CBL & Associates Properties, Inc. (CBL) 2005 Q1 法說會逐字稿

Welcome to be CBL & Associates Properties Inc. first-quarter earnings conference call. Today's call is being recorded and will be available for replay starting today at 1 PM Eastern and will run through May 11th at 8 PM Eastern. You may access that replay by dialing 719-457-0820 and entering confirmation code 751-3644. At this time for opening remarks and introductions I'd like to turn the conference over to the President, Mr. Stephen Lebovitz.

Good morning. We appreciate your participation in CBL & Associates Properties Inc. conference call to discuss first-quarter 2005 results. Joining me today is John Foy, the Company's Chief Financial Officer, and Katie Knight, 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 upon a fully diluted converted share.

Also, references made to community centers are only those that are wholly owned 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 operations included therein for a discussion of such risks and uncertainties.

A transcript of today's comment including the earnings release and additional supplemental schedules will be furnished to the SEC on Form 8-K and will be available on our website. This morning we posted -- this call will 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 & Associates Properties Inc. Any redistribute, 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 measure to the comparable GAAP financial measure will be included in the earnings release on Form 8-K.

Thank you, Katie. The first quarter was a great quarter for CBL with a 23.6% increase in FFO per share, an impressive 10.7% increase in same center NOI, a 4.5% comp store sales increase and a 50 basis point increase in occupancy. A significant portion of our success this quarter is attributable to a full quarter contribution from our 2004 activity including 1.9 million square feet of new developments highlighted by the opening of Coastal Grand Myrtle Beach and the nearly $1 billion in acquisitions we completed in the year. We expect that our 2005 development pipeline, which includes over 2.5 million square feet coupled with selective acquisitions, should contribute meaningfully to the continued growth of our Company.

Many of our development projects are the result of our focus on identifying opportunities within our existing portfolio for re-tenanting, redevelopment, expansion and renovation. This focus allows us to keep our tenant mix attractive and current with the latest trends. To this end we have opened or have planned to add big box retailers, lifestyle retailers and restaurant locations at many of our properties.

A prime example of this strategy is the redevelopment of Hamilton Corner in Chattanooga, Tennessee. We have redeveloped this Hamilton Place associated center into a 68,000 square foot lifestyle shopping center offering many national retailers new to the Chattanooga market including Ann Taylor Loft, Chico's, Coldwater Creek, J. Jill and Liz Claiborne shoes. We held the grand reopening celebration in mid-March and sales results to date have been outstanding.

Another example is the district at Monroeville, a lifestyle expansion at Monroeville Mall located in a suburb of Pittsburgh. We have already opened several exciting new retailers including a 26,000 square foot Barnes & Noble, a 10,400 square foot Alter Cosmetics and Johnny Careno's restaurant. Additional committed tenants include Chico's, Coldwater Creek and Monterey Bay Fish Grotto.

Other redevelopments and expansions include the recently opened Tweeters (ph) at Cool Springs Crossing, the associated center for Cool Springs Galleria in Nashville, Tennessee. Additionally, in April we opened Coastal Grand's associated center, Coastal Grand Crossing, located in Myrtle Beach, South Carolina anchored by LifeWay Christian bookstore.

Later this year we will open a 45,000 square foot freestanding Dick's Sporting Goods at Citadel Mall in Charleston, South Carolina; a J. Buck's restaurant as St. Clair Square in Fairview Heights, Illinois; a Garfield's restaurant at Stroud Mall in Stroudsburg, Pennsylvania; and a Steve & Barry's at Burnsville Center in Burnsville, Minnesota. We are adding 18,000 square feet of restaurants and small shop space to Fashion Square, our community center in Orange Park, Florida which we purchased in May 2004. The expansion is scheduled to open in July. We currently have two renovation projects underway for a total investment of approximately $28 million.

The renovation of Cool Springs Galleria in Nashville, Tennessee is expected to be completed in spring 2006 and the renovation of Fayette Mall in Lexington, Kentucky is scheduled for completion in the fourth quarter of 2005. Concurrent with its renovation Fayette Mall is undergoing a 144,000 square foot expansion including the addition of a two-level 75,000 square foot Dick's sporting goods; 14,000 square feet of exterior oriented restaurants; and approximately 55,000 square feet of small shop space. The expansion is currently over 96% leased and committed. We also opened one new anchor store during the quarter -- JC Penney at Greenbrier Mall in Chesapeake, Virginia.

We plan to open or have already opened several new ground-up developments in 2005. He completed the grand opening of Imperial Valley Mall in El Centro, California in March of this year. The grand opening was a success and we are extremely pleased with the mall's performance to date. Another anchor, the 14 screen Ultra Star Theater opened last week. We continue to hear many positive comments from the mall retailers and traffic and sales have both exceeded expectations. Occupancy is currently 88% with a number of new stores interested in coming into the mall. We are excited at Imperial Valley Mall's initial success and believe it is another solid addition to the CBL portfolio.

