CBL & Associates Properties, Inc. (CBL) 2005 Q3 法說會逐字稿

Good day, everyone, and welcome to the CBL & Associates Properties, Incorporated conference call. Today's call is being recorded and will be available for replay starting today at 1:00 p.m. eastern, and running through November 4th at 8:00 p.m. eastern. You may access the replay by dialing 719-457-0820, and entering confirmation code 4757878.

At this time, for opening remarks, I would like to turn the call over to the President, Mr. Stephen Lebovitz. Please go ahead, sir.

Thank you, and good morning. We appreciate your participation in CBL & Associates Properties, Inc. coference call to discuss third quarter 2005 results. Joining me today is John Foy, the Company's Chief Financial Officer, and Katie Reinsmidt, Director of Investor Relations, who will begin by reading our Safe Harbor disclosure.

This conference call contains forward-looking statements within the meanings of the Federal Securities Laws. Such statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which may not even be anticipated. Future events and actual results, financial and otherwise, may differ materially from the events and results discussed in the forward-looking statements.

During our discussion today, references made to per share 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 or owned in partnerships 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 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 all 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 8K.

Thank you, Katie. The past few months have been full of challenges for our country. With severe hurricanes, large spikes in oil prices, and talk of higher deficits to fund the relief and rebuilding effort for the affected cities, the future state of the economy is the hot topic. Consumers have been inundated with predictions of inflation as well as fears of rising interest rates. How does this translate to CBL and the Company's future growth prospects?

In conducting our day-to-day operations, what we have seen over the past few months is continued strengthening of our business and even improvement due to the healthy status of retailers. Compared with prior years, there have been only a moderate amount of retailer bankruptcies and closing announcements, and those that were announced have been immaterial.

Retailers continue with healthy expansion plans and a steady supply of new store concepts. Our leasing managers are receiving positive responses for our new developments, expansions, as well as existing properties. Despite reports of declining consumer sentiment, we are seeing positive same store sales numbers and continued consumer spending.

Our third quarter results reinforce our positive outlook. In spite of the challenges, we again achieved double digit FFO growth, same store sales growth of 3.3%, and same store NOI growth of 6.4%. As a result of our strong growth, our Board has declared a substantial increase of 12.6% to our common dividend, as well as a special one-time $0.09 per common share dividend.

We have already announced approximately 2.9 million square feet of new developments opening in 2006 and beyond. And we have a number of exciting new developments in renovations that are in various stages of predevelopment. With strong third quarter results, a healthy development pipeline, and over $900 million in acquisitions and operating joint venture partnerships announced for this year, we can't help but continue to be optimistic about our future growth.

We held several grand opening celebrations in the past few months, including the October 6th grand opening of South Haventown Center in South Haven, Mississippi located just south of Memphis, Tennessee. This development is a huge success, and open 100% leased and committed.

The the retailer reports since the opening have been overwhelmingly positive with sales exceeding expectations. Encouraged by the strong response we have received from retailers and consumers, we are exploring additional phases for this development with big boxes and other retailers.

In September, we held the grand opening celebration for Chicopee Marketplace in Chicopee, Massachusetts, a 156,000 square foot development spearheaded by our Boston office. Anchored by Staples and Marshalls, this community center opened over 98% leased and committed.

The grand opening of the 445,000 square foot first phase of Gulf Coast Town Center in Fort Myers, Florida, our joint venture development with The Jacobs Group is scheduled for November 3rd. The first phase includes, SuperTarget, Babies "R" Us, Linens-N-Things, JoAnn Fabrics, Kirkland, Staples, Petco, and a 16-screen Regal cinema which is scheduled to open in January.

Phase II, currently under construction, will offer approximately 743,000 square feet of retail, as well as two Marriott branded hotels. Retailers opening in Phase II include the regions first Bass Pro shop, JC Penney, Belk, Ross Dress for Less, approximately 220,000 square feet of open air small shop space, and numerous restaurants. We expect to open Phase II in the fourth quarter of 2006.

Cobblestone Village at Royal Palm, a 225,000 square foot community center development at Royal Palm Beach, Florida, is currently 94% leased and committed. Anchored by Target, which opened in October of last year, the small shops in Phase I will open by the end of the year, and Phase II shops are expected to open in the first half of next year. Fortunately, damage to both Fort Myers and Royal Palm from hurricane Wilma was minimal.

Construction on Lakeview Point, our 205,000 square foot open air development in Stillwater, Oklahoma, began this month. A 58,000 square foot Belk department store anchors the development which is currently 75% leased and committed.. We anticipate opening Lakeview Point in fall of 2006.

