CBL & Associates Properties, Inc. (CBL) 2004 Q1 法說會逐字稿

Good day and welcome to the CBL & Associates Properties Incorporated conference call. Today's call is being recorded and will be available for replay starting today at 1:00 P.M Eastern Time, and running through May 3, at 8:00 P.M Eastern Time by dialing 719-457-0820 and entering confirmation code 452232. At this time for opening remarks I would like to turn the call over to the Chief Financial Officer Mr. John Foy. Please go ahead sir.

Thank you and good morning. We appreciate your participation at today's conference call to discuss our 2004 first quarter results. With me today is Stephen Lebovitz, the company's President; 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 risks and uncertainties, many of which cannot be predicted with accuracy, and some of which may not even be anticipated. Future events and actual results, financial and otherwise may differ materially from the events and results discussed in the forward-looking statements. During our discussion today, references made to per share based upon a fully diluted converted share, also references made to community centers are those only fully earned by CBL & Associates Properties Inc. We direct you to the company's various filings with the Securities and Exchange Commission including without limitation the company's annual report on Form 10-K, and management's discussion and analysis of financial conditions and results of operation included therein for discussion of risks and uncertainties. I would like to note that the transcript of today's call is included in earnings release, and supplemental schedule will be furnished to the SEC as Form 8-K, and will be available on our website. Last time we posted the supplemental schedules on our website which can be found in the investor relation section under our financial report. This call is also available for replay on the Internet through a link on our website at cblproperties.com. This conference call is the property of CBL & Associates Properties, any redistribution, retransmission or rebroadcast of this call without the expressed written consent of CBL is strictly prohibited. During this conference call the company may discuss non-GAAP financial measures as defined by the SEC Regulation G. A description of each non-GAAP financial measure in reconciliation of each non-GAAP financial measure to the comparable GAAP financial measure was included in the earnings release that will be included in the Form 8-K. This quarter, our supplemental information was released by .

Thank you Kelly. Not withstanding the volatility that the REIT sector has been experiencing during the last few weeks. We have good news to report, as it relates to the economy and to CBL's performance. The most recent issue of Business Week's commentary states, it's beginning to look like the US economy is on a tier. Business confidence soared to a 20 year high in the first quarter, and surveys of both industrial and service sector companies show that business activity is at an unusually high levels, perhaps most important, jobs are coming back maybe even faster than anyone had expected, and on top of that, the latest retail sales status shows that the consumers are stepping up to the cash registers . The article goes on to point out that there are now concerns about inflation, and that the fed will be raising its rates. While no one welcomes higher interest rates, our strategy has consistently been to fix interest rates with long-term, non-recourse debt on our stabilized properties. Accordingly, the general concern of rising interest rates does not impact us in the medium term in any significant way. Over the last two years we replaced over $800m of fixed rate long-term debt. We have only a $190m of loan maturities or only 7% of our total debt maturing over the next 24 months. Our debt maturity schedule reflects our strategy of minimizing interest rate risk. Retail sales continued to improve and retailers' margins are improving as well. These are indicators that retailers will continue to add new stores in regional malls. The fiscal FFO mean for CBL for this first quarter was $1.16 per share. Let us spend a few minutes and explain why we exceeded the mean by $0.07 per share. We had estimated that we would generate $0.04 per share in 2004 from the sales of outparcels. Due to timing in the first quarter, we reported $0.02 per share of outparcel sales, exceeding our projections by $0.01 per share. We maintained our guidance of $0.04 per share of outparcel sales for the full-year 2004. The two regional mall acquisitions that closed during the first quarter, added $0.01 per share in the first quarter. For the year 2004, the total accretion for these two malls and the one acquired in April is $0.18 per share, based on the date of the acquisition. This guidance is consistent with our earnings guidance in yesterday's release and included $0.04 per share for SFAS 141 and 142. We received $0.02 per share of lease termination fees. As we have stated, we do not budget for lease termination fees. $0.03 per share primarily as a result of better than anticipated income in our taxable that is non-recurring. During the first quarter, operating performance improved, resulting in FFO per share growth of 3.4% or $0.04 per share. Of this increase, 83% was represented by external growth. The external growth resulted from the new developments and acquisitions completed in 2003 and the first quarter of 2004. The internal growth resulted primarily from the 1.7% same center NOI growth. It is worthy of noting that on a comparable basis, excluding the community center sold to the Galileo joint venture and other third parties, our FFO growth per share would have increased by 14% that Galileo joint venture transaction, resulted in reducing our debt-to-total-market capitalization by 350 basis points. We are more convinced than ever that this joint venture transaction is favorable for both CBL and Galileo. We have redeployed all of these funds raised in our recently announced acquisitions and we are now even more involved in community center business by pursuing acquisitions as well continuing our development program. A few additional comments on the first quarter results. Specialty leasing revenues increased 23% or by $1.8m over the first quarter of last year. Sponsorship and branding income increased 55% or by $380,000 compared to the same quarter one year ago. G&A in the first quarter reflected a 30% increase or approximately $1.9m compared to the first quarter of last year. This increase included additional personnel, salary adjustments and bonuses of nearly $1.3m in connection with the new developments and acquisitions that we completed. We also increased the state tax reserves by $430,000. We estimate annual G&A in the range of $34m for the year. As we stated in our earnings release, the first quarter same center NOI growth was 1.7% for the total portfolio, driven by steady occupancy levels and specialty leasing. The breakdown for the quarter by property type is as follows. Same center mall NOI decreased 80 basis points or $745,000, primarily due to the loss of income from bankrupt tenants. Because of these bankruptcies and other mall tenants our bad debt expense and charges against revenues increased $4.4m over the prior year period. Excluding these charges, the same center mall NOI growth would have been 4.1%. Same center NOI for the portfolio would have been 6.2%. In addition, we also sustained the temporary loss of income while having big boxes and fresh new retail concepts to our malls. Associated centers experienced an increase of 34.8% or $1.4 of which $700,000 resulted from the collection of lease termination fees. NOI for the community centers, which we wholly own, increased 7.1% or $112,000. Our cost recovery ratio was 94.1% for the quarter compared to 94.4% fro the first quarter of 2003. We expect that our cost recovery ratio for the balance of the year will be in the mid 90% range. Out total debt-to-market capitalization at the end of the first quarter was 44.5% compared to 50.7% a year ago, continuing to give us financial flexibility. In addition, our floating rate debt accounts for 18.7% of our total debt and represent 8.3% 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 was 59% at quarter end providing us the ability to continue to utilize retained FFO for opportunities that may arise. Our financial coverage ratios remain strong with EBITDA coverage ratios of 2.81% for the first quarter of 2004 compared to 2.85% for the same period in 2003. The slight change was a result of the increase in interest expense due to certain loans converted from floating rate to fixed rate debt. Now, we'll hand over the handover the call to Stephen Lebovitz to discuss new developments, leasing, retail sales, and acquisitions.

