CBL & Associates Properties, Inc. (CBL) 2004 Q3 法說會逐字稿

Good day everyone. Welcome to the CBL & Associate Properties, Inc. conference call.

Today's call is being recorded and will be available for replay starting today at 1:00 p.m. eastern and running through November 12th at 8:00 p.m. eastern by dialing (719)457-0820 and entering in confirmation code 593421.

At this time for opening remarks I would like to turn the call over to Mr. Stephen Lebovitz, President of CBL.

Thank you, and good morning.

We appreciate your participation in today's conference call to discuss CBL's 2004 3rd quarter operating results.

Joining me today is John Foy, the company's Vice Chairman and CFO, and K.D. Knight [ph], Director of Investor Relations, who will begin by reading 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 might 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 are based on a fully diluted converted share, also references made to community centers are only those that are wholly owned by CBL and Associates Properties. 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 10K and management's discussion and analysis of financial conditions and results of operations included therein for discussion such risks and uncertainties. A transcript of today's comments including the earnings release and additional supplemental schedules will be furnished to the SEC on Form 8K and will be available on our website. Last night we posted the supplemental schedules on our website, which can be found in the Investor Relations section under financial reports. This call also be available for replay on the internet through a link on our website at cblproperties.com.

This conference call is the property of CBL Properties & Associates, Inc. any redistribution, retransmission, or rebroadcast of this call, without the express written consent of CBL is strictly prohibited.

During this conference call the company may discuss non-GAAP financial measures as defined by SEC regulation G. A description of each non-GAAP measure and a reconciliation of each non-GAAP financial to the comparable GAAP financial measure will be included in the earnings release on form 8K.

Thank you, K.D.

This past quarter has been a strong one for CBL. We're pleased with the results of the quarter, particularly in light of our concerns earlier this year regarding the impact of retailer bankruptcies on our performance. Business results have been successful across the board, including acquisition and development leasing and operating performance.

On the leasing front of the past 3 months have been spent aggressively addressing expiring leases, leasing of developments and releasing the vacant space that occurred as a result of bankruptcies and store closings. We have made significant progress as I will describe.

During the quarter we entered into approximately 626,000 square feet of new renewal leases, including approximately 192,000 square feet of new leases and 434,000 square feet of renewal leases. This compares with a total 480,000 square feet of new and renewal leases completed in the 3rd quarter of 2003. Leasing for both periods excludes results achieved in the community center portfolio contributed to the Galileo joint venture.

For the 451,900 square feet of vacant space resulting from bankruptcy and store closures from June 30, 2003, through September 30, 2004, which accounted for $8 million in minimum annual rents, we have released approximately 46% of the space and with increases in annual rent per square foot of over 5.6%.

Occupancy for the portfolio, excluding properties contributed to the Galileo joint venture, was 92.4% at quarter end, a 130 basis point increase from the previous quarter and 100 basis points above the prior year period.

Notable lease-up in our 3 non-stabilized malls was a major contributor to our overall leasing success this quarter. Based on the leasing success achieved in the 3rd quarter we anticipate 2004 year end occupancy will wind up near year end 2003 with occupancy in the range of 94% to 95%.

For the entire portfolio leases in the 3rd quarter were signed at 20.1% higher average base rent per square foot than average base rent per square foot on vacated space. For the quarter leasing spreads for comparable space in the total portfolio were 1.9% based on initial rents and 3.8% higher based on average rents.

On the development side, we have commenced construction on several new developments, redevelopments and anchor and big box editions. Since the beginning of 2003 we have added or are in the process of adding over 25 big box and anchor retailers to more than one-third of our existing mall portfolio. Our deal flow remains strong and we believe you will continue to see promising developments, expansions, redevelopments, and renovations through out our portfolio.

During the quarter, we announced plans for the expansion and renovation of Fayette Mall in Lexington, Kentucky. Fayette is one of our premier super regional malls with sales of approximately $500 per square foot. We're extremely excited about this development. Approximately 148,000 square feet will be added to Fayette Mall, including the construction of a two-level 80,000 square-foot Dick Sporting Goods and the addition of approximately 53,000 square feet of mall shop space and two restaurants, covering 15,500 square feet. The expansion is currently 83% pre-leased or committed. Construction has commenced on the expansion and the renovation is scheduled to begin in January with an anticipated completion date of October, 2005.

Renovation of Panama City Mall was completed this quarter. The multimillion-dollar renovation included updates to lighting, flooring, signage, in the the food court as well as other improvements.

Two other Malls are currently under renovation. Cherryvale Mall in Rockford, Illinois and Northwoods Mall in North Charleston, South Carolina, and both will be completed by the end of this month. Total renovations expenditures for all three malls, excluding deferred maintenance expense, will be approximately $23 million.

We believe the periodic updating and renovation of our properties is an essential element in enhancing each Mall's dominant position in the community and the consumer shopping experience. We find considerable value in performing these renovations on a timely basis and we believe that there is a noticeable difference in our portfolio compared with others that may not take such a proactive approach to maintaining and updating their malls.

