CBL & Associates Properties, Inc. (CBL) 2003 Q4 法說會逐字稿

Good day everyone, 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 12.00 p.m. eastern time and running through February 9th at 8.00 p.m. eastern time by dialing 719-457-0120 and by entering confirmation code 728815.

At this time, for opening remarks and introductions 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 2003. With me today are John Foy, the company's 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 securities laws. Such statements are inherently subject to risk and uncertainties, many of which cannot be predicted with accuracy and some of which may not even be anticipated. Future events and actual results financial and otherwise may differ materially from the events and results discussed.

During our discussion Today, references made to per share are based on a fully diluted converted share. We direct you to the company's various filings with the Securities & Exchange Commission including without limitation the company's annual report on Form 10-K and management's discussion and analysis of financial conditions and results of operations. Included therein for discuss of such risks and uncertainties.

I'd like to note that a transcript of today's comments including the earnings release, preliminary balance sheet and additional supplemental schedules will be furnished to the S.E.C. in Form 8-K and will be available on our Website.

This call is also available on the internet through a link at cblproperties.com. This conference call is the property of CBL Properties Inc., any rebroadcast of this call without the express written consent of CBL is strictly prohibited.

During this call, the company may discuss nonGAAP financial measures as defined by Regulation G. A description of each nonGAAP financial measure to the comparable GAAP financial measure was included in the earnings release that will be in the Form 8-K.

This supplemental information was released last evening and posted on our Website. It is our intention to continue to supplying this information prior to the conference call.

Thank you Kelly. 2003 was a very productive year for us. Yielding strong results in our regional mall portfolio. Highlights for the fourth quarter and the year include FFO for the quarter increased 9.6%, to $1.25 per share.

For the year, FFO increased 10.9%, to $4.79 per share. Same center NOI increased 6% for the fourth quarter, it increased 5% for the year.

We acquired six malls and one associated center, containing over 4.8 million square feet for a total investment of almost $494 million, with an average cap rate of 8.58%.

During 2003, we opened over 770,000 square feet of new developments, and renovated six of our regional malls. We issued $115 million of perpetual preferred stock at a coupon of 7.75%.

We also redeemed $67 million of perpetual preferred stock at a coupon rate of 9%. We closed on phase 1 of the sales of Community to the joint ventures we formed with Galileo American REIT, leaving only 11 community centers in our portfolio. Four additional centers will be sold to Galileo in January 2005.

Our total return to shareholders in 2003 was 48%, which included a 41% appreciation in our stock, plus an 11% increase in our dividends declared in October. 2004 will be a very busy year for us on the development front. With over 2 million square feet of new projects scheduled to open. Our largest mall development to date is Coastal Grand in Myrtle Beach, South Carolina only 42 days away from its grand opening on Wednesday, March 17.

Leasing has made good progress and we are currently 86% leased and committed. We are looking forward to opening over 100 stores at Coastal Grand including anchors Belk, Dillard's and Sears, Bed, Bath & Beyond, Centermark four screen theater. Please visit the Website at www.coastalgrand.com. We invite you to join us.

In January, we held the opening facilities for Imperial Valley Mall. Scheduled to open in March 2005. This 741,000 square foot mall is in a joint venture with the M. G. Herring group which we will own 60%. Four departments stores including Sears, Roninsons May, as well as a 14 screen Ultra Star cinema will anchor this new development.

Other projects under construction include the 312,000 square foot Charter Oak marketplace in Hartford, Connecticut, anchored by a Walmart and Marshall's. 281 square foot center anchored by Walmart and a 26,500 expansion at Garden City Plaza at Garden City, Kansas. Close to January 2005.

In addition, we have the shops at Panama City under construction, an associated center located adjacent to Panama City Mall. We have two expansions, East Towne and West Towne in Madison, Wisconsin, additional mall shop space that are scheduled to open this November.

In addition to these projects under construction, we have several additional projects in our development pipeline, and in various phases of predevelopment.

Expanding and adding anchor storage to our malls continues to be a priority for us. At Arbor Place Mall in Atlanta, Georgia, construction is started for the new 140 square foot Rich's Macy's. Charlston, South Carolina started their 30,000,000 square foot expansion started later this year in conjunction with our overall expansion of the mall.

Upgrading and renovating our malls is a key component for their continued dominance in the markets. 2003 we completed $61 million excluding deferred maintenance cost of 19.8 million. This year we will complete three mall renovations, Panama City Mall, Crery Vale Mall.

Two of the renovations associated with the 21 mall portfolio we acquired in 2001. We accomplish record leasing in 2003, totaling 4.7 million square feet, compared with 3.9 million square feet in 2002.

During the year, we entered into approximately 1.3 million square feet of new leases, and renewed approximately 1.5 million square feast existing tenants, compared to 1.4 million square feet of new leases, and 1.2 million square feet of renewal leasing in 2002. For the new developments, we leased 1.9 million square feet, in 2003, compared to 1.3 million square feet in 2002.

During 2003, bankruptcies resulted in 63 store closings, containing 171,000 square feet and representing 5 much 1 million in annual gross rentals. This year we anticipate a more challenging leasing environment with a recent announcements of bankruptcy filings and store closings.

Last week, we were notified of 24 KB Toy stores out of a total of 51 in our portfolio that are closing. These stores represent 96,300 square feet and will result in a loss of $2.7 million in gross annual rentals. Yesterday, Gadzooks announced they had filed for bankruptcy.

In the CBL portfolio, we have 38 stores and have been notified that ten stores will be closing. The choosing of these ten stores represents 24,000 square feet in almost $1 million in annual gross rentals. This past year we also experienced the closing of 12 cafeterias representing 114,000 square feet and resulting in an annual loss of $1.5 million.

Although we are confident we will release the cafeteria locations at increased rents, it will take several months to do so, plus time to reconfigure the space for new tenants. We expect the first cafeteria replacements to open this summer.

In addition to the closed stores and bankruptcies, we have several tenants requesting rent relief, including music and bookstores, which we will work with in an effort to maintain an appealing mix of retailer categories in our malls.

At the end of the fourth quarter, total portfolio occupancy was 93.3%. In the former Jacobs malls, occupancy improved by 150 basis points to 95.2% from 92.7% one year ago.

This year marks the third anniversary of our acquisition of the former Jacobs portfolio that has proven to be an outstanding for our company.

We have improved occupancy from 87.4% when the acquisitions were first announced an improvement of 680 basis points. We have upgraded the tenants in these properties and added numerous boxes. Other areas where we have improved the performance of these malls is in specialty leasing and sponsorship income.

Occupancy for the Associated was 88.6% for the quarter. The occupancy is negatively impacted by three centers as follows. A vacancy of a 68,000 square foot former Ames at Westmoreland Crossing in Greensboro, feed store at the village at Rivergate in Nashville, Tennessee, the vacancy of an appliance factory warehouse at Hamilton Tennessee. Replacement prospects should open in late 2004 or early 2005.

For the year, the stabilized mall portfolio initial base rents increased 6.6%, and increased 9% based on average rents. In the Associate Centers leasing spreads decreased .3% on initial rents and increased 2.4% on average rents.

