increased 5%. The announcement of three anchor store replacements in our regional mall portfolio plus the announcement of an additional anchor store for Arbor Place will further strengthen our portfolio.

Our largest new development to date, Coastal Grand, formerly known as Mall of South Carolina, is currently under construction. This regional mall is a 50/50 joint venture with Burrows & Chafin. The leasing is going well with over 70% of the non-anchor space committed, even though the mall is not scheduled to open until March 2004. At a ground breaking event held earlier this month, over 30 national retailers were in attendance and the local community is very enthusiastic about this development.

In May, we will hold two grand opening events, on May 7th, Cobblestone Village, a community center development in St. Augustine Florida will open. Belz, Publix, Ross Dress-for-Less, Michaels and Bed Bath & Beyond anchor this center and it is 95% leased and committed. The shops at Hamilton Place, a new associated center located next to our flagship mall, Hamilton Place in Chatanooga Tennessee, is also currently 95% leased and committed. Marshalls, Bed Bath & Beyond and Ross Dress-for-Less anchor this new 130,000 square foot associated center that officially opens on May 14.

In addition to these three new developments, we have two other community centers under construction, Waterford Commons, a 300,000 square foot community center in Waterford, Connecticut anchored by Best Buy, Dicks Sporting Goods, Linens 'n' Things and Borders is scheduled to open this Fall. The second community center under construction is Wilksbury Township Marketplace in Wilksbury Township, Pennsylvania that is scheduled to open in the Spring of 2004. These five projects represent a total investment of $246.3 million, of which $164 million is our share and in total, almost 1.9 million square feet.

Construction loans and credit facilities are currently in place and initial unleveraged yields on these developments are expected to range from 9 to 10%, after management and development fees, with stabilized yields ranging from 10 to 11%. We also have several other new projects in various stages of predevelopment.

There has recently been considerable discussion about the department store industry and the consolidation that continues. We view consolidation as an opportunity to update our properties through retenanting and remerchandising anchor location. Last year, we replaced 5 dark anchor spaces with new department stores and expanded another. We also added Galyan's as an anchor to one of our malls. Already this year, we have announced two new Dick's Sporting Goods Stores to locate on pads that became available through Saks Inc.'s consolidation of Yonkers and Boston's stores in Madison, Wisconsin. Alsom Yonkers will open in the former Jacobson's Department Store in Lansing, Michigan this Fall.

Later this year, J.C. Penney will open in the 80,000 square foot former Decor space at Arbor Place in Atlanta, where we also announced a new Macy's store for 2004 opening. Of the 249 department store locations in our mall portfolio, we currently have only 1 vacancy. K-Mart formerly occupied that space and we have a number of prospects for it.

Upgrading and renovating our malls is a key component to their continued dominance within their markets. This year, we will complete 6 mall renovations, these renovations include East and West Town Malls, Jefferson Mall, Eastgate Mall, Parkdale Mall and St. Claire Square at a projected cost of approximately $61 million, excluding deferred maintenance of $19.8 million. In addition to the renovations at each of these malls, we are adding value in a variety of ways including a new food court, big box additions such as Barnes & Noble and Linens 'n' Things, as well as remerchandising and adding new anchors.

At the end of the first quarter, total portfolio occupancy was 91.6%, occupancy for the total mall portfolio was 90.6%, an improvement of 50 basis points over the same period one year ago. In the former Jacobs malls, we were able to increase occupancy 110 basis points over one year ago. We have moved Springdale in Mobile, Alabama from the new mall category to the community center category, as previously announced, Sam's will later this year be replacing a closed Dillards Department Store. We have been converting the property from a mall to a power center by adding big box tenants over the past few years.

During the first quarter, occupancy for the associated centers decreased 5.3% due to the acquisition of Westmoreland Crossing. This acquisition impacted occupancy results for the associated centers due to the 68,000 square foot former Ames Store vacancy. The announced Westmoreland acquisition cap rate of 9.4% did not include any economic value for the Ames space since they had previously rejected the lease in bankruptcy.

During the quarter, we entered into approximately 1.6 million square feet of leases compared to 1.1 million square feet in 2002. From the first quarter leasing results, approximately 851,000 square feet was attributable to development properties. The balance of 733,000 square feet was leased from our existing portfolio of which 319,000 square feet was from new leases and 414,000 square feet was from renewals of existing tenants. Our leasing spreads for the first quarter were improved over last year's results.

In our stabilized mall portfolio, we achieved an increase of 14.5% based on initial rents and 17.3% based on average or straight line rents. Let me again point out that our spreads are computed a same-space basis rather than on a macro basis as reported by some of our peers. During the quarter, we received $399,000 of lease termination fees compared to $899,000 the same quarter last year.

From all stores of 10,000 square feet and less, same-store sales for the first quarter decreased 3% for those tenants that have reported. Sales for the quarter were significantly impacted by March's results which reported sales decreases of 5.6% primarily due to the impact of severe weather and the effect of the War in Iraq. Last year, first quarter sales benefited from the Easter holiday whereby this year, Easter was in the second quarter. Total mall shop sales volume decreased 1.5% on a comparable center basis.