Newly constructed anchors were opened at two Malls this quarter, a Riches Macy's at Arbor Place in Douglasville, Georgia and JC Penney at Cherryvale Mall in Rockford, Illinois. In October we announced the opening of Dick's Sporting Goods at both East Towne Mall and West Towne Mall in Madison, Wisconsin, and this month we opened a Dick's at the Lakes Mall in Muskegon, Michigan. We've begun construction on a Dicks at the Associated Center located adjacent to Westmoreland Mall in Greensburg, Pennsylvania and anticipate opening this store in spring, 2005.

These additions are just one more way in which CBL is able to enhance the portfolio providing an appealing retailer mix and expanded selection keeps consumers coming back to CBL malls.

Construction of SouthavenTowne Center our 407,000 square-foot open-air development in Southhaven, Mississippi is underway. The project is currently 94% leased or committed. We have announced a number of attractive retailers joining the development in South Haven including Kirklands, Lane Bryant, Pier One, Rockham [ph] Shoes, Yankee Candle and others. These retailers will complement the anchor stores which include Dillards, JC Penney, Circuit City, and Linens and Things. We believe this development will be extremely successful and will provide a shopping experience That is currently lacking in the south Memphis area.

Another project we began in the 3rd quarter is the redevelopment of Hamilton Corner, here in our home town of Chattanooga, Tennessee. Hamilton Corner is being redeveloped into a 68,000 square-foot upscale, lifestyle shopping center to include such tenants as Ann Taylor Loft, Chico's, Cold Water Creek, J Gill [ph], Bombay Company and Bone Fish Grill restaurant. We're pleased to bring these quality retailers to the Hamilton Place Mall area here in Chattanooga and believe the unique street scape format will offer a learning experience for local area shoppers.

In October we purchased land and commenced construction on a 156,000 square-foot open-air shopping center in Chicopee, Massachusetts. Chicopee marketplace is currently over 70% preleased or committed with the grand openings slated for August, 2005. New additions to Chicopee's retail lineup include at I-Party, Sleepy's, Marshalls and Staples. These stores will join Wal-Mart, and Home Depot.

We also recently announced a new development in Royal Palm Beach, Florida. The 225,000 square-foot Cobblestone Village at Royal Palm Beach is anchored by an 185,000 square-foot Super Target and will feature an additional 40,000 square feet of small shop space. Target opened on October 14th and we plan to open the small shop space in early summer 2005. The small shop space is more than 70% leased or committed.

Construction is progressing on the Village Shops, the 75,000 square-foot open-air expansion at Monroeville Mall in Monroeville Pennsylvania. Tenants will include a Barnes and Noble, Ultra Cosmetics, National City Bank and two restaurants Wolfgang Pucks and Johnny Carinos.

At Imperial Valley Mall our 752,000 square foot, 60/40 joint venture with MG Herring Group in Imperial Valley, California, we added several new retailers to the lineup during the quarter including Anchor Blue, Baker Shoes, Pacific Sunwear, and Verizon Wireless. These new additions will join previously announced stores, as well as our anchors which include Dillards, Sears, J.C. Penney and Robinsons May. The development is currently over 74% leased or committed. We are on track for the March 9, 2005, grand opening and invite each of you to join us at the grand opening celebration and gala.

Currently, we have approximately 2.1 million square feet under construction excluding renovations. This represents a net total investment of approximately $161.4 million. We're enthusiastic about our development pipeline and the opportunities we are pursuing and look forward to bringing these and other projects online.

Updating the status of our out look on the current retail environment, we continue to see steady improvement in the market as well as in our own portfolio. Leasing has been strong and retailers are continuing to expand existing formats as well as a develop new concepts. We're in discussion with retailers about adding their new stores and are eager for the possibility of locating some of these emerging concepts at our malls. We're constantly working with fresh new retailers that we believe will blend well with already strong retail base of our malls.

Although reports indicated a weaker than anticipated back-to-school season and sales were impacted from the hurricanes along the Florida and Gulf Coast, our stabilized mall portfolio showed strong sales growth. Sales per square foot for the 9 months ended September 30, 2004, in stores of 10,000 square feet and less that have reported increased 4% over the prior year period. Based on current reports from our malls, we anticipate a good holiday sales season.

This has been an extremely busy year for acquisition team as they have reviewed a number of acquisition opportunities. Year to date we have closed on over $700 million in accretive transactions at a favorable weighted average cap rate of 7.83%. These acquisition represent six malls totaling 5.3 million square feet with average sales of $360 per square foot for 2003. Over the past 12 months, we have acquired ten malls, totaling approximately 8 million square feet, for a total investment of nearly $1 billion. Please note that our cap rates are based on income in place. We do not, nor have we ever, based our cap rates on forward 12-month or projected income. We continue to review a significant number of acquisition opportunities that fit within our investment criteria and anticipate making more announcements before year end.

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

Thank you, Stephen and good morning everyone.

I will begin with a review of the financial highlights that occurred in the 3rd quarter.

