CBL & Associates Properties, Inc. (CBL) 2003 Q3 法說會逐字稿

Good day, everyone. Welcome to CBL & Associates Properties Incorporated conference call.

Today's call is being recorded and will be available for replay starting today at 2:00 pm eastern time and running through November 4th at 8:00 pm eastern time, by dialing 719-457-0820 and entering confirmation code 601978.

At this time, for opening remarks, I will turn the conference 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 third quarter 2003.

With me today are John Foy, the companies Vice Chairman and Chief Financial Officer, and Kelly Sargent, Director of Investor Relations, who will first read our Safe Habor 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 accurately 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 or based upon (INAUDIBLE) diluted converted shares. We direct you to the companies various filings with the Securities and Exchange Commission, including, without limitation, the companies annual report on form 10-K, and the managements discussion and analysis of financial condition and results of operations incorporated by reference herein, for a discussion of such risks and uncertainties.

I'd like to note that a transcript of today's conference including the preliminary balance sheet and additional schedules, along with the earnings release will be furnished to the SCC as a form 8-K and will be available on our website. This call is also available for replay on the internet through a link at our website at CBL Properties.com.

This conference call is the property of CBL & Associate Properties, Inc. Any redistribution, retransmission or rebroadcast of this call without express written concent of CBL is strictly prohibited.

During the call the company may discuss non-GAAP financial measures as defined by SEC regulation G. An explanation of nonGAAP financial measures discussed, and a reconciliation of each nonGAAP financial measure to the comparable GAAP financial measure will be included in form 8-K.

Thank you. Kelly.

The third quarter was another successful one for CBL in many ways. Highlights include FFO for the quarter increased 12.6% to $1.16 per share. Same center NOI for the quarter for the portfolio increased 2% and for the first nine months of the year increased 4.3%. We acquired one mall from Faison Enterprises and another two on October 1. We also began managing the fourth mall that will be acquired in December.

On October 23rd, we closed on Phase 1 of the sale of the community centers to the JV form with Galileo America REIT. In August we issued series C preferred shares raising $115 million in gross offering proceeds. We announced yesterday a 10.7% increase in the dividend on our common shares to $2.90 per share.

The construction of Coastal Grand in Myrtle Beach, South Carolina is well under way and scheduled for its grand opening on March 17, 2004. We currently are 78% leasing committed. Anchors for Coastal Grand are Belk, Dillards, Sears, Dick's Sporting Goods, Bed, Bath and Beyond and Centermark Theaters. Some of the retailers new to the market that are opening in March include Abercrombie & Fitch, Hollister, and Ann Taylor Loft, Cashe', and Charlotte Russe. We are looking forward to opening this new regional mall next spring with its unique architectural features and exciting design.

During the third quarter we broke ground on the 312,000 square foot Charter Oak Marketplace in Hartford, Connecticut that will be anchored by a 203,000 square foot Wal-Mart and a 30,000 square foot Marshalls and will open in November 2004.

Also during the quarter we began construction of a 26,500 square foot expansion at Garden City Plaza in Garden City, Kansas. This community center expansion is more than 50% preleased. Both of these construction projects will be contributed to the Galileo joint-venture, the third phase of that transaction that will close in January, 2005. In addition, we have one community center and one associated center under construction.

In September we began the demolition of the former Boston stores in East Towne and West Towne malls in Madison, Wisconsin. The redevelopment at East Towne includes a 66,000 square foot Dick's Sporting Goods and 25,500 square feet of small shops. The West Towne redevelopment and expansion will include a 66,000 square foot Dick's Sporting Goods and an additional 28,000 square feet of small shops. Both of these redevelopments and expansions are scheduled to open in November 2004.

In addition to the projects under construction, we have several in our development pipeline. The most recent we have announced is Imperial Valley Mall in El Centro, California with an opening date planned for the spring of 2005. The centers currently under construction represent a total investment of $227.2 million of which $154.7 million is our share. Construction loans and credit facilities are in place to fund the cost of these projects. Initial unleveraged yields on these developments are expected to range from 9-10%, after management and development fees, with stabilized yields ranging from 9-11%. We have other projects in various stages of predevelopment.

Expanding and updating anchor stores continues to be a priority for us. Dillards at Northwoods Mall in Charleston, South Carolina started their 30,000 square foot expansion this month. The newly expanded and fully remodeled 130,000 square foot Dillards store will open along with the overall renovation of the mall scheduled for completion in late 2004. At Arbor Place Mall, in Atlanta, Georgia JC Penney has opened in the former Dacour(ph) space and we have begun site for the addition of the 140,000 square foot Rich's-Macy's scheduled to open in late 2004.

Upgrading and renovating our malls is a key component to their continued dominance within their markets. Year to date we have completed three renovations Jefferson Mall, Parkdale Mall and St. Claire Square. The remaining renovations under way, East Towne Mall, West Towne Mall and East Gate Mall will be completed within the next 30 days. These six renovations represent a total investment of approximately $61 million, excluding deferred maintenance costs of $19.8 million.