Thank you John and good morning. During the first quarter of 2004 we accomplished several significant objectives for our portfolio. In March, we held the grand opening of Coastal Grand - Myrtle Beach, which opened at 90%, leased and committed and introduced over 300,000 square feet of new retailers to the market. New retailers include Dillard's and Taylor Loft, Cache, Brookstone, Dick's Sporting Goods, Abercrombie & Fitch, Hollister and many more. In March, we acquired two malls for a total investment of $202m with an average cap rate of 7.75% on income in place. In January, we contributed six community centers to the Galileo joint venture generating $63m. In April, we acquired Greenbrier Mall for $107m that included a pre-payment fee of $4.5m for debt that CBL did not assume. This pre-payment is part of the purchase price and not a charge against FFO. Including the debt prepayment of $4.5m the cap rate would have been 7.8% compared to 8% excluding the fee.

A fourth mall is under contract that we anticipate closing on by the end of the second quarter. Total investment on this acquisition will be approximately $80m. On Wednesday March 17, we opened Coastal Grand-Myrtle Beach with our 50/50 joint venture partner, Burroughs & Chapin. It is an outstanding shopping destination offering both locals and tourists an exceptional place to shop, dine and have a great experience. The architecture of the mall is unique to any other property in the Myrtle-Beach area, featuring palm tree-lined streets, creative designs and lighted fountains and the many palms located on the property. Coastal Grand has received great reviews from the community and the retailers and is off to a terrific start. The enormous amount of traffic at the successful grand opening has continued. The anchors at Coastal Grand includes, Belk, Dillard's and Sears, as well as Dick's Sporting Goods, Bed Bath & Beyond, and a 14-screen Cinemark Theater. This summer Gap and Gap Kids will open in the mall and our two of only eight new Gap stores opening in 2004.

As far as other new projects, in January we held the ground breaking ceremony at Imperial Valley mall in California, which is on schedule to open in March 2005. This 741,000 square foot mall is a 60/40 joint venture with MG Herring Group. Four department stores including Sears, Robinson's May, JC Penny and Dillard's as well as the 14-screen ultra star cinema will anchor the new development. The leasing response has been very positive and we'll feature this project at the upcoming ICSC Annual convention. The mall is currently 55% leased and committed. Also during the quarter, we opened the shops at Panama City, an associated center located adjacent to Panama City Mall. At Wilkes-Barre Township Marketplace in Pennsylvania, we opened Wal-Mart, AC Moore Arts & Crafts and a number of shops and outparcels. This project is 99% leased and committed.