Fayette Mall in Lexington Kentucky, recently celebrated its grand reopening with the completion of its multi-million dollar renovation and expansion. The expansion included the addition of a 75,000 square foot two level Dick's Sporting Goods, as well as approximately 53,000 square feet of shops which are 80% leased and committed.

Additionally we started construction of Phase I of the Plaza at Fayette, a 200,000 square foot associated center adjacent to Fayette Mall. Phase I of the project will include a 59,000 square foot 16-screen Cinemark Theater, small shop space and several restaurants. This $14 million project will open in fall 2006. Phase II will follow in 2007.

We are also in the process of renovating Cool Springs Galleria in Nashville, Tennessee, and expect to begin the renovation of Madison Square in Huntsville, Alabama, in January of the coming year. We have plans to renovate a total five additional malls in 2006, and expect to announce details in the coming months. The completion of the Cool Springs Galleria renovation is scheduled for spring 2006, and Madison Square is scheduled for completion in fall 2006.

We have achieved more than 550,000 square feet of leasing in the quarter, including 221,000 square feet of new leases, and 331,000 square feet of renewal leases. This compares with 626,000 square feet completed in the prior year period, with 192,000 square feet of new leases and 434,000 square feet of renewals. Both periods exclude centers sold to Galileo.

Leases for both same space and noncomparable space of 20,000 square feet and less were signed at an average increase of 11.9% over the average base ramp per square foot of expiring leases in the quarter. For the quarter, leases for the same small shop space of 20,000 square feet and less were signed at an average increase of 5.8% over the average base rent per square foot in the prior leases.

Total portfolio occupancy as of September 30, 2005, increased 90 basis points to 93.3% from 92.4% at September 30, 2004. Stabilized mall occupancy at September 30, 2005, was 93.2%, a 50 basis point increase from 92.7% occupancy on September 30, 2004. Occupancy in the associated centers increased 410 basis points to 94.5% as of September 30, 2005.

The effect of bankruptcies remains limited this year, for the nine months ended September 30, 2005, 17 stores closed due to bankruptcy, representing 37,000 square feet and $867,000 in annual gross rent. Same store sales in the nine months ended September 30, 2005, from all tenants 10,000 square feet or less in stabilized malls increased 3.3% over the prior year.

Occupancy costs as a percentage of sales was 13.5% for the nine months ended September 30, 2005, as compared with 13.7% for the prior year period. Occupancy costs are typically high per the interim period as a higher percentage of sales occurs in the fourth quarter.

I will now turn the call over to John for an update on our acquisitions and our financial review.

Thank you, Stephen. Since going public in October of 1993, we have established an impressive track record of producing strong results for our shareholders. This is evidenced by our consistent double digit FFO growth, dividend increases, and other measures. A portion of this success is due to our ability to make smart, accretive investments and acquisitions that present opportunities for both near and long-term income growth.

We maintain that the acquisition is just the first step in the process, and that the significant amount of growth can be garnered from a smart and strategic leasing, specialty leasing, marketing development, and redevelopment plan. We felt that it was important to share with you a few examples of the kind of results we have generated within our acquired properties.

In late 2003, early 2004, we acquired six malls from affiliates advised by the phase-in group. The malls were acquired at a weighted average cap rate based on an income in place of 8%. As a result of developments, lease up, special leasing and other sources of income growth, we have improved the returns on those acquisitions an average of nearly 100 basis points, and we are continuing to look at additional ways to further enhance these properties.

Another strong example of our ability to increase returns is the Jacobs portfolio we acquired in 2001. Since the acquisition, we have invested over $200 million in property renovations and expansions for a number of the former Jacobs Malls. As a result of these investments, lease up and other revenue enhancing activities, we've increased the returns on an average of 150 basis points since the acquisition of the entire 21 mall portfolio.

We still have a great deal of opportunities available to us within the portfolio to increase value, and expect to harvest these additional increases through renovations, expansions, and other income sources. Earlier this month, we announce that we entered into an agreement to acquire a portfolio of three malls for approximately $517 million at an initial cap rate of 5.7% based on income in place after management fees and structural reserves.

The malls include Oak Park Mall in Overland Park, Kansas. Eastland Mall in Bloomington, Illinois, and Hickory Point Mall in Forsyth, Kansas -- Illinois. These three mall portfolios represent an excellent addition to the CBL portfolio and offers ample opportunities to improve returns. Both Hickory Point and Eastland have land available for future expansion, associated centers, out parcel sales or developments.

Oak Park Mall is one of the countries premier malls located if the Kansas City suburb of Overland Park, Kansas. The property offers many untapped revenue sources including specialty leases, sponsorships, rollover leasing, and as well as expansions or redevelopment expansion potential. We expect to do great things with these malls, and believe they represent real potential for near and long-term growth.