Occupancy costs as a percentage of sales in our malls was 14.9% for the first quarter of 2003, compared to 14.3% for the same period one year ago. Occupancy costs as a percentage of sales has increased primarily due to decreased sales reported by the retailers and because retail sales are lowest in the first quarter, coupled with increase commonary of costs and the billing of the previous year's percentage rent. Occupancy costs are historically the highest during the first quarter due to seasonality and trend down during the remainder of the year.

During the first quarter, we completed the sale of one community center, Capitol Crossing, and recognized a gain on discontinued operations of $2.9 million, we continue to look at acquisition opportunities where we can enhance the value of the property through our aggressive hands-on approach to leasing, specialty leasing and management as well as where we can geographically diversify our portfolio. I will now turn the call over to John Foy to discuss our financial results.

Thank you, Stephen. During the first quarter of 2003, we continue to focus on our balance sheet. We financed the Westmoreland Mall and Westmoreland Crossing that were acquired in December 2002 and in February, we placed an $85 million, 10-year fixed rate nonrecoursed loan at 5.05%. We also expanded and extended our credit facility, led by Wells Fargo bank. This credit facility is secured by nine unincumbered properties.

Improved operating performance resulted in an FFO per share increase of 11.2% over the prior year period. Of this increase, 62% was represented by external growth. The external growth resulted from one new mall opening, the acquisition of the remaining partnership in four properties and the acquisition of three regional malls. Internal growth of 38% was attributable to increases in base rent, tenant reimbursements and a reduction in interest expense at our existing properties.

Our cost recovery ratio was 94.5% for the quarter compared to 91% for the same period a year ago. Although our cost recovery ratio has improved in the first quarter, we expect our cost recovery ratio will be in the range of today's results for the full year 2003. The application of FASB statement number 141 impacted our FFO by $55,000, based upon properties acquired during 2002.

As we stated in our news release, same-center NOI growth was 5% for the total portfolio, driven by increases in rents, tenant reimbursements, specialty leasing incomes and improvements in cost recovery. The breakdown by property type is as follows: The same-center mall NOI increased 6.1%. Associated centers experienced a 12.4% increase primary as a result of spaces previously occupied by bankrupt tenants. Same center community center NOI improved by 4.5%. American Signature Furniture opened a 50,000 square foot store at Kingston Overlook in Knoxville, Tennessee that was previously vacant due to the bankruptcy of the original tenant.

Our category of other NOI includes mortgages, corporate headquarters and the taxable resubsidiary. The primary reason for this decrease was that interest income for mortgage receivables decreased as a result of the significant amortization of these loans. During the first quarter, the company spent $8.8 million for tenant allowances, which generate increased rents from tenants over the term of their leases.

Renovation expenditures, which include some deferred maintenance items were $11.9 million for the quarter, a portion of which is recovered from the tenants, deferred maintenance expenditures, the vast majority of which is recovered over a 5 to 15-year period, was $7 million during the first quarter, our form 8-K will include a schedule of these expenditures. Deferred maintenance capital expenditures are billed to the tenants as commonary maintenance expense. Renovation capital expenditures are for remodeling and upgrades to our mall, of which we estimate approximately 30% is recoverable from the tenants.

This year, we project to spend $30 million on tenant allowances, $25 million in deferred maintenance and $61 million on renovation expenditures. Also, we want to note that in accordance with our conservative management approach, leasing costs on second generation leases and beyond are expensed. We only capitalize those leasing costs which are associated with first generation tenants, which we have always done.

Based upon our first quarter results and barring any further disruptions from any unforeseen events, we're comfortable with today's first call consensus estimates for 2003. Our growth estimate for 2003 is based upon our expectations for 3 to 4% NOI growth, slight improvements in occupancy across the portfolio, $88.1 million of new developments to be completed during this year and the assumption that we will be refinancing approximately $190 million in short-term floating rate loans with long-term fixed rate debt resulting in increased interest expense.

Before we open the call to Q&A, I'd like to share our thoughts on the following: This is our 25th year of CBL and our 10th year as a public company. So, often it is said that you can't look back but we can definitely use the past 25 years of experience as a strong foundation for our continued growth. We experienced various types of economic cycles over the years and have learned from each. The old adage that you are only as good as the people you have is so true in our business. CBL is fortunate to have some of the most talented, dedicated and industrious professionals who will continue the growth of our company.

We believe that we have mixed the old guard experience and the maturity with the enthusiasm and energy of the younger professionals. Trust is something that is earned and appreciated, we believe that disclosure, transparency and continuing to be conservative, whether it is expensing second generation leasing costs or providing capital expenditure information, has been and will continue to be our approach to our business.

We appreciate your confidence and support. Thanks for joining us today and we welcome the opportunity to show you any of our newly-renovated properties. Stephen and I will be happy to answer any questions you may have.

Thank you, today's question and answer session will be conducted electronically. If you would like to ask a question, simply do so by pressing the star key followed by the digit 1 on your touch-tone telephone. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order that you signal us and take as many questions as time permits. Once again, press star 1 if you have a question. We will take our first question today from Ross Nussbaum with Salomon Smith Barney.