In the remaining Community Centers, rents increased 2.5% on initial and 3.3% on average represents. For additional leasing spread information, please refer to the supplemental schedules.

For the first time in three years, we are pleased to report positive retail sales in our portfolio. From all stores of 10,000 square feet and less same-store sales for 2003 increased 1.1% for those tenants that have reported, resulting in average sales of $300 per square foot for the mall portfolio for 2003.

We are encouraged that comparable mall shop sales have been positive for the last six months, with an increase of 2.7%. We are optimistic that this trend will continue through 2004. Occupancy cost as a percentage of sales at our malls was 12.2% for the year compared to 12% one year ago.

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

Thank you, Stephen. We have now completed phase 1 and 2 of the Galileo joint venture that included the sale of 47 community centers and raised $318 million in cash proceeds. We are pleased with the results of this venture and the portfolio continues to perform well. Our expectation for future growth of this venture is one of the reasons we entered into this transaction.

During the fourth quarter, we sold three additional community centers for a combined gain of $474,000. The 11 remaining community centers currently held in the CBL portfolio will be sold as the opportunity to realize value occurs.

Our ability to react to opportunities on a timely basis allowed us to acquire the Hartford Mall in Bel Air, Maryland, at a favorable cap rate of 8.4%. This again is a value-added project we have acquired. 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 fourth quarter, operating performance improved resulting in FFO share growth of 9.6%. Of this increase, 52% was represented by external growth. The external growth resulted from one new mall opening, the acquisition of the remaining partnership interest in fourth properties, and the acquisition of five regional malls.

Of the past year's FFO increases, 48% was from internal growth, attributable to stable occupancy levels, increases in rental revenues and tenant reimbursements.

Our cost recovery ratio was 99.2% for the year compared with 91.4% for last year. Our cost recovery ratio improved for the year somewhat due to the partial recovery of renovation and remodelings of our malls and maintaining high occupancy levels. We expect that our cost recovery ratio for 2004 will be in the mid 90s.

As we stated, in our earnings release, 2003 same-center NOI growth was 5% for the total portfolio driven by the high occupancy levels, tenant reimbursements and specialty leasing.

The breakdown for the year by property types is as follows. Same center mall NOI increased 5.4%. Associated centers experienced 2.8% decrease which amounts to a decrease of $400,000 and was attributable to the vacancies we referred to earlier and also bad debt expense.

Community Center NOI decreased 9%, this calculation only includes those centers remaining in the CBL portfolio and does not include the centers that were sold to Galileo.

Our debt to market capitalization at tend of the fourth quarter was 46%, compared to 50.5% a year ago, giving us financial flexibility on our balance sheet. In addition, our floating rate debt accounts for less than 20% of our total debt and represents only 9% of our total market capitalization.

The variable rate debt includes construction loans, lines of credits, and short term loans on operating properties. The dividend payout ratio remains at a conservative 60% at year end. These measures reflect our conservative approach to the business and positions us to take advantage of opportunities that may arise.

Also please note that our financial coverage ratios have improved as a result of the Galileo transaction. Our EBITDA coverage ratio was 2.9%, for the year ended 2003, compared to 2.83 for the year ended 2002.

Also, before we open the call for Q&A, I would like to share our thoughts and our outlook. In our earnings release we adjusted our guidance for 2004 from a range of $4.85 to $5 per share to a range of $4.60 to $4.65 a share.

We made this adjustment for two reasons. The impact of the 58 cents per share of FFO lost due to the sale of 50 community centers in 2003, and an extended time frame to redeploy the net proceeds. And two, the lowering of our budgeted NOI growth from 3.5% to 1 to 2%.

In retrospect, our assumptions last quarter were overly optimistic regarding the redeployment of the capital raised in the Galileo transaction. While the sale of community centers has a negative impact on FFO in the short term, as the proceeds are redeployed into new developments and acquisitions we are confident that the transactions will ultimately be more accretive to our shareholders.

We continue to focus on enhancing the strength of our existing mall portfolio. We are adding a number of boxes at various malls such as Barnes and Noble and Linens & Things, which takes away income during the construction but improve the NOI and occupancy results as these stores open. We are encouraged with the level of activity in our development program.

Not only will we open 2 million square feet of new projects this year but also we will have a strong pipeline of projects going forward. As we stated, in our earnings release, our guidance did not incorporate additional acquisitions.

However, we continue to pursue new acquisition opportunities while cap rates in the market have moved down, we still feel that we can acquire regional malls in today's world that provide significant opportunities for immediate accretion as well as strong growth into the future.

Let me conclude by saying that our cautious approach to 2004, in no way lessens our commitment to our shareholders or our confidence in our business. We appreciate your confidence and support.

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

Paul Morgan with FBR, please go ahead.

Good morning. In terms of the change in your guidance, you mentioned in your third quarter guidance, the Galileo transaction, and you just said I guess that you were aggressive in your expectations for redeployment.

How much of the capital do you consider redeployed at this point having closed on the Faison deal and the recent mall transaction, what would you consider full deployment of that?

Paul, I think those numbers are basically about $200 million. A lot of those did not occur until the latter part of the fourth quarter. So the impact was not significant, and to put into place the systems and so on, and to redeploy that additional capital is something that we're focused on as well.

In addition to that, as we pointed out, our leverage ratios have gone down as well. So if you added the capabilities of increasing your leverage for more acquisitions, in addition to the remaining moneys we have left in the Galileo transaction, that's why we're more cautious with regard to that.

We probably were overoptimistic in the third quarter when we said that the FirstCall consensus numbers were there.

So your intention is to redeploy this, you're not assuming any acquisitions in '04, but I assume you'd be disappointed if that occurred since you are expecting to redeploy that?

We would be definitely disappointed. But we have never budgeted for acquisitions in any of our numbers and therefore we were probably a little overoptimistic with regard to those third quarter numbers.

On the internal growth side, do you have any way of backing out the impact of same store NOI growth in '03 due to their higher tenant reimbursements from the Jacobs capex?

I think we're looking puzzling at ourselves to see if we can think through that one. But you know, I think that the reason why we've lowered our NOI -- It's not going to really be a factor in '03, because even when there's capex, that flows through into cam, it's depreciated over four years and only about 40% of that amount comes back to us so --

I guess what I was talking about is your cost of recovery went from 91% to 99%.

Okay.

And you attributed that to higher recoveries from deferred maintenance?

Right, some of it, but a lot of it is due to occupancy levels at the centers just getting up to the point where we can recover. And then on the acquired centers, just doing a better job of recovering those costs.

So what's bringing you back down to 95% then? For this year?

Well, I think the occupancy as we said, we are basically taking out a lot of those cafeterias, lost a lot of tenants as a result of bankruptcy. But in turn what that does, we think '04 is a great year for us from the standpoint of rebuilding. It gives us a chance to reconfigure some of those spaces, bring in some of those big boxes and also helps us from the standpoint of that. But as a result of that when you basically hold back some space it impacts your NOI.