Other projects under construction include the 312,000 square-foot Charter Oak Marketplace in Hartford, Connecticut, anchored by Wal-Mart and Marshal's, and at 26,000 square-foot expansion at Garden City Plaza in Garden City, Kansas. These two development projects plus the previously mentioned Wilkes-Barre Township projects will be sold at January 2005 to Galileo. Three mall expansions are in progress including eastern and western malls in Madison, Wisconsin. Those projects include a new Dick's Sporting Goods, as well as additional mall space and are scheduled to open this November. At Arbor Place Mall, construction is well under way on the new 140,000 square foot Rich's-Macy's scheduled to open this fall. Expanding and adding anchor stores to our malls continues to be a priority for us. Dillard's in Northwoods Mall in Charleston, South Carolina completed their 30,000 square foot expansion and is in the process of a store renovation to be completed later this year in conjunction with our overall renovation of the mall. This year we will complete three mall renovations; Panama City Mall, Cherryvale Mall, and Northwoods Mall, added estimated costs to $22.5m. By the end of this year, we will have completed all but two of the scheduled renovations associated with the 21-mall portfolio we acquired in 2001. We accomplished 673,000 square feet of leasing for our existing portfolio during the quarter compared with 583,000 square feet in 2003, which excludes community centers sold to Galileo. During the quarter, we entered into approximately 247,000 square feet of new leases and renewed approximately 426,000 square feet of existing tenants for small shops. Year-to-date bankruptcies resulted in 64 stores closing containing 213,000 square feet and representing $6.5m in annual gross rentals. The bankruptcies and store closings we have experienced this year have already exceeded all the bankruptcy-related store closings in 2003, clearly a challenge for our industry. At the end of the first quarter, total portfolio occupancy was 90.8% an increase of 30 basis points over last year. We anticipate occupancy to trend down in the second quarter as additional stores close as a result of the bankruptcies that occurred early in the first quarter. On the positive side, this provides us an opportunity to strengthen the tenant mix in our properties. Occupancy for the associated centers was 88.7% at the end of the quarter. The occupancy was negatively impacted by the loss of a 36,000 square foot Just For Feet Store at the village at Rivergate in Nashville, Tennessee and a 46,000 square foot Appliance Factory Warehouse at Hamilton Corner in Chattanooga, Tennessee. These two associated centers are under redevelopment with replacement prospects that should open in 2005. In the mall portfolio, average annual base rents for spaces leased increased by 23.5% compared to the average base rents vacated. For associated centers and the community centers, the comparable increase was 0.5% and 18.5% respectively. As mentioned earlier, the results for the community center portfolio excludes those centers already contributed to the venture with Galileo. We are pleased to report strong retail sales in our portfolio. From mall stores of 10,000 square feet and less, first quarter same-store sales increased 7.5% for those tenants that have rewarded. Also during the first quarter percentage rent increased 5.8% representing 3.9% of total revenues. Additionally, during the quarter occupancy costs as a percentage of sales at our malls was 14.1% compared with 14.9% the same period one year ago. We have now completed phases one and two of the Galileo joint venture and included the sale of 47 community centers and raised $318m in cash proceeds. All the cash from the Galileo transaction has now been redeployed. We are pleased with the results of this venture and the contributed community center portfolio continues to perform well. Our expectations for future growth of this venture is one of the primary reasons we entered into this transaction. The nine remaining community centers currently held in the CBL portfolio will be sold if the opportunity to realize value occurs. During the quarter we acquired two malls that were managed by Faison Enterprises; Volusia Mall in Daytona Beach, Florida, and Honey Creek Mall in Terre Haute, Indiana. Both of these malls fit our middle market strategy and have strong competitive position in each respective markets.

In April, we acquired Greenbrier Mall in Chesapeake, Virginia. This Mall recently had a significant renovation including builders consolidating their two stores into one. Yesterday dealers opened a new 160,000 square foot store. In the spring of 2005, JC Penny will open the 105,000 square former Dillard's Store. Last week, we acquired fashion square shopping center located in Orange Park, Florida part of the Jacksonville MSA for $4m. This property is a 10.1 acre site that we plan to redevelop into a new community center.

Before we open the call for Q&A, I would like to share our outlook. We've focused on enhancing the strength of our existing mall portfolio. We're continuing to add a number of boxes at many of our malls including Barnes & Noble, Linens n' Things, Dick's Sporting Goods, TJ Max and others. While this creates a short-term loss of income, it will improve NOI and occupancy levels as these stores open. The strengthening economy coupled with strong sales and real increases boards well for our malls. We're encouraged with the level of activity in our leasing program; demand by retailers continues to be strong. We're maintaining our NOI same center growth expectations of 1% to 2% for the remainder of 2004, and anticipate greater NOI performance in our portfolio in 2005. There have been a number of questions to us in recent months about whether our malls and middle market are bearing a disproportionate share of retailer bankruptcies and are under performing malls in larger markets. We do not feel this is the case at all and remain confident in our middle market focus strategy. Our results for this quarter affirm this strategy. Retailer bankruptcies in 2004 have impacted malls across the country and as in the past we'll work through them and end up with stronger properties. We're encouraged by the number of retailers who are working with us to grow their presence in our properties such as Brookstone, Cold Water Creek, and Ann Taylor to mention just a few. Our hands on proactive strategy in operating our malls has served us well in the past, and we'll continue to do so going forward. We appreciate your confidence and support. John and I will now be happy to answer your questions.

Thank you sir. If you would like to ask a question, please do so by press the star key followed by the digit one on your touchtone telephone. If you are on a speakerphone, please be sure your mute function is turned off, to allow your signal to reach our equipment. Once again, please press star one on touchtone telephone to ask a question. And we'll pause for just a movement to give everyone an opportunity to signal for questions. And we'll take our first question from Ian Weissman of UBS. Please go ahead.

Yes, good morning.

Hi Ian.

How are you? You said that you were close to closing on a mall later this quarter for $80m. Would that happen to be the Chapel Hill Mall, if you could comment?

That is the mall. There was a little premature announcement by the property owners before that time. We're in the due diligence period now, and would anticipate that that mall would close in this quarter.

So your guidance for the year you take that mall into consideration.

Does not.

It does not, okay.

We want it to remain consistent with what we said throughout the years that we don't budget for acquisitions.

Okay. You talked also a little bit about bankruptcies and how it affected your portfolio, you said that there was 64 locations that have closed in your portfolio as a result of bankruptcies. I don't think that number is much different than what you reported last quarter although since then Footaction said that they are going to close 165 stores, I think you have about 25, have you been notified of any store closings from Footaction in your portfolio?