We currently have two community Center developments under construction -- Cobblestone Village at Royal Palm and Royal Palm Beach, Florida and Chicopee Marketplace in Chicopee, Massachusetts. Cobblestone Village is a 225,000 square foot project anchored by Target with approximately 40,000 square feet of specialty shops opening in July. The project is over 83% leased and committed today. Chicopee Marketplace is a 152,000 square foot community shopping center that is currently 93% leased and committed. The center will feature an iParty, Staples, Marshall's and Sleepy's and is scheduled to open in September.

In October we plan to hold the grand opening celebration for the 425,000 square foot Southaven Town Center located south of Memphis in Southaven, Mississippi. The project is currently 90% leased and committed and is anchored by JC Penney, Linens 'n Things and Circuit City with Dillard's opening next spring.

Last week we announced a 50-50 joint venture with the Jacobs Group to develop Gulf Coast Town Center, a three-phase, 1.7 million square foot open-air shopping center located in Fort Myers, Florida. Our initial commitment of approximately $41 million funded most of the cost invested today by the Jacobs Group. Phase I with a total cost of approximately $77 million is under construction and is scheduled to open in October of this year. The 425,000 square foot Phase I is 98% leased and committed and includes a 185,000 square foot SuperTarget, Babies "R" Us, Linens 'n Things, a 16 screen Regal Cinema, Petco, Staples, Jo-Ann's and several thousand square feet of small shop space.

Phase II, which will open in fall 2006, will include the region's first Bass Pro Shop as well as JC Penney, (indiscernible) and numerous national retailers and restaurants. The overall project will ultimately feature more than ten anchors and approximately 120 specialty shops and restaurants. The total project is expected to cost approximately $150 to $180 million and should provide an unleveraged initial return of 9%. CBL will be responsible for development Phase II and Phase III as well as leasing and management of the entire project. We will fund the equity for this development over and above the financing and will receive an 11% preferred return on the equity funded. We will also receive management and financing fees.

We are pleased to be partnering with the Jacobs Group on this project. The Jacobs Group secured an incredible location at the intersection of I-75 at Alico Road with approximately 1 mile of highway frontage. The sight is only five minutes from the Southwest Florida International Airport which is currently undergoing a major expansion to add 70 gates. Immediately adjacent to the project is Florida's Gulf Coast University with an annual enrollment of 6,200 that is projected to double over the next five years.

The Fort Myers Lee County area has one of the highest growth rates in the country with the majority of housing growth occurring around the I-75 corridor. The population and the primary trade area increased 97% between 1990 and 2003 and is projected to increase 29% through 2010. Gulf Coast will also serve the more than 2 million tourists that visit Southwest Florida each year.

While we realize there are questions regarding the competitive dynamics of our project with Simon's Coconut Point project into Bonita Springs, we are confident that the market has the capacity and the growth to make both projects successful.

Moving on, leasing is off to a strong start for us in 2005. We accomplished more than 940,000 square feet of leasing in the quarter including 388,000 square feet of new leases and 552,000 square feet of renewal leases. This is a notable increase from the 670,000 square feet completed in the prior year period with 247,000 square feet of new leases and 426,000 square feet of renewals. Both periods exclude centers sold to Galileo. For the first quarter leases for the same small shop space of 20,000 square feet or less were signed at an average increase of 4.3% over the average base rent per square foot of the prior leases.

Leases for both same-space and noncomparable space of 20,000 square feet or less were signed at an average increase of 6.8% over the average base rent per square foot of expiring leases in the quarter. Total portfolio occupancy in the first quarter 2005 increased 50 basis points to 91.3% from 90.8% in the first quarter 2004. Mall occupancy ended the quarter at 91.5%, a 50 basis point increase from 91% occupancy at March 31, 2004. Occupancy in the associated centers increased 320 basis points to 91.9%. Much of the increase in occupancy in the associated centers was a result of the completion of the redevelopment of Hamilton Corner.

Over the past few quarters we have enjoyed a strengthening retail landscape with fewer bankruptcy announcements and store closures. Since June 2003 136 stores have closed totaling approximately 511,000 square feet and representing $9.4 million in lost annual base rent. We have replaced approximately 46% of the space at increases of 3.3% in annual base rent per square foot.

We were also pleased with our sales performance this quarter and anticipate continued positive results by our retailers. Same-store sales in the first quarter 2005 for mall tenants 10,000 square feet or less in stabilize malls increased 4.5% over the prior year. Occupancy cost as a percentage of sales was 13.9% for the three months ended March 31, 2005 as compared with 14.2% for the prior year period.

We did not complete any acquisitions in the first quarter. However, yesterday we announced that we would be acquiring a 70% joint venture interest in Laurel Park Place in Livonia, Michigan for $82.2 million including closing costs. The mall is anchored by two upscale highly productive department stores, Von Maur and Parisian. Mall sales for 2004 were $409 per square foot and the tenant mix features high-quality stores such as Williams Sonoma, Talbots and Chico's.