Also, this week we announced that we have entered into a contract to form a 50/50 joint venture with The Jacobs Group to own Triangle Town Center and its associated properties in Raleigh, North Carolina. The joint venture is valued at $283.5 million. We will not make any initial capital contribution to the joint venture with the equity being equalized between the partners through refinancing and property cash flow distributions.

We are excited to once again partner with The Jacobs Group. Triangle Town Center is a premiere shopping center that includes both an open air lifestyle and restaurant component and an associated summit.

During the third quarter of 2005, FFO per share increased 50.8% to $0.98 per share, from $0.65 per share in the prior year period. For the nine months ended September 30, 2005, FFO per share increased 31.6% to $2.46 from $1.87 in the prior year period. FFO per share for the quarter and nine months ended September 30 included approximately $30 million, or $0.26 per share, in one time gains and fee income resulting from the recent transaction with Galileo America LLC.

For the third quarter, 34.9% of the increase in FFO was attributable to internal sources, and 65.1% from external sources. Additional highlights in the quarter include the same center NOI increased 6.4% for the quarter and 6.9% for the nine months ended September 30, 2005.

In the third quarter of 2005, we recognized a reduction of $2 million for bad debt expense, and other charges against revenues compared to an expense of $500,000 in the third quarter of 2004. This provided a $2.5 million positive variance. Additionally, we received $500,000 more in termination fees in the third quarter 2005 than we received in the prior year period. We do not budget for lease termination fees.

G&A represented approximately 4.6% of total revenues compared with 4.3% in the prior year period. Third quarter G&A included a one-time cost of $1.3 million for severance expenses related to the Galileo transaction. Our cost recovery ratio was 102% for the quarter, compared with 102.9% in the prior year period. Our debt to total market capitalization ratio was 42.3% at September 30, 2005, compared with 48.2% at the close of the prior year period. Variable rate debt represented approximately 11% of the total market capitalization. At quarter end, 26% of total debt.

Approximately $216 million of the nearly $980 million in total variable rate debt is comprised of construction and predevelopment costs that are funded through our lines of credit. In order to maintain our active development pipeline, we expect our level of variable rate debt will remain in the 20% range.

Our EBITDA to interest coverage ratio at quarter end was 2.83 times, compared with 2.73 times for the prior year period. Out parcel sales were $0.02 in the quarter compared with none in the prior period, and $0.10 for the nine months ended September 30, 2005, as compared with $0.02 in the prior year period.

We were pleased to announce yesterday a 12.6% increase in our regular common dividend to $1.83 per share, representing the fourth consecutive annual double digit increase in our dividend. Including this latest increase of our compound annual dividend growth rate from 2002 to 2005 is 13.1%. As we continue to bump up against our net taxable income distribution requirement, it will typically grow in line with the FFO growth.

In light of this, we would hope to continue to provide these types of increases to our shareholders. Additionally, we were pleased to announce a special one-time dividend of $0.09 this quarter, resulting from an increase in taxable gains from the sale of management and advisory contracts with Galileo.

As indicated in our press release, we are updating our 2005 FFO per share guidance range to account for third quarter results and other recently announced transactions. Our new FFO guidance range of $3.33 to $3.37 per share excludes the impact of any future unannounced acquisitions, lease termination fee income, gains on sales of out parcels, and gains on the same of nonoperating properties.

In light of the unusually high same center NOI in the fourth quarter of 2004, we expect fourth quarter 2005 NOI growth will be in the 1% range, while the full year NOI growth is expected to be in the range of 4.5 to 5.5%. Additionally as previously announced, we will report record a $5.4 million in prepayment penalties and write offs of unamortized deferred financing costs as a result of our recent refinancing activities. This has been incorporated into our guidance.

The refinancing provides us with approximately $160 million in net proceeds. We expect to provide guidance for 2006 when we report fourth quarter results. Before we take questions, we would like to make a few comments on our outlook for the remainder of the year.

With the holiday shopping season quickly approaching, our malls are busy preparing for another eventful holiday season. ICSC recently issued their holiday sales outlook indicating a continued healthy momentum of consumer spending should deliver a reasonably good holiday season for retailers. The report stated that same store retail sales could be in the 3 to 3.5% range for the November through January shopping season, and that overall the season should produce results similar to last year's.

So far this year retailers have maintained financial strength, and are entering the holiday season on a sturdy foundation. Our outlook for the remainder of 2005 continues to be favorable as we focus on maintaining our growth and producing value for our shareholders. Thank you again for joining us today. We appreciate your continued support, and we would be happy to answer any questions you might have.