That's why '05 is a great building block for us for '05. '04 is not untypical from that standpoint of trying to get that space back to bring in those new up to date tenants. Tenancy basically drives that in the malls.

You mentioned the books and music category and considering rent relief in order to keep the mall mix as you like it. How important do you consider that to be, you're losing toy retailers because the KB was the dominant retailer there. At what point do you consider the mall too much in peril and how much rent are you willing to trade off to keep that mix?

We feel like it's important to offer a broad mix. We'll look to replace the toy category with regional operators and local operators. And we think that over time, we'll be able to bring that. But having a bookstore in the mall, and certain malls we've added Barnes and Noble and Borders to the malls which is a real positive in terms of driving traffic.

In the other malls where we haven't done that we have been working with Walden or B. Dalton, 3,000 square foot stores that carry the best sellers and that can support the business and be competitive with the big boxes that they have to compete with today.

So you know, their economics have changed, and unfortunately, because of their lower sales and their lower margins, it translates into a lower rental stream in those categories to us. They're not taking up as big a component of the Malls.

If you look at a mall ten years ago, you had over 10,000 square feet of music stores, and close to that of bookstores. You'd have a couple of them with locations in the Mall.

Today it's a different story. But we still want to offer that type of product to the customer.

So would you expect this to result in, you know, pretty much flat or low single digit rent spreads in '04?

Yes.

Okay. Thank you.

We will take our next question from Michael Bellarmine with Goldman Sachs.

It's Michael Bellarmine. When you are talking about the redeployment of capital between Faison, the preferred, the Hartford Mall, I have $330 million of cash that you spent in the fourth quarter, which sounds like pretty much a redeployment of the $255 million of cash that you received. So I'm just trying to reconcile that to your comments that you haven't redeployed.

Well, I think there's a couple of things that we would say. You're correct, I mean, we did redeploy in those ways. I think one thing that we feel like we did in the third quarter was underestimated the dilutive impact of Galileo, in our projections going forward. That's you know, one of the factors that's responsible for our guidance being changed yesterday and discussing it today.

The other thing is that in addition to the sale, we did CMBS transaction in the third quarter, that is 9 cents dilutive in terms of FFO. We sold other community centers throughout the year earlier in the year, and then we sold four more in the fourth quarter. And the cumulative impact of that is on top of Galileo.

Then we did the preferred Series C, 115 million of perpetual preferred. And you know, and that's an impact as well. So yeah, you're right. There are definitely some investments that we made that were accretive and that helped our FFO. But they don't offset the combination of all these other things sitting where we are today.

Okay. Well, on the other part that you're attributing the decrease in your guidance to the internal growth, you've taken down your same store expectation from 3 to 4% to 1 to 2. Every 1% is 8 cents if I'm doing my math correctly.

Could you talk about the components that really changed that number to go down significantly? Between maybe talking about it from an occupancy perspective and from a rent spread per perspective? Because it just seems like a very large change.

Lastly, I would have expected that you would have budgeted some level of store closures at the beginning of the year, so that would have already been sort of included in your number.

We do budget some store closings. But we don't budget a KB Toys or a Gadzooks happening to the extent that they did. And also to happen as immediately as they did. So you know, we'll have the full year. Even if everything went well, it just takes four the six months to get a new tenant in place to sign a lease.

What we can fill that space with a temporary income user, but you know, that's not going to be at the same level of rents as we were receiving before. But you know, I think, you know, we're looking at occupancy being down for the year, probably 100 basis points.

We're looking at, like we said, flat to low single digit rent spreads. And then we have some built-in down too because of the different boxes that we have under construction at the malls where the income isn't going to kick in in most of those cases until third or fourth quarter.

Again, it adds up. Plus when we take into account the bankruptcies in the cafeterias that we've talked about, there have been some other retailers that I didn't talk about during the remarks. I mean, you know, Eddie Bauer, we had five of their stores that closed.

They're all good locations in the malls. And we're going to replace them and we're going to end up with better stores and more productive stores. But there's short term pain.

So you know, it's hard to isolate one or two things and say, you know, this item is half a percent. It is more the cumulative impact.

Our leasing guys basically view some of these as great opportunities for us. And in turn when they see that happen, they want to vacate, get some these tenants that are next to the KB stores and impact. Our leasing team is very enthusiastic, with the ability to improve the tenant mix as well as to fill these spaces. We think that that impacts us a little in 2004, and for that reason I think we are being cautious with regard to our guidance.

Stephen and John, it's Carey Callahan. On the bad debt expense any of these bankruptcies you anticipate you'll be stuck with a charge, on the rent relief can you characterize how many situations where you are getting requests for rent relief and maybe the magnitude of it and lastly is it truly isolated to music and books or do you have some other clients in there asking for rent relief as well?

Well I think Carey, we have reserves for bad debt, others things in our numbers as such. We don't see any impact from that standpoint.

Also because of the timing, we were current through the end of the year with these guys. So we're looking at some January rents that will be trying to recover a portion of in bankruptcy court. But it's not it's not significant.

Then with regard to your question, yeah, I mean I think we're always inundated, any tenant's going to look at their ability to try to get their rent reduced. We've been able to hold the line with regard to those and think we will be able to do so as well. To a certain extent, if the tenant needs rent relief, then you know you start looking for another tenant to be proactive to refill that space.

So from that standpoint, I don't know that our guys have seen any more than what they've anticipated in the past. But I think the bankruptcies this year have been basically a lot larger than what was anticipated. And then what we talked about earlier is the spaces for the books and music which basically results in some advantages there as well.

But books and music are the biggest categories. I mean there's Wilson's Leather is another tenant that's announced they have problems. And we know there is going to be some stores that they're going to close and we're talking to them. But you know other than that there aren't any really major ones that we're aware of the.

Sounds like in the music and book categories you're able to be accommodative because it helps for the mix of them all.

Absolutely. We have the ability to take that space back if we think the tenant mix needs to change at some subsequent day. The flexibility with regard to that also improves our tenant mix and we're giving them shorter term leases with the right to kick them out if they're not producing certain sales, et cetera.

From that standpoint, we're getting the best of both worlds. The only thing we're losing is some short term rent capabilities or capacity.

I had said one quick follow-up. On the banded project expenses of $1.9 million, can you give us some color on what that was related to and maybe where it was included in the income statement? It was in the same-store reconciliation.

It's shown under other expense, and basically what that is is that consistent with the approach that we've taken in we've taken in the past is, if we don't think a project -- if there is not over a 50-50 chance or not probable, then we will write that off. I think you know we have been aggressive with regard to that, and maybe some of these write-offs could ultimately come back to be beneficial to us.

But at that stage, last year we basically felt that those were the proper write-offs to take at that time, and could justify those. That doesn't necessarily mean that we've given up on those specific projects. It just means that we thought at that point in time that it was probable that they wouldn't go through.

And just to characterize how many projects does that 1.9 million refer to?

Probably about 20 properties or so.

And those are new you developments?

Those would have been new developments and could still be new developments.

Is it spread across the U.S. or you know is this a strategy that maybe that was West Coast properties that you're not pursuing anymore? Just trying to get a sense of if there's any reason to it?