We have of the 27 locations there we have with Footstar, they are closing four of them and that would be about 41,000 square feet. It includes a couple of adjustable feet and its about 900,000 and annual gross income. But we were pleased with the way that bankruptcy worked out with those stores being bought by Foot Locker and taking really the bulk of that portfolio and so that really we think worked out well.

Okay. You lost a number of KB stores and Gadzooks -- Please give an update on releasing prospects at those locations.

Sure. KB was the worst one for us, where we lost over a 100,000 square feet and it was actually 26 of the 51 locations and about 2.8m square feet. Right now, we've got about 35% of that space committed or under negotiation and about the 35% of the space is about 40% of that income loss. So, it takes time unfortunately to release the space. We are dealing it as fast as we can and pushing very hard to get that done. But, like we said in the past, we will end up ahead of the game as part of the process. Gadzooks is the other one I think you asked about. And for Gadzooks, we've lost 12 of our 40 locations that's about a $1.3m in our total income that we will be losing on an annual basis. The Gadzooks again were about a third committed and under negotiation, although in this case that's about half of the income that we lost. So, the Gadzooks spaces are good -- it spaces in between the 40-yard lines at the malls and we're getting real strong interest in them pretty much across the board.

So, your internal growth function of 1% to 2% for the year taking to account the reality prospects of those stores differently, you just said.

That's correct. Realistically, most of that space is going to come online at fourth quarter and we are using temporary income in the mean time to keep some income flowing from those spaces. But, the temporary income isn't at the rates that the permanent leases are going at.

Just one other question on bankruptcy. As you said that, you anticipate further bankruptcies to potentially impact your portfolio with the balance of this year? Is that just -- from your experience in the business, are you talking specifically about one-tenth you may have in line?

We feel like the worst is behind us. There is still a lot of rumors about Wilson's Leather and they are probably the one that's closest on the brink. But, I think we feel like the worse is behind us as far as the bankruptcies this year.

Okay. Thank you very much.

Thanks Ian.

And we will take our next question from Jay Leupp of RBC Capital Markets. Please go ahead.

Hi Jay.

Hi, a couple of questions. Asset sale activity. Could you talk a little bit going forward about what your plans are this year and next in terms of asset sale activity both in terms of real estate property type as well as locations and also leasing spread going forward. What your expectation is this year and what's built into your guidance?

As to dispositions or sales of assets going forward, our venture with Galileo as we pointed out has done extremely well. In the first quarter of '05, we will sell what contributes them, three or four of those properties there under development today. So, that will involve about $75m, I think in the first quarter of next year, which is for properties. On a going forward basis, we have I think around nine or ten community centers left in our portfolio and as we see the opportunity to monetize those at a value that we think what recognizes the value in those properties will do so. As far as our regional malls as such, I think we found that selling some of those regional malls in today's market, we can probably refinance those and enjoy better growth in those malls than we could by selling those properties. As an example, our mall in Del Rio, Texas which probably is the lowest per square foot performer we refinanced that three or four years ago and took out more money than we could have refinancing and we are redeveloping that model also by repositioning , and so and so. We look at each property and value that from the standpoint of asset valuation. To your question on leasing, let me turn that over to Steve and then he can answer that for you on the re-leasing spreads.

Yes, I think that for the year we are looking at a better leasing spreads. The first quarter leasing spreads were dragged down by couple of specific situations where we are doing re-merchandising and retenanting -- we had a 3% for the stabilized malls on the rent increases, new rent as compared to prior based rent but just to give you an example, in Asheville Mall in Asheville, North Carolina, we took Maurices and we relocated them on a one-year basis.

Alright, got their win and how on the interim, but that's to wait until we can get the Disney space back, and then we can put Hollister in that combined space, move Maurice's into a new space. We will end up ahead of the game but again it's a short-term impact that's affecting us with this quarter. In that case it's a $100,000 and there's just a lot of situations where we are doing short-term renewals of 1 to 2 years in a couple of spaces where we are moving people around, went up ahead of the game but on the short-term basis it does impact as we talked about the boxes and for us to put in our linens and things and of Barnes and Noble, we have to move tenants into temporary spaces or we move them on a short-term basis to allow that to happen. So, that's really a factor that impacted our leasing spreads in this quarter.

Okay. Just one follow up. Could you give us just a brief update on the clear values in the Southern California development?

Sure. The leasing is going well like I said. In script it's a 55% lease today. Construction is going great. We have

a grand opening date of March 9th of 2005 and we are very pleased with the way things are going out there.

Great. Thank you.

Thank you.

And we will take our next question from Michael Billerman of Goldman Sachs. Please go ahead.

Good morning.

Hi, Michael.

I was wondering you mentioned refinancing opportunities. How many assets do not have secured debt on right now and maybe how much unsecured and why do you have?

Well, the Myrtle beach property which we just opened; we don't have data on it. We probably have 4 or 5 term loans in place with some banks that we are finishing at the remodeling arm such as Eastgate Mall in Cincinnati and Midland Mall and Michigan where we just have added the Barnes and Noble and things such as that. In addition to that Parkway Place which we are still continuing. Our joint venture partner there is in the process of that lease also. As to that exact dial-in number, we can look that up and give that to you but I don't have it right at hand as such.

Do you think you are going to pursue some refinancing state, your line over the next couple of quarters?

Well, I would think that with a transaction that's going on in the first quarter for next year and some of these refinancings that definitely would tend to take the line down as such, and there should be some over financing proceeds as well.