Thank you. If you would like to ask a question, please press star 1 on your telephone at this time. And if you're using a speakerphone, please be sure that your mute function is turned off to allow it to reach our equipment. We'll take our first question from Paul Morgan at Friedman, Billings, and Ramsey.

The bad debt expense reversal. Could you talk about what that was related to, that one tenant where you recovered the rent or something?

It was several tenants that we recovered from over that period of time. With the number of bankruptcies in the past and so on, that resulted in our reserves being larger, and, there have been, being able to release face space and counsel it that way, that resulted in that $2 million swing.

And that would have impacted the same store NOI,; is that correct

Yes, it -- yes, it would. That's one of the reasons why your fourth quarter number is so much lower? That's one of them, yes.

Okay. Do you have a number, an estimate for the FAS 141 impact of the recent acquisitions in the fourth quarter, or on an annual basis?

At the present time, we're working on that number. We'll announce that when we close the transaction as such, and it will be included in our fourth quarter numbers.

In terms of your guidance, is there some ballpark number imbedded in that, or is it zero in terms of your guidance?

In as much as we're going to be closing it later in the quarter, it's going to be very, very minimal, if any.

Okay. All right. In terms of the -- you mentioned an interesting number about the Jacobs transaction, and you said a 150 basis point improvement in the yield on that since you bought it? is that what you said?

Yes, that's correct.

Does that include the incremental capital that you've invested in the portfolio since then, kind of Annie denominator side?

Yes, itself does.

So it's kind of return on invested capital has gone up 150 basis points?

That's correct.

Okay. And then finally, guess, just kind of more broadly, you comment on your -- you know, your current acquisition strategy and your comfort with where cap rates are, versus where you see your cost to capital, and then also in the context of whether you would consider a stock buyback as an alternative use?

Good morning, Paul. I'll comment on that. I think that our acquisition strategy has always been opportunistic, and we've always looked at acquisitions on an individual basis, and looked from different criteria, and it's the immediate impact from an economic point of view, as well as the long-term growth, and then how much the acquisitions fit in with the portfolio.

So we don't view anything that we've done recently as a change to that strategy. I mean, the cap rates are driven by the markets, and the case of Copehagan [ph], it's definitely the lowest cap rate we've paid and we would like to be able to buy the property cheaper, but that wasn't possible, and when we look that's opportunity, including all three malls that just made so much sense for us, and also Oak Park which is, like we said in the conference call, one of the top malls in the country, as well as all of the growth in there, we just fell that it made a lot of sense for us.

And the buyback possibility?

I think, you know, we'll look at every opportunity to continue to show growth to our shareholders, whether it's using our capital to acquire more shopping centers, or whether it's to buy back stock and so on.

I don't -- you know, I think that we evaluate almost on a daily basis of how we can improve the results and the returns on our capital, and how the growth really filters down to our shareholders. So I think, you know, anything is considered, anything is reviewed, and tenaciously challenged in our respect. So, you know, I don't think we would rule out anything.

Okay. Thanks.

Thanks.

Before we move on to our next question, we would like to request that you limit yourself to two questions, and if you have more than that, please requeue. Thank you. Now we'll move on to our next question. It's from Ross Nussbaum at Bank of America Securities.

Hi, it's Christie McElroy [ph] here with Ross. Hickory Point and Eastland, how much CapEx do you anticipate spending to get your occupancy up there?

There's a certain amount of TIs that are built into our numbers over the course of the next three years, but it's not significant, two to free million dollars between the two, and a lot of it, the opportunity is also through, where we see -- now, that doesn't include -- there's 32 acres of land at Hickory Point, and then there's also an office building that's adjacent to Eastland, and that doesn't include the redevelopment that we would be doing, or any expansions as part of that. That's just leasing through TI.

And you plan to just sell off those outParcells, or redevelop them?

We've actually been looking at redeveloping them, and from a corporatewide point of view, we're leasing more of our outParcells today than selling them, so we're looking to lease that. Also with the 32 acres of land, we're looking at some other nonretail uses like apartments and hotels, because we think there is some demand there, and, if we did something like that, the probability we would sell versus development, since its not our core business.

And my second question is now that you've sold off your Galileo asset, what impact should we expect to see on the G&A front with the decline in personnel if any?

We previously announced when we did the transaction about $1.4 million, and we think that's still a viable opportunity to do that.

Okay. Great thank you.

Thank you.

We'll take our next question from Tony Howard at Hilliard Lions.

Congratulations. And thank you for the dividend increase.

You're welcome.

I hope that's not considered one of my two questions.