Hi, good morning, everyone. Question on the leasing spreads, they were significantly stronger this quarter than they were last year. What was really the driver behind that?

Well, I think we said last year that it's difficult when you isolate one quarter or, you know, a couple of quarters of results because a couple of deals can skew them and this quarter also, you know, we were pleased and we're optimistic it will keep up for the rest of the year. We don't want to make too much out of it, but one thing that helped us is last year there was a lot of the music stores who were coming up where we had renewals and that was an impact on us. There was -- that wasn't really a factor this quarter.

This quarter we had a lot of releasing at the former Jacobs malls that --where we've done remodelings and renovations and that certainly helped us because we're seeing the impact of our leasing touch on that and also the impact of those dollars and how it's improved the performance of those malls. So, you know, we think that it's a combination of factors, but, you know, we're continued to be pleased with how the leasing is holding up.

Is there any change in lease terms? What are you typically signing right now in terms of length?

I think, you know, the leases will vary from, you know, 5 to 10 years and it's not any different than it's been in the past and, you know, depending on the type of tenant, you know, some of them will have an allowance involved, if it's a new lease. And the renewals typically don't have that, you know, you're just extending the term of what's there.

And a question, I guess a follow up on what happened at the associated center's NOI. Westmoreland, you're saying, caused the year-over-year occupancy decline, how much of the occupancy decline was related to Westmoreland?

About 5%, really almost all of 2 was putting the vacant Ames in Westmoreland into that equation, we're working with a couple of replacement prospects now and are hopeful to have announcements later this year.

Ross, we view that as an opportunity because the rent in the space was about $5 a square foot and we could get more rent for that in the space. It was an old Ames store surrounding a very successful center. The 9.4% cap rate that we bought Westmoreland did not include any value for that. So, that's just upside to us, as well.

Okay, and final question, can you give us an update on where leasing stands at Parkway Place?

Yeah -- it's roughly the same today it's a was the at end of the year, it's about 75%. We do have three deals that are very close to signature that will push that over 80%.

And that's one of the two malls that are in the nonstabilized mall category?

That's correct.

And the other one being?

The Lakes in Muskeegan, which opened about a year and a half ago.

Great, thank you. Nice quarter. Thanks.

Thanks, Ross.

Thank you.

We'll take our next question from Ian Weissman of UBS Warburg, please go ahead.

Good morning, how are you?

Hi, Ian.

Quick question, the rent spread of about 14.5%, was most of that realized in the Jacobs portfolio?

The Jacobs portfolio was a little bit higher than 14%, it was about 18%. So we had, so, that helped our average, but we still got good results from the nonJacobs malls.

Uh-huh. And occupancy gains were very strong in Jacobs. How much more upside is there in that portfolio?

Well, it -- we feel like there's still a lot of upside, I mean we're just, we completed the renovations of four of the malls, but this year we have five more of the Jacobs malls that are under renovation and we're getting a lot of activity, you know, we talked about how the new anchors and the new boxes are kicking in and we really continue to see just a lot of good opportunity to continue to help us going forward. So, I don't think by any means we're maxed out where we are today on that portfolio.

Okay. And a quick question on sales, which you said were down this quarter. Was there any particular category that was most impacted, or was the weakness really felt across-the-board?

Yeah it was, you know, we really think that the Easter holiday was a big factor, especially in March and some of the categories like clothing, footwear, jewelry, guess is where we saw the worst results for March, which leads us to think that the holiday was a big factor in the timing and the three weeks difference from this year versus last year.

So, you know, those categories have -- were definitely a factor and in April, we don't have anything, you know, reported, but what we're hearing is much more positive results and we feel like when you look at the two months together, it will be a lot more -- a lot better-type results than what March reflected.

Okay, thank you very much. Good quarter.

Thank you.

We'll now hear from David Ronco with RBC Capital Markets.

Hi, guys, David Ronco here with Jay Loop. Looks like stabilized mall occupancy as you meptioned was up 70 basis points year-over-year, but off by about 310 basis points sequentially, meanwhile, same store NOI growth was strong at 6.1%. Just wondered if you could kind of reconcile the quarter-to-quarter difference there for me?

It's really a seasonal thing and I think that's consistent with what you've seen in prior years. And, you know, one of the things this year, just in terms of fallout, you know, we have had a little more increase in fallout from bankruptcies in 2003 versus 2002. But still, nothing near the levels we were seeing in '01. So, you know, I think really what we're seeing is just a seasonality of occupancy results.

Okay, great. As you guys work your way through the Jacobs portfolio and really increase the value of the malls in that portfolio, when might we start to see you guys put some of those on the market for sale?

I think that we view our malls because they're basically the dominant mall in the market areas where they are and they're franchised onto those market areas, we don't see that we would be selling them in those properties as such. We think that the market areas they serve there are not subject to being knocked off by anything and that they still have tremendous growth potential.