I think Michael it's just been our typical geographical mix that we look at as far as developments. I think that we just started the one property on the West Coast. We did not spend any money on the West Coast. None of those write-offs are a result of any West Coast properties. I think it's just basically the geographical mix where we are, and again, being conservative and cautious with regard to these particular properties.

Again, I want to emphasize hopefully some of these will come back and will make some significant money off of that for our shareholders. But at that time we thought that it was probable and the best thing to do was to take the write-off.

Appreciate it guys.

Jay Leupp with RBC Capital Markets.

Sorry to get you up early, Charles had to catch a plane and he wanted to be up with us, sorry we got you up so early. In terms of your reimbursements or recovery ratios pulling back from the high 90s, can you talk about the specific reasons for that and your historical average for recoveries over the past say five to ten years?

I think really it's just driven by our being more cautious about occupancy. And our average has been more in the 93% range over the past five to ten years. And so because our occupancy levels have gone up, we've been able to recover a higher percentage.

I think the other thing that is contributing is, when we put in boxes in some of the malls, those are structured as deals where we're not getting a full reimbursement of the cam charges in the mall. So that will reduce it somewhat as well.

Okay. And then just one other question. Obviously you've looked with the dilution in the near term on Galileo you've made the bet so to speak that you're going to have accretive development opportunities.

Can you talk a little bit about where your acquisition cap rates have moved in the past 12 months and where you're likely to see the best opportunities particularly given your West Coast movement?

Yeah, I think that what we've seen, Jay, are the acquisition cap rates that we would anticipate are down about 50 to 75 basis points, in that range. Acquisitions I think in light of the management style we have, we're capable of doing those anywhere in the U.S. when we see the proper opportunity. Again, we have two criteria in mind, is that we want to make certain that it has long term growth potential and a stable tenant mix.

Then the other element of that is that once we acquire that property we're going to put debt on it, if we're going to put debt on it or use up this equity. We're not believers that we should use short term debt that basically floats. We don't think it's our business to be in the interest rate style of business where we take risks with regard to interest rates.

So once we acquire, we'll probably put in place some type of debt, long term debt capabilities on those properties. So I think that's our criteria. And I think we're seeing a lot of opportunities. I think that the Faison acquisition was an outstanding one for us.

It was likewise not in an auction process. It was developed on a personal relationship that was developed over the years. We think that that same approach will enhance us well with regard to other people who don't necessarily want to go into an auction type of process. We're not very good at the auctions.

Okay. And then lastly just on the El Centro project Imperial Valley, you gave a nice update on the pace of leasing. Could you give us also a commentary on the pace of construction and how things are going with respect to your cost budget as well as your time line?

Yes, the project's going very well. We started the project in December, and all of the site work and the steel had actually been bought out before we started construction.

So those costs are in line, and the building budgets have, since then, the additional cost that we bought out have come into line. So we don't anticipate any changes on the project. The rents are actually coming in better than our pro forma so we're optimistic that we'll be able to pick up some ground there.

As far as the schedule, the nice thing about building in California is, you don't have to deal with the elements, except for extreme heat in the summer.

But that sounds like a good problem, the way this winter's been. And we're on track to open early March of '05.

Good, thank you.

We will take our next question from John Roberts from Stifel Nicolaus. Please go ahead.

Few questions. First of all, on your guidance, does that include Coastal Grand?

Yes, it does.

So it includes impact from those?

Yes.

How much impact on the fourth quarter did you see from the Galileo divestiture, any?

Well, it was closed I think October the 19th or so, so it was minimal, if any at that time. So we --

That would have been nearly the full quarter, would it not have, October 19th, you got two and a half months left?

I'm sorry, it was October the 23rd. My friends are correcting me on that date. Granted, it's only four more days but it has some impact --

It was about 9 cents.

Without that you would have had 1.34 say?

Yes.

Okay. Rise in other rental income, any specific reason for that, there was a pretty good rise in the other rental income line.

That's really the impact of specialty leasing in the malls. The push carts and kiosk income, other income from sponsorships that has really been picking up. Other short term leases that we do. If we have a vacant space and we put in a store over the holiday season for a couple months, that shows up in that line item.

Okay. Do you expect that to go forward, expect to see a similar run rate going forward, or is that more seasonal in nature for the holiday season?

It was up about 5% last year. On a comparable mall basis. And I think we're looking at similar for this year.

It is seasonal, John. It is as the holiday season approaches it does pick up significantly, because that is where we do get it. And the other thing is as we do acquisitions, our guys are very aggressive with regard to the specialty income and it's basically been a good, good income producer for us in the past so --

You know, you mentioned about the bankruptcies and the fact you might get some temporary tenants in some of those bankrupt locations. Would you expect an aggressive especially leasing push in that regard? Because of that?

They better be.

Okay. Also, pretty big rise in the G&A expense. Any particular reason for that?

I think what we did there is that we have added some people. We staffed up basically for our Galileo transaction. We think that that area specifically can be very productive for us. We've just increased some overhead numbers there. We think that that's probably the good run rate for next year as such. I think we've got a great staff in place. I think we have the foundation and the building blocks to continue to grow this company, and that's what we were focused on. It is a people business, and it's professionals that we've added that's basically resulted in some of this.

All right, thanks guys. I'll let somebody else ask some questions.

Next question, Craig Schmidt with Merrill Lynch.

Hi. What was the same store sales trend for the fourth quarter alone?

That was 2.5% increase for just the fourth quarter.

Okay. And would you say in the first five weeks of this year, your sense is that that positive trend is holding up?

Yes, we feel like January was really good and has been continuing.

Great. And in terms of the maybe extended time frame for the acquisition, is it a matter of pricing or product? It seems like maybe the product is out there but maybe the pricing isn't?

It's a little bit of a combination. But the product is out there. It just takes time to get the deals to the point where they're real. And where we can announce them. And the pricing is impacted by the market, to a certain extent.

At a point, you know, it just doesn't make sense based on the fundamentals of the property. So you know, there's some acquisition opportunities that we have elected not to pursue, just because they're too rich. And we've always said we don't want to put ourselves in a position where we're forced to do any acquisitions. And we're trying to maintain that.

Okay. I guess at this point, versus let's say a year ago, would you say the acquisition environment is tougher, or the same, or easing up?

I think it's the same. I think there is about a comparable amount of malls on the market. I mean, the cap rates are more aggressive today than they were last year this time.

Okay, thank you.

We'll take our next question from Steve Feckle of Merrill Lynch.

Good morning. Craig asked one of my questions but you mentioned the increase in occupancy on the Jacobs portfolio. I'm wondering if you have invested capital has trended since you bought it three years ago?

I know you've had to put some money into it and you've gotten the benefit of occupancy. But have you looked at the return on invested capital and tracked that over the last three years?

Yes, I think we do that on every transaction that we do, we basically look at what the return is on the capital, and what the ultimate results are. As I think you will recall, we basically when we remodel or renovate a mall, we can't specifically identify where we're going to make any money on that.

When it comes to tenants and things like that we can specifically do so. And I would say the return on that capital that we've invested in the Jacobs portfolio has been double-digit.

