CBL & Associates Properties, Inc. (CBL) 2005 Q2 法說會逐字稿

Ladies and gentlemen, please stand by. We’re about to begin. Welcome to the CBL & Associates Properties Incorporated conference call. Today’s call is being recorded and will be available for replay starting today at 1:00 pm eastern time and running through August 10 at 8:00 pm eastern time. You can reach it by dialing 719/457-0820 and entering confirmation code 4800349.

Now at this time for opening remarks, I would like to turn the conference over to the President, Mr. Stephen Lebovitz. Please go ahead.

Thank you. Good morning. We appreciate your participation in CBL & Associates Properties, Inc. conference call to discuss second 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 discussions today, references made to per share are adjusted to account for the two-for-one stock split of the Company’s common stock and based upon a fully diluted converted share. Also, references made to the 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 condition and results of operations included therein for a discussion of 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 8-K and will be available on our website. This call will also be available for replay on the Internet through a link in our website at cblproperties.com. This conference call is the property of CBL & Associates Properties, 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 measure to the comparable GAAP financial measure will be included in the earnings release on form 8-K.

Thank you, Katie. The second quarter continued our trend of producing healthy FFO increases with an impressive 18.3% increase in FFO per share. Through efficient management, aggressive portfolio leasing, and innovative marketing we recorded positive increases in our portfolio operating metrics including a 2.5% increase in same-center NOI in the quarter, an 80-basis point increase in portfolio occupancy and a 3.4% year-to-date increase in same-store sales.

We were pleased to complete the acquisition of Laurel Park Place in Livonia Michigan in the quarter. Subsequent to the end of the quarter, we announced the acquisition of The Mall of Acadiana in Lafayette, Louisiana. Our total investment in acquisitions year-to-date exceeds $257 million. We were also pleased to announce the sale of our management and advisory contracts with and equity interest in Galileo. After two years of a healthy and productive relationship with Galileo, we are satisfied with the results of this transaction and our ability to generate shareholder value.

Our development pipeline continues to be a major focus with approximately $2.6 million square feet expected to come online this year and nearly 1.3 million square feet already announced for 2006 with more expected to come. We have several exciting updates to report on these developments. We are pleased to report that the 437,600 (ph?) square foot Southaven Towne Center in Southaven, Mississippi is currently 100% leased and committed and is well on its way to a successful grand opening in October of this year. We hope you have a chance to join us at the celebration of the opening of this impressive open-air development.

Our latest mall development, Imperial Valley Mall in El Centro, California continues to perform well and is currently over 90% leased and committed. Construction of Gulf Coast Town Center, our 1.7 million square foot open-air joint venture development with the Jacobs Group is progressing nicely. The first phase of 445,000 square feet will include a Super Target, Babies R Us, Linens n’ Things, Jo-ann Fabrics, Kirkland’s, Staples, Petco, and a 16-screen Regal Cinema. All of the big-box and anchor stores included in phase 1 are leased or committed with only 10,000 square feet of small-shop space remaining to be leased. We expect to open the first phase in October with construction anticipated to begin on phase II later this year. Phase II will include the region’s first Bass Pro shops, JC Penney, Belk, Ross Dress-for-Less, approximately 220,000 square feet of open-air small-shop space, and numerous restaurants.

We recently announced the commencement of the second phase of the Hamilton Corner redevelopment. You will recall that the first phase of the redevelopment of this Hamilton Place associated center included the addition of several upscale lifestyle retailers such as Ann Taylor Loft, Chico’s, Coldwater Creek, J. Jill, Liz Claiborne Shoes, and two restaurants. The second phase will continue the interior and exterior redevelopment into the west wing of the center and will include the addition of another restaurant and Mia Cucina, an upscale kitchen accessory store.

Cobblestone Village at Royal Palm, our 225,000 square foot community center development in Royal Palm Beach, Florida is currently 94% leased and committed with only two spaces remaining available in the second phase. Anchored by Target, which opened in October of last year, the small shops in phase I are scheduled to open in September of this year and phase II in the first half of next year.