I mean if you look at our core portfolio, which we've held for a number of years, we're still able to show good NOI growth out of those. I wouldn't foresee basically that we would be selling any of those malls. That's not to say that nothing's not for sale at the right price and at a huge, huge number, but basically we're in a position with great, great growth potential on the malls.

Thank a lot.

Thank you, David.

Michael Billerman with Goldman Sachs has our next question.

Hi, Michael.

Hi, just a couple of quick questions. Over the past 90 days, what happened with the watch list, anyone you're becoming increasingly nervous about?

I don't think we're seeing anybody that we're anymore concerned about. You know, can he continual watch that. We want to be proactive with regard to any tenant whose sales aren't generating additional growth for us.

It is a little difficult in today's market because there's not a lot of inflation, if any, at all with regard to items, so, we continue to watch the music category, it's still a problem and we're going to probably see some results from some cafeterias who are basically not performs as well as they want or as we want them to. So, we're not as concerned but we're going to continue that philosophy of being proactive with regard to the tenants who aren't producing.

Okay. On the up parcel sales gains, could we assume for the next couple of quarters it would be sort of, with history, of 1 to 3 cents per quarter?

I would think that's probably a correct assumption.

And you haven't lowered growth assumptions for the core portfolio, so, arguably, you know, your guidance should come up here, right, if we start including the gains on sales from out parcels?

Well, I think we continue to be conservative in that respect and, you know, with what's going to happen with regard to our philosophy of putting long-term permanent financing on a nonrecourse basis on these properties, we will lose some revenues there just because of our desire not to play the interest rate risk game. So, we will lose some there from that standpoint, so, we think the gains in the NOI growth and other things could be offset by interest rate being a little higher.

Okay. On the leases that were signed, on the new leases that were up 33% versus the renewals, what sort of packages were you giving in allowances to get, you know, the $27 a foot number?

You know, I can't tell you exactly what the allowances were tthat went with that. You know, we can get that information and put it out later. But really it's a function, a lot of the renovations and we had a significant amount of leasing at Hanes mall, which is, you know, one of the strongest nationals we bought, where we had, you know, we've done a lot of leasing activity there, upgraded the tenant mix. We're putting in Inner Soft, which is a new concept by Hanes of, you know, lingerie and that type of, you know, personal wear and, you know, Pottery Barn Kids, which is a, young, division of Pottery Barn and Williams Sonoma, we renovated the mall last year, it looks great, the tenants have reacted really well.

You know, depending on a tenant, there is some tenant allowances involved, but we feel -- we look at each deal and we're getting return on that cost of, you know, that significantly justifies whatever investment we're making. And I think we -- I think John said we had $8 million in tenant allowances across the portfolio for the quarter and that's comparable to what we've had in the past.

Okay. Last question, just on East and West Town Malls with Dick's Sporting Goods coming in, any details on the financials of that transaction? I know you had to buy out the Boston store lease in West Town Mall and I think you had to buy the pad in East Town any sort of details on how much more capital is going to be spent and what the future development or additional GLA that may be built?

We haven't published any details on that. It's a little premature, but the -- we look at that as comparable to any other new developments in terms of the return on capital that it needs to generate and like we say, you know, it's 9 to 10% initial, 11 to 12% stablize ended and we would anticipate that this would be comparable.

Great, thanks, guys.

Thank you.

We will take our next question from Man Margenovic from RREF Investment Securities.

Good morning, everyone Manual Reed.

Hi, Man, how are you?

Well, how are you guys?

Good, good.

Good. Just a couple of quick questions on the releasing spreads theme. You've always excluded percentage rent from your prior base rent, correct?

We give it both ways.

Oh, you give it both ways, so when we look at the 14.5 increase on the prior per-square foot base rent of $21.42, that includes percentage rent?

No, that does not include percentage rent. These are just base rent and when we tried to compare to what is out there, everyone's reporting just base rent. So, these are just base rent numbers that we're reporting.

Got it. Secondly, the square footage amounts that you're using, do they include space that was formally vacant and paying zero rents?

No. It's only where comparable -- where we're replacing a prior tenant.

Got it. Good. Excellent. Thanks, guys.

Thank you.

Tony Howard with Hilliard Lyons has our next question.

Good morning and congratulations on a good quarter. Confrontations on your interest rate swap agreement, one, the rate has gone up but you've reduced the amount that you're fixing, the variable debt that you're fixing. My question is the increase in the rate, is that included in your average rate that you show for the variable debt?

Yes, it is. And that interest rate swap is about two years old, Tony. When we put it in place, we thought it was a good interest rate swap, but it was consistent with the theory that we're not going to guess what interest rates should be and we're going to play it conservatively.

I guess though, the fact is, that you mentioned that you're going to be fixing short-term debt, about $190 million of it and with the increase that you expect in development XF, do you actually will have more variable debt by this year-end than you have had in the past of actually debt increases somewhat your interest rate it seems to me.

It will probably be about the same, in the same range, but most of that, the new variable interest rates that we're putting in place are a result of the new projects and the great development program we have under way.