During the quarter we entered into approximately 620,000 square feet of leases including 325,000 square feet of new leases and 295,000 square feet of renewals of existing tenants. Even with the fallout of six cafeteria locations during the quarter, totaling more than 55,000 square feet, occupancy for the stabilized mall portfolio helped set our year over year at 92.1%.

At the end of the third quarter, total portfolio occupancy was 92.4%, in the former Jacobs Malls, occupancy improved by 180 basis points to 91.9% from 90.1% one year ago.

Occupancy for the Associated Centers was 90.6% at the end of the third quarter. This number is negatively impacted by the vacancy of a 68,000 square foot former Aims store at Westmoreland Crossing and the loss of a 36,000 square foot Just For Feet store at the Village at Rivergate in Nashville, Tennessee. Excluding Westmoreland Crossing, which was acquired late in the fourth quarter of 2002, the Associated Center occupancy would have been 94.8%.

For the quarter, leasing spreads in our stabilized mall portfolio increased 9.4% based on initial rents and increased 11.5% based on average or straight line rents. In the Associated Centers, leasing spreads decreased 2.7% on initial rents and decreased .3% on average.

In the community centers, rents decreased 9% on the initial rent and decreased 7% on the average rent. For the nine months, average rents increased 12% for stabilized malls, decreased .4% for associated centers, and increased 3.3% for community centers. Leasing results have always varied from quarter to quarter and we do not feel that conclusions should be drawn from results of any single quarter. A detailed schedule of these rents will be included in the form 8-K filing this later this afternoon.

Experts anticipate an improved Christmas season and we are cautiously optimistic as well. As we enter the holiday season, we see a number of encouraging indicators including an improving economy that should give consumers increased confidence.

For mall stores of 10,000 square feet and less, same-store sales year to date increased .4% for tenants that have reported. We are very encouraged that sales for the quarter improved 3.1% led by a 6% increase in September. Occupancy costs, as a percentage of sales at our malls, was 13.9% for the nine months of 2003 compared to 13.8% for the same period one year ago.

I will now turn the call over to John Foy to discuss our financial results.

Thank you, Stephen.

In July we announced plans to acquire four regional malls from partnerships managed by Faison Enterprises. The total consideration is $340 million including cash and the assumption of non-recourse fixed rate debt at $170 million with an average interest rate of 7.71%.

The acquisition of these four regional malls is expected to generate a yield of 8.56% based upon current income after management fees. We have closed on three of the four malls and plan to close the fourth mall, South Park in Colonial Heights, Virginia this December.

In early December we will hold a property tour of the three malls located in Virginia and hope you will join us for this event.

In September, we announced the formation of a joint-venture with Galileo America's Shopping Trust wherein CBL would contribute 90% of it's ownership interest in 51 power and community centers and retain a 10% interest. Last week we closed on the joint-venture and the first phase of the funding with Galileo. Galileo and CBL's objectives is to continue to invest in quality power and community centers in the United States through their competitive and well located in their respected in their respective markets.

During the third quarter we sold two community centers, Signal Hills Village and Chester Plaza, for a combined gain of $623,000. The remaining community center properties will be sold if the opportunity to create value occurs.

As we said in yesterday's announcement, with the completion of phase one of the Galileo transition, we were able to raise $255 million in cash proceeds and expect to receive an additional $56 million in January 2004 and $76 million in January 2005.

This gives us the ability to acquire additional assets where we can add value through management, leasing, redevelopment and expansions. The acquisition market today is competitive but we will continue to apply our disciplined and conservative approach to opportunities in order to enhance shareholder value.

During the third quarter, operating performance improved resulting in FFO per share growth of 12.6%. Of this increase, 76.6% was represented by external growth. The external growth resulted from one new mall opening and the acquisition of the remaining partnership interest in four properties, and the acquisition of five regional malls.

Of the FFO increase, 23.4% was from internal growth, attributable to stable occupancy levels, increases in rental revenues and tenant reimbursements. Our cost recovery ratio was 100% for the nine months compared to 92.5% for the same period a year ago. Our cost recovery ratio improved in the third quarter partially due to renovations and remodelings of our malls and maintaining relatively high occupancy levels. We expect that our cost recovery ratio will be in the mid-90s for the full year 2003 and the range of 93 to 96% in 2004.

As we have stated in our earnings release, same center NOI growth was 2% for the total portfolio, driven by maintaining high occupancy levels, tenant reimbursements and specialty leasing. The breakdown by priority type is as follows. Same center mall NOI increased 2.5%; Associated Centers experienced a 2.7% decrease ,which amounts to only $500,000 and was tributable to some vacancies and bad debt expense; Community centers NOI decreased 2.9%.