Chicopee Marketplace in Chicopee, Massachusetts, a 156,000 square foot development spearheaded by our Boston office with Staples and Marshall’s as anchors, is currently over 93% leased and committed and on schedule to open in September of this year.

Consistent with our commitment to provide the best retail mix at each of our malls, we have several anchor, junior-anchor, and restaurant additions under construction. We recently announced the development of a J. Bucks restaurant at St Clair Square Fairview Heights, Illinois as well as an expansion of the Dillard’s store. J. Bucks, a landmark restaurant in St. Louis, is currently under construction and is scheduled to open in September. The Dillard’s store will be renovated and expanded by approximately 30% and will include enhancements in ladies’ shoes, cosmetics, handbags, and more.

At College Square in Morristown, Tennessee we are replacing a nine-screen cinema with a 12-screen state-of-the-art Carmike cinema. The opening is scheduled for summer of 2006.

We are progressing with the 144,000 square foot expansion at Fayette Mall in Lexington, Kentucky. The addition scheduled to open later this year, will include the addition of a 75,000 square foot two-level Dick’s Sporting Goods and approximately 53,000 square feet of small-shop space. The expansion is currently 91% leased and committed.

Last week we announced The Village at Coastal Grand, a lifestyle expansion at Coastal Grand Myrtle Beach. The 60,000 square foot expansion will complement our highly successful mall that opened last year.

We have two renovations currently underway at CoolSprings Galleria in Nashville, Tennessee and Fayette Mall in Lexington, Kentucky. We have also announced that we will begin the renovation of Madison Square in Huntsville, Alabama in January of the coming year. All three renovations include updates to lighting, flooring, signage, and other enhancements. Fayette Mall’s renovation is scheduled for competition later this year with the competition of CoolSprings, scheduled for spring 2006 and Madison Square in fall of 2006.

We are happy to report strong results from both of the leasing events held in the quarter – ICSC and our retailer connections event. We were bolstered by the record-setting attendance at ICSC. All reports indicate that this year was one of the most productive conventions for our Company. We followed up many successful leads initiated at the convention at our annual connections event in June, where retailers from around the country came to Chattanooga for three days of deal-making. We had an excellent turnout with more than 140 people from numerous retail chains in attendance. As a result of these events, several new retailers and concepts are joining the CBL portfolio. Aro Costell’s (ph) emerging concept, Jimmy Z will be joining two of our malls later this year. In addition, we are excited about the addition of the first two H&M locations within the CBL portfolio at Brookfield Square in Brookfield, Wisconsin and West Towne Mall in Madison, Wisconsin.

Leasing efforts continued to produce good results in the second quarter. We accomplished more than 583,000 square feet of leasing in the quarter, including 297,000 square feet of new leases and 286,000 square feet of renewal leases. This compares with 544,000 square feet completed in the prior year period with 338,000 square feet of new leases and 206,000 square feet of renewals. Both periods exclude centers sold to Galileo. For the second quarter, leases for the same small-shop space of 20,000 square feet or less were signed at an average increase of 14.2% over the average base rent per square foot of the prior leases. Leases for both same-space and un-comparable space of 20,000 square feet and less, were signed at an average increase of 8.1% over the average base rent per square foot of expiring leases in the quarter.

Total portfolio occupancy as of June 30, 2005 increased 80 basis points to 91.9% from 91.1% at June 30, 2004. Mall occupancy at June 30, 2005 was 91.9% -- occupancy in – an 80-basis-point increase from 91.1% at June 30, 2004. Occupancy in the associated centers increased 450 basis points to 93.8% as of June 30, 2005. The effect of bankruptcies remains limited this year. For the six months ended June 30, 2005, 13 stores closed due to bankruptcy, representing 30,000 square feet and $978 in annual base rent. We have re-leased approximately 10% of this space at a 26% increase in average base rents over the prior average base rents.

Retailer sales performance continued to be strong this quarter. We expect continued strength from our retailers. Same-store sales in the six months ended June 30, 2005 from all tenants 10,000 square feet or less in stabilized malls increased 3.4% over the prior year. Occupancy cost as a percentage of sales was 13.7% for the six months as compared with 13.8% for the prior year period. Occupancy cost is typically higher in the interim period as a higher percentage of sales occur in the fourth quarter.