I'm sorry, I think you bought it at around a 10% cap rate or maybe slightly north of that?

I think it was about a 10% cap rate, in that range.

It's yielding I guess on the total invested capital do you know what it's yielding today or is that not something you have handy?

I don't have that right at hand.

Okay, that's fine, I can follow up. I guess on just kind of the bankruptcy and the closings you're seeing is there anything about the stores they're closing, the malls, the locations, is there any kind of theme behind it, are they basically all their underperformers and just doing less than the average of the overall chain, or just trying to see if there are any trends we can glean from the stores that are closing?

It's basically across the board Steve to a certain extent. I mean if you look at Gadzooks, they're closing a store at Haynes Mall, which is a good location. That's a mall that's doing high 300s a foot. And then they're closing stores at malls that are doing, say, 2.75 a foot. And its geographic. They're closing I think in Wisconsin and they're closing in Georgia.

I think what they do is they look at their occupancy cost as a percent of sales. And if it's high then it just gets closed. And we tried to look at trends in terms of certain malls. We haven't really been able to figure anything out.

A lot of times with these retailers, we find that factors such as their store manager or their district manager, or certain things that we really have no control over, and are no reflection on the mall, can impact how their sales are.

So it's really too bad to be losing this amount of stores. But when the retailers aren't performing like I said earlier, short-term it's not good, but long-term we'll end up better off the

Lastly, within the guidance you've provided, what level of incremental bankruptcy/store closings do you have budgeted in? Is it pretty much what's been announced or do you have cushion for sort of the unknown?

I mean, we have a little cushion. I wouldn't say it's a huge amount of cushion in there. But you know, we've tried to look ahead at some of the stores that like a Wilson's Leather or you know, other stores we're wear are having problems and tried to project some fallout there.

Okay, thanks.

We will take our next question from Ross Nussbaum from Smith Barney.

Good morning, guys, it's John Levitt here with Ross. John, I think you've said you never put acquisitions in your guidance. So what's really hard to reconcile is if you haven't done it in the past when you gay your 3 Q guidance why would that be different than your 4Q guidance because the redeployment of assets wouldn't have assumed acquisitions in either of your forecasts.

You want to repeat that again?

I mean, you said very specifically that you never put acquisitions in your forecast, in your guidance. And so it wouldn't have been in your third quarter guidance and yet you're saying part of why you're bringing numbers down is because you're assuming the reinvestment of the proceeds is going to be slower.

Well, if you hadn't assumed acquisitions in the last set of numbers or in this set of guidance, then nothing should have changed.

Well, I think what we say, John, is that we don't budget for acquisitions. We do consider, you know, there were other factors also in the '03 numbers, basically, Stephen you --

Well, I mean, there were some other things going into the redeployment, other than acquisitions. You know, new developments, tenant expansions, expansions of properties, but I think that you know the bottom line is, we just didn't guide down enough in the third quarter to fully -- to fully take into account the impact of Galileo.

There's really no other way to put it. Sitting here today when we put together the numbers, we just realized that we need to tell you guys where we are, because you know, it's where we are.

As I look at it, is it a Galileo problem, which it doesn't sound like it should be, if there were no acquisitions or redeployment in either set of guidance, or are there other things that are going wrong which indicate there are going to be fundamental problems for CBL in the future which scares us. We model this in, we don't rely on your guidance.

Based on the cap rates you told us and the interest rates et cetera, our model came up roughly to the same numbers that your guidance is giving. We're sitting here saying if nothing has changed in terms of redeployment, maybe there are some problems at the core.

Well, I mean we can compare models, and we're not sure --

And the whole street came to the same conclusion. Based on the cap rates and the debt on the sale, et cetera, the whole street came into kind of the same range. And so something -- with no acquisitions. So something has to be giving here that's beyond Galileo.

If you look at the numbers, we're at 479 for the year. Like we said, the fourth quarter impact of Galileo was roughly 9 cents. So that would have put us over 480. But then when you back out the roughly 60 cents and you put in 6, 7% growth. That's where we are.

I think our fourth quarter fundamentals were very strong for the portfolio in terms of NOI growth, in terms of sales. And we're definitely cautious for '04, like we've said, and we're we've lowered the NOI projections and occupations and all of that which is a factor as well.

But I think just the combination of the two has really gotten us into where we are and the fact that we're not having any acquisitions in the projections. I don't know in your model what kind of acquisitions you have in there.

Well, before I turn it over to Ross I think that you know with over $150 million in market cap being wiped out this morning, the explanation is woefully inadequate and the fact that you guys missed on the underwriting of this sale I think is a real disappointment. We'll clearly go through it offline some more. But we're disappointed.

With that, I'll turn it over to Ross.

Hi guys, good morning. One of the things quantitatively that I'm struggling with here is you gave the NOI figures from Phase 1 and Phase 2 in the press releases when those transactions closed. If you add those NOI numbers up and I take 90% of them because that's what you're selling off, you get a loss of about 58 cents of NOI. That's going away.

I guess what I'm having trouble reconciling is you're saying 58 cents of FFO. But I would have thought if there's 58 cents of NOI going away you guys are paying down a ton of debt, whether it's mortgage debt, debt on the line, the resolution would be lower than the 58 cents of NOI that's going away. What am I missing from that analysis?

Ross, did you put the CMBS in there as well as the other preferred that we did?

No, I mean, I'm just talking from your statement in the press release that said that there was 58 cents of dilution resulting from the sale of Galileo. And the additional couple community centers sold during the fourth quarter. So I would think that that number doesn't have anything to do with the CMBS or the preferred, does it?

No, it's separate. But I mean the community centers were for the most part free and clear. So we weren't -- you know, those proceeds weren't paying down the debt. And you know, the NOI loss was pretty much one to one in terms of the converting to an FFO loss.

So most of the proceeds here went to repaying your line of credit?

No, a lot of the proceeds went into 1031 exchanges, Ross. Because we wanted to save the tax impact that ultimately could result. And therefore, as a result of that, the reinvestment of that money is minimal as such 'til that money is redeployed. That was part of it, too, because we didn't want to incur the tax impact that could occur to the shareholders as a result of that.

Okay. Two other final questions. One is, did you give us a number in terms of where do you think occupancy is going to fall over the next three and six months? I mean it's 94.4 for the core now, does it go down 2, 3%?

It probably goes down 2% in the first quarter.

Okay. And I believe I heard you say that the G&A number in the fourth quarter of a little over $10 million you think is a good run rate going forward?

We think the annual number is a good number. I'm sorry if I gave the impression that the fourth quarter number is -- thank you for correcting that.

Okay. So the 30 -- around 30-ish million.

Right.

Okay.

Ross with regard to Jonathan's comments we're disappointed too from the standpoint that we probably were maybe a little over optimistic in the fourth quarter. But we think the proper thing that we've done since being a public company, is basically come forward and say where we think we're going to be. We're not happy either.

We own 20% of this company. And we've taken all of our bonuses and salary increases for years since 1995 in this stock. So we're not happy either. But we think we owe it to the street and we owe it to our shareholders and to the public to be very candid and strayed forward.