Okay. On the acquisition front, you talked about Chapel Hill, what is the rest of the pipeline look like? What's in the volume of deals that you are looking at?

Michael, we basically don't project those. We are still continuing to look at -- there's quite a pipeline of acquisition opportunities out there for all of our fellow friends in the regional mall business. We have been and will continue to be very disciplined with regard to, we did participate in some of these past announced transactions but we were pitifully left behind as far as paying the prices in the cap rates that some of those malls went at. We think there are one up opportunities that we can continue to identify but we don't have any of those to announce at the present time.

Okay. And a couple of others. The other NOI line, is that where you booked your sponsorship and specialty income?

Yes. That is and that's where the taxable resubsidiary comes in especially it depends on the special releasing -- some of it comes in onto the other line and some of it is above. If it's at least on space, it will come in up above -- if it is like the Coco Cola thing, such as that will come in under the others.

Okay. And then just from trending down in occupancy in the second quarter, what sort of volume are you thinking about?

How much do you already know is going to come out?

I think we are looking probably -- like we said in the past we will probably be within 50 to a 100 basis points of where we were last year but we are hoping that we will do better than that and we are trying to be realistic, conservative and probably would be more in that range.

Okay that's appreciated. Thank you.

Thanks Michael.

And we will take our next question from Paul Morgan of Friedman Billings Ramsey, please go ahead.

Hi Paul.

Good morning. What is the TRS income, what's in there right now? The $0.03 actually that you talked about.

It basically is services that we provide to tenants. It's some income from Galileo. It's various things such as that where we likely get some IT services that we provide to some of our partners, which generate $160,000 of revenues out of that, and various and sundry things such as that.

But the difference, I mean the upside is -- you mentioned it's being non-recurring, so the non-recurring or a key component of that was most of it this quarter?

Yes, I would that's the case and we basically -- in our projections we anticipate that that's non-reoccurring. Some of that will reoccur because that's just the nature of it, but it's a small piece of it, but that's our business, our business is try to find other sources of revenue to generate for our company, and I think we've done an admirable job on the respect. So, I think that in our projections we basically say it's non- reoccurring.

Thanks. On the store closings, how much of what you -- I'm sorry if it was asked in a different way earlier, but how much of what you know is going to close from the big closings? How much of that closed in the first quarter, how much of it is still to come in the second quarter both in terms of and then your NOI loss, I guess?

We are just getting that, most of the closings occurred at the end of the first quarter. So, we are looking at these closings hitting us through the rest of the year, although I think we do know with these larger bankruptcies like I mentioned KB Toy, Gadzooks, Fannie Farmer which isn't nearly of that magnitude, food action, foot store that we talked about. We definitely know the impact of those. There's roughly 171,000 square feet occurred in the first quarter. Now that all didn't occur during the first -- lot of it occurred during the latter part of the first quarter. So, the impact was basically not as significant in the first quarter that leaves us with about 50,000 square feet to occur for the remaining three quarters or 213,000 square feet of total closings.

Okay. I guess I'm just trying to a get a sense of this, given that if you think I guess that the second quarter of mall NOI internal growth is going to be down even more sharply and yet you are looking at 1% to 2% increase for the full year. And I guess is that based on your assumption for a pretty robust leasing environment for holiday season openings? Did you have a lot of catch up to do get to that number?

Well Paul as we mentioned in the script, we basically talked about the fact that we had taken some additional charges of about $4.4m. We don't see that occurring in the second and third quarter going forward. We think that we took charges that we hopefully will ultimately recover some of those charges, but we basically wanted to take those charges to make certain that we had sufficient reserves and sufficient room with regard to bad debt charges. We wouldn't see those going forward in the second and third quarter as such.

Okay.

And in that third quarter a lot of that vacancy will be filled up with specialty leasing for the holiday season as such.

Right. And then on the specialty leasing front and the other NOI, I mean is this a pretty good run rate what you are doing right now? I mean their numbers are up pretty big year-over-year.

Yes, I mean a lot of that's an impact of the new properties, the malls that came on from last year, plus the acquisitions that came on the first quarter. So, I think we are looking at -- I think comparable increases going forward this year.

Okay. And then my last question is on your development pipeline. Can you talk a little bit about your visibility of the pipeline beyond the California development and either on the mall side or lifestyle centers or other types of projects? What does that look like into '05 or '06?

Well similar to acquisitions, we don't announce the new developments until they start, but if you come by our booth in Las Vegas, you can see all the projects that we are marketing because we are out there leasing a lot of exciting new development projects, and those are really a combination of community centers, open air type projects with conventional anchors and boxes, and it's a very active program of new development that we have got that we are looking forward to for '05, '06 and beyond.

So, you would as likely also staying near the pace over the last couple of years of that.

Yes.

Great, thanks.

Thanks Paul.

And we'll take our next question from John Roberts of Stifel Nicolaus. Please go ahead.

Hi, John.

Unfortunately being the most of the questions have gone here but let me just follow up with a few things. The lease termination fees, what was the impact on occupancy from the loss related to those fees, approximate number.

It only resulted in about 2000 square feet John. It was basically, some other was older stuff that came back like the Carmike Cinema. It basically was, that was one of the areas that we were -- we basically got some recapture from the Natwest last year space and in the meantime it's similar to what we are going today with regard to the theaters. About two years ago, everybody was concerned about the theater industry and the number of bankruptcies that were put in place and we put into force a program to redevelop and release those spaces which turned around and really improved our total overall properties, but it did impact us in the short-term basis. And then in addition to that, we were able to recapture about $700,000 of that money that had been written off before. So in that $4m number that we've increased our research by the 4.4, hopefully we will able to recapture some of that as well. So, you know, we are positive with regard to it, we think we are going through just a transition in our business, and we think that as we said last quarter that '05 is going to be good year, but what we have done thus far this year is looking even more favorable than what we thought.