During the second quarter we completed the acquisition of a 70% interest in Laurel Park Place in Livonia, Michigan for $82.2 million at a going-in cap rate of 8.52% based on income in place. Additionally, subsequent to the quarter-end we completed the acquisition of The Mall of Acadiana in Lafayette, Louisiana for approximately $175.3 million at an initial cap rate of 6.1% based on income in place. We are excited about the addition of these two properties to our portfolio. Each offers ample opportunity to increase NOI through lease-up, rollover, and implementation of specialty leasing programs. Additionally, the properties offer opportunity for future development including an expansion and the development of an associated center at The Mall of Acadiana.

The acquisition environment continues to be extremely competitive. But we maintain our belief that there are opportunities out there to acquire properties that meet our requirements. Although our latest acquisition was completed at a lower cap rate than we have historically paid, we believe that leasing expansions as well as aggressive management should improve the cap rate over the next few years and we are confident in our ability to take advantage of the many opportunities available to us at the property for near-term value creation.

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

Thank you, Stephen. In the second quarter 2005, FFO per share increased 18.3% to $0.71 per share from $0.60 per share in the prior year period. For the six months ended June 30, 2005, FFO per share increased 21.3% to $1.48 from $1.22 in the prior year period. For the second quarter, 10% of the increase in FFO was attributable to internal sources and 90% from external sources. Additional highlights in the quarter included – same-center NOI increased 2.5% for the quarter and 5.9% at six months ended June 30, 2005. The same-center NOI increase was attributable to increases in occupancy and rental-rate increases. G&A represented approximately 4.6% of total revenues consistent with the prior year period. Quarter-over-quarter G&A increased 15.5% primarily due to the addition of employees and professional fees.

Our cost recovery ratio was 103.8% for the quarter as we continue to benefit from occupancy increases and the implementation of efficiency-optimizing utility management systems within our malls. Our debt-to-market capitalization ratio was 40.3% at June 30, 2005 compared with 49.4% at the close of the prior year period. Variable-rate debt represented approximately 8.6% of the total market capitalization at the quarter-end and 21.2% of total debt. Our EBITDA-to-interest-coverage ratio at quarter-end was 2.7 times compared to 2.71 times for the prior year period. Outparcel sales were $0.05 in the quarter primarily due to sales of outparcels at Southaven Towne Center.

As indicated in our press release, we are updating our 2005 FFO per share guidance range to account for second quarter results and other recently-announced transactions. Our new FFO guidance range of $3.27 to $3.31 per share assumes full-year NOI growth in the range of 3% to 4% and excludes the impact of future acquisitions, lease termination fee income, gains on sale of outparcels, or gains on sales of non-operating properties. The new guidance includes our recently-announced transaction with Galileo and New Plan. As previously announced, we expect this transaction to be revenue-neutral on an annual basis, but will contribute $0.26 to FFO in the third quarter for one-time gains and fee income. We also stated in the press release that we will record a $41.8 million gain on the sale of our joint venture equity interest and net income in the third quarter. This gain will not be included in FFO.

Our outlook for the remainder of the year is positive. Our existing portfolio of malls contains numerous opportunities to take advantage of established retail hub by adding a big-box or lifestyle component, an associated center, or an additional small-shop space. We continue to explore these prospects. As a result, an increasing number of these types of developments are entering our pipeline. We believe that this proactive strategy will help to maintain each property’s status as a retail destination in the respective trade area and is a part of our continued success.

Thank you again for joining us today. We appreciate your continued support. We would now be happy to answer any questions you might have.

Certainly gentlemen. (OPERATOR INSTRUCTIONS). Michael Bilerman at Smith Barney.

Good morning. Jon Litt is on the phone with me as well. John, could you go over – if you look at the minimum rents between the first and second quarter and you back out the lease-term fees, you saw a 1% sequential decline, which seemed a little bit counter-intuitive to me because you had an occupancy increase in your positive spreads in rollovers. Was there anything maybe in the first quarter or the second quarter that may be affecting minimum rents?