On a diluted fully converted basis, funds from operations per share for the 3rd quarter was up 12.1% to $1.30 per share. Compared with $1.16 per share for the 3rd quarter of 2003. Approximately 88% of the growth in FF0 this quarter was attributable to external sources resulting from the acquisition of 11 malls and three associated centers since the second quarter 2003. As well as contributions from Coastal Grant our new mall in Myrtle Beach and other new developments. The remaining growth was attributable to increases in same center NOI.

For the portfolio same center NOI growth for the 3rd quarter was 4.1% or $4 million. Major contributors to the growth in NOI this quarter were the occupancy gains over the 3rd quarter, 2003 and contributions from specialty leasing, branding and sponsorship income, and tenant reimbursements. Same center NOI in the mall portfolio grew 3.3% or $3 million. Associated center NOI declined 50 basis points or a loss of $22,000. Community center NOI rose 30.8% or $800,000. And other NOI grew 16.4% or $304,000. The cost recovery ratio was 102.8% for the 3rd quarter and we would anticipate the year to wind up in the high 90s.

The following are some specifics are our financial results.

We received 1 cent per share of FFO from lease termination fees, flat from the prior year period. We do not include lease termination fees in our guidance.

Gains from the sales of non-operating real-estate contributed 2 cents in the 3rd quarter 2004 compared with none in the comparable period in 2003.

Out parcel sales contributed $42,000 to the quarter or less than a tenth of a penny. Out parcel sales contributed approximately $837,000 or 1 cent to the prior year period. We do not include Out parcel sales in our guidance.

SFAS 141 and 142, amortization of debt premium and above and below market leases combined, added 5 cents per share to the 3rd quarter 2004 compared with a negligible amount in the prior year period.

Management, development and leasing fees were up 135% in the 3rd quarter 2004 primarily due to the fees from Galileo, the American Express gift card program and guarantee fee income triggered by the refinancing of Coastal Grand Myrtle Beach construction loan with a long term fixed rate financing.

Other income increased by 53% or $1.9 million in the 3rd quarter 2004, primarily due to increased income for taxable REIT subsidiary. This was offset by an increase in other expense line items of $3 million in the 3rd quarter 2004, primarily due to $1.6 million write off for abandoned projects and increased expense from our taxable REIT subsidiary.

General and administrative expenses were up 14.6% or $1 million in the 3rd quarter 2004, primarily due to increases in personal expense. We have added 16 new employees in the past 12 months. As a percentage of revenue, G&A represented 4.3% of total revenue in the quarter, compared with 4.4 and 4.5 for the prior period and the 2nd quarter respectively. We believe that 3rd quarter G&A approximates a good run rate for the 4th quarter.

Yesterday, we were pleased to announce a 12.1% increase in our quarterly common dividend beginning in the 4th quarter 2004 and representing an annual dividend of $3.25 per share. This increase marks the third consecutive year of a double digit dividend increase. We're delighted to continue to extend our many years of dividend growth and look forward to a long future of increasing shareholder returns. Based on FFO per diluted fully converted share and our common dividend distribution per share our payout ratio was 55.8% for the 3rd quarter and 58.2% for the 9 months ended September 30, 2004.

Our total debt to market capitalization as of September 30, 2004, was 48.2% compared with 49.4% as of June 30, 2004, and 46.9% as of September 30, 2003.

Our floating rate debt accounted for 25% of the total consolidated and unconsolidated outstanding debt outstanding at September 30, 2004, and 12% of our total market capitalization at the close of the quarter.

We work hard to maintain a conservative balance sheet as we believe it is our job to maximize returns on capital, but not to take a disproportionate amount of risk. We will continue with our strategy of always seeking out opportunities to replace short-term variable rate financing with long-term non-recoursed fixed-rate financing. This quarter we took the opportunity to replace a construction loan at Coastal Grand with a 10-year fixed rate financing at a very favorable rate of 5.09% for the $100 million securitized portion of this loan.

The interest coverage ratio as of September 30, 2004, was 2.73 times compared with 2.79 times as of September 30, 2003. The change in coverage was primarily the result of an increase in debt level due to the acquisition of ten malls.

We view our impressive results including the 12% FFO growth, 100 basis point increase in occupancy, 4.1% increase in same center NOI, as well as other improving metrics, as a testament to the success of the quarter. We believe we are well-positioned within an improving retail market to continue to achieve record results and we look forward to returning that success to our shareholders in the form of dividend increases. We continue to see acquisition opportunities available and anticipate adding to our portfolio in the coming years with properties that offer ample opportunity to increase value.

Based on the 3rd quarter operating results our expectations going forward, we have adjusted our 2004 FFO per-share guidance to a range of $5.14 to $5.19 from a range of $4.98 to $5.03. Included in this guidance is our increased NOI expectation. We now anticipate it NOI growth for the year will be within a range of 2 to 2.5%. This increased expectation contributes approximately 5 cents to the low and high end of our increased guidance. In addition, we have added approximately 8 cents to the low and high end of our guidance to account for additional accretion from completed acquisition and developments higher than expected tenant reimbursements and lower-cost of capital. We intend to provide 2005 guidance in the 4th quarter earnings release.

Please note that we have added a section to page 10 of our supplemental and will be posting the updated version to our website following the call.