Super. So that will put $4m in bad dept expense may be are captured in a similar way in the lease terminations fee.

It definitely could but we are, you know, we want to take and make sure that we've covered all of those unforeseen types of occurrences.

Okay, great. And you mentioned that you've been pretty disappointed, I mean acquisition environment what do you see in this current cap rate type assumptions going forward given the fact of an interest rates, no acquisitions.

I don't think that interest rates have backed up significantly enough to really impact cap rates. Yes, because there is just so much demand out there for acquisition. So, I mean again I think it depends on the type of properties that you are pursuing but I think the cap rates that we've been able to achieve, we've been very pleased with, we've been able to do these transactions on a negotiated basis and I think if these malls would have gone to market that the cap rates with that 20 had been lower, and I think interest rates have to go up more than they have today and probably more than as expected, before cap rates will get impacted.

What do you guys look at that right now. I mean, what's the sort of bottom range of the cap rate spectrum that you look at.

You know, it's so hard to answer that because the cap rate really depends on what the growth is.

Yes.

We are always looking at what's the property is going to be producing a year, 18 months, two years out to the future. So the initial cap rate is important but if we see really strong growth prospects then we pay a lower cap rate on the, you know, there might be an immediate development opportunity -- the opportunity and that type of thing has to be taken into account as well. I understand but you know for assumptions going forward, we assume similar cap rates from what we have been having up to now.

I think that's right.

Okay.

John you mentioned the three - talk a little about the three set nonrecurring in the factories of city area. And you mentioned McGill layer income, isn't that going to be recurring because you have now relationship with them.

Yes. A portion of that will be which is shown in the management what's the income but the portion of that's not. Such as, as to refresh everybody's memory so we get 80 basis points on any acquisition it's done on the US that does at such show. If that type of approach and other things that we provide for them, or other people that we do service type of workforce.

bit of ongoing components for that service that you are providing for them?

Well, we think that the growth, there is the ongoing component of the management fee, which reflected on the management fee income line but there are, depending upon the acquisition and as we pointed out the reason we did the Galileo transaction is that we think that this way it can grow significantly. So, granted there is some recurring income that we should see out of fees for acquisitions and some asset management fees ultimately when that trust gets over $500m in gross asset value, then we get 10 basis points in excess of that. So, that will be recurring income as well. So, again we basically classified it there and have said that its nonrecurring from our standpoint as far as projections and for use for this year.

Okay, but it may be recurring?

Well, we would hope that it always is recurring.

You talked a little bit about acquisitions on your side, how does the acquisition environment look on Galileo side at this point?

Well, they continue to look at properties and we do for them, and I better not to answer that one for now.

All right, great. That's it for it. Thanks.

Thanks John.

And we'll take our next question from Ross Nussbaum of Smith Barney. Please go ahead.

Hi Ross.

Hi John, how are you. Stephen, good morning. On the occupancy numbers, it was up 30 year over year or actually it looks like if the more portfolio up, 50 dips year over year. Does that just reflect the change in the asset mix due to acquisitions? It seems to me that same-floor occupancy would have been down given the bankruptcies in the first quarter.

It does somewhat but only about ten basis points of that comes from the new acquisitions. So, a part of it is, some of the boxes that we opened last year that have come online that have helped us and then just keeping in spaces that we've projected to follow, keeping these spaces occupied and then like John said, some of the bankruptcies that we have dealt would hit in the first quarter about 50,000 square feet didn't close in the first quarter.

And in those numbers that you gave in the square foot, that did not include the four stores even it be losing from is that correct?

Right, it did not. Only one of them, only one of the four is closed at this stage, the others are closing in the next 30 days or so.

On the noncash FAS 141, 142 revenues and the debt premiums that you booked in the first quarter, was that related to the fourth quarter acquisitions you did? I assume the first quarter acquisitions really wouldn't have had an impact yet?

That's correct. The first quarters were minimal and those for the last quarter.

For those numbers, should they go up in the second quarter, I would assume?

Yes, they should.

And is that reflected in your $0.18 of accretion from the acquisitions that you gave in the press release?

Yes, it is.

Okay. Last question is on CAPEX. The past two years, I think, your CAPEX numbers have been about $125m between TIs, renovations, and deferred maintenance, and if you look at the first quarter run rate, it looks like you're going to come in significantly lower than that. Am I talking about that correctly?

Yes, I think that's correct because as we pointed out, we've basically done most of those. It should be about $23m in remodeling cost excluding deferred maintenance. So, add that to another $17m for deferred maintenance items. So, that's correct. We've basically done what we've said we were going to do when we acquired the Jacob's portfolio as well as continued to remodel and keep our properties up-to-date. So, we're comfortable and that we've achieved what we needed to do with regard to that. There's still a couple of more that will involve expansions and remodels, but those are next years and in few or so to come.

Okay, and can you comment on whether or not you're looking at any of the Colonial Properties. I know that they finally admitted that they've got a couple of them in the market right now, but there they are coupled to smaller amount.

We're not looking anything on the market front now.