I think possibly it was the lease termination fees or possibly the way that they were categorized as such.

We backed out the lease termination fees – about 2.2 million out of the first quarter and backed out 200,000 out of the second quarter. Your minimum rents dropped from 128 to about 127 sequentially.

Some of the leases, I think, went on percentage in lieu of those places where we’re remodeling or doing some major renovations. That is what possibly drove that down somewhat. It basically increased in other areas as such.

So you picked up income in other parts of the income statement as you’ve moved tenants around? Is that the way that’s (multiple speakers) ?

Yes. That’s correct.

Where do you – do you see more of that happening or (ph) able to pick up minimum rents? Will you see a bigger increase maybe in the third quarter?

I think some of it is seasonal. It can change. As you renovate centers and do those types of things, you like to keep those tenants in occupancy. Some of those we do a percent in lieu of for a short period of time until we finish those renovations or remodelings. The first quarter is greater as a percentage in lieu of sales because that is when we take in the December sales. That has an impact as well. The first quarter we’re taking in the percentage sales from the previous year.

Your percentage rents seem pretty much in line as a percentage of minimum rents in the first quarter. In the second quarter they didn’t seem that much higher than they normally have. We can follow-up later, if you want.

Right. I think, though, that the percentage in lieu of go into the fixed minimum category so they don’t show up in the percentage rent number.

In terms of developments, there is a fair amount of developments that seem to be hitting in ’06 and ’07 where they are not yet in the supplemental. Can you share with us the cost and the yield expectations for projects like Alament’s (ph) Crossing, the associated center at Imperial Valley and some of the lifestyle centers that you are planning to hit in 2007.

Until we start construction, we’re not in a position to announce them. As you know with developments and the way we approach them, we’re not going to start a project until we have our anchors committed and our costs pretty much nailed down. With the development business, things can change. We’re just not comfortable announcing those until they are ready to start construction. We’re hopeful that we’ll definitely have more than the 1.3 million that we have announced to date for ’06. We’ve got a lot of good projects that we’re working on and that we’re getting close to. But we are not there now in terms of announcing specifics on the costs and the anticipated returns.

You think about how much you have. You have two million square feet of community centers and another two million square feet of lifestyle centers and associated centers, I guess in pre-development, which is a big number relative to where you are today. It would appear that some of these are hitting in the near future. I am trying to get a sense of how that will impact ’06 and ’07.

I think from an ’06 point of view, anything that we haven’t announced at this point isn’t going to be opening until the fall because it usually takes at least a year to build something and open it. I don’t think that projects that haven’t been announced to date are going to have a material impact on ’06. Now ’07 is a different story because we will get the first full year in ’07 for the ’06 developments.

Looking at your roster of projects, which ones are the closest to being shovel-in-the-ground?

I can’t say. There are a bunch of them that we were marketing in Las Vegas. We’re pushing all of them. Hopefully, we’ll get a bunch of them to be able to announce soon.

John, just a question on the recovery rate. You stated you were at 104%. I think for the first half of the year, you’re now at 103. Where do you see that trending for the second half of the year?

About the same.

So, up to 103?

Yes, around that 103, 104 number.

Which is higher than your previous expectation, right?

That’s correct.

And then how should we think about your guidance going up? I think it’s about $0.33 – 26 related to Galileo; $0.05 would be to the outparcels that you booked in the quarter. Is the remaining $0.02 effectively the tenant recovery rate going up? Or is it something else?

I’d say it’s basically the two acquisitions that we’ve recently done. As you know, we don’t include in our guidance outparcel sales or lease termination fees. That would not have an impact on our guidance number that we have given to you.

So if the recovery rate went up, which will add a couple to your numbers, what is bringing it down? Shouldn’t then guidance go up for the increase of raising the tenant reimbursement rate to 103 from, I think, about 100, where you were before?

We think it’s in those numbers. It’s in the 3% to 4% NOI growth number.

Okay. Thank you.

Lou Taylor with Deutsche Bank.