Thank you guys.

We will take our next question from Jim Sullivan with Prudential Securities. Please go ahead.

John and the group, I guess, I want to go over a little bit more of some of the same-store numbers and to the extent I may be beating a dead horse here, but to clarify on your comments about what the guidance does assume, you said there's some cushion for, I guess, maybe the way to put it is more bad news. But for example, when we look at Gadzooks exposure, you have 38 stores, they've told you they're going to close ten.

If, for example, if we were to speculate if Gadzooks were to change from a chapter 11 to chapter 7 and close the remaining stores, would that be assumed that that level of enclosure is not assumed in your guidance?

We didn't assume anything in that.

Regarding Wilson's Leather which has not filed but has some issues that yet to be resolved, in their store closings, are you able to negotiate lease termination fees or are you just taking back the space?

I'm sorry Jim could you repeat that one more time?

In the case of Will sons Wilson's, which has well documented financial problems, in their attempt to close stores, are you able to negotiate lease termination fees, or are you not?

Yes, if the tenant isn't chapter 11, then we definitely will work to do lease termination fees. Now, usually we want to make sure we've got someone else coming in the space who is at comparable economics or better. But you know, that's something we definitely push for.

Okay. One question, this is a follow-up please to Steve's question about the types of stores. You noted that the they're happening in higher productivity assets and lower productivity assets. But you're of course aware of the productivity of the individual store in those malls. Just to be clear, as I understand your comment, you think Gadzooks is approaching this from an occupancy standpoint as a priority?

Absolutely, they have a cutoff of roughly 20%. And if it's above that then the store closes. We can look at the list and it's pretty clear when you go through it.

Okay. And I guess for me also again, another -- this is kind of a follow-up to an earlier question but someone asked the question about the merchandising mix. There's been a couple of questions about that today. But what is kind of intriguing to me is the issue that the junior category in both apparel and accessories for many years has been a segment of significant growth, which has helped to boost occupancy levels across the industry.

There's been concerns that it was being extended and that there was some weaknesses that were being created and that closings were -- I don't want to say anticipated, but wouldn't be a surprise.

I guess what concerns me is that if we're going to see a rationalization of that category of the merchandise mix, which is important, at the same time that some categories of the branded hard goods like music and books are going to be pulling back and maybe downsizing for a while, does that suggest that we could be entering a period where occupancy rates are going to reseed a bit for a couple of years? Is that a reasonable interpretation of trends?

I don't think we feel that way. I mean, I think we've adjusted the types of retailers we're putting in the malls, and we're definitely putting in boxes, like I said, in a lot of the properties. And that's going to help the occupancy levels to stay where they are, or to even improve.

Because those boxes are taking spaces that had been tougher leasing spaces, and incorporate being them into them. And sometimes will take into account entrances to get them the size they need. So I think the short term we're going to be facing some decreases, but I don't think we feel it is by any means permanent.

We haven't gotten any sense of store closings in apparel or juniors. I mean, that business has held up and is healthy.

Okay. And I guess kind of a follow-on question, just regarding deployment of the square feet. On the music and books cat brings, where you're being asked to make rent concessions, can you give us some idea of the box sizes that that's in regards to? I mean, they have the 2,000 square foot boxes or the bigger units.

The new stores, you mean?

No, the existing tenants who are coming to you asking you to make rental concessions. How big are the boxes that they currently operate?

Well, they're three, 4,000 square feet for the music stores and the bookstores are a little bit bigger.

Okay. So at the moment it seems like you're going to have to probably agree to some of those concessions, and if you will, value-price that space for the time being, is that fair?

Yes. Yes.

Okay. And do the concessions include agreements to convert to percentage rent or is it straightforward cuts in the base?

It's both sometimes. It just depends on the circumstance. But a lot of times we're able to get a better deal with the percentage rent, in terms of the percent, the overall revenues. So depending on the situation, and where we think the sales are, we'll decide which one makes the most sense.

Okay. And the numbers that you gave in terms of annual gross rental, should that assumes both base and pass-throughs?

That's correct.

Okay. And then final question for me and this is for John. Regarding the discussion about cap rates, I think you talked about a 50 to 70 basis point decline in cap rates. And I just wanted to clarify, was that over the quarter or over the year?

I think it's over the year, Jim.

Over the year. And given the consensus forecast of rising interest rates this year, and you know, as we know, that may or may not be right, but given that forecast, is it your expectation that that shrinkage in cap rates might reverse, and if so, does that reflect your view as to when you want to be making acquisitions? Does it lead you to say hey, it may be time to hold back and wait for cap rates to rise to levels we're more comfortable with?

Well, I think its depends on the property and the underwriting we see and the growth in the property and whether you can make a good price in the good acquisition at this time, more so than if you wait for interest rates to go up and so on, so forth. We've been anticipating interest rates going up, but they haven't gone up.

So I think if the opportunity avails itself to a property where we can see where we can add value to it, then it's a property that has long term growth potential, and the pricing is right, in our models, then I think we would basically buy it. I mean, we agree with you that as interest rates go up cap rates should go up but it hasn't necessarily been the case.

But we think that's logical that it should happen. But again, if the property makes sense, and it's a good opportunity for us, we would acquire it.

Okay. Just sorry, one -- this is my second final question. Out parcel sale gains, are they included in the same store NOI comparison?

No they're not.

Thank you.

We will take our next question with Tony Howard with Hilliard Lyons.

Good morning. I guess my question is somewhat anticlimactic. You have assets held for sale and the mortgages held for sale somewhere difference of 36 million. How much of that is anticipated gain and does that reflect the remaining amount of Galileo or can you clarify that for me?

It does anticipate the remains Galileo transaction. The tranche 2 numbers. The tranche 3 closes in January of '05 as such.

And the difference, is that going to be a recognized gain or what?

One sec. Tony, they should be a gain in those as well, in the raping of 15 to $20 million.

Okay. On the income statement, real estate taxes was down normally year over year, but about 2 million sequentially. And can you explain that, and what kind of run rate to do you expect?

The sale of the Galileo transaction, basically is it.

Okay. All right, thank you.

We will take our next question from Rich Moore with McDonald Investments. Please go ahead.

Good morning guys. Just to follow up on Jim's question real quick, the Gadzooks and KB Store, those are soon to be rejected, right?

That's right.

Big chunk in Q4, how should we talk about lease termination income in your eyes for this year?

We don't budget it, we don't have any in the numbers. I think it's been roughly the same for the past couple years. But you know, we don't really want it. It's not a good thing. So you know, we're not projecting any in this year.

Okay, okay, fair enough. As far as land sales go, I don't know if you guys have land sales inventory or you know, land inventory, or something that you're doing to budget what your land sales might be. Do you have any thoughts on gains on land sales, or just land sales in general?

Well, one of the things we've done with our out parcels is, gone more to ground leases versus sales on those. And that's been something we've been working on for the better part of five years.

This year probably half of the volume of the business that we did on the pads was ground leases versus sales. And next year it will be closer to two-thirds will be ground leases. So we're only looking at probably two to $3 million of sales for next year.