That $82.2 million includes approximately $50.9 million of nonrecourse debt held by the joint venture. CBL will receive a preferred return of 100% of the property's net cash flow. Additionally, we have retained the right to purchase the remaining joint venture interest for $14 million in cash or SCUs (ph) of the operating partnership at our auction (ph). As we indicated on the fourth-quarter conference call, the acquisition environment remains highly competitive. However, as evidenced by this latest acquisition, we are still confident that we will be able to complete selective acquisitions.

I would now like to turn the call over to John for the financial review.

Thank you, Stephen. We're pleased with our first-quarter 2005 results. FFO per share was $1.52 for the first quarter 2005, a 23.6% increase from FFO per share of $1.23 in the prior year period. Approximately 54% of the increase in FFO was funded from external growth and 46% through internal growth. In response to the letter issued by the office of the chief accountant of the SEC in February of this year, we've reviewed our practices related to accounting for rent holidays.

We determined that while our accounting practices were consistent with industry standards, we have revised our accounting policy going forward to include the period of rent holidays in the term of lease over which straight line rent is recognized. The result for the first quarter included an increase of $400,000 in minimum rents as a result of this revision. This added less than a penny to FFO per share in the quarter. We also determined that prior period adjustments were immaterial.

Additional highlights in the quarter include a debt to total market capitalization ratio of 44% for the first quarter 2005 compared with 44.5% in the prior year period. Our balance sheet remains healthy providing us with a tremendous amount of flexibility to complete transactions and grow our Company. Variable-rate debt comprised 9.9% of the total market capitalization at quarter end and 22.5% of total debt. With our active development program the variable-rate debt will remain at this approximate level.

Our EBITDA to interest coverage ratio was 2.9 times for the first quarter 2005 compared with 2.8 times in the prior year period. For the first quarter G&A represented 4.4% of total revenues in the quarter. This compares favorably with 4.8% in the prior year period. Same center NOI rose 10.7% over the first quarter 2004. The $12.2 million increase in same center NOI is attributable to several factors including -- properties acquired in 2003 were included in the same center comparison this quarter. For these properties we received $1 million in percentage rents in the first quarter of 2005 compared with none in the first quarter of the prior year.

In the first quarter 2004 we took approximately $4.7 million in bad debt reserves and other charges against revenue. Since that time we've had greater than expected recoveries of $1.4 million. The overall result is a $6.1 million positive swing. $400,000 of base rent increase was the result of the rent holidays adjustment. The remainder of the increase resulted from increases in occupancy, specialty leasing and sponsorship income, rental rates and contributions from other comparable portfolio improvements.

Our cost recovery ratio was 102% in the first quarter 2005 compared with 94% in the first quarter 2004. The increase in recoveries was primarily a result of occupancy increases and profit from utility reimbursements from the tenants at the newly acquired malls and from the existing malls due to the implementation of efficiency optimizing utility systems. As we stated earlier, we were successful in recovery of bad debt expense and other charges to revenues that were recorded in prior periods, thus reporting a favorable variance of $6.1 million.

On our last conference call we were asked how much of our CAM reimbursements come from the recovery of capital expenditures. We have performed an analysis and have determined that on average 4.5% to 5% of our reimbursements are attributable to the depreciation of CapEx. This estimated range was derived based on 2004 results and is consistent with historical levels.

As noted in our earnings release, we've increased our earnings guidance to account for the first-quarter results. We are increasing our guidance to a range of $5.88 to $5.96 per share from the previously issued range of $5.66 to $5.74. Our guidance does not include any acquisitions, outparcel sales, gains from the sale of nonoperating properties or termination fee income. The guidance assumes NOI growth of 3% to 4% for 2005, a 100 basis point increase from our prior guidance.

Additionally, our guidance does not include the acquisition of Laurel Park which we announced yesterday. We anticipate that this acquisition will add approximately $0.03 to FFO per share in 2005 based on the transaction closing within the next 30 days. We will include this transaction in our second-quarter guidance updates.

We believe that the healthy momentum we gained in the first quarter of 2005 will continue with over 2.5 million square feet of developments coming online in 2005, this is one of our biggest development years as a public company. With approximately 800,000 square feet of developments already announced for 2006, including Phase II of Gulf Coast Town Center and Lakeview Point in Stillwater, Oklahoma, we already have a great foundation for growth in 2006. We are continually looking at new possibilities and avenues of growth for our Company.

Thank you again for joining our call today. Stephen and I would be happy to answer any questions you might have.

(OPERATOR INSTRUCTIONS). Paul Morgan, Friedman, Billings, Ramsey.

Do you have any color on the Sears/Belk deal as it may pertain to your portfolio just in general? And then in the centers where there's some overlap?