We're encouraged by strong retail sales reports for October particularly the gains posted by mall based specialty retailers such as The Limited, American Eagle, and Abercrombie & Fitch. We expect to see retailers continue to look to broaden their sales by adding new stores and rolling out new concepts they have announced.

Our development program is very active with 2.1 million square feet of projects under construction today and several future projects in the pipeline. We continue to follow our disciplined approach to new developments by requiring that preleasing and investment return hurdles be met. Our joint venture with Galileo continues to perform well and our partners in Australia are enjoying excellent success.

This month we completed our 11th year as a public company. As indicated by our 12.1% dividend increase we have a confident outlook for the coming year and look forward to continuing to grow FFO and our dividend to generating superior results for our shareholders. We appreciate your continued support Steve and I would now be glad to answer any questions you may have.

Thank you, today's question and answer session will be conducted electronically. [Operator Instructions] Once again, its star one to ask a question. We will go first to Michael Billerman with Smith Barney.

Good morning, Michael.

Good morning, Michael.

Good morning. John is also on the line.

Stephen you mentioned that there was some acquisitions potentially that would come into the 4th quarter do you have anything under contract today?

We only comment on acquisitions upon the closing or when a contract is signed and its material under the new pronouncements, so we can't say anything specific today about it, Michael.

Is there anything embedded into your guidance for acquisitions at all?

No, there's nothing in our guidance for more acquisitions, although at this point in the year any acquisitions wouldn't have that much of an effect.

Can you give us, sort of feel, I know there's nothing may be that you want to under contract, but potentially how much volume you could actually see come in the 4th quarter? I think there was rumors in the press that there was about $260 million in 2 malls that you acquired?

Michael, you're good at those questions. I don't think that we can comment on that. I think, you know, that the press is made those statements and we haven't commented on those as well.

Okay, the write off of cost, you had a million six this quarter, you know last quarter was pretty high. You talked about some development that you passed on didn't get your hurdle rates, what did this quarter's relate to?

It was really a similar kind of thing, Michael, where there were a few projects that we had gotten a little bit down the road on and then we just were finding that the preleasing wasn't there and the cost wasn't there and we decided that we'd rather pull the plug now than get deeper in it to investment -- in terms of the investments given where we thought the projects were heading.

The deal costs [inaudible] a lot higher than they've historically been, I mean, is the deal activity much greater or are you just sticking to threshold -- target return threshold that you're just not willing to come down on?

It's both. There's a strong deal flow. Our development group has been very active over the course of the past couple years in pursuing new projects and we've got a real strong pipeline, but one of the things we found with developments is that they don't all work out and you can invest money just up front in doing the due diligence or you need to invest it to find out really what your project returns are going to be, so I think as we continue to push the development program we are going to see write-offs, it's just part of it.

Does anything relate to lost acquisitions this quarter?

There's a minor one in those numbers, very, very minimal.

Okay, John, maybe you can give us a little more color on the tenant recovery rate. I think, you know, so far this year your north of 100% when you add back the provision you took in the 4th quarter and I know part of this is the reimbursement of former CapX and spending at the malls. Can you just help me understand where this goes into 2005, if you maintain this occupancy rate, how much more of an additional CapX is going to flow into the income statement?

Michael, what we did last year for the full year was about 99%, just a little over 99%. We would anticipate that is probably going to be close to the number this year with these occupancy levels pushing where they are the cost recovery should be in that same range next year and going forward and I think this historically we've been there over the years so it's a basically a result of those higher occupancies.

Do you know how much percentage points, if you just look at the tenant reimbursement percentage how much of that coming from the reimbursement of CapEx?

I think it's relatively low. The exact number I think we gave a number last year or so, was in the low 20s or something like that even, in that range so it's not a significant number as such.

Okay, thank you.

Thanks Michael. Thanks John.

Our next question comes from Paul Morgan with Friedman, Billings, Ramsey.

Just to follow up on that. You said last time you gave it it was in the low 20 millions for the full year number last year?

Yes.

99% last year.

Right, I guess -- why is this coming -- you mentioned this coming as a higher than expected tenant recoveries, why are they -- would be above your expectations? What is kind of the variance from your model with respect to the tenant recoveries?

I think a lot of it, Paul, is occupancy, as we said, and early on in the year, basically, as Stephen alluded to in his comments, bankruptcies were a concern to us and our leasing team has done an excellent job in recovering from that and I think that has driven it in our models as such.

So you're saying higher than expected occupancy is resulting in higher than expected recoveries?

Yes, I think that's appropriate.

Okay, in your guidance adjustment you have 8 cents for additional accretion from acquisitions and developments, what does that mean, does that mean incremental acquisitions or incremental FFO from acquisitions that you had already had in your guidance last quarter?

Okay, it's from existing acquisitions basically versus what we had originally anticipated in our budgeting when we bought those malls. Occupancies again, have increased in our specialty leasing and sponsorship has really driven that better than the models that were projected. I think we tend to be conservative in our acquisition out looks when we do these we do a five-year projection on acquisitions and our projections and our results in specialty and sponsorship leasing has been much, much better than what was budgeted for, so that has added significantly to that number. Again, it does not include any additional acquisitions this year.