Okay, good. Now, thinking about equity, would you guys have any thoughts on whether you'd issue common equity this year either as common shares or possibly units in an acquisition transaction?

Well, as far as issuing common equity today, we would not do that. If we were to issue units in a transaction, I think the model that we would go on is that we would insist that there be some premium on those units when issued as such.

But we do think that units are definitely a currency that gives us an advantage in acquisitions. But we view our currency as very, very sacred to us and that unless there was a good premium with regard to that, we would not give units either.

Okay. And John, you mentioned in your remarks that one of the reasons you did Galileo is the potential for other opportunities. Are there other, other opportunities that you see with Galileo at the moment?

Rich, I think these guys are great. The people of Galileo have done a sensational job of taking this company public in the Australian market. And the Australian market was down a little as to U.S. trust, but they are back up right now.

They have gotten very favorable reaction from the analyst community in Australia and as a result of that they could probably get back in the markets today.

The leadership at Galileo is tremendous and we think as a result of that that we can do some more acquisitions for them, generate additional management fees and do things such as that. So I mean we're still very bullish with regard to it and we think there are great opportunities there and it opened up a new capital source for us.

Good. Just out of curiosity, I've heard crazy things, working with Galileo to buy Pan Pacific?

I think we'd have to have conversation west our friends in Australia on that particular transaction. I don't know what their temperament would be.

That's a new one to us.

I heard that out there, I thought I'd run it by you. Then if I could turn just real quick to a couple other items. A lot of what seems like kinds of negative news on retailers here, but I would think with the improving economy, you've got some pretty positive news. Anyone in particular or any retailers in particular that that they're looking to add stores that look strong to you?

Well, I think that a lot of these guys are, you know, you look at the numbers, the CEO of Sunglass Hut was on CNBC I guess last week and talked about the number of stores that they're going to open. J.C. Penney is talking about a number of stores. Ann Taylor Lot of loft is doing well.

As Charles points out so often, Fifth Avenue stores are constantly changing. The occupancy levels have held up. This is a great business. If we had to say anything with regard to making a mistake of not guiding you guys down in the third quarter, we apologize for this but we are bullish on this business.

We think '04 is going to be a great year and the fundamentals are still very, very strong in this business. And for anybody to get the impression that we think our business is going in the wrong direction, it's wrong. Because '04 is a building year for us, and '05 should be a great year for us.

Okay, great, thanks. Last couple of items if I could. Minority interest was up real big. What is that, how does that work? Or did I read that wrong?

It's the gain on Galileo.

It's the Galileo, okay. And then as far as that goes, John, the master lease you have with Galileo, is that something that you review on a quarterly basis, what you might have to pay in terms of the difference in occupancy or is that an annual thing?

Think we would revisit on a quarterly basis and keep everybody posted as well.

Nothing in there this quarter, is that right?

Nothing in there.

Thank you very much.

Take our next question with David Fick with Legg Mason. Please go ahead.

Couple of things. First of all you guys have had a sector leading dividend increase history here. I'm wondering if this revised guidance might indicate a reduced or lower dividend increase expectation.

No, I don't think so. David, I think that basically, where we're is that our net taxable income numbers are pretty close to where we have been and we don't think that those are going to change with regard to this downward guidance on this. And no, we don't see any change in our dividend policy as such. And we think it will continue.

Okay. Well, with flat year-over-year FFO growth, I'm sure that doesn't translate directly into taxable income. Last year. you had ordinary income that was almost I think 98.5%, and so that indicates you're balancing against the bottom.

But with some of these losses and things that you're going to anticipate of tenants, will you be induced this year to increase your dividend as much? Or have you figured that out yet?

I think we'll look at that. The board looks at that, and I think if we continue this growth pattern, the dividend increases will be something that will be favorably viewed by our directors.

Okay. I do want to circle back one more time on how you made the assumptions on the Galileo acquisition. This was a major recapitalization of your company, you provided guidance of 42 cents and we just went back this morning to the announcement of the third quarter call, and you all were very specific that you made no assumptions on acquisitions on redeployment of the proceeds.

It would be extremely helpful if you could give us more of an understanding of how you miscalculated it, and what the ramifications are in terms of maybe who is responsible for that, and what you're going to do about it.

Well, I think that the guidance that we gave in the third quarter was basically for nine months, as such. You know, who's responsible for the guidance, I guess the buck stops here, as such. And I'm the guy that looked at the numbers, and shame on me, as such. And that's where it is. And what are we doing to correct that situation? We are basically focusing more on that from that standpoint.

Everybody has been asking this question over and over again. What was wrong in the calculation?

It was nine months, and then also, basically, I don't think anybody viewed the impact with regard to the CMBS, those numbers. It was a nine-month number instead of a full-year number as such.

But John, the CMBS numbers don't have anything to do with the Galileo dilution directly. And we had all of us, at John Litt said, had come up with the same calculations in terms of the NOI impact, and the translated into 42 cents, not 58 cents. And I think you guys still have to do some work in terms of explaining how that math didn't work.

We understand what you're saying. One of the impacts of that, and we'll work on that so that everybody has a definite understanding of what it is, but one of the things is that I think we basically said, in our third quarter calm, that we estimated the NOI growth would be bigger than it is.

We've revised those estimates down for next year. And David, we agree with you we will work on giving a better explanation through our webcast, or through our web page or something such as that.

Okay. I know this has been a tough morning for you, and I do wish you luck. Good luck.

Thank you David and sorry for any inconvenience we caused to you guys.

Next question with Keith Mills with UBS. Go ahead.

Here with Ian Weissman. Can you remind us the exposure of Wilson Leather in terms of annual rents?

We have 29 stores, about 78,000 square feet, total annual revenues of just under $3 million.

And are you making any assumptions in your now new revised expectations for this year that there will be closures related to Wilson Leather or do you expect them all to be open for the full year?

We're talking to them now. We figure that four stores are going to be closing, and there's another three where they've three where they've asked for rent reductions that we are negotiating.

So the other 22 remain basically unchanged for the year?

Correct.

Okay. Just want to confirm that the Gadzooks and KB Stores are in expectation for closing for 2004?

Yes they are.

What are the prospect for the Gadzooks, the prospects are pretty high, what kind of roll down are you expecting?

We just got the list late yesterday. So I can't tell you really specifically, I mean, I think you know, some of the malls they're closing at are good malls.

Gadzooks spaces are good spaces. The rents on average are probably in the, you know, the mid to high 20s. So I think we should be able to do pretty well in terms of at least holding up where they were.

You're not expecting at least --

It's more the down time that we're going to suffer when we are trying to bring people in.

Your thoughts are on at least ten stores that are closing that your rent with the new tenants will be about the same as you're realizing with Gadzooks?

That's correct.

Next question is, can you go into more kind of the background as to why the 12 cafeteria stores are closing? What was going on there? Is it mismanagement at that particular company, or was it just the wrong consent for your properties?

I think the cafeterias are almost a throw back and I mean cafeterias really have been a business in the South that has really been the only part of country where you have seen cafeterias.