Thanks. John, could you give a little guidance in terms of your fee income going forward post the Galileo sale. What is a good run-rate?

We lost it, Lou.

I am sorry. In terms of post the Galileo sale, in terms of management and development fees, what is a good run-rate going forward after the sale closes?

We should lose, I think, about $2.2 million off that number.

2.2 million? Okay, thank you.

Paul Morgan at FBR.

Morning. What can we expect from the – I know you don’t give guidance out (indiscernible) sales. If some of these are going to be related to the developments that you are opening this year, you might have some visibility about whether the second quarter was well above what you could expect for the second half.

I think when you do developments, you’ll tend to have more outparcel sales as such. Again, we don’t include that in our guidance as such. As you see more developments come along, there tends to be more inventory of outparcels for sale.

At Gulf Coast Town Center, could we see some of that – you attributed the second quarter to Southaven. Could we see some at Gulf Coast as well?

I think at Gulf Coast Town Center, most of them will be leased. You won’t see a lot of sales there.

Going back to the development question, you said 1.3 million for 2006. That is openings in 2006?

That’s correct.

What is the investment in those? Dollar for your share?

We haven’t released the investment number yet, just the square footage.

What is your share of that 1.3 million? Is it all wholly owned?

That does include Gulf Coast, which is 50% owned.

Alright. So otherwise, you just assume the typical square foot cost to back into the number that you’ll disclose later?

Yes. I think that is appropriate.

What is the – just a quick question on Imperial Valley. What is the physical occupancy right now? You mentioned the lease rate.

It’s about 86%, 87% occupied today. We’re leased and committed over 90. We also have another half dozen leases that are under discussion – or retailers where we’re under discussions. The leasing has really picked up there. Sales have been great. We’re really happy with the way the center opened. We’re getting good interest from a lot of regional stores that are in San Diego and looking to expand. So, it’s going well.

Last question – on the Lafayette acquisition and cap rates generally. You mentioned that that is quite lower than you’re used to paying. How much of that is a reflection of cap rate compression just in the past year or so versus the upside at that property specifically?

It’s a combination. There has definitely been cap rate compression of 100 to 150 basis points in the market. You look at the other acquisitions that have been done, that is just the fact of where the market has gone. On the other hand, when we looked at this one, it had a lot of upside through – there was some recent leasing that had just been done that is going to kick in and kick up the returns. Then we saw some additional opportunity to build on that and bring in some strong retailers. We bought 14.5 acres of land with the acquisition and then an option for another 14.5 acres. We’re working right now with retailers to do an expansion or associated center as part of that. Also, we have bought another mall from Aikens, (ph) Panama City Mall about three or four years ago. We’ve done very well with that acquisition. We felt that buying from this owner would – we could also have good success. It’s a combination of both. Sure, we wish cap rates were higher, but we felt this was a really good opportunity for us.

Okay, thank you.

Jeff Donnelly of Wachovia Securities.

Good morning. John, just a question on anchor vacancies. Following, I think the Saks Belk deal you had about 30 stores. I think there were three malls where you had an overlap situation. Can you share with us any expectation you now have for those stores? Is there any update on conversations you’ve had with the Belk family?

It’s in the same situation. That deal closed in early July. We’re working in Spartanburg, South Carolina where they have two stores with a couple of prospects to replace the profit store there. In Dalton, Georgia they are operating. We are working on some possibilities there. Also in Morristown, Tennessee where we’ve got the two stores, we’re working with them to have someone take over one of them. They are still paying all their obligations, rent, CAM, (ph) in all the stores where there is overlap. We’ve got good interests in terms of replacement prospects. So we feel good about the outlook going forward.

Do you know off-the-cuff what the sales per square foot are at those malls where the overlap is? Just in rough terms?

For the small shops or for the department stores?

The small shops.

Give me one second. We can get them for you. They are all in the 250-to-300 range. WestGate in Spartanburg is 260. College Square is about 233 actually. Walnut Square is 250. So, roughly in that range.

On occupancy you continue to enjoy some steady increases. At what point do you think you could cap out on occupancy? Does that differ from past experiences given where tenant space demands are today – either different sizes, different types of space versus what you have readily available?