Our debt to equity capitalization at the end of the quarter was 46.9% giving us tremendous flexibility on our balance sheet. In addition, our floating rate debt accounts for only 16.4% of our total debt. The variable rate debt includes construction loans, lines of credits and short-term loans on operating properties.

The perpetual preferred series C is trading well at under 7.5% yield. Yesterday we announced a 10.7% dividend increase and even with this increase, our dividend payout ratio remains a conservative 56.7%. These measures reflect our conservative approach to the business and positions us to take advantage of opportunities that may arise.

During a third quarter, the company spent $10.5 million for tenant allowances which will generate increased rents from tenants over the term of their leases. Renovation expenditures, which include some deferred maintenance items, were $28.8 million for the quarter, a portion of which is recovered from tenants. Deferred maintenance expenditures, the vast majority of which is recovered over a 5 to 15 year period, were $6.6 million during this quarter.

This year we project to spend a total of $30 million on tenant allowances, $25 million in deferred maintenance and $61 million on renovation expenditures. Deferred maintenance capital expenditures are billed to the tenants as common area maintenance expense. Renovation capital expenditures are for remodeling and upgrading of our malls of which we estimate approximately 30% is recoverable from our tenants.

Also, before we open the call for Q&A, I would like to share our thoughts and our outlook.

While the Galileo transaction will result in dilution of 42 cents per share short-term, we feel that the transaction well positions us for even greater growth over the long-term by allowing us to redeploy that capital. Our balance sheet has never been stronger in our ten years as a public company. This is consistent with our conservative philosophy in managing risk and providing us with the financial flexibility to take advantage of opportunities that present themselves.

We are extremely proud of our ten-year track record as a public company. Over the ten years we have delivered compound annual growth and FFO per share of 12.4% and a total return to our shareholders of 274%. We look forward to another ten years of such tremendous success. We appreciate your confidence and support. Thank you again for joining us today and we welcome the opportunity to show you any of our newly renovated properties.

Stephen and I will be happy now be happy to answer any questions you have.

Today's question and answer will be conducted electronically.

If you would like to ask a question, press the star key followed by the digit 1. If you are using a speaker phone, make sure the mute is turned off to allow your signal to reach our equipment. Once again, that's star 1. Our first question from Carey Callaghan of Goldman Sachs.

Good morning. It's Michael Dillerman here with Carey Callaghan. I was wondering if you could comment, the recovery rate, as you mentioned, stayed high this quarter. How much of that is from the recovery of deferred maintenance expenses?

Michael, I think that as we pointed out, about 30% of renovations and remodelings from what we spent on remodeling and renovations is really billed back to the tenants, so the greatest portion of that is basically from the tenants reimbursements of expenses. We think it's important for us to maintain these properties like they should be, and it makes them competitive and makes us able to keep the most up to date latest tenants in place.

As to an exact number, we'll have to get back to you on that one. We can compute that exactly for you here and get back to you on that.

If you think about it, how much of the same store NOI increase do you think was attributed then to the recovery of deferred maintenance then year-over-year? Is there a way to think about that?

Like John said, we can get you the number, but a lot of the money we're spending this year, so that's not in this year, what we spent last year, like John said, we recover roughly 30%, but that's spread over a ten-year period for the most part, so it isn't that significant a portion of the can(ph) billings at the malls.

Okay.

Specifically, you talked about this 42 cent lost FFO from the Galileo transaction. How do you think about that in respect to the fact that you are receiving cash $255 now, $76 in the first quarter, that you will reinvest, you'll obviously own a 10% interest in the venture, earn some management fees, isn't their dilution much smaller than that?

I think what we did with the proceeds, Michael, is basically to use that to pay down our lines of credit and we've been, at this stage, we are sorry there's not a bigger spread on that but only 100 over LIBO or so. The impact is fairly insignificant in that respect. Maybe in the range of 5-10% so a share of the 42 cents but very insignificant the total overall thing. The 42 cents, we just wanted to make certain everybody was aware of the fact there was a significant dilution as a result of that. But we think that we'll redeploy those funds into better producing assets over the long haul.

Is it going to be down done overnight? We don't think so in light of the conservative approach that we're going to do, but wanted to make sure everybody was aware of the dilution that resulted from that . And we still think that the transition transaction with Galileo was an outstanding one in a number of respects. We sold these properties at what we considered an excellent cap rate and also have developed a relationship with the Australian REIT so that we can acquire additional properties and grow that side of our business and it gives us ready access to another capital markets. From that standpoint, we think it's an outstanding transaction notwithstanding the fact we'll suffer some dilution initially.

And then John, it's Carey Callaghan here. I know you said not to read too much into the releasing spreads on the associated centers and the community centers, maybe you can comment on the associated centers, you didn't comment on the declines for the community centers. So maybe you could just give us color on that and then what your expectations are looking into the fourth quarter and next year on those spreads?