So, I think you know we'll see great potential out of these new developments that we have under construction. So, the interest rate risk there will be floating. We might look at caps or swaps but at this point in time, we're very comfortable in what we've reserved in our budgets for these projects is much, much higher than what the interest rates are today, so, we've left ourselves plenty of room in our budgets and construction budgets and pro forma, we're very comfortable with that. The only variable rate increases, I think, will result from the construction loans.

Okay. A follow --

We may have to do another acquisition, it's possible with the short-term type of debt in place.

Right now you're at 50/50 on a market cap basis. Where do you feel comfortable at range and do you expect that to go up -- tick up any higher?

We're at 50/50 on the debt to market cap and, you know, we're comfortable in that range, we think with we went public we said the range should be 50 to 60%, in that range, when we bought the Jacobs portfolio, we got it up to around 63 to 64% and by managing our debt and by managing the company and the leasing results, we were able to bring that down rather quickly. So, I mean the debt to market capitalization doesn't impact any of our bank lines of credit, that's not a basis of anything as such. So, we're very comfortable with that.

And the coverage ratio, the EBITDA coverage ratios have gone up significantly to 2.9 to 2.56 during the previous quarter. So, debt to market cap, you know, has some impact, but that EBITDA coverage ratio, as well as the variance article pointed out just recently, is that our coverage ratio and our debt payout ratios were extraordinarily good and mentioned as one of the tops in the industry. So, we're very comfortable with our numbers.

Okay, final question, you mentioned about acquisitions and developments, do you expect any dibentures of any sizeable amount to achieve your guidance for this year?

The divestitures?

Yeah, sales.

Sales. We'll probably continue to sell in one-off portfolios, if, you know, if we saw some outstanding opportunities with regard to the community center portfolio we would take advantages of those, as well. We're constantly recycling our capital. We think that's the wise thing to do and, as you can see from our NOI growth this quarter, on our malls, that the malls is where our greatest NOI growth will be and that's where we'll focus our efforts and our capital.

Thank you and congratulations.

Thank you.

Next we'll hear from Craig Schmidt with Merrill Lynch.

Good morning.

Hi, Craig.

Hi, Craig.

Hi. St. Claire Square had a completion date of April '03, now it's in November, I wonder how the scope of that renovation changed or anything else that pushed it back?

No, I think we had started it last year, but I just think the original completion date that we had last time wasn't accurate when we got into the work. It was always scheduled to be completed by Fall of this year.

Okay. And the same-store NOI was 5%, but guidance for the remainder of the year is 3 to 4%. Which one of the components do you think might be a little bit weaker going forward? I mean it sounds like you're positive on occupancy.

We were pretty good on our leasing spreads this time and, you know, we think that -- we hope that's going to continue. But, I mean, we're just -- I think we're looking at it in a realistic light and based upon what we saw as far as sales this quarter, we're going to air on the side of being conservative with regard to that. So, we were not satisfied with those and we'll continue to push, we'll never be satisfied with NOI growth, but we're going to continue to push that and we think that's the right thing to do.

Okay, one of the things that helped us last year was specialty leasing income and we did get a lot of pop from the new malls, the former Jacobs malls and we're not going to get the same percentage increase in that category this year as we did last year, we're still pushing to get, you know, a good increase, but that really helped us last year. And we're still watching for fallout and, you know, so far we're pleased, but, you know, we try to be conservative like John said.

And I'm just wondering, do you think same-store sales might be better second quarter, what with the Easter shift and, you know, possibly some less diversion from the Iraq war?

We hope so, you know, we're really pushing at the malls, our marketing programs to get the customers in. The holiday is going to help and hopefully the, you know, with the war being less of a focus of people, yeah, some of the retailers, like Gap, has had good results and, you know, we're hopeful that some of our other key retailers will be able to improve as well.

It's amazing, though that, gas prices are starting to come down that, should have a positive influence it builds on the consumer's confidence in the opportunity be able to push the retail sales force and weather is going to have an impact, too. So, you know, we're looking and we're very bullish and our marking people, we've really stressed to them the need to focus on those sales.

I mean I think, you know, you've seen that retailers have done a really good job of managing and keeping up their profits even with sales being lower and some of the sales are just because of lower inventory levels and things like that, so, it's almost planned by the retailers.

Okay, that's helpful. Thank you very much.

Thank you, Craig.

Next we will hear from Greg Andrews with Green Street Advisors.

Good morning.

Hi, Greg.

Hey, the one thing that I was a little puzzled about is that interest expense was pretty much almost flat versus last year and it looked like the weighted average rate was also kind of close to flat, but obviously you have more debt outstanding, so, I got kind of confused. I guess we would have expected your interest expense to be a little higher this quarter than it was?

We did that equity offering, remember, Greg? That basically we did two equity offerings last year that impact that, as well. We did the common, then we did the preferred. So that would have been impact.

Yeah, your debt is still higher, though, than last year. Was there any -- are you -- capitalizing more interest to development than you did a year ago?