We’ve said that we’re looking for a 100-basis-point increase this year over where we ended up last year, which would take us to 95%. One of the things we’ve done over the past few years is we’ve done a number of big-box additions. So we’ve taken some of the space, primarily in centers we’ve acquired, that was difficult to lease long-term and put big-boxes in there. I don’t think that we feel that 95% is topping out. Also, it will give us the ability to push our rent spreads and improve those. We saw some improvement this quarter. That is a real focus with our leasing group as we’re at higher occupancy to improve the numbers.

I apologize if this was asked earlier. What contributed to the occupancy declines in the non-stabilized mall and community center portfolios?

We moved the Lakes Mall into the stabilized category.

Okay. Thank you.

Ross Nussbaum of Banc of America Securities.

Good morning. I’m here with Christy McElroy. A couple questions. First, just to run through the potential gains on outparcels you could have in the second half of the year. What else remains at Southaven?

We’re roughly 50% with the ones that we’ve done to date.

The same question at Cobblestone and Chicopee on the community center side. Any outparcels there?

Chicopee has one that will be a ground lease. That won’t be a sale. Cobblestone doesn’t have any.

Are you losing your Kaufmann’s at Monroeville – did I get that right – with the Federated closings?

Yes. They announced that they are going to – that that is one of the stores that is on their closing list. That is our only one.

What does the anchor lineup look like at that mall outside of Kaufmann. What are your initial thoughts on what you’re going to do there?

You’ve got Penney, Macy’s, and Kauffmann for the three anchors. We’ve got a lot of different things that we’re working on as possibilities. We’ve had interest from several theaters coming into the mall. This would give us a place to accommodate them. Also, Dick’s Sporting Goods is in the associated center in a not-their-prototype store. We’ve been working with them. There is interest from a lot of restaurants and shops. We feel good about the redevelopment prospects there.

Is that an owned or a leased store?

It’s owned.

And the operating covenants? Are they still in place?

The operating covenant on the Kaufmann has expired.

The question is probably for John on the Galileo transaction. You had made the comment that you believe it will be revenue neutral on an annual basis. Are you assuming that you are going to be taking the proceeds from the sales and reinvesting that on a leveraged basis into acquisitions? How do you get to a revenue-neutral from the sale? What is the assumption underlying that?

I think that the total overall – if you look at it – is about $0.07. That was in our release when we announced the transaction. It was $0.07 impacted us from the loss of the revenues on the 8.3% interest we had in Galileo. Then if you take and add back Springdale and add back Wilkes-Barre, it gets you down to – that’s about $0.04 to $0.05 out of that. Then you take the G&A savings that we’ll see as a result of that, and that gets you to about a $0.07 neutral-type of approach. There is some interest savings as well, as a result of the fact that we’re getting rid of the debt on that. Then we reinvested some of the proceeds by paying down our credit lines.

So it is not any future acquisitions involved in there?

No. As you know, we have that potential with regard to the Springdale and the Wilkes-Barre, which is about a $60 million to $63 million put. We don’t have any obligations and we haven’t identified anything. We think that those two centers are good centers. We could retain those. But if something that we saw that was excellent comes along, we could jump and do that with this put provision.

Final question. What are you seeing in terms of acquisition opportunities over the next six months? How does that stack up pipeline-wise, at least in terms of what’s available for sale versus what you’ve seen in the first half of the year?

I think it’s about the same as it’s been the first half of the year. There is not a lot out there. There is the Copaken portfolio that is out there. Who knows what is going to happen with that? That is really the only portfolio. There are some one-off opportunities that hopefully we’ll be able to dig up, although it’s really competitive out in the environment. There are buyers today, both public and non-public, that weren’t there a couple years ago. That has contributed to the cap rate environment and to the competition. We’re working to make some happen. It’s, by no means, easy.

Thank you.

Carey Callaghan Goldman Sachs.

Good morning. All our questions have been answered. Thank you.

Michael Mueller, J.P. Morgan.