That was just a comment,

Thanks. Similar question as before, what do you expect from the Galileo transaction. What does it do the to the apparent is interests in the earnings line?

It really impacts it about $2 million.

Per quarter?

Annually.

Annually. Okay. This is more of a general question. Two or three REITs that we've already heard for so far are talking about now great things are going to be, even up coming to the Christmas season. I guess my concern is, what kind of scenarios have you done, worst-case scenarios, if the Christmas is not in good, and particularly if January, do you anticipate store closings or chapter 11?

I think that we have long-term leases with these tenants, and as we mentioned in our script, we've seen their financial stability improve significantly over the years. We've seen, you know, the last couple of years the bankruptcies were very significant, and we think that we've lost a lot of the weaker tenants, and those that are still surviving are doing okay, if not better than they have been, and that we would continue to see that growth.

From a development standpoint, we still have the disciplines that we've always had in place of having a certain amount of pre-leasing done before we'll start a project. So I think, you know, a down turn in the economy doesn't necessarily bode badly for our company as such, and, in fact, historically, we've done better when things have been a little tighter, as far as capital flows and so on, where the competitive nature of private developers has been impacted more than our ability, since we have more than adequate sources of capital, or lines of credit, and our standing with the retailers have really proven us an opportunity in those times when things get a little tougher.

So from that standpoint, we think that we look at both the upside, as well as the downside, and we think we're in a very, very good position in either event.

Thank you.

Thank you.

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

Hi, good morning. It's Dennis Maloney for Carey. I was wondering if you could talk a little more about the current acquisitions environment. Is there currently a lot of product being shopped around? I'm trying to get a sense of what '06 might look like on the acquisitions front. Then I was just wondering if you could comment on Yorktown Center in Lombard, Illinois. Are you looking at that property?

Sure. I'll -- as far as the pipeline of acquisitions, it's definitely less today than it's been in the past, and there continue to be properties on the market, but there aren't any portfolios, per se, and we are looking for '06 to definitely be a tough year to keep up the acquisition pace.

Now, we're pleased with our development pipeline, because we feel like that will mitigate the fewer opportunities on the acquisition front out there, and also with cap rates on acquisitions being as low as they are in development, yields being higher, then we feel that we would still be able to have the growth opportunities going forward. Yorktown Center is not something that we're currently pursuing.

Great. And then for my second question, you mentioned a bunch of redevelopment projects. Just from a modeling standpoint, what's a good long-term run rate to use for that type of activity?

You know, that was kind of cute, because you did two questions in your first question, but we'll let you get away with it this time. We -- the way we do the modeling on the redevelopments is we include the redevelopments as part of the developments, so this year it's roughly $250 million that we're spending on new developments and redevelopments, and that's separate from the remodelings, which this year is roughly $20 million.

So -- and you know this year, I think, is a more than higher year. I don't think we're going to give you a specific number, but I know we've consistently been in the 150 to 200 range, and we're working as hard as we can to push that number up.

Thank you very much.

Thanks, Dennis.

We're go next to Michael Bilerman at Citigroup.

Morning, guys.

Hey, Michael.

You talk a little bit about the $500 million portfolio near term and long-term, basically got into the transaction at about a 6 on the NOI yield before your allocation and structural reserves and management fees. What really is the near-term opportunity before you have to spend any capital? What's your forward 12-months yield?

I think you know that there are those opportunities and the models that we run, and so on, so they're basically -- we think that they're fairly in line with what we've done the past, and those opportunities to show that same growth.

I think we wouldn't have bought these centers if we couldn't show at least the same type of ability to grow those properties over that same period of time, you know, in today's economy and the strength of those specific market areas will determine a lot of that, but there's no indications that those areas will are impacted by any economic down turn, and, in fact, those market areas with the demographics and the industry that's located there, and what's happened in the past, gives us further comfort that they should be strong and very -- very good deals for us.

We think that our projections continue to be conservative, but we would basically say that what we've done in the past would be probability consistent with what we think we can do with this portfolio in the future.

As a follow up to that, though, you know, the yields that you've been able to increase required capital spend, and I'm just wonder, just from the normal specialty leasing sponsorship marketing, you know, is this go from 6 to a 7, respectively, over the next 12 months, and then you can add to that maybe another 50 to 100 basis points through pursuing some of the redevelopment?

Well, I think that all of those things are part and parcel of the model, as such, and you are right, we have spent money in the mast, bust mast we did with the Jacob's portfolio is that that was in addition to the capital that we spent. In other words, the returns took into consideration that capital that we spent on those.