I think you're talking about the Saks/Belk deal. And there are 12 stores that were acquired by Belk formerly owned by Saks in our portfolio and that is on top of the 18 Belk's that are currently in our portfolio. Of those 12 stores we do not own any of the buildings. Five of them are McCray's (ph), seven of them are Profits, and there were three malls where there's overlap between a Profits and a Belk where there will be an overlap situation.

Have you had any conversations with Belk about those locations?

Preliminary conversations only. They just announced the deal last week. Our understanding is it will close sometime this summer, but we'll continue those discussions. We've got a great relationship with Belk and it gives us opportunity in those malls where there's overlap to bring in some of the boxes and some of the other users that we've been trying to bring into the malls. We think it's a positive from that point of view.

In terms of the Gulf Coast Town Center, can you maybe just talk about how you're involvement in that came about given your relationship with Jacobs? And what would cause them to be looking for a partner or whether that was due to the Simon project going up at the same time?

Paul, as you know, Mr. Jacobs is a large holder of units in our Company and I think he's been extremely pleased with the results the Company has achieved for him over those years. When he did this initial transaction with us, Mr. Jacobs had indicated to us that he wanted to stay in the development business all along. He has an incredible eye for selecting excellent real estate and this was one of those situations that we saw. During that period of time he cut back on his overall staff and organization and, as a result of that, felt that joining up with a us could bring a great deal of leasing expertise as well as our relationships with the tenants and so on.

So I think that it's going to be an excellent marriage for us. We spent a great deal of time working on the joint venture and analyzing the project in every respect and we think with the anchors that we've already announced and with the momentum that has been started, we think it's going to be an excellent project for us. Likewise the growth in this area is phenomenal and this location is a regional location which will draw a tremendous amount of people to it.

We've done a lot in our community center group in the past few years down in this part of Florida; St. Augustine was a project that we opened very successfully last year. Before that we did Springhill outside of Tampa, Bradenton, Orlando. So we just have been watching this area closely and the growth is just incredible. When the opportunity came about to begin the discussions with Jacobs, we really jumped all over it and we're really excited about the project and where it's heading.

Did you break out -- sorry if I missed it -- the timing of bringing on the various phases and the amount of GLA in each of those phases?

I did but I can repeat it. The first phase is 425,000 square feet and that will open this fall. That's the power center part that has the Target and the Linens 'n Things, Babies "R" Us, Petco, Staples, Jo-Ann Fabrics and the theater and then a few outparcels and some shops. That's virtually all leased, 99% leased. And then Phase II, which is anchored by Bass Bro, Belk and JC Penney and additional shops and also boxes, will open next fall, fall of '06 and that will start construction late summer or early fall of this year.

How much square feet is that space?

That's about 1 million square feet.

And then there's a Phase III?

And there's a Phase III which has a couple of other boxes and outparcels and shops. The Phase II is right now 630,000 of that 1 million square feet is committed and that includes the anchors and the shops.

Great. Do you have grade assumptions for -- in your guidance? Could you give those if you do?

Yes, we've run that in anticipation that there will be some increases of about 100 basis points in interest rates.

During the year or from where we are now?

During the year.

Okay. And then finally, about the utility reimbursement, do you have a sense of -- to quantify the pickup you're getting thee and whether there's still upside in that line item?

Yes, I think there still is some upside in that line item because I think we're constantly looking at ways of creating better efficiencies in those areas and also I think that sometimes we're able to get some assistance from the utility people and so on. And a lot of it depends upon the remodels as fast as they come on, the implementation of new systems and things such as that and the ability to enjoy those savings that really fall right to the bottom line.

And just in terms of dollar amount that you think --?

It's hard to say. I think it's varying from center to center and I couldn't give you an estimate. I'm sorry.

Thank you.

(OPERATOR INSTRUCTIONS). Michael Bilerman, Smith Barney.

On the tenant reimbursement rate, you said 4.5% to 5% of the tenet reimbursement. So that's about $10 to $11 million in 2004. Is that the right way to think about it?

That's correct.

Okay. And then I guess you're saying a similar amount for 2005 and beyond as you continue to recover some of the CapEx?

I think that's pretty close. I think it will change somewhat varying upon acquisitions and things such as that and the remodels as we previously mentioned so it will vary somewhat.

John, you had said you had a bad debt recovery, how much was that again this quarter?

About $1.4 million.

So when you add that back in your recovery ration comes back to 100% which is basically in line to what you had talked about last quarter?

That's correct.

Okay, great. On the unscheduled expiry's, which is I guess new to the supplemental 214,000 square feet, I guess it represents a little bit under $5 million of rental income, $0.08 per share annually. Can you talk about that and then also how that relates to the $2 million lease term fee, whether you've been able to release the space, where is it coming from, so on and so forth?

It's a combination of bankruptcies and also just of store closures that we hadn't anticipated. We wanted to break that out because we've been getting questions for that detail over the past couple of quarters. We hope that is helpful for you. Also it relates to us trying to terminate some leases early so we can relocate stores and also right size stores. It's part of that strategy on our part. As far as the lease terminations I don't think that there's a direct relationship between that square footage and the lease terminations. A big chunk of the lease terminations this quarter came from one restaurant that we worked out a determination with and other than that it was pretty much spread out across the portfolio.