The associated centers is a good example of how it's hard to look at one quarter for a small universe of properties. That was really the function of one renewal at one associated center, Foothills in Maryville, Tennessee where we replaced an Eckerds Drugs who moved out to an out parcel location which has been the trend for drugstores for some time, and we replaced them with a Dollar Tree and we went backwards on the rent and that really caused that decrease. I think going forward, you know, we feel that the associated centers are well leased with the exception of the vacancy of the former Aims at Westmoreland which, when we bought the mall, was vacant.

We didn't pay for it. The small shops are well-leased and we should see positive releasing spreads. Hopefully double digit but I'd say 5-10% to be conservative.

And on the community center side?

On the community center side, the community center side really should be in the same range as the associated centers. Again, the occupancy rates are in the mid-to high 90s. They continue to be strong from a business point of view. We think as the economy improves, a lot of the local small shops are going to see better results than they've seen in the past couple years. They are more sensitive to the economy. We think that we'll be able to do better than the 3% that we've done in the year to date.

And keep in mind Carey that we only own 10% of those community centers as such, and that the NOI projections on those done by the Australians is in the range of 2-3% in their public disclosure that they filed in Australia. I think our regional mall should grow at a greater pace than that and that was one of the reasons why we felt that this venture with Galileo was a great one for us.

Okay. All right.

Thank you.

We'll go next to Jay Leupp of RBC Capital Markets.

Good morning. Here with David Ronco. Wondering if you could give us some guidance for occupancy in 2004 given the guidance of $4.85 to $5 that you have here in the press release.

Hi, Jay.

Hi.

Hi, Jay. We are looking at flat occupancy probably for 2004 where we have had some fallout to deal with. The cafeterias has probably been the most significant that we've had to deal with. This term with Luby's cafeteria, now Picadilly has filed Chapter 11 today, and there's about five locations with Picadilly that are going to close as a result of their filing and we're going to have to make that up. We're doing a lot of leasing. Doing more leasing than we've ever done, but some of it is to keep up and replace stores that have been the result of the economy over the past couple years.

Thanks. And also could you just elaborate just a bit on your plans for the remaining community centers, eleven or so we calculate that were not included in the Galileo sale?

I think that as we we see opportunities to sell those, we'll sell those. I think you'll see some more sales probably in the fourth quarter of those community centers. Basically the objective is to get in a position where all the community centers are going to be structured through the Galileo transaction. As we've announced, we get a 3.5% management fee on the gross income there, plus we get acquisitions and asset management fees, it's a very lucrative business for us on that side of the house and it doesn't distract any way whatsoever from the main focus of the company, i.e. in developing retail properties.

Thank you.

Well go next to Ian Weissman of UBS.

Yes, good morning. How are you? Just talk about the Faison malls. Can you talk about the plans for the malls, redevelopment opportunities, are there some key retenanting opportunities for the centers?

Sure. Well, each one is a little bit different.

We were just there last week again with the closing having occurred, really trying to push everything to move ahead. There is, a couple of the malls have opportunities to add anchors. All the malls have leasing where we feel we can upgrade the leasing and increase the specialty leasing and there's also a couple of expansion opportunities. Cross Creek Mall in Fayetteville, North Carolina, sales are up 14% year to date and we're just delighted with how well that is performing. And we just think this is going to be a great addition to our portfolio.

And finally, can you talk a little bit about how you guys think about the potential risk for department store consolidation. How well positioned do you think your malls are? Do you expect to see landlords more open to the likes of Target and Wal-Mart in their centers?

Well, we've been dealing with department store issues for a long time. One of the things we've been doing to be proactive is to be adding boxes to a number of our centers. Just in the quarter, we opened six boxes in the malls, two Linens &Things, two stores by Steven Barries, a Barnes and Noble and a new theater. We been adding boxes, we added a Target to one of the malls in Charleston last year.

I'm not sure, Wal-Mart, I think, is more of a unique situation because their stores are so big that it's hard to accommodate them in the malls. And like I talked about during the conference call, we've taken the two Boston stores in Madison and added Dick's Sporting Goods and small shops to redevelop them. I think they'll continue to be redevelopment opportunities where there's a department store overlap and where consolidation occurs. The malls are so well located and we see a lot of demand from boxes and other type of retailers to come in and actually strengthen the tenant mix and bring in stores that the consumers are excited about and doing more volume.

So you expect to see less in the way of anchor replacement and more in the way of adding small shop space or nontraditional anchors, is that right?

Right.

Okay great. Thanks so much.

Next to David Fick of Legg Mason.

Hi, David.

Hi, good morning. I just have one question related to the dividend. You have now just triggered, if I'm correct ,the Jacobs minimum where the Jacobs units from this point forward beyond 290 start to participate in any increases in the dividends, is that correct?

That's correct.