Great. Thank you.

Thanks Ross.

And we'll take our next question from Jim Sullivan of Prudential Equity. Please go ahead.

Hi, Jim.

Hi, good morning. Thank you. Couple of little more detailed questions, perhaps on the same store in Hawaii. Just want to make sure that I understand the moving pieces here. When you talked about the bad debt reserve, I think at $4.4m, that number is primarily in the mall or applied against the mall in Hawaii, is that right?

That's correct.

And the way we should think about that, what would your bad debt reserve ordinarily be, what would you've ordinarily accrued?

That was $300,000 last year, Jim.

So, it was an increase of 4.1, so that when we looked in your release here, but for that your mall in would have been $4.1m higher right?

Yes. It was really $4.7m for this quarter, so we backed out the 300, we were trying to give you the net increase was 4.4. So, it was 4.7 for this quarter less. So, we backed out the top for $300,000 last year. So, it's 4.4.

Okay. So 4.4 is the difference.

Correct.

And when you are giving the guidance for the full year, there's been a number of moving pieces we will get the same store analog guidance as the same as it was at the end of the fourth quarter. So, I guess that means we should assume that at that time, you assume that you are going to be providing a much bigger bad debt reserve for this year?

We felt that P&L in light of what was going on that it made it to -- it is a profit thing to do and that's why we did that, and that's consistent with what we've projected and process of taking it through.

Okay. And so then in the future, if you do recover something against this big reserve that you've made, that would be a one-time credit to the same store in Hawaii in the quarter in which it happened, so is that how that would be treated?

Yes. That's correct.

Okay. And just switching gears a little bit. In the balance sheet, it shows the tenant receivable actually lower year-over-year but there is a big increase in the equivalent rate of other receivables from $3m to $11m plus. Can you tell us what was going on in that line item?

The others basically Jim as part of the earn out with regard to Galileo, as you will recall we had an earn out provision layers that for certain stakes that there was roll over leases what we got, with the credit for that as that came on board, so that's the most significant portion of that.

Okay. And on the lease termination fees, I know there was a discussion briefly in your prepared comments about that and I didn't get that. The lease termination fees applied to what segment of the portfolio, was it the mall or the associated center?

It was the associated center with $700,000 of that.

Okay. But overall -- so overall the -- and I think you said at the outset that overall in terms of lease termination fees, you typically don't budget for themselves, so that what you've got here in the first quarter was excess to the budget, so I guess you are giving a fairly good range on the same store of 1% to 2%, so that's helped to offset some of the negative impact that you are otherwise seeing, right? Is that how I should think about that?

Yes. That's correct.

And then finally on the -- again going back to the bad debt reserve. Does that assume -- does that take into account the risk of filings by -- you mentioned Wilson's, there might be one or two others, does that take into account filings by one or two of those retailers or if they were to file would we expect to see it has to be another additional reserve?

I think at that time, we would look at that to see if we needed to adjust for that reserve, but at the present time, that number does not contemplate any additional filings nor does it contemplate any pickup with regard to leasing. So, we think that'll average out over that period of time. But if they were to occur, then we would look at it at that specific time and make the necessary decision as to what we would do at that time, but it does not include it at this time.

Okay. Great. Thanks John.

Thank you.

And we'll take our next question from Tony Howard of Hilliard Lyons. Please go ahead.

Hi, Tony.

Hi. Good morning. Fabrication first. There used to be an accumulated deficit on the balance sheet on the shareholders equity, now it shows retained earnings?

That was related to the swaps and the hedges that we had in place at that time. And we basically today we have one hedge that rolls off May 1st I believe this the exact day, but May the 4th it's like the first of May, so there are no hedges or anything in place today. So, that's why that entry was on the balance sheet.

Okay, so now it shows some positive retain earnings?

And the Galileo sale basically is retained earnings.

Okay. My other question has to do more with the cost side. You mentioned as far as the $8m on G&A with good run rate going forward.

I'm surprised though that you are talking about a additional personnel, seen like with the Galileo transaction that there would be a reduction in personnel staffing.

Now really what Tony is that with the Galileo transaction we continued to manage those properties and provide accounting assistance to them as well, as well as acquisition and leasing for those particular properties. And then keep in mind also that as we've acquired these malls, we would need to add additional leasing folks for those specific malls as such. So, home office wise in G&A in fact was about 12 people within home office that impacted that number as such. So, the growth of the company, will cause that. We think that we have put in place great technology systems and so on, and as far as the growth -- it's pretty consistent. We are basically as a percentage of revenues, we are pretty close to right where it was like 4.5%, and will be at the same place for this year as last year. So, as those revenues grow, it would be anticipated that your G&A should likewise grow as such.

Okay. Similar question, you were talking about an improving economy etcetera, what are you factoring in as far as some of the operating cost, I notice here in the past we have talked about a sharp increase as far as insurance costs and possibly taxes because of the state budget situations. With the economy improving, do you expect that alleviate some.

Well, you know most of our leases are pro rata. So, it has minimal impact on us today as such, the increase in cost there basically pass through, we are cognizant of the fact though that we need to watch whatever those costs are, and so every manager and every person in this organization has focus on how we can cost containment as such. So, it's a very, very important thing as such. And all of those things have basically been put into our budgets for '04, and we are comfortable with what we have budgeted for '04 notwithstanding some increases in fuel prices and things such as that. So, we are comfortable with those numbers.

Okay.

Thanks Tony.