No, we're capitalizing the same basis that we've always followed -- the same approach with regard to capitalization of interest. We also have acquired some properties during that period of time as we pointed out. We bought out the interest of our partners in West Town and East Town, so, we took what was unconsolidated. Their portion of unconsolidated debt onto our balance sheet as well as the amount of money we paid them for their interest and we've acquired, you know, three new malls during that period of time, so, I think that's what's impacted it. It's higher.

Okay. Just so I better understand the capitalization policies on say developments, on a project like say Parkway Place where you haven't reached stabilized occupancy, do you continue to capitalize interest on that whole project or on any part of the project that's not -- not leased? Or have you stopped doing that there?

No, Greg, what we're consistent since we went public, once a first tenant opens in the project, we start to compress interest and don't capitalize it any further.

Okay, great, thank you very much.

Thank you.

Matt Oxner has our next question with Morgan Stanley, please go ahead.

Hey, Matt.

Good morning. I just wanted to check -- push a little bit on the guidance piece. You got land sales which I think one of the other callers pointed out is a significant addition to your FFO. And if I heard your answer correctly, you're saying that -- I want to clarify, that you're expecting to do more refinancing now than you would have been expecting say three months ago when you last commented on guidance?

No, I don't think so. I think we're consistent with our capital plan. We have basically -- we're consistent with what we've done as far as a capital plan but I don't think we've envisioned that. The only difference in outparcel sales this quarter was that we were two cents this quarter versus 1 cent last quarter and we did, I think, 5 cents for the total overall year last year, so, you know, is there going to be a lot more in outparcel sales? We don't anticipate there's going to be a significant amount more of outparcel sales.

In it's not growth I'm concerned about, it's the fact that the actual FFO per share number will be significantly higher as a result of your new FFO accounting and I just don't understand -- if it were a couple of pennies here and there, I understand not changing guidance, but 6 or 8 pennies, that's a lot of pennies. I'm trying to be the devil's advocate here a little bit.

Well, I don't think we would say it's 6 to 8, I think John said, you know it was 5 cents last year and we'll see where this year goes. And I think, you know, at this point, given how early we are in the year we're not comfortable changing guidance.

Okay. And then just a more of a technical point here, on your -- the occupancy number that you reported in the press release this year is, like for stabilized malls, the number that you put for 2002 stabilized occupancy was 90.3, that is different from the stabilized number you reported last year of 92.9. That's because you're now putting I would assume new developments and acquisitions that weren't there before into the stabilized number?

That -- that's exactly right. We've got the new acquisitions, Westmoreland being the main one which was in the 80-82% range when we bought it.

Okay. And then finally, a couple of other sort of mall COO types have said that they are, you know, working -- I don't know that they said it on conference calls, but have been commenting that they've been working a lot harder to do the same deals so that the demand is still there, but it's getting harder for stuff to get closed. Is that -- is that true, is that sort of behind your reluctance to raise guidance?

I mean I would -- I don't think leasing deals have been easy at any point over the past -- I don't know when, you know, there's always a lot of work, but I think we're cautiously optimistic about the leasing environment holding up. We've had about a dozen retailers in our offices since the 1st of the years going through our full portfolios, people like, you know, Limited, Pac Sun, you know, Finish Line, Payless, you know, people like that.

I mean it's -- geez, I don't know. It's a lot of work, you know, deals, we -- we push like crazy to -- to get them done as fast as we can get them done. Both from a documentation point of view and then when there's construction involved but I can't say that it's harder today than it was a year ago or even two years ago.

Okay. Great. Thank you.

You're welcome, thanks.

We'll now hear from Liz Watson with Legg Mason.

I'm David Fick actually I'm here with Liz Watson, a couple of questions for you, first of all, several years ago, starting I guess '97/'98, you guys had a huge updraft in occupancy caused by tenants like the Gap and Abercrombie, kind of going back into the second tier markets where they didn't have as big a presence.

I suspect a number of those leases will be rolling over starting this year and with those companies, you know, taking a hard look at where the stores are located and where they're going to be a year out, I wonder what you expect to have happen, particularly with the Gap and Abercrombie exposure.

We have two Gaps that are expiring during the course of this year that they're not planning on renewing out of the whole portfolio and they've renewed, you know, Old Navy's, Gap, Gap Kids all their divisions throughout the portfolio. The deal is with them, not that they're the greatest deals on the face of the earth, but they're better today because they're sales are better. Some of the stores on their watch list, we've had, you know, double-digit sales increases and we feel like we're going to benefit from their improvement as this year goes on.

Abercrombie and Hollister, we don't have anything in terms of major renewals coming up. I mean Hollister is only in the past couple of years where we started deals with them and -- and we have more going today than we've ever had. You know, we're talking about, you know, a package of malls with them that -- that would be terrific additions and Abercrombie has been pretty spread out over, you know, the course of the last several years in terms of making deals. So, there's not just a big grouping of them that are coming up.

Okay. Thanks. The -- you've got your A preferreds that become callable, I believe at July 1st of this year, I think they're at a 9 pay rate. It would seem there might be some opportunity there, are you thinking about that? And is that in your guidance if you are thinking about what to do there?