Do you have a sense of the rental income that you're losing from the unscheduled expiry's, how much of that you've been able to re-lease so that you don't have the downside from losing that rental income?

Yes, it is quarter by quarter, Michael. There's going to be a lag; and a minimum it's 30 to 60 days and on average it's probably more like 120 days before we can replace that income.

John, you talk about a little bit about the acquisition environment. Maybe you can just elaborate a little bit about what you're looking at or the number of deals that you're looking at today and what your feelings are towards the environment for the rest of the year.

I think Stephen really talked about the acquisition in Livonia. And as he pointed out in his comments, we're going to continue the disciplined approach that we followed in the past. If we can see acquisition that makes a great deal of sense for us and that will add value and show growth to our Company that we'll focus on those. I think that all of our peers in this business would basically say that opportunities are much more selective today, your ability to buy the --. But I think what's happened and I think Livonia is a great, great example of it and the Jacob's transaction is a tremendous portrait of how successful we can be is by using our operating partnership to acquire those properties.

And I think that when you look at what we've done for our shareholders and the ability to show the growth in those units that we think that we'll be able to use units going forward to make some excellent acquisitions for us. I think Livonia is a great example of it and, as I mentioned before, the Jacob's transaction and even Monroeville, Pennsylvania which we concluded last year was a great example. So Michael, I think that we'll continue to exercise the discipline we've shown in the past. I think that we can show tremendous results by giving to people who have tax sensitive transactions how they should join with CBL with their properties.

You have anything under contract today, John?

No, we do not.

Michael, the other thing is there's a lot out there, but there's a lot of mixed quality. And we've always believed in using the acquisitions as a way to upgrade the portfolio, to diversify, to create value and we're being careful with a lot of the things out there.

And I just wanted to spend a moment on guidance, John. I think you've talked about how your guidance doesn't assume any of the out parcel lease term fees and acquisitions going forward, and even the one that you announced yesterday -- you increased guidance by $0.22 from what you gave early on in the year. Does that mean the first quarter beat your expectations by $0.22 or is there another change in your thinking for the rest of the year that would have caused that guidance to go up?

I think the reason why we changed our guidance is because of those things that we don't budget for had a tremendous impact in the first quarter. That was 100 basis points to it. When you add the termination fees and the out parcel sales and things such as that, I think that's one of the reasons why we adjusted our guidance.

But that's nowhere near $0.22, those items.

No, it's $0.13 plus the NOI and we did adjust our NOI guidance as well by 100 basis points.

Okay, thank you.

Lou Taylor, Deutsche Bank.

John, can you just clarify your rent holiday comment? You said it was only an impact of around 400,000 for the first quarter, but the prior period was not material to that 400,000, not the cumulative impact?

What we did, Lou, when this guidance came out we went into a mode of -- in working with our auditors to determine how you really researched and went back and looked at the portfolio over that period of time and came to the conclusion in conjunction with our auditors as to the amount of that. So that the revision of the $400,000 really included only that that occurred in the first quarter this year which would include say Imperial Valley as well as new tenants that opened up. So that's the rent holiday period as such.

Great. And then the last question just pertains to just your ongoing normal capital expenditures you had around $12.5 million for the first quarter. What are your expectations on that for the full year?

I think a lot of it depends, Lou, on renovations and so on and I think that what we're doing in Fayette and Cool Springs are about $28 million I think for this year. Those are what we had planned for this year. Something could occur out of the blue that would get us to do more, but I think that's what we budgeted for and that's what I think is realistic at this stage of the year to anticipate for this year.

Fayette is the number one performing mall in our portfolio, phenomenal market area. Cool Springs has just come on gangbusters and we'd love for you to come to Nashville and see what's happening in that area, Franklin and the Nashville area. We thought that by spending this money we could continue to improve those properties.

Yes. But in terms of just ongoing normal day-to-day leasing cost and the like, do you have an estimate for what that will run this year?

About $50 million in tenant allowances and around $50 million in deferred maintenance items that really flow through the CAM charges.

Okay, thank you.

Craig Schmidt, Merrill Lynch.

What was the bad debt expense in the first quarter '04?

It was basically where we had anticipated bankruptcies and things such as that which really occur -- which was about $4.4 million.

So the 4-7 reserve is sort of based on that 4-4 from the prior year?

We certainly had 64 stores closing during that period of time, about $213 million of revenues. So at that time we basically judged and said that we thought that that was the proper allocation or charge that we should take at that time. Subsequent to that we've been able to recover the amount that we specified earlier.

Is there any reserve in the second quarter or later?

We have our normal reserve that we really do. I think that, as Stephen pointed out, bankruptcies have basically sort of slowed down so it's not as significant as it was in the first quarter of last year based upon what we saw and what we expected.