A few things. Going back to the Southaven land sales. You said you used up about half the capacity. Is it safe to assume that the rest of the parcels could hit this year? Or do you think they would spread into next year?

Probably they are going to be held off. We are working on a couple of associated center developments on some of the outparcels since we’re 100% leased and we’ve gotten more interest from retailers. We’re looking to accommodate some of that development through self-development instead of selling those off. I wouldn’t expect – there might be one or two over the rest of the year. The big piece for the year has been done for Southaven.

If I am looking at the community center developments, Cobblestone and Chicopee both are opening this year. Are those items that could be sold this year and translating into gains where for example, I guess it’s Cobblestone phase I is opening. Is that something where you wait for the second phase to open next year and then it would ultimately get sold? How does that work?

To qualify for an FFO impact, it has to be sold before it goes into operation. That is something that we’re looking or considering. There has been no decision made. Likewise, the Galileo folks are in the process of working to close this big transaction. So that is on the table for discussion. There has been no decision made as such. To impact FFO, those centers would have to be sold. They can be sold in phases. But they would have to be sold before they go into operation. The Jacksonville project would not go into FFO because it was an acquired center that we’ve redeveloped. That would not impact FFO as such, if it were sold.

I know Stephen, you mentioned not putting a cost on the 1.3 million square feet of new development coming on line next year. But for the projects you just announced, can you give us a rough estimate of the magnitude of the costs?

We’ll look at it. If we feel like we can do it now, we’ll put it out as a supplemental.

Okay, thanks.

Greg Andrews, Green Street Advisors.

Morning. I am looking at your same-center net operating income schedule. I am having trouble reconciling one item. What you do, I guess, is back out management fees and other non-property-level revenues? For the quarter, you were backing out $7.3 million. Can you help me understand what that is.

I am sorry, Greg. Can you do that question one more time.

Yes. In your same-center NOI calculation, you back out – you compute your share of NOI. But then you back out management fees, which I understand. Then also, it says non-property-level revenues. The total for that is about 7.3 million this quarter. You backed out only 1.8 million in the year-ago quarter. I am trying to figure what is in that number. It doesn’t – there is no easy way to reconcile it to the income statement.

That is our taxable REIT subsidiary, which we run some of the stuff through. Some, like Jacksonville or things such as that, that will be sold will basically have to go through that taxable REIT subsidiary. It adjusts. It will bounce around because of the taxable REIT subsidiary. It’s hard to reconcile. We apologize, but that is what happens when we do some things to that taxable REIT subsidiary.

Where on the income statement are the corresponding revenues that go into that 7.3 million?

It’s in the category of other.

It’s all in – it’s either the management fees or other?

That’s correct.

Thank you.

(OPERATOR INSTRUCTIONS). Rich Moore at Keybanc Capital Markets.

Good morning. When do you begin to see the seasonal holiday tenant activity? Has that already started?

One of our pushes is to try to make it more even throughout the year. It’s really fourth quarter when you see it, starting in October, November, December. Everyone wants to be there November, December. We’ll force them to sign three months to get the holiday. That is when you see the increase.

So you start to see actual interest from tenants – they start calling in the October timeframe?

Oh, no, no. A lot of it is repeat. A lot of it is people that are in one year and you book them for the next year. The leasing is done for that much earlier. A lot of that is in place. If it’s not in place at this time of the year, then we’re nervous about it.

How do you feel about that right now? Is it better than last year? Is it the same? What are you thinking for the holiday season?

That has been a strong area for us. I think it is continuing. It seems like there are new concepts. We’re always looking for ways to maximize it. At this point, it’s hard to put in new carts or kiosks, so we’ve got to push up the rents. Then we’ll used whatever vacant space there is in the malls for temporaries as well as during the holidays. I think, in general, we feel good about it.

Then given – you were mentioning that the tenant environment is generally still pretty strong and you expect it to stay strong. Is there any chance for surprises still? Or is it too late in the year to get somebody in for – a more permanent tenant, I mean – for the holidays?