So we would expect that assuming everything else was equal, you would have a proportionately smaller dividend increase going forward to the regular common shareholders?

I don't necessarily think that's the case. I think, you know, we'll view the net taxable income, we'll view the payout ratios and various things such as that to determine what's in the best interest of our shareholders as such.

I don't think the fact that just because the special units now will participate on the same basis as the common units, I don't think that will be taken into consideration. I think we basically want to treat all of our shareholders in the best light and want to produce the best results for everybody in that respect.

I understand that. If I run the math, it's pretty clear that we common shareholders have benefited over the last couple of years from the fact that your dividend payout was so low and you were forced by tax rules to drive your dividend up, but that those other shares didn't get that benefit. Are you saying that going forward, you may, you know, look at an increase in your dividend policy?

I think the Board will look at it each year on a case by case basis.

I think, though, from the standpoint now what's created, what's happened as a result of this dividend increase is our common shareholders are on a parity with the Jacobs units shareholders. I think it's really good for both the Jacob shareholders as well as our own in that respect. I think we got there a lot quicker than we ever envisioned because of the growth and the success we've had. I think that, you know, I think that we'll view it on a case by case basis and look at it on those factors.

One other way. Do you expect to have a return of capital on this year's dividend allocation?

No, we do not. We have not had a return on capital for the last year or so.

We should still look for strong dividend increases.

I think that we've done it for two years in a row. Last year was a good, strong increase for '03 and this recent announcement was good as well. And I think our conservative approach to our business should forward our shareholders the opportunity to enjoy growth in the dividend.

Thank you. And I don't mean to beat it to death.

That's okay.

Thanks, David. It's always great.

Next to Ross Nesbaum of Smith Barney.

Hi.

A question on the expense reimbursements. I believe you said you would end the year around the mid-90% range? Is that correct?

That's right.

If you're running at over 100% or around 100% for the first nine months, that should imply a substantial lower recovery rate in the fourth quarter, am I reading that correctly?

I think that's correct.

And you think again it will be mid-90s next year?

Mid-to high 90s. That's our projection for next year.

Okay.

The charge is going to be associated with redeeming the preferreds,the EIFT 42 charge, do you expect to take that in the fourth or first quarter of next year? And can you tell us what that charge is going to be roughly?

We'll take it in the fourth quarter and it's approximately $2.1 million.

And is that incorporated into the guidance, your comfort with the consensus?

It is.

The next question has to do with the Faison acquisition. Are you incorporating any FAS 141 /142 impact into either this year or next year's guidance?

Yes, we have.

Can you elaborate?

Can I elaborate?

Let me ask it this way, was there any impact this quarter, I guess it didn't close until the end of the quarter, what are you forecasting for full year '04 as far as revenues from that accounting rule?

About a $15,000 reduction in the third quarter. I think as to the fourth quarter, our guys have estimated in that range of around $68,000 or something such as that. I think those numbers are bouncing around, we have taken that into consideration in our estimate of those numbers. It could be in the range of that 68 -- and possibly as high as $250,000.

Okay. That's helpful. In terms of your 2004 guidance, you outlined what you were thinking in terms of occupancy and expense reimbursements, what else have you factored in there in terms of primary assumptions whether on interest rates or external growth?

Say that again, Ross?

Your '04 guidance, I'm trying to get a sense of what your primary assumptions are both in terms of where interest rates are going, but more specifically on the external growth on the side of the story, what you'll do on the acquisition side.

We are using for interest rates, we base our budgets on 3% LIBO so we have budgeted in increases there. Hopefully it will stay below that.

And NOI, I think we're looking at 3-4% in the budgets. On average and I think that like always, we don't budget acquisitions because we don't want to back ourselves into a corner and be forced to make a deal that doesn't make sense and I think with some of the stores coming online, the boxes and stores like that that will help drive the internal growth.

It would be a fair comment that your guidance is going to prove low should you continue the acquisition pace you've exhibited over the past years?

Yes. That's right. If we do significant or more acquisitions that will help bring the guidance up.

Okay. Thank you. I think John Litt has a question.

I wanted to follow up on the same question of acquisitions. How does the pipeline look today and what do you think the prospects are?

You know, it's clearly competitive out there, John. But there's some good malls on the market and we're evaluating them. Cap rates have come down and, you know, for us, the cap rate is definitely an important part of the deal, but more important is what's going to happen to the property over the next 18-36 months to make sure the growth is there. So, you know, there's a lot of product that we're evaluating, but like John said, we don't expect anything to happen overnight.

What do you have in your guidance for '04 development and redevelopment expenses ?

The renovations, we've got six mall renovations -- four mall renovations, excuse me, that are going to total about $60 million of costs in '04 and the developments we have the completion of Myrtle Beach that we talked about and the openings of the associated center at Panama City and other things. About $192 million of total, net investment in all those projects in total, although that includes the forecosts of Myrtle Beach which we spent the majority of in '04.