Okay, great. And just so I understand, the rent holiday, is that going to be a recurring adjustment or -- it sounds like it is but I'm not sure?

Yes, as you open tenants each quarter it will occur from the standpoint that you're giving them a fixturing period of time which is determined to be the rent holiday. It's a calculation so to the extent that you give fixturing periods it's going to occur and we don't see that trend changing in any way.

Okay, great. And the annual 3% to 4% NOI, is the second, third and fourth quarter at 3 to 4 or given the 10% is it maybe 1% to 2% NOI for the next three quarters averaging out to 3 to 4?

It will average out at 3 to 4 during the full year. That takes into consideration what we did this first quarter.

At least in my way of thinking that's somewhere between 1% and 2% for the next three quarters same-store NOI?

That's correct.

Okay. And just on the Gulf Coast situation, are there any similar anchors that you and Coconut Point are looking at? Are retailers looking at these as different market areas or are you just literally building two different centers?

I think there's some overlap, Craig, but not a lot. They've announced a movie theater and I believe they have a Bed, Bath & Beyond and we have Linen's 'n Things. And then they have a Dillard's as a department store. But beyond that, with the interstate location I think our center is just a different kind of project. It's more regional. Bass Pro will draw from a larger trade area and the traffic counts and all that and I-75 and the airport are going to bring in from a large area as well. So I think they're going to be complementary more than anything else.

Okay, thanks. It's been helpful.

Tony Howard, Hilliard Lyons.

Congratulations on a good quarter. A couple small items on the revenue side. As you pick up your -- the acquisition's pace and development pace do you expect percentage rents to start increasing as a percent of the total, especially on (indiscernible) quarters?

No, I think historically what you've seen is what we'll continue to see.

Also as far as on the other line item, as far as management and development fees, how soon will you be picking up development activity? What kind of a run rate we should expect for that?

It should stay about flat. It could trend down a little because we don't -- it all depends upon how you treat it for GAAP accounting purposes and as a result of the developments we've got going, less with partners notwithstanding the fact that the Jacobs transaction is involved. That will not have any impact on development fees.

Final question is regarding G&A. Can you talk a little bit about are you expecting any kind of leveraging effect -- efficiency effect now with the development activity that you're doing this year?

We're down as a percent of revenues from 4.8% to 4.4% and we think -- and 4.4%, if you look at our peer group, is the norm. So I think, look, we're always hoping that we can manage G&A and bring it down as much as possible. But also with our amount of activity on the development front and the acquisitions with the need to staff up with leasing and all that I think that that's probably a good rate to run with going forward.

Okay, thank you.

David Fick, Legg Mason.

Can you just talk a little bit about your acquisition strategy? You've historically been focused on markets where you don't have a lot of competition in owning the dominant mall in those markets, and it looks like your Detroit acquisition and your Florida development are going right in the face of other more dominant malls.

I think you're right, that's been our strategy and that type of opportunity where it's the market dominant mall or the only mall in a market or the Madison, Wisconsin's where we have both the malls is definitely where we're most comfortable. And that is our strategy going forward as well. At the same time I think we've always said we're going to be opportunistic and we have been in the case of Laurel Park. The sales are terrific, the mall is terrific and it's got good upside.

Even though it is in a metro market it has a very comfortable sustainable position going forward in its trade area and we had to get comfortable with that. It also fits in nicely with some of the other malls we have in Michigan. Lansing is a great complement mall to it. There is a good relationship in the leasing of those two malls and synergies there. Yes, you're right, it's not a 100% fit with our stated strategy, but we just really just liked the opportunity and got comfortable with it and also the economics going forward.

It's pretty similar to what Hartford is in Baltimore. It serves a market unto itself and the growth potential and the isolation for that specific market area is great. We are extremely pleased with what we did with Hartford which is part of that Baltimore metro area.

And I guess we would also compare it to Douglasville in Atlanta.

You're right, it definitely would.

Okay. Stephen, are you basically conceding the end of enclosed mall construction at this point going forward? You don't have anything in your pipeline that's been announced and what you're proposing to build is not? Is it sort of over in this country?

I don't think we're conceding and I don't think it's over. I think we're working closely with our -- the retailers. Today there's a very strong interest in open-air and most of our new projects are in reaction to that preference on the part of retailers. We do have some projects that are out there where we're evaluating whether we're going to go open-air or enclosed mall. It depends on -- the biggest factor is -- in a mall like Imperial Valley where we've got four anchors we can support the amount of GLA that it takes. In a project where you have one conventional anchor and boxes the economics are different and it makes an enclosed facility tougher to make work. That's a big difference that's affecting the new development program today as we look forward.

But I think we like a lot what we're doing with -- where we have our enclosed malls and we're adding a lifestyle wing and I'm sure you're going to see a lot of that when you're in Las Vegas in a couple of weeks because most of our peers are doing that as well. And that really is the best of all worlds because it allows us to capture the enclosed mall customer, the lifestyle retailers, the boxes, the restaurants, have it in one facility and that's really, I think, the ideal situation.