So, would you say that the programs at the acquired malls this year were pretty weak on the specialty leasing side and that's where you're seeing a lot of the near-term upside?

I think that's pretty consistent, not necessarily what you said, but I think what is consistent is, we don't make acquisitions unless we see the opportunities to approve the FF0 and the cash flows on those projects either through remodeling renovations or expansions, specialty leasing, and sponsorship. I think we have an outstanding team that focuses on sponsorship and specialty leasing and I think that's really what has helped us in these results.

Just for example, the four malls we bought from [inaudible] at the tail end of last year, those really came in after our budgeting was done and we were working off of their budgets and once we've been able to get into them we've been able to do a lot better with the results than we thought we would.

Okay. Could you tell what types of, you know, maybe some retail -- specific names of retailers or what categories of retailers you're seeing taking up a lot of this space in your malls right now, who is really hungry for the space?

Bob, I think we've seen a real combination. I mean one of the things that has helped our occupancy has been the boxes that we've added over the course of the past few years, some of the sporting goods, Linens and Things, Bed Bath and Beyond the book stores we've opened a couple Barnes and Nobles, Stephen Barry's, we've opened a couple of them, so that's helped in the malls and then on the specialty front, we've been active with some of our traditional retailers like Abercrombie & Fitch, their Hollister Division has been added at a number of malls, Pac Sunwear [ph], Pacific Sunwear [ph] has continued to expand. Some of the new operations by Charming Shops, New York and Company, which had a great IPO has -- we've done a lot of new business with them and they are rolling out a new concept as well. Gap has been doing deals which -- and Old Navy which is a relatively new thing. And so it's just been a combination of both the specialty and some of the boxes that have helped us out.

Okay. Last question, just a number from that missing table that you mentioned. What is the average annual base rent for the stabilized malls, do you have that?

The 2004 number is $25.19, for the stabilized malls compared to 24.76 for 2003.

Okay, thank you.

Thanks, Paul.

We will go to that next to Tony Howard with Hilliard Lyons.

Hey, Tony.

Hey, good morning, congratulations on a good quarter, also our clients appreciate the dividend increase.

Thank you.

Several questions, I know you have local property in Lexington and also one in Cinci that matures fairly soon if I'm not mistaken, in the subvariable debt, do you expect to refinance that at a fixed rate?

Yeah, we would be refinancing those. On Lexington, Tony, that we are in the midst of expanding that mall, so that one we will look and work on that along with the expansion. On Cincinnati we're in the process and should finalize this quarter long-term permenant financing on that one as well.

Okay, on a similar note I see where you have like 60 something million on help for sale category. When do you expect those properties to be sold and what amount of properties are we talking about, because I noticed that hasn't changed, was there any dispositions in the 3rd quarter?

That, Tony, and is the tranche 3 of our Galileo transaction, and that is around the $70 million, that should close around January 5th, that was always anticipated, that was part of the original transaction with Galileo, as you will recall it was 3 tranche and this will be the 3rd and final tranche going forward.

Okay, final question, more general question a lot of your competitors are going international and I'm wondering -- what your feelings are especially with the -- like the acquisition of the Puerto Rico Properties and where do you see CBL going?

I think we view -- there's a lot of opportunities for us here in the U.S. and we're uncovering those and I think as we've shown our ability to buy those in that disciplined approach affords us the opportunity to provide growth to our shareholders by sticking in the US, I don't think we anticipate doing anything overseas, as such, and we are excited about what we've been able to achieve for our friends in Australia by bringing capital from Australia into the US, so, I think that the opportunities for us are good in the US, and have been early good for the unit holders that we've really bought malls from by issuing units on a tax sensitive bases

All right.

And we think there will be or transactions such as that.

Okay, thank you.

Thanks, Tony.

We will go nest to Rolf Nussbaum [ph] with Bank of America Securities.

Hi, good morning.

Good morning Ross.

A question on your tenant allowances. They were 13 million and change for the quarter that matched in the first half of the year, what was responsible for the increase?

Again Ross, a lot of it was driven by the occupancy, but there's the seasonality we've seen in -- and if you look for 03, it was similar where tenant allowances in the third-quarter are equal to pretty much what they are combined for the 1st and 2nd quarter and we expect that in the 4th quarter as well. Retailers are trying to get open for the holiday season and leasing activity in the second part of the year is always higher than it is earlier in the year.

So with not a matter of your offering higher allowances for a square foot, it is just a volume and timing effect?

No, no is just a function of leasing up more space in the seasonality.

And we have a bigger portfolio, too.

Okay, the other question relates to page 10 of your supplemental with respect to the leasing spreads, and there's two numbers I'm struggling to understand that I was hoping you could help me out, your bottom table, which takes the total leasing activity for the malls, states that the average rent for tenants who vacated for the quarter was $21.47, and I guess I'm trying to reconcile that number against the prior base rent on, I guess comparable new leases was close to $28, and I would think that those two numbers would be roughly equivalent because by definition on a new least the prior tenant has vacated.

Yes sir, do you have anything further?

We'll have to figure that one out a little. That's a good question.