There have been just a lot of restaurants opened in the markets that have taken the food business away, the cafeteria doesn't really appeal to the younger customers, and you know, it's just I guess a dinosaur. And so we basically see them leaving most of our malls, and last year was really when that pretty much came to roost.

Are there other cafeteria stores I guess if you want to call it in your properties that are not part of these 12 that you announced this morning?

Yeah, there's another seven. They're still doing business in the markets, you know, doing north of $2 million for the most part so they're doing good business. The locations of the cafeterias are good locations; they're at the front of the malls; they're facing out.

For the cafeterias that we lost last year, we've got several restaurants that are interested in taking part of them. And then we're cutting them up into other leasing opportunities.

Then we have a couple of bookstores, several that are looking at several of the opportunities again, because of the location, the promising locations. So the replacement prospects are very good.

Are you feeling pretty positive about the seven that are remaining, Stephen, or do you think there is some risk that you could see some closings of those this year?

We feel okay now. But you know, I think over time, we'll just have to see.

Are the size of those seven consistent with the size of the 12, and are the rents basically about the same?

Yes, they are.

Okay. Then finally, John, I guess could you kind of share with us kind of what your policy is in terms of bad debt expense reserves right now? Are you looking to increase those for 2004 going into '05 or have you just been keeping those about the same?

What we do is, we look at each of those categories or each of those tenants, and we reserve for those. We stop any accruals pretty quickly as such. We have a committee that basically reviews those and we review with our board of directors at each meeting what those reserves are. And show them the write-offs that we've taken for that quarter.

So we have continued to keep our reserves at the levels that we have, and we don't basically pull down against those reserves as such when we try to increase those.

What is your position now John, you should look to maybe increase those as you move through '04?

We increase the total overall reserves this last quarter, so we did increase the total overall reserves I think in the range of a million, 1.2 million. We continue to do as such.

Is that something you will continue to do in '04?

I think we're okay now, but if we needed to we would basically increase those reserves. We understand and don't want to disappoint anybody when it comes to earnings per share or FFO growth.

Final question maybe you hit on this already I missed it but can you tell us when you learned of the store closings related to KB and Gadzooks?

Gadzooks was yesterday. They've been talking about it yesterday. KB Toys was last week.

You didn't know in advance of the announcement that there was a potential that the 24 could close on the KB side and the ten could close on the Gadzooks side?

We started hearing rumors about KB right after Christmas and Gadzooks too. You just don't know the ex pent extent of what stores are going to close.

The leasing guys have been proactive with regard to those spaces. Any anticipation where we see weakness on sales or whatever our leasing guys are supposed to focus and have a backup tenant for that space.

Pro active in trying to go out and focus on particular pads?

I think other than what we've talked about, you know, today the books and music and a couple of these specific like the Wilson's Leather situations, we haven't really seen -- we've seen pretty good, healthy retailers out there.

Okay. Thanks, I appreciate it.

We will take our next question from Jay Haberman from Credit Suisse First Boston. Please go ahead.

Hi John. I know this has been a long call but what was the rationale for tightening the guidance range, 4.60 to 4.65, versus the range you had previously? It seems you have a greater confidence about the coming year and there seems to be moving pieces out there.

From the standpoint that we felt with the numbers and the way they penciled out and the explanation that everybody wants us to give, that we thought that that range was a good range as such.

We'll continue each quarter to update our guidance as to that. But at this specific point in time, I guess we're a little gun shy from the standpoint of we missed it in the third quarter as such.

On the guidance, it's really interesting Jay that the numbers are good, the company's performed well. This is, you know, this is '04. It's a building year for us as such. And I just can't emphasize that enough to everybody. And you know, they are what they are.

We think that our guys are focused on it. We hope to beat guidance. We've had a history of beating guidance. But we want to be candid and straightforward with it.

Okay. Does it include any incentive fees from the Galileo deal from meeting the lease up hurdles?

No it does not.

Thank you very much.

Follow db up question with Carey Callahan with Goldman Sachs. Go ahead.

G&A, 30 million for the full year, does that imply there was about 2.5 million of extraordinary expenses in the fourth quarter? If I'm doing my math correctly? 30 million for the year would be about 7.5 million for per quarter.

I think the fourth quarter is basically where we pay bonuses to people. And so that may be had some impact with regard to that.

Okay. It would be helpful just to understand what the magnitude of the differential was and the components of it. FAS 141, 142 and amortization of debt premiums, is there any change in the guidance previously to the new guidance of those line items?

It will have some impact, in '04 as such. About in the range of 7 cents or so based upon those acquisitions that have been closed.

Those are those two items combined?

Yes, it's those two items combined.

And was that 7 cents in the prior?

Yes, it was.

And just on land sales, I think you had mentioned in the previous guidance it would be 4 cents a share and I think I had heard Stephen say $5 million which would imply 9 cents.

It was two to 3 million is what I think I said. It's what I meant to say. So it's similar to what we had said before.

The value of the three community centers that you sold to third parties in the third quarter, what was the value of those assets?

7 million.

7?

7 million. Yes.

Thank you.

We will take a follow-up question from Paul Morgan of FBR. Please go ahead.

Capex statement, other renovation capex, negative $5 million. What would that be representing?

One second, Paul. We'll have to get back to you on that one. Then on the income statement, it appears that you have, I don't know if it was this quarter or a prior quarter, I missed it previously, but reclassified some operating expenses in that the quarterly numbers don't add up to what we had had as our annual number for both property operating expense and tenant reimbursements. Did that occur this quarter?

We did an adjustment this quarter basically to make it more apparent or clear how it tracks better from the standpoint of GAAP, so that's what we did. It's just a geography change. It had no impact with regard to FFO or any of the bottom line numbers.

So what exactly was underlying that change? I mean it looks like what they both went down by about $6 million.

The common area maintenance charges went down, because how we recorded those, those entries basically just changed. But it was no difference with regard to the cam charges as such. It was basically how the valuation was with regard to the electrical income for that specific thing. And that was -- change was in the quarter.

I guess my final question, just kind of rephrasing an earlier question about the types of stores that have been closed and there being no pattern to them. Is there a pattern I guess phrasing it differently in the prospects for the stores that are closed? Do you see certain types, either geographical or based on mall productivity that have greater likelihood of near-term releasing than others?

It's hard to say each one is individual. You know, some cases we're expanding adjacent tenants. Other -- you know other cases where we're changing the category. You know, it's just really hard to generalize.

You would not say any correlation with the mall productivity?

Right.

We're going to go ahead and wrap up. And we'd like to thank everyone. If there are questions that haven't been answered, then feel free to e-mail or call Kelly and we'll put the answers out over our Website.

Again, we just like to thank everyone for taking the time this morning for joining us. Like John said, we're cautious about '04, but we're very bullish about our business and about our company. And we have 110% commitment to our shareholders and to the business.

We look forward to seeing as many of you as can come down to Myrtle Beach on March 17th for the grand opening of Coastal Grand. So thank you very much.

This does conclude today's conference call. We do thank you for your participation and you may disconnect at this time.