So I think that, you know, that to even increase and of the specialty leasing, you do some -- you do some remodeling and renovations to maximize the ability to do that. So in those numbers, we have taken that into consideration. You know --

The malls are physically these malls have all been renovated in the past five years, so they don't -- they don't need the type of renovations that a lot of the Jacobs malls and some of the other malls we've bought will need. I mean, they'll definitely need TI, as we bring in and upgrade the tenants, but, you know, we're not looking at 10 million a mall or something like that in renovations.

All right. And as a second question, because that was a follow-up. I want to talk a little bit about the Jacobs relationship in the Triangle development. You're obviously coming into this as a great deal, you don't spend any money upfront, you record the earnings, and there's tremendous upside in the the the assets. What do you think the near term ability is to take that yield up over the next two years or three years through leasing?

I think the occupancy level is about 86% in Triangle. So I think there's good opportunities there to see some good appreciation there. This market area is a phenomenal market area, and therefore we think that the opportunities there are extremely good, as well.

I think working with the Jacobs organization has really been a fantastic thing for us, and we think that working together with them, like we're doing in Fort Myers, and what we've done with the portfolio the past, is a great opportunity for us, and it's -- we just can't be -- can't show as much enthusiasm as we really have for this particular transaction. But die thing, you know, we'll see some excellent results, in the leasing and so on is going to be be great for us from an up side standpoint.

Ask there a certain time frame that your equity has to be fully funded in terms of, you know, is it five years, 10 years?

No. No, there is not. No, so that when you refinance 10 years out, or whatever, those excess proceeds will probably equalize, or whatever. Site an outstanding transaction for both the Jacobs group, as well as ourselves.

Okay. Great. Thanks.

We'll go next to Craig Schmidt at Merrill Lynch.

What do you think them level of accretion is going to be for your Triangle Town Center JV in 2006.

It should be fairly in line with typical acquisitions that we've done. You know, the range basically. But Triangle is an outstanding asset for us with that lease up potential.

Okay. Thank you. And the next question, on page 7 of your supplemental, the stable mall lease, the renewal lease is showing a slight decline. Against as I'm read on that, is that the same tenant is paying the same space going forward?

On some of these remodels and renovations where we're doing those to keep that space occupied while the remodels have gone on, we've given some tenant concessions in those areas, but we think ultimately after the renovations are competed, we should see some upticks there. I think that's pretty standard of what we've seen the past.

Would that be like a short-term allowance, or is it factored into the entire term of the lease?

Yes, it would be short-term, basically. You know, with sort of track the lease or if that lease is expired, it gives us a little more leverage to do so, so many of those are one or two-year deals at the max, so that it impacts us in the short-term, but gives us better potential in the long-term.

Okay. Thank you.

Thanks.

We'll move next to David Fick at Legg Mason.

Good morning, David.

One moment, please.

-- your peers are showing numbers in the sort of 20% or better level, where you're in the five to six range.

I'm sorry, if you could please appropriate your question. Your line was not open for your whole question.

Okay. Could you comment on the fact that your peers are showing 20% rent spreads wheel you guys are in the 5 to 6% range? is that reflective of your portfolio? what is driving that?

Yes, I think, David, what we give you is both numbers, is that the number that you're referring so to on a comp space basis. What our peers and friends in the N this business do is they report on the total leasing business. There we're at 12%.

Okay. There's still a spread. Is that just in the nature of your sales productivity, and where your centers are located?

I think some of that could be an impact on it. I think some some markets area, the sales growth would be slower than in other areas, but I think, you know, it's not reflection on the fact that where we have those malls and the return on capital and our invested capital is probably better than some of those other market areas as such.

Okay, I'm going to claim this as my second question. Very specifically, how is Imperial Valley doing in sales, and where are the shoppers coming from?

It's doing great. Today it's 82% leased and open. 90% committed. And we'll have that 90% open in early '06. The business has been strong, the reports have been good, department store business is good.

The draw in terms of where it's drawing from, it's -- we're working to determine better, but it's clearly drawing from over the border, the Thursday, Friday, Saturday, Sunday business is huge, because of the border traffic, and the other thing that's going on there is there's a ton of residential growth in -- just immediately around the mall, within a three-mile ring in the U.S. side. And there's a whole slew of new subdivisions that are planned, with permits and all that. So we feel very good about it.

Great. Thank you.

Thanks, David.

We'll go next to Michael Mueller with J.P. Morgan.

Good morning, Michael.

It's Joe Dazio here with Mike.

Hey, Joe.

Just wanted to confirm. It looked like guidance was effectively raised $0.11 when you account for the death extinguishment charge that wasn't in the previous range. Could you walk through the variances there that get you to that point?