I mean, the other way of saying it is, you know, the lease spreads on the new leases were 3%, yet new leases versus vacate were 25%. I'm just trying to reconcile those two numbers.

We will issue something to clarify that, Rolf, after the call, if that is okay. I'm sure there's a good explanation.

Okay, I would love to hear it, thanks.

We'll go next to Carey Callaghan with Goldman Sachs.

Hi, Carey.

Hi, good morning, it is Dennis, here with Carey.

Hey, Dennis.

Hey, John. Just curious, beyond what you have recently announced on the development and redevelopment front, what does your shadow pipeline look like in the out years, what kind of like redevelopment of volume that you foresee any given year?

I think the volume that we are seeing this year we feel good for the next couple years we will be able to sustain that. It's interesting, because a lot of it is driven by the redevelopment opportunities that we're seeing at the existing malls and we are working on a number of a expansions, redevelopments, that bring in some new stores and some restaurants attached to the existing malls and that's going to help our pipeline as well, plus, we're seeing a lot of opportunity with the open air centers and with the community centers, so it's a strong shadow pipeline that we're seeing out there today.

Okay, great. Thanks. It just to get back to the floating REIT debt issue, just what is your comfort level there and with your line up being above 500 million I'm just curious what your thoughts are on how you might turn that out?

I think we have a lot of refinancing opportunities with these projects that we acquired. These latest acquisitions we made have some fixed rate debt in place that we couldn't repay, but the same thing applied to some of the previous acquisitions that we made and therefore we see the opportunity to refinance those and turn them out, put in non-recourse permanent rates in place on those, as well. And in addition to that, you know, we generate some additional funds out of the Galileo transaction and trounce 3 and we will continue to focus on that and keep that -- keep our pipeline and our availability of funds more than adequate to do any acquisitions that we need to do.

And then -- if you were to include temporary tenants in your occupancy figures, how much would that grow the number by?

2 or 3%.

Probably 2 or 3%, I mean it is pretty speculative and, you know, in the 4th quarter, I mean most of our space is full with temporary tenants so 4th quarter we're running pretty full if you include that.

Okay and then just lastly, what were the Galileo fees in the quarter? What did you earn?

Just 1second.

Approximately $500,000.

Okay, great, thank you, very much.

Our next question comes from David Ronco with RBC Capital Markets.

Hey, David.

Hey, good morning, John, here with Jay [ph] Quick question, you talked about the refinancing at Coastal Grant and with still 25% of your debt floating wonder what you had in the works for 2005, and if you had a target floating-rate debt level for year-end 2005.

I think where we are 20 to 25% we'll probably cool that down some next year and probably before year-end this year we will pull it down some, so right in that range -- some of that remember is construction and remodelings that are being done, so that impacts us somewhat and, as you know, we have a very aggressive -- we have a good pipeline in place today of construction and we use our lines of credit basically for that, or we do project specific floating rate, so consistent with what we've done in the past is we see projects stabilize we will put in long term permanent loans in place.

Great. That's all I have.

Thanks, David.

We will go next to David Fick with Legg Mason, Inc.

Hey David.

Hi, good morning.

Hi.

I am still confused about this expense reimbursement number and maybe I'm just not as fast as you guys. But it seems like the occupancy pick-up can't be the whole reason for this spike to well over 100% recoveries. Was there a true up? Did you have a reconciliation process? What else could have helped that happen?

I think that some of those items, David, is to go into that is the remodels that we talked about, the renovations and then there is some reimbursements for utilities and things such as that, that occurred that should drive that number up as well.

Okay, can you talk, probably John and you're the right guy for this, what are you thinking about as your acquisition pace continues to sort of roll along here in terms of your capital structure. Are you looking at selling assets or raising more capital through your JB approach, or would you do common equity, if you think your price is pretty decent?

I think that what we would tend to do and look and is running parallel capital plans which we have done in the past, i.e., if the markets were extremely favorable or whatever then we could access those, but at this point in time we have tremendous ability to finance or do whatever we need to do with what we have in place today. I wouldn't envision that we would need to go into the common market's to make any acquisitions, our transactions with the Australians and that joint venture is proving to be very successful for both of us it will throw off free and clear cash flows to us as we develop more projects of the community center or power center side of the business we have a built-in market to access through that joint venture with our Australian friends and that would provide additional capital for us to grow the company as well and there are other means of refinancings over the next 12 to 24 months we consider refinancing over $600 million of our projects.

As you look at your acquisition pipeline without commenting on any deals that might not be out in the market do you see OP unit opportunities like some of your more significant portfolio deals?

I think it's an incredible occurrence that we have and thanks for calling that to our attention, is we actually have done equity transactions by the Turnberry [ph] transaction where we actually put up $40 million of our units which is equivalent to that, as you will recall, those were basically based upon about a 30% premium to the stock price at that time and if you go back to 2001 when we did the Jacobs transaction that was like a 20 to 25% premium over the cost of our stock at that time. I think our currency of our units is an incredibly attractive thing and with the track records that we have, I think that even Mr. Jacobs would give us a great recommendation to anybody who wanted to sell us a property for units. As you will recall, when we did it with him the stock price was, I think $24/25 a share and the premium was -- the valuation of its units was $32 approximately at that time, so I think it's a hidden value that we have a great track record that we can show and display to make acquisitions with. Thank you for the lead-in by the way.