And the proceeds from the sale of the strips is, John, I think you said is invested -- is going to pay down debt and being invested at LIBO plus some spread?

That's correct. And also a portion of that will be used to redeem back our A-preferred which is about $68 million.

And it will used to fund development as well and redevelopment.

That's correct.

Thank you.

Jonathan, one of the things, also, with regard to acquisitions, while we were able to do on creating that $2.90 for the Jacobs shareholders as well is our currency, our stock currency gives us that ability to buy other centers based on units. Because of the strength in our ability to generate these earnings and our payout ratio, our currency, our stock currency is likewise an attractive thing for acquisitions as well.

Would you consider with the excess proceeds from the sale of the strips, either a stock buy back or special distribution rather than having it dilute earnings with your assumptions the way that it appears it will with your assumptions of little in the way of acquisitions for '04.

You'll notice in the third quarter, we did buy back units at a very good rate for us, about $45 a share. If we see units that makes sense to buy back, we'll buy back units.

As far as buying back stock, we don't have a stock redemption plan in place, as such. As we've proven over the ten-year period of time, we can use our equity and capital to generate additional shareholder value very significantly. I would not envision that we would do a shareholder buy back. As to special dividends and such, that is very tax driven as such. All of those things will continually be examined and reexamined as we proceed through the year 2004.

Thank you.

Thanks, John.

Next to Jim Sullivan of Prudential.

Hi, Jim.

Good morning, John.

I wanted to get you to elaborate a little bit on the same store NOI outlook and also, if you could, could you provide specifics on the cafeteria exposure that you're talking about? I know Picadilly filed, if you could tell us what kind of rents they were paying and the size of their boxes and how easy you think it is to release those and whether your 3-4% same store NOI assumes that you release that space?

I'll start with the cafeteria.

On the Picadilly, it's about 50,000 square feet and their paying roughly $10 a foot. It's about half million dollars in annual rentals for those locations. We have prospects for a lot of them, but nothing that's in the bank.

Obviously, we're putting a lot of importance with our leasing people on getting those replaced as soon as possible. And they're good locations at mall entrances. We feel like it will take time but we'll end up with good leasing results there.

As far as NOI, what would you, what would you like, I guess?

What I meant, maybe I didn't ask the question clearly enough, do you assume that you released most of those Picadilly boxes you say you released last year? Is there some releasing process build into the same store NOI guidance you've outlined (INAUDIBLE).

We are assuming we get those released in the second half of the year. It usually takes six or so months between the time you can get a lease and get someone open. So third or fourth quarter we'd be replacing the fallout that we've had.

And, you know, overall we feel like our occupancy will be roughly flat but we have been encouraged that the leasing spreads are improved this year and putting a lot of pressure and importance on getting good leasing spreads and we look for that to continue as well.

And second question really relates to how you look at and consider the prospects for acquisitions as contrasted to the prospect for returns on development.

I think it's correct to say that over the years your returns on development really haven't gone down much. They've been consistently pretty strong and on acquisitions, I think you characterize the acquisition market as very competitive. Cap rates have come down and always commented on by many people.

As you consider the prospects of where to put the money, the dry powder you have outlined you have available, is it your view that cap rates on acquisitions as low as they are justified by growth prospects generally? And therefore you'll pay up and pay lower cap rates today or will you stick with your traditional approach and maybe be more selective and perhaps look to be more aggressive on the development side. How do you think about the alternative for deploying the capital?

Well, I think the short answer is, yes.

No. I think development has been a core competency for us. It's a very difficult area of the company to just ramp up immediately because the time frames are so long for most development projects.

We have projects that we're hoping to start construction on in the next six months or so that we've been working on for four or five years and it takes that is type of time frame. It's a lot harder to just flip the switch and say let's do more development.

I think our development strategy has been driven by the retailers and we have great relationships with the retailers and we see continuing around the pace that we have been, but I don't see that increasing, development is mature and competitive, also. There's coming up with new development opportunities is not something that is easy to do as well.

On the acquisition side, I think that if we find an opportunity, a mall that makes sense, will we pay up with today's cap rates where they are? I think the answer is, yes. If we feel like the growth is there and the potential exists to really create the value, we're not looking to overpay and we're not into just spread investing, we never have and we haven't changed on that.

The cap rates are not something that we can totally control and we look at the business across the long-term and if a certain asset makes sense, the cap rate is 100 basis points lower than it would have been 18 months ago. I don't think we would shy away from it because of that.

And the final question, the phrase that was used earlier was you were evaluating lots of product in terms of acquisitions. I wonder if you can ballpark this for us. Are there 10 or 20 assets available in terms of malls on the market today? Can you give us some kind of handle on what's out there?

That's such a tough one, there's a lot out there. There's a lot -- we're not focused on 10 or 20 assets. It's a handful that we're looking at, you know, there's different properties that come to market. Some of them we react more to than others. It's really an impossible question to answer.