It's not in our guidance, David, from that standpoint. We are constantly monitoring what the preferred market looks like. It appears there is great demand in the market area and also I think this -- the stability and safety of our dividend is attracting a lot of people, giving us calls, saying they'd like on see us do more preferreds, this will be an item of discussion at our board meeting.

We constantly are monitoring our capital structure and that will definitely be taken into consideration.

There could be some opportunity there. Last question, at what level do you all think you might -- I realize this is a board issue, but where might you consider a stock split?

I, you know, we have had no discussions with regard to that. We basically have given some thought to it so, you know, I couldn't answer that question today as such a, you know, we might be calling you up to ask what you think that number is as such. So, you have an opinion on that?

Well, I asked the question. [ Laughter ] Great quarter, guys.

I have a question, this is Liz Watson.

Hey, Liz.

Can you give us the status the leasing on Coastal Grand right now?

Yeah, it's -- it's roughly 75% leasing committed, so, you know, the committed is being where leases are out for signature and there's, you know, a lot of prospects, we just had a ground breaking ceremony, even, you know, we broke ground back last year, but we had a ceremony primarily for marketing. We had a lot of retailers there, a lot of good local stores who now that they're seeing steel come out of ground, they're interested in the project and we're feeling very good that come next March we'll have a strong opening.

And if I remember right, one of the other large regionol malls will be closing when you open?

Yes, we'll be offsetting Myrtle Square, which is our partners at the mall, it will be closing, it's a smaller mall, Sears will be moving out of there as well as Belk. So, that gives us additional impetus and Myrtle Beach is a great, great city. The growth in the market area there, it is 14 million tourists a year as well as a growth as far as the permanent population there, as well. So, we're excited about it.

Thank you, great quarter.

Thanks, Liz.

As a reminder, if you have a question, press star 1. Now we will hear from David Kostin with Goldman Sachs.

I want to follow up on a question Michael asked earlier. Have you seen any demands from the new Abercrombie and Fitch, do you have the new fourth concept in any of your malls?

No, I mean we're -- we're talking about it, you know, I think it's very early. They are talking about opening five stores and spread out across the country, we don't have any -- we don't have commitments for any of them at this point but I'm sure we will get our fair share.

We've got a great relationship with those guys and we -- we're excited that, you know, they got a new concept and we're excited that there is, you know, there's other new concepts by retailers that, you know, Group USA has one and we're working with -- I talked about Hanes, Pottery Barn has got some divisions,Chico's is starting a new concept. So, it's great to see that the retailers are continuing to come out with the new concepts.

The schedule coming out for ICSC, how would you characterize that in terms of initial tenant demand versus previous years?

It's as crazy as ever. I mean, you know, our leasing peoples schedules are booked and, you know, every half hour or hour, depending on, you know, who they're meeting with and we think it's going to be a real busy week.

Last question, you have cap rates now at unbelievably low levels, low rates. What -- what's the prospect of joint ventures with pension funds on some of your assets?

Well, I think, David, that we constantly look at that and weigh that, the pros as well as the cons of having a venture partner in those particular projects. It is true that cap rates are incredibly high -- low and making it difficult to make a lot of accretive acquisitions. We will continue to be disciplined in our approach to how we acquire properties and we're not going to buy for spread investing.

So, we'll constantly monitor that and if the situation arises where we think a venture partner makes sense for a specific acquisition at a low cap rate, we will do it. But if we can buy it at a high cap rate and seek great upside potential, we don't see the need to bring a partner into it. We've got tremendous capital structure, we've got a tremendous ability to finance and redo these malls and create the value for our share holders, so, at the present time, unless we wanted to really get agressive cap rates, we would see just keeping the growth for our shareholders.

Very good. Thank you.

Thanks, David.

We'll now hear from Rich Moore with McDonald Investments.

Hi, guys, congratulations on a great quarter. As I'm looking back to 1993 and I'm looking at the gain on sale from land parcels, John, it's kind of all over the board, but goes from 5 cents to 25 cents. How should we think about that for -- you know, '03, you kind of commented on, but looking forward, will it be bouncing around or is more the nickel range of of the last couple of years more of the way to think about that?

Yeah, I think there's a couple of impacts and historically it's difficult for you to look back historically and try to make the projections. We had a lot less shares in those periods of time, we've probably had more development going in that standpoint. We're now focused and trying to push our people into doing ground leases versus out parcel sales because therefore we get the growth potential without losing the value of that land.

So, it's difficult and we're sorry that we're not helping you out too much as far as how you do your models on projected the out parcel sales, but it's a constantly changing business as such and -- where we are, you know, and I think that we're excited about what we did this quarter and we're focused what we can do in the quarters ahead, not just with regard to out parcel sales, but with regard to the growth of NOI and did growth of the total portfolio.

Okay. And -- and did you say why you decided to make this change?

We did, we said our news release, our attorneys -- our securities guys and our accountants and auditors said if you're going follow the NREI definition, you've got to follow it in all respects. So, basically that's why we did that.