No problem, here is another one, has management considered discussing with the board a stock-split?

We had some discussions last year with regard to stock split we'll have another 4th quarter Board meeting. I'm sure that will be a topic of discussion. It was not a topic of discussion at this Board meeting. I think our Board was extremely pleased and happy to announce that dividend increase of 12% and see the growth of the company in return for the shareholders as well as what we've been doing to maximize returns on capital, so it's another great lead-in and we will follow up on that as well.

No problem, here is a harder one, and my last question. Sarbanes-Oxley 404 implementation, what does it cost you, what have you learned, both in terms of external and internal resources, and what do you take the forward price and is going to be a to meet the requirements?

Two parts to your question. From an economic standpoint, we think it's a half million dollars, approximately $500,000 to implement the program with all the testing and the other things. I think we were very fortunate in that we had in plan policies, procedures, manuals and other things that basically when we hired consultants to come and look at it, it helped us to really not see big gaps or big problem areas for us. We are on time with regard to that implementation and we think that we're not going to see any surprises from how we've run our business in the past. It does make you refocus a little and to think about it, it is costly, it costs you in time and it costs you in money as well, but we're very positive with regard to the reactions the testing results that we are seeing thus far.

Thank you.

Thanks a lot, David, your great lead-in man for me.

We will go next to Greg Andrews with Green Street Advisors.

Hey Greg

Hey John, hey Stephen, how are you? It looks like the total loan on Myrtle Beach was 118 million. Is that right?

Yes. What we did on Myrtle Beach was, is that the loan on the investment grade portion was $100 million. We did the loan amount for $118 million. We took back $9 million of non-investment grade and our partners took back $9 million of non-investment grade. We felt that that just gave us more flexibility on the transaction and as the cash flows increased on the project we could see that non-investment grade becoming investment grade, so it's just another approach that we've taken to maximizing our returns on capital.

That pretty much pulled out all of your cost, didn't it?

Yes, it did, pretty close to it.

And there was a component of that project, I think some restaurants that wasn't completed at the time, the rest of the center opened in March. Where do you stand on that part of the project?

Hey, Greg. One of the restaurants opened with the mall and then we have a second restaurant, a real nice Mexican white table cloth restaurant called [inaudible] which will open next year and then we have a third restaurant that we're negotiating with as well. So we've made some real good headway and we think that by the end of next year we are hopeful we will be full up there.

Great. And then turning to your Southaven project. I seem to recall that there was maybe a competing proposed development like maybe one exit away from your project, and I don't think that they got started yet, but I just wanted to see if there was any update on that project that might be a competition for your center.

That project was -- you're correct, there was an announcement of a competing project what exit south and the development of that project announced a couple of department stores and a lot of retail stores that, in fact, had not committed to this project. There hasn't been any start of construction. It was best case, a ways off anyway and we think we've taken a lot, if not all of the wind out of his sails with the leasing results that we've had at Southaven at our project.

Okay. Great. And then just turning to the financials. The dividend increase, is the size of that being driven by what's required under the tax rules?

That has a significant impact upon us, that's correct.

Okay. Your payout ratio -- maybe stated another way. Your payout ratio is about as low as you can get it?

Yes, it is it's been that way for the last couple of years.

And then on the other income, John, you mentioned that the increase was due to your taxable REIT subsidiary. Could you just provide a little bit more explanation of what that is and why it went up.

As you will note Greg also the expenses went up in that area. We do certain things at our malls that generate additional income for us and we basically had some acquisitions contributed to the taxable REIT subsidiary. We also generate some fee income in those joint ventures were we have venture partners where we charge a guaranteed fee and run that through our taxable REIT subsidiary, so that basically in those transactions where our partners don't want to guarantee the loan or where we can't get several liability, we basically feel that we should cover 100% of that guarantee, but we do charge a fee for that and then in certain transactions were we have a partner we make acquisition fees as well.

Okay and that goes into that line item as opposed to the management?

Yeah, and it all washes out between expenses and the revenue numbers.

Okay, just because the numbers are fairly different from what they were a year ago is kind of this 3rd quarter's pace more in line with what we should expect going forward for both other income and other expenses?

Yeah, I think that's the probably an appropriate run rate.

Okay. And then just lastly, you commented on same property NOI I think for this year being somewhere between 2 and 2.5%. I know you haven't given guidance for next year, but do you feel that is a sustainable pace for '05?

Yes.

Thank you.

Thanks, Greg.

We will take our next question from Rich Moore with. KeyBanc Capital Markets.

Hi, good morning, guys.

Hi Rich

First of all, John, I hate to beat a dead horse here, but going back to these reimbursements. Part of that, too, is I note the operating expenses are up as well. You had base rents go up 7 million bucks to 121 million and then operating expenses went up about 5--6 million to 32, so there is a pretty big jump in operating expenses. Is there anything special in there?