We got lease termination fees basically account for a portion of that. You're right, it does show by $0.11 in the guidance, so part of that is the 5.4 million is a negative to it, but then there's the addition taken and the Triangle will contribute a little bit of money to that, as well as the fact of the refinancings that we've done, and the lease termination fees were higher, and the NOI in the third quarter was higher than what was anticipated, so from a timing standpoint, that impacts us as well.

And then how much specialty leasing have you receive Ned first three quarters of the year, and what do you expect in the fourth quarter?

Can you repeat that, I'm sorry?

How much specialty leasing have you have received in Qs, you know, one through 3, and about how much do you expect in the fourth quarter?

The total that we're looking at for the year is in the 6 to $70 million range. We don't have the number through the third quarter, so -- but that's, you know, roughly -- disappropriation at the fourth quarter in terms of what gets done, so, you know, you could probably use that we've done 60% of that for year-to-date.

Great. Thank you.

Thanks.

We'll go next to Eric Rothman at Wachovia Securities.

Good morning. Turning to development for a moment,. With respect to materials cost and labor costs, what type of increases are you folks underwriting?

We're seeing, Eric, around a 30% increase in those, with the asphalt and steel prices, things such as that.

Do you expect that much exchange the time or yield of any of the projects that you to have in the pipeline?

We don't think significantly. I think that in Florida is where the pressure is really the most severe, because of the weather conditions that have occurred, and the necessity for additional materials to rebuild some of the damage that has occurred. And likewise the labor force has moved somewhat out of Florida to the Mississippi and Alabama shores to get those casinos back open. So we're seeing some pressure with regard to finding labor and so on.

So that's one of the pressure points. It could impact us some, but we are really focused on that, and everybody is putting a full court press tune make certain that we can hold those schedules.

Sure. Do you think it changes maybe how you underwrite anything you would consider doing down there at the moment in terms of the timing? Maybe for while you shifted away from development at Florida.

No, I done think you shift away. I think you take all of these factors into consideration and you basically look that's time schedule. The amazing thing is notwithstanding all of the weather and the other situations, that seems to be a prime focus of retailer. It is amazing what the focus of those retailers have been, and what drives that is the fact that their sales have been so significant in that market area.

Don't see us backing off from the Florida market, as subpoena. Think we will continue to be conservative when I comes to our budgeting process for these new developments and our criteria we will have in place.

Thanks very.

Thinks, Eric.

We'll go next to Ben Yang at Green Street Advisors.

Hi, it's Greg Andrews with Ben Yang. Just a follow-up on Triangle Town Center. It seems the mall was built a few years ago, and yet the occupancy isn't as high as I would think it might be in the sales likewise. And I'm just -- I'm trying to get your sense of kind of what's happened there since the opening, and then, also, are you specifically are you going to be actually the leasing and management agent for that property going forward?

Greg, we'll be the managing agent. We'll do all of the leasing and any additional redevelopment that goes on in this project. When we concluded the transaction with Mr. Jacobson, the Jacobs group, they basically have focused on finding great locations like they've done in Fort Myers, and so as a result of that, his leasing team and development team has been cut back somewhat, and their together us has been on new developments and new opportunities that they say.

Fort Myers is a prime, prime example of that. You know, we -- we are very, very bullish with regard to Triangle. What's happening in that Raleigh market area, and what will continue to happen in that market area just means that it's going to gets even better. We think that it's good for us that it's 86 to 89% leased when we're taking over, so it gives us tremendous up side potential there, as well.

Also, Greg, the Sachs store just opened last year, so that hasn't been opened that long, and that includes the outdoor area that is over 100,000 square feet that was built adjacent to the mall or right next to the mall, so the project has opened in phases, even though it only is a couple of years or three years old.

Great. And just as a follow-up, could you talk about the occupancy cost ratio there, and where you see rents versus market level?

The occupancy cost ratio is about 11% there, so we think it's in line with our portfolio, and gives some upside, because we think sales growth is going to be high over the next few years. There's the new loop road, 540, the extension of that is going to open next year, and that's going to make eight lot easier and quicker for a good part of the trade area, good to the fall,, so that will drive sales, as confirm.

perfect, thanks.

Thanks, Greg.

We'll go next to Robert Belzer at Prudential.

There good morning. I have a couple of questions on the three mall portfolio acquisition. First, John, if your prepared comments, you mentioned that you expected some upside from rollover of leases in Oak Park. I'm assuming you meant that the rents there were below market; is that correct?

I don't -- I don't think I -- maybe I misstated that or, maybe it wasn't in the script as such and so on, because we didn't refer to rollover leasing, but think what we did refer to was specialty opportunities, as far as the opportunity to as tenant leases come due, the opportunity to push those rents, specially when you're at that 11% number, as a cost of occupancy.