How do you feel about the economics of these lifestyle extensions? Many of them -- you do a (indiscernible) deal it's very, very tough to make it work. Many of those retailers have a lot of bargaining power. What is your hurdle for incremental returns on those expansions?

I think if you isolate just the lifestyle expansion, and you can see in our supplemental, but they returns are high single digits, 8% to 9% for the most part. But that doesn't really give any benefit to the overall impact on the project. A cap rate on a project that has a Cheesecake given all the traffic in the business theoretically should be better. So you're increasing the value of the asset by doing a deal with someone like that.

If we could do Cheesecake's in our malls we'd do it even though on the surface it would be a horrible deal, it would bring a lot of traffic, it would bring incremental percentage rent, it would help us in leasing, it would bring in new retailers. There are just so many benefits like that that you can't necessarily quantify day one, but you're going to get the benefit of long-term.

I think, David, in some market areas, because we are the golden goose that lays a lot of sales tax revenues for those we can go back in certain districts and certain areas and get some assistance and TIFF (ph) financings and things such as that that will make those a little more attractive. I think from our standpoint our portfolio in the middle markets, we're getting more government cooperation than we've ever seen before. I think that everybody realizes and appreciates the fact that we generate tremendous sales tax revenues for those municipalities and a tremendous amount of property taxes. I think we'll see some assistance in that respect. I think we're very bullish about the ability to add those lifestyle elements.

Can you comment on the amount of cross-border -- the proportion of cross-border shopping traffic so far at El Centro as well as Governor Schwarzenegger's comments this morning about closing the borders?

I don't know anything about the comment from the Governor, but -- so we'll have to obviously look into that. But it's really too early to say what percent. But our sales for the first partial month of March, I mean if they kept up the mall sales would be in excess of $400 a foot. We're really pleased with what we've seen so far and we know we're drawing the shopper from across the border. I can't tell you today if it's 50% or 60%, but it's definitely an important component of the mall.

I think, David, what you're hearing from a lot of congressmen and senators is that they want to sort of legitimize a lot of this cross-border stuff with a lot of work visas and things such as that. And I think that the California economy is tremendously based upon the ability of the free flow between them. Hopefully the Governor is talking about stopping the illegal people coming across the border, not the ones that we've seen and I think on opening day -- on opening day we had a tremendous amount of the border patrol people in our mall and everybody was very comfortable and pleased and satisfied. I think we're going to see continued flow of traffic between the border.

Okay. Last question. What about a stock split?

In our proxy we've asked our shareholders to increase the amount of shares authorized that would enable us to do so, but that is a decision that our Board of Directors will make. We have a Board meeting next week and that could and probably will be an issue that will be discussed, but there is no decision by the Board at this time on that.

Thank you.

Greg Andrews, Green Street Advisors.

John, could you comment a little bit more specifically about what led to the increase in your same property and NOI guidance from just a couple months ago?

Yes, I think what we saw in the first quarter helped us, Greg. I think our occupancy levels were up. We're seeing sponsorship income and specialty leasing coming up. And granted our spreads on a same-store space was pretty good; it's not outstanding and we think that we're going to continue to see that and it's just based upon those circumstances and the fact that we're seeing less bankruptcies, we're getting stronger tenant mix in our malls and retailers are enjoying some success as well, especially in these middle market areas.

Is it possible that the 3% to 4% is still too low given how strong the first quarter was?

I think we're comfortable with that 3% to 4% range. We'll focus on that. You never know what can happen in the economy.

Okay. And the land sales were a bit higher this year than last. Do you have any sense of where that is likely to be for the rest of the year? You have completed Imperial Valley and some of your other projects may have land in the queue for sale.

Yes, what drove that, Greg, was Imperial Valley. And as you know, we don't budget or project those numbers. So I think you know when you see developments occur you'll see some additional sales of out parcels and land such as that. But Imperial Valley contributed fairly substantially to those numbers in the first quarter.

Okay. And then lastly, John, you said on Laurel Park that it would add about $0.03 to '05. I assume that's inclusive of and maybe mostly because of the FAS 141 and amortization of above market debt?

About 50% of that $0.03 is attributable to those accounting adjustments.

Great. Thank you very much.

(OPERATOR INSTRUCTIONS). Michael Mueller, J.P. Morgan.

A few questions. First of all, the 3% to 4% same-store NOI assumption, is that a cash number or GAAP number?

It's a GAAP number.

The community centers, Cobblestone and Chicopee, is it fair to say that those are game to go into Galileo at some point? And if so, how does the timing typically work out? Is it before stabilization, after stabilization, opening, how does that (indiscernible) basically?