Okay. Very good. Thanks.

Thanks, Jim.

We'll go next to John Roberts of Stifel Nicolaus.

Hi. How are you doing?

Good.

You went over the Jacobs but can you give us more color, leasing spreads how they have improved, et cetera?

One second. Okay. We did say that occupancy is up about 180 basis points. The leasing spreads for the quarter were up about 17% and that's actually year to date where they are for just the Jacobs malls.

Year to date and for the quarter?

Yes.

Great. G&A certainly bumped up a bit this quarter on a percentage basis. Any thoughts where that's going going forward and the reasons for the increase?

I think that G&A bounced up some. Basically we pay bonuses and salary increases occur at this time of the year and basically a timing type of situation. Also some of the items last year we were able to capitalize in the development area a little more than we were this year. So I think that that basically attributed to the fairly significant increase in G&A.

How about going forward? Looking for that to get to more normal levels in Q4 and in '04?

Yeah, I think it will get, Q4 should get back to more normal. And then we also in last year's G&A, we had more development fees and things such as that so the joint-ventures basically had some impact upon it as well.

Okay. Did your guidance include the call of the A preferred?

Yes, it did.

And, John, you mentioned 46.9% debt to cap at the end of the third quarter, I assume that's before the proceeds from the community asset sales?

That's correct. Proceeds came in last week.

Sales will be lower at this point than that.

That's correct.

Thanks.

We'll go next to Craig Schmidt of Merrill Lynch.

Hi, Craig.

Good morning. Do I hear right, Costal Grand 70% preleased?

78%.

And what percent do you think will be opening in March?

I think we'll probably open a little better than that, about 80%.

Okay. And that's good enough to get you your 9% initial yield?

Yes, it is.

Thanks a lot.

Next to Tony Howard of Hilliard Lyons.

Hi, Tony.

Congratulations on a good quarter and also comment that our clients will hate to see the series-A go away. Most of the questions have been asked. I'm not sure I got the total of what your cafeteria space is as a percent of the total portfolio .

One second. When we started, we had 180,000 square feet of total cafeterias.

This past year including the 50,000 of Picadilly that is closing that's 100,000 square feet that will close, there were about 50,000 square feet of Picadillies that closed and Luby's, so we'll be left with about 80,000 square feet. Just ballparking the $10 a rent number, as a percent it's not that high, but still a meaningful step backwards that we need to dig ourselves out of.

Can you give whether this could have a compounding effect where it could hurt mall traffic, and therefore make possible less attractive the unit itself?

I think that the reason the cafeterias are going out is because their business is declined so much over the past few years and just really hasn't been drawing that many people. You know, they've been struggling for some time. You don't view them as a big traffic generator. We think we can replace them with some current restaurants and some other concepts that is will be much more attractive to the customers and more in line with what they are looking for today.

Okay. Thank you and again congratulations.

Thanks, John.

Next to Greg Andrews of Green Street Advisors.

Good morning. Almost everything has been answered. I wanted to follow up on gains on land sales.

You had 9 cents year to date. I'm just curious what you're projecting in your guidance for, say, next year.

The quarter, this quarter was 1 cent and, like you said, we've had 9 cents year to date. We are projecting lower amounts going forward because we really are ground leasing more to the restaurants and the pad users than in the past. And we're looking at about 4 cents so about 1 cent a quarter for '04 that's in that guidance.

Okay. So that's a pretty substantial reduction.

That's correct.

Okay. And on Coastal Grand, you just said that you thought it would be about 80% occupied at opening? Why not higher? It strikes me that with 78% preleasing and almost, what, five months to go, you'd have a chance to push it higher?

There's, you know, we feel like a combination of a couple of factors. First of all, the opening is 80%. Usually mall openings happen in the fall and this one is happening in the spring because of the seasonality of Myrtle Beach. Over the course of the year, we feel like we'll make some good inroads in addition to that.

And the other thing is we're trying to really focus on bringing new retailers to that market, and we are being selective. We've been working with some stores that have been slower to commit but we feel like the right stores for the mall and we feel like that will really differentiate it in the market and that we need to get the right kind of project for it to be ultimately the most successful.

Fair enough.

Do you know what the specific plans are for the existing mall there? I think it's supposed to be converted into something, do you know what?

It's going to close as a mall. It's going to be converted to an expansion of the convention center which is right across the street and Boroughs and Chaphin (ph) as our partner is working on that expansion with the city at this point.

It won't be competitive with the mall then.

No, it won't. And the anchors are moving over. It will not.

Okay. And in terms of acquisitions, might be a mall in Rome, Georgia that's on the market. Keep an eye on that.

Thanks for the lead. If you have any others, let us know.

We'll go next to Rich Moore of McDonald Investments.

Good morning guys. How are you?