In the past, as you know, we've elected not to include outparcel sales, but based upon the reconcilliations as set forth by the S.E.C. and also by our auditors and also our securities lawyers, they said we needed to include this. It's not something that we did with a lot of glee because it makes your job a little more difficult, but we will continue to announce what outparcel sales are each quarter so you can back those out as such.

Okay, great, and what percentage of leasing have you finished at this point for 2003 you know, lease expirations in '03?

Yeah, I'd say, you know, in the 70% range, a lot of the former Jacobs malls, their leases expire end of January. So, a lot of the renewals have been done there and we're focused whatever vacant space there is and the non-Jacobs malls are spread more throughout the year. But we've done a high percentage, but we're still pushing because we have the ability to get retailers in and this point for the year.

And the remodelings and renovations, basically play into that too, somewhat, Rich. We want to maximize the returns so we can get, as a result of the money we're spending on the malls and it's really the strategy and the theory is spending this money on these malls to make them the dominant malls, it's really starting to pay off and is reflected in the bottom line, as you know.

Okay. And the last couple of things here, as you guys are tracking mall traffic and watching the shoppers, are you sensing any pattern changes as a result of all the world events and the various world events, anything new, either positive or negative, I would guess probably more negative, if anything?

I think in March, the traffic was definitely down because of what was going on in the world and again, the holiday like we talked about. I think now we feel like, I mean, the traffic this past weekend was great, you know, and things are more in a normalized state and we're hoping it will continue to be that way.

Okay. And then same kind of question for the tenant attitudes, have those remained still pretty constant, despite, you know, the turbulence?

I think so. I think, you know, the tenants have, you know, for the past couple years, with the economy, they've been focused on their profits and margins and, you know, of course sales are important but they're not everything. And, you know, they're still doing new deals, you know, they're selective as they always are and tough, but I don't see any real change in their attitudes.

Okay, great, thanks, guys.

Thank you, Rich.

Robert Beltzer with Prudential Securities has our next question.

Hey, Robert.

Good morning. Just -- just one question. Was there anything in particular that drove the improvement your tenant reimbursement rate?

I think that the remodelings and the renovations basically has some impact as we pointed out. You know, because we can recapture part of that and the deferred maintenance items as such.

Okay. Great, that's it for me. Thanks.

Thanks, Robert.

Our next question comes from Paul Morgan with Thomas Weisel Partners.

Hey, Paul.

Good morning, did I hear you correctly just recently that -- that the bulk of the space that was released in the first quarter was Jacobs whereas the non-Jacobs leases are spread more throughout the year, is that what you said?

No, no, I said the renewals, or the lease expirations in the Jacobs malls are in the first quarter and for the non-Jacobs malls, they're spread throughout the year, but the leasing for the first quarter was, you know, was spread pretty evenly. There wasn't really a discrepancy between the Jacobs and the non-Jacobs malls it was pretty even.

Pretty even in terms of the spread or in the amount of square feet?

Amount of square feet.

Okay. Do you have any comment on the food line status and how that's going, all the closed stores in your portfolio and then whether there's any exposure to lease expirations there?

Oh, it's -- as you know, food line is less than 2% of our reveunes-- is less than1% of our revenues, we look at the food line centers, we've continued to sell those as the opportunity presents itself and we're not in any pressure to sell any of those properties and so on. In those numbers, we have about 16 closed food lines, some of which are subleased and our guys have focused on that as well as we have 12 that are open and doing relatively well.

And most of them still have considerable term to go.

Okay. So they're not material exposure to expirations and among the ones that are closed.

No.

Okay, and then about occupancy costs going up, you mentioned one factor being increased cam costs. Is -- what's behind that, is it the -- what you just mentioned about the renovations, or?

Yeah, I mean it's passing through the deferred maintenance and the renovation work that we're permitted to under the leases and in certain malls where there's been a renovation, the cam will go up as that is spread out or deappreciated over time and so that will lead to higher cam reimbursements.

Paul, as we're seeing the sales trends for this month, if Easter had been in the first quarter, we probably would have been flat as to that increase of about 60 basis points over that number. So, the lateness of -- and the timing basically -- as well as timing with regard to billing of our tenants and reimbursement. That all figures into the equation, but we think that guidance-wise we should be where we were last year.

Okay. And in terms of the recovery rate, is the 1Q number a good run rate for expense reimbursements?

Yeah, we think it is, you know, with the renovations and remodelings that have occurred. We think that that run rate should be there.

Okay, and last question, what was the specialty leasing income in the quarter?

We're scampering to get that for you, Paul, hold on, Paul, we'll get that to you if you want to come back to us.

That's fine. Thanks.

Thanks.

As a final reminder, if you do have a question, press star 1.

I think that we've -- I assume that there is no further questions, so, we just want to thank everybody for being with us.

Paul, the answer to your question is about $7.4 million for the first quarter which was up a little over the previous year of about $700,000, approximately $600,000, but again, we appreciate everybody calling us. We continue to be excited and bullish with regard to our business and we welcome everybody to visit with us in our properties and look forward to seeing many people in Las Vegas at the convention and thanks again for joining us.

And that concludes today's conference call. We thank you for your participation and have a nice day.