Our transaction with Galileo is that we don't have to sell those to them. We make that decision to sell them because we can redeploy the capital in a better way we would do that. And in those situations it sometimes occurs prior to the opening depending upon what we see the use of those funds and likewise what Galileo is needing to do in their own portfolio as such.

There's been no decision as to whether we would sell those assets into Galileo, but if we were to do so we would definitely, assuming that the price is right in our negotiations with Galileo, we would do so. And I think that that assists them in the growth that they're enjoying. They in turn have enjoyed a very disciplined approach to their business in not going after some crazy cap rates and things such as that. I think that working together with them has been very beneficial to both Galileo as well as to CBL.

Okay. But they're probably earmarked for sale one way or the other to Galileo or to someone else, is that fair?

I would think if we could redeploy the funds that we received from the sale and the price was right that it does make sense for us to sell those assets if we redeployed and reinvested those. And I think that, as we've always pointed out, we think that return on capital is very, very important to us. And the opportunities to redeploy that capital will always exceed the capital that we have presuming our disciplined approach and not going into the equity markets as such.

And last question. You touched on it a little bit, just wondering if you can comment on acquisition prospects or Galileo and how you see that environment versus the core mall environment at this point?

I think that our friends at Galileo could probably comment on that more. But I think we are constantly looking at properties for them and they, likewise, are looking as well. I think that following that disciplined approach that there will be some opportunities and I think that they want to grow their company or their trust. We want to see their trust grow as well. But I think that they're pursuing it in a very financially disciplined approach to it and want to show growth to their shareholders and such.

Thank you.

Rich Moore, KeyBanc Capital Markets.

Nice quarter. When I look at the Jacobs joint venture, he has other properties that he either owns or has in development. Do you think this might lead to some more activity with Jacobs?

I think that that question has to be answered by Mr. Jacobs. We enjoy an excellent relationship with him and think he's got a great eye for property and an ability to do a lot of the permitting and approach those. We'd love to do more with him but I think that that's his decision and we respect his decision. We like it even more when it's a decision to do it with us.

Very good. When you guys look at the redevelopment pipeline and you think about when this current group of redevelopments is done, what's beyond that? How do you view your long-term development pipeline? Is there more to come?

It never stops. It really is constant, Rich. Just when we think we've done what we can do at a mall another opportunity comes up. Just, for example, the Belk/Saks Inc. deal gives us those three department stores to work with. We'll use that deal as a springboard at the other malls as well to look at opportunities to bring in the restaurants. We're really focused on that. Bringing in the lifestyle guys, the boxes, all those things that we talked about. Sometimes we're having to do it out of taking parking lots and decreasing parking ratios or using out parcels and so it's just an ongoing part of our business and I think it's going to continue that way.

(indiscernible) we're in the most exciting property portion of the business and I think as retailers re-create themselves that gives us new opportunities and so on. Four or five years ago theaters were really not the hot things, today they're back and expansions just for those. So I think we're in the most exciting aspect of the property business working with retailers and working with middle markets and working with the authorities that basically give us a chance to grow our Company.

Very good, thanks. John, when I look at the variable-rate mortgages that you have, they all seem to come due by the latest sometime next year. Do those disappear in favor of say a fixed-rate longer-term mortgage?

Yes, that's our approach. Once we think that we've stabilized -- we've maximized the cash flows on those properties we will take those and put permanent financings on those. The idea is totally consistent with the philosophy that we've always pursued; i.e. that is to maximize the loan amount on as few properties as possible so that we have the portfolio of unleveraged centers so that we always have that financial flexibility. I think it's totally consistent with what we've said and we'll continue to pursue that.

So a couple hundred million comes out of variable-rate debt as a result of those going over to fixed-rate?

That's correct.

Okay. And then what do you guys think of year-end '05 occupancy? Have you got a target there, has that changed at all?

We think it could be 50 basis points higher than we ended up last year.

Okay. And then the last thing -- and maybe you guys don't look at it this way or you didn't think about it, but I thought it was kind of curious. When I looked from the fourth quarter to the first quarter, base rents fell as I would expect from the fourth quarter to the first quarter, but then operating expenses were actually up over that period. Is there anything strange in there, operating expenses up unusually this quarter and they'll come back down or is the run rate -- is the first quarter a reasonable number?

Are you including depreciation in that, Rich, when you did your comparison?

No, it was just the operating expenses, the property operating expenses. And maybe you guys didn't see it that way and we can talk about it later, but I thought it was kind of curious that those jumped when base rents actually pulled back as I would expect both of them to pull back.

Yes, I think you should see some pull back. I think some of it could be just seasonal and quarter-by-quarter adjustments that come over from the prior year or something such as that.

Okay, terrific. Thanks, guys.

There are no further questions. Mr. Lebovitz, I'll turn the call back over to you for any additional or closing remarks.

We'd like to thank everyone for joining us this morning and taking the time. We're really excited about our results for this quarter. We're looking forward to visiting with you at ICSC in Las Vegas and then at NAREIT in New York. Thank you.

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