Everything – in terms of what we’ve got going, I think we’ve got it included in our guidance in terms of the NOI growth. We’ve got built-in increases in specialty. We always project that we’ll get a few deals that come in the fourth quarter that we didn’t plan for just because something will happen. That is pretty minimal. I don’t think we see anything happening that is going to impact our NOI growth guidance at the centers.

Okay, great. Thanks.

Robert Belzer at Prudential Equity Group.

Good morning. A few questions today. First, regarding your strong leasing activity that you reported, I am assuming you are pretty much done with 2005. How about 2006? How much have you put a dent in what you have rolling over for next year?

What we do for renewals is, we start about a year in advance of the renewals. It’s probably a little early to say. We do have some first quarter renewals. We’re probably maybe half done with those. As a percent of the total renewals, I can’t really tell you what exactly the percentage is. I will say with Vegas and the connections – the retailer plans for ’06 and even ’07 in terms of expansion are still strong. We think that probably the biggest challenge we have in accommodating them is they want certain spaces in the mall that aren’t available. So we are having to move people around. That is also driving our push to do these lifestyle expansions in a number of the malls, where we’re trying to add anywhere from 30 to 50, 60, 70,000 square feet because we don’t have the space with the retailer demand on the mall. So we’re looking into the parking lots and the entrances and places like that to accommodate the restaurants and the retailers that don’t want to come into our properties.

I have an additional question on your same-center comparison. The other line, you had a negative 30% variance. Could you indicate what drove that variance?

Are you talking about – which line are you talking about? I am sorry.

The same-center line. I can back to you with this offline. It went from 3.6 million to 2.5 million in the other category of your same-center NOI comparison.

It’s the taxable REIT subsidiary that we we’re talking about. Some things move around in there. That was what caused that change.

That would come through your same-center comparison?

Some of it would.

Then I just have one question on the Acadiana acquisition. You mentioned that some leasing was done that you expect to kick in. Was that done by the seller?

It was. There were stores that opened earlier this year, so they haven’t had a full year of operation. Yes, it was done by the seller.

You did not include that in your cap rate guidance? Is that correct?

We do our cap rate based on the income in place. Those were included. What I was saying was that, having Coldwater Creek and Chico’s gives us the facility to lease to some of the other lifestyle guys. We’re working on putting them into some vacant spaces and also into some space that we’re going to create at the entrance to the mall.

Okay, great. That’s it for me. Thanks.

(OPERATOR INSTRUCTIONS) Craig Schmidt at Merrill Lynch.

Good morning. On your leasing spreads going from the first to second quarter, your new leases were pretty consistent, but your renewals improved a lot. It looked like they were almost flat in the first quarter, but increased 11.6% in the second quarter. What was different between those quarters to cause the jump? Where do you think that renewal is going to be going forward?

It’s hard to generalize about that. I think what we’re seeing is that some of the bankruptcies from last year when we did renewals, the spreads weren’t that great. We did some deals to keep KB Toy (ph) in the malls. We were going backwards because of their sales performance, hoping that they would improve going forward. We did it in order to keep that tenant in the mall. We’re working – most of that impacted us in the first quarter. I don’t think we had that to deal with as much in the second quarter. We’re seeing better quality on the renewals.

So probably going forward it’s going to be more similar to second quarter for the next two quarters?

Hopefully. Hopefully.

One last question on Laurel Park Place. It’s doing $409 a foot, but it’s about 15% vacant. Is there a special reason why – I typically think of the higher performance meeting with higher occupancy.

There were a couple spaces at the entrance. There are a couple spaces down in the wing where the Marriott Hotel is the anchor. Those were really the contributors. It’s not a huge mall in terms of the GLA so 20,000 square feet can make a big difference in the occupancy percentage.

Okay, great. Thank you.

Gentlemen, at this time I have no other questions holding.

Again, we would like to thank everyone for joining us this morning. We’re very pleased with our results for the second quarter. As John said, we’re very encouraged by the outlook for the rest of this year as well. Hopefully we can see you on October 5 at Southaven at our grand opening, if not before. Thank you everyone.

Ladies and gentlemen, that will conclude today’s teleconference. We do thank you for your participation. You may disconnect at this time.