Maybe I'm just brain dead here, John, but did you give a year end '03 occupancy target?

Rich, we said we'd be flat from where we were last year which was I think we closed, we ended the year at 93.8% and that's where we are looking to be. One of the things that has affected our occupancy is that we did put some of the new centers we acquired, for example, Sunrise mall is 80% leased. We feel we'll pick that up. We see opportunities in buying malls with lower occupancy because we can bring their occupancy up to where our levels are.

Wonderful. Thanks, Stephen. As far as lease termination fees, did you guys disclose that? For the quarter?

It was, I think that was in the earnings release. It was around half million dollars.

Okay. Yeah, I missed it.

Thank you and the last thing, Stephen, intuitively, with the economy kind of picking up here, you would see increased interest from retailers. Your guy's same-store sales picked up. Are you seeing - would you characterize the interest by retailers as getting better going into the fourth quarter here, interest in your space?

I think that we've definitely been encouraged with some of the retailers who were struggling. GAAP is we're working on several locations with them for expansions of stores or within existing malls, new stores, Old Navy so that's one example.

Sears is really, seems like, coming out of their doldrums and doing some new stores and remodelings with their Sears Grand Store and Sears was a real concern for everyone earlier in the year and last year. And I think that, there is a bifurcation, there's these categories that have gotten really hurt. Books, music had to be totally repositioned in the malls, the cafeterias, like we talked about, some of the junior categories are doing well, like Pack Sun, but Abercrombie and American Eagle are trying to improve over their results earlier in the year which weren't that good and we are seeing some new concepts. Stores like Chicos with their purchase of White House Black Market, they're going to be doing more expansions with that and Talbot. Definitely retailers are looking to do deals and we are excited with that.

Great. Thanks a lot, guys.

Thanks, Rich.

Next to Paul Morgan of Friedman, Billings, and Ramsey.

Good morning.

Hey, Paul.

The one you didn't mention there was The Limited and they've been talking pretty openly over the past year or so about focusing on a set of 2-300 malls. What's your interpretation of the implications of their strategy for the stores that are in your portfolio?

That's a good one to mention. They have been -- we've been worked with The Limited for the past couple of years to reposition the various concepts throughout the mall and a lot of times they'll have a big Limited store and they'll want to replace that with an Express or Express Mens and want to expand the Victoria Secret store and put in the Victoria Beauty. It seems like we end up with the same square footage of Limited stores but it's different concepts that they are pushing more now.

And the other good thing about The Limited, they have the best space in our malls, they are right at the corners, right in the 50-yard line type area. They are good spaces if we can get them back and that's why we've been proactive in a lot of cases to try to work with them even before what they are going through now.

So looking out over the next couple years, do you expect to see the number of stores in the square footage in your portfolio be trimmed?

It will be less, I would think, because they spun off some concepts, spun off Abercrombie, spun off Limited 2. Who knows what they'll do with their Limited division, there's a lot of rumors with that. I think that the materials may be slightly trimmed but probably not that different.

Okay. And then you talked, I believe, in the past about considering going into development of lifestyle centers. Any action in that area or change in your strategy there?

I think that we're looking at several projects that are open air lifestyle-oriented. This lifestyle center is one of these terms that means a lot of different things to different people. Several of the projects that we're working on for the future are open air and that seems to be more the trend today and we are looking at it.

Okay. And finally, you may have mentioned part of this, do you have the renovation and deferred maintenance Cap Ex budget for next year?

We're going to put that in the 8-K so it will be there. Thanks, Paul.

Thank you.

And we have a follow-up question from Ian Weissman from UBS.

Just a quick question and I hate to beat a dead horse on the acquisitions. But just some clarity, at least for me. Does your guidance for '04 assume zero acquisitions or is there some assumptions for acquisitions in there?

Zero acquisitions.

Great. Thank you.

Thanks, Ian.

And a question from John Roberts of Stifel, Nicolaus.

Yeah, I'm sorry, guys. My pen was a little slow on this. You mentioned the mall leasing spreads, was that 9.4 initially up and 11.9 average for the quarter?

Yes, that's correct. And we'll have all that detail in the 8-K this afternoon. Unless you're trying to beat that.

These days you got to. And the nine month was 12%, right?

Say that again?

The nine month mall leasing spreads was 12%?

That's right. Nine months, the average was 12%. The quarter was 9.4 initial, 11.5 average for the malls and nine months was 12% average for the malls.

Thanks.

Thank you.

Gentleman, we have no further questions at this time. I will turn the call back over to you for any additional remarks.

We would again like to thank you for your participation. We are looking forward to seeing people at a NAREIT up in Boston the week after next.

Like John said, we do have this property to our plan for early December to see the Faison properties and we hope we'll get good participation with that. And with that, thank you all very much.

This does conclude today's conference call. Thank you for your participation. You may disconnect at this time.