Yes. It in the leases, the way they are structured is we get an override for management reimbursement of expenses for bookkeeping and things such as that so that could impact as well. In the standard form lease it is 15%, that's negotiated from tenet to tenet but on average we're getting a good overwrite as such, that would contribute to that.

[inaudible]

It was really just some of the new properties that came in and just pretty consistent across the board in terms of some of the expense items that went up on us.

Okay, so nothing extraordinary in there, Stephen.

That's correct.

Okay, fine. Good, thank you. The -- let me ask you, too. On the [inaudible] run rates on those two items -- are those -- since you don't have anything here in the 4th quarter is that a pretty good run rate for a while until you acquire something else?

Yes. Yes, it is.

Okay. The developments that you're doing the more community center/power center type developments those will all be going into Galileo is that the idea.

Under our transaction there's no requirement for them to go in. I think as we see opportunities to maximize our returns on capital then those would go in, but there is no obligation to do so. If we do sell those projects we will try to prenegotiate a transaction with Galileo and if the numbers aren't to their liking then we can sell those transactions elsewhere and so on, but there is no predetermined -- there is no set idea in our mind that we're going to sell each one of those projects to them. We are encouraged by what they are seeing in their markets and really excited about the growth that they've seen and working together with them I think it's been a great opportunity for both of us. So I would envision that when we do sell them the Galileo folks would be the ones we would sell those to but it is something we're very excited about and what they've done.

Okay, wonderful. Thanks. And then the last thing, guys, is are you looking for any portfolios for acquisitions or is it just one ops in your marketplace, is there anything out there that is of interest from the portfolio side?

We looked at everything, Rich. We don't to bid on everything but, I mean, we learn from the opportunities that are out there and we -- until you look at property or an opportunity whether it's a one op or a portfolio it is hard to determine if you're interested in sometimes the portfolios get split up and so we feel like it's important to be out there and be involved in the opportunities that come out to the market.

Okay thanks. Great quarter, guys.

Thanks, Rich.

We will go next to Jay Leupp with RBC Capital Market.

Hi Jay.

Hi, good morning. Just a couple follow up questions. First off, with respect to your outlook for occupancy trends leasing spreads in 2005, can you give us a little more color of your expectations there and also if you expect there to be significant differences by region in your portfolio?

I don't think first, on the last questions about the regions, I don't think we really see that much of a variation. You know, some of the properties in the Southeast have had stronger sales gains because they got hit harder with the recession a couple years ago, so I think we are seeing stronger performance there compared to the Midwest or the properties we have in the Northeast, but it's not a huge variation. You know, usually what effects our occupancy when we do the acquisitions they're coming in at a lower occupancy rate and we're able to raise that over time, so even though our occupancy rate might go down temporarily, we feel like it's going to come back up. Looking out to next year, I think, you know our budgets, we try to do conservative, but we feel like we will be able to hold up at least in the range where we are. We are not budgeting for any pick-up over that. There's always the wild card of bankruptcies that you just can't predict the first quarter, and if the 1st quarter that is a fact that we have to deal with and we're hopeful that we won't have anywhere near in '05 what we had in '04, but we have to be conservative and there's some tenants out there that we're still watching like [inaudible] and like KB Toys that; hopefully, will stabilize themselves, but you never know along those lines. And then on the leasing spreads, we're hoping as our occupancy is continues to improve and with our occupancy level that we are at we will get better leasing spreads and also with the sales gains that we seen for the past year and a half that will translate into higher leasing.

Okay, and John, you sort of answered part of this question with respect to additional international capital raising, but can you give us in 2005 the likelihood that you would do a significant off shore capital raise or portfolio sale and also given where the share price has gone this past year, what kind of appetite there is for your units at 20 to 30% premium where the share price is today?

This historically, you know, it's been -- I think when we did our transaction with the folks from Turnberry when we brought Monroeville, I think they look back at the success of the Jacobs portfolio and I think that people going forward today are going to do the same thing, is the ability to see that dividend growth which has been very, very good. The Monroeville transaction with Turnberry was $78.10. I'm sure that when they did the transaction they probably thought that we would get there soon as, you know, relatively quickly, but it's been very, very favorable for them and I think they're very happy with the transaction as well. As far as any international capital raising, I think we basically keep our eyes and ears open and if we can see the appropriate opportunity to maximize our returns on capital we would do that. At this stage of our life we don't see it, but that's not to say that things don't occur pretty quickly in this world and this business climate we are in to day, so we will be attuned and keep our eyes and ears open for any opportunity that we can see maximize return on capital that would ultimately flow through to our shareholders in dividend increases.

Thank you.

Thanks Jay

And at this time we have no more questions in our queue. I would like to turn the call over to Mr. Foy for concluding remarks.

Again, thank you for everybody joining us for our call today. We're very pleased with the results that we have shared with you today and think we will continue to see good growth for our company and maximize your return on -- to our capital -- maximize your returns on our capital and we also look forward to visiting with many of you at the [inaudible] conventions coming up in the next couple weeks if we can help you in anyway just let us know and again, thanks for being with us today.

This concludes today's conference call we thank you for your participation and you may disconnect your phone line at this time.