Thank you.

And we'll take our next question from Greg of Greenstreet Advisors. Please go ahead.

Hi Greg.

Hi John. I just wanted to drill down on the same center NOI a bit more, just to clarify, does this include or exclude the lease termination fees?

It does include.

It includes those --- and the bad debt expense?

It does include those. So, it's a charge against the NOI.

Okay. And then in your -- you are doing a very nice job, a sort of reconciling from net income to same center NOI, and one of the adjustments is the soft reduction for management fees and non-property revenues, and that number was from $1.7m to $5.4m. What explains that big increase?

I think that's tax, subsidation, a number.

Okay.

As far as that shows, that's reflected in that number as such.

Just to clarify, as I understand that the bulk of that presents is the acquisition fee from the Galileo, fees that happened in the first quarter?

No, it's a grouping of various and sundry things, not just that, it's technology fees, it's services that we provide to certain tenants etcetera. So, it's not -- we didn't get an acquisition fee on the existing portfolio. It only applies to those properties going forward. So, it had a number of things, and they make up that number.

Okay. Down below same center NOI, you break it out, and you have a category called other NOI, and just to clarify again, that's your special team sponsorship income is that what that is?

It's mortgages on certain community centers that we sold when we, you know, years ago where we have taken back mortgages.

Okay, that's right. And that job is so much in the year-over-year because of what?

What we did is, we did on a piece of property that we are looking at developing, we loaned against the real estate and therefore there is some interest income that comes off of that, and that was a significant loan which really equates to like incredibly small amount as to the total value of the property. If we don't do the development, we get that money paid back plus that. In addition to that it includes the office building lease, etcetera, so

Your corporate has more, the office building being, you mean your corporate head quarters?

Yes and it includes the office building leases in that other income number.

I see okay. Do you have a full year projection or estimate for the FAS 141, 142 income?

Yes we do, hold on one second Craig. About $.14.

Okay. And for the amortization of debt premiums?

That was both.

That includes both?

Yes. I am sorry it does include both.

Okay that is it, one last thing, you had looks like an abandoned project expense in the quarter and I know you had a bit of that last quarter as well. Is that -- I know you have to look at that on an ongoing basis, but do you expect any more such expense to hit during the remainder of the year?

The one in the first quarter was primarily for one of the community center projects in Virginia, going forward we don't see any out there. They will continue to be as part of the ordinary course of business, write also projects that happen and we make a real effort to minimize that as much as possible.

Okay great thank you.

Thanks Craig.

And we'll take our next question from Richard Moore of Mc Donald. Please go ahead.

Hi good morning guys how are you. Hey with regard to the retailers, John you were very positive in your comments about retailers are you, in general in the economy, are you seeing any thing in your own portfolio, anything that you're

hearing directly from the retailers that makes you pretty positive?

We've had about 20 portfolio reviews here in the past month and had a lot of retailers through and building off in the momentum from Coastal Grand has been a great thing and I mentioned some of the retailers you know BrookeStone was in here and we haven't done a deal with them for a long time, and Coastal Grand had a great opening and they are looking at a bunch of our centers. Some of the stores like AnnTaylor are just on fire and they are expanding aggressively through out the portfolio, and there is some new concepts that are out there. Gymboree has a couple of new concepts and here is that article in the journal yesterday about Hot Topic and Torrid and how well that's doing and we're doing a number of deals with them limited to has their Concept Justice and we're doing one of their first stores in Panama City Mall. So, the bankruptcies are the unfortunate part of it, but other than that the companies that are weak there is a lot of positive news out there on the retailer front, and with the sales increases that we had this quarter, we feel like that is just going to help and encourage retailers to continue to look for expansion.

Okay. And help me out, I always under the impression that the open by the retailers were pretty much taken up early in the year. I mean does this translate, this increased enthusiasm let's say by retailers, does it translate into anything in a quick sort of way? I mean will anything happen this year? Do they race into you guys' offices and say `hey I need more space`?

There is always some fallout in everybody's program, so we do have that opportunity and we do have the retailers coming in and saying you know `I got this deal that fell out` and so on so there is that possibility to see that occur.

And John when you talk about guidance, you are I assume thinking about it in terms of the acquisitions you know that have happened, none of the acquisitions that might occur and then probably no additional space from this kind of thing from retailers becoming more enthusiastic?

The impact of the retailers isn't going to help us much for this year. It is, we can get stores open may be for fourth quarter at this point in the year given the time. It'll help us a lot more in '05 and going forward and similarly for the acquisitions, we're looking at acquisition, we'll call around and talk to the retailer, some that are there and some that aren't there, and lot of cases there is really a good opportunity to add retailers that just haven't in worked with by the current owner of that property.

Okay. So, what do you guys have for year-end '04 occupancy target number?

I think we said we are 50 to 100 basis points below where we ended last year, which was about 93 -- so we ended up at 93 for the total portfolio. So, we are within 50 to 100 basis points to that.

Okay alright. Great, thanks guys.

Thanks Rich.

Thank you.

It appears there are no further questions at this time. I'd like to turn the conference back over to the speakers for any additional or closing remarks.

Great. Thank you everyone for taking the time. We appreciate your support. We are very pleased with our results from this quarter as well as with the prognosis going forward. We look forward to seeing any of you there out in Las Vegas in a few weeks and talking to you all in the near future. Thank you.

And that does conclude today's presentation. We thank you for your participation and you may disconnect at this time.