So I think, you know, that we still think that it's an excellent opportunity for us to increase that with specialty lease, possible expansions that we can figure out how to accomplish those and things such as that. So the total square foot leasing on that center over the next couple of years is about 33,000 square feet in '06, and about 28,000 square feet in '07, and the big here is in 208 when there's 83,000 square feet that rolls over.

So there is some opportunity going forward, but I think like we've done on these other acquisitions, there's other opportunities that we'll continue to uncover and show growth in those -- in those acquisitions.

Okay. And then my second question is on Hickory Point. Can you provide a little more detail on how you intend to reposition that asset?

It's not -- it doesn't need a repositioning. I mean, the asset is a good solid asset. It's got good angers, and we view the leasing as an opportunity. And we've been very successful in our acquisitions of malls that started out in the 60%, 70% range in leasing take that up in a very quick time frame, but the mall is well located, the market has had a tough economic situation in the past five years with with job losses, but it's bottomed out, it's starting to come back, so we -- we feel good about the future.

Robert, I do owe you an apology. I did say rollovers.

Okay. I'll get back to you offline on that. Thanks. That's it for me.

Thanks, Robert.

We'll go next to David Ronco at RBC.

I don't know if you went through it, John, I apologize if you did, but I wonder how much excess land you picked up with these recent acquisitions what your initial feels are as far as best use for that land, and what type of games you think are imbedded in those land sales based on current market conditions?

Sure. The Mall of Acadiana, we bought 14 acres as part of the acquisition, and then we have an option to buy an additional 13 acres for two years, so there's about 27 acres there, and we're planning and working on a development opportunity on that land for an associated center, and possibly some mixed use as part of that.

The -- the other -- the three-mall portfolio, Hickory Point includes 32 acres of land directly adjacent to the mall. That is included in the acquisition price, and Eastland mall includes a relatively small office building and three development parcels for out parcels, so it's not as much land, but does provide us some opportunity there for redevelopment. Oak Park doesn't have vacant land, but there is some buildings around the mall that we're looking at redeveloping.

Okay. And can you talk about what sort of gains you think might be -- you might have locked up with these land purchases?

It's hard to predict, and we're going to -- we're going to get as much as we can, but I don't think we can give any specifics on that.

Understandable. All right. Thanks, guys.

Thanks, David.

We'll go next to Rich Moore at KeyBanc Capital Markets.

A couple of questions. First, how are you guys coming on '06 leasing? I mean, we're getting close to the year. Have you got any idea what your progress there for next year?

Yes. We're -- we're about 40% through -- a little more than 40% through renewals for '06, so we feel -- we feel good about where we are at this point.

Okay. Very good. Thanks. And then my second question is on -- it sounded like the -- your -- your maintenance type CapEx is up pretty substantially in the third quarter. Is that accurate, versus the first two quarters? And then also why might that be, and where would we go from here, I guess?

It is up somewhat, Rich, and it's a timing situation, that you basically start in the first of the year, right after the holiday season with your architectural and remodeling plans, and then you really get it in third quarter, because you want to finish up for the fourth quarter and get everything finished, and your bills probably hitch in the fourth quarter.

Okay. Okay. Good. Thanks, John.

Thanks.

We'll take our next question from Nick Chang at Morgan Stanley.

Good morning. Actually it's Matt Ostrower. I think all of our questions have been answered. Thank you.

Thanks, Matt.

We'll go next to Chris Capolongo at Deutsche Banc.

Hey, Chris.

Good morning. Just a quick question on -- I know you didn't give '06 guidance, but in your presentation to the Board, clearly you got comfortable with taxable net income increasing 12.5% or so. How much of that increase is related to capital gains, or can we just use it as a proxy for some sort of earnings growth in '06 without you giving guidance?

That's a tough one to comment on. And you'll just get me in a box. So you better -- better ask me --

Nice try.

I can wait till next quarter.

Great, thanks.

Thanks.

We'll go next to Ross Nussbaum at Bank of America Securities.

I apologize if this was asked earlier. I jumped on a little late. My question is this, you guys typically develop your properties to tenish percent yields. You've been recently been buying acquisitions meaningfully below that level, including Oak Park in that 5% range, and even in I think about Oak Park has having a high same store NOI growth, it takes a heck of a lot of NOI growth to get that yield up to so 10%, and by the time that happens its possible cap rates are higher, so if I look at what an IRR could be, in my mind, you're probably better off just keeping the capital and developing at the 10 yield, rather than buying, and I guess the question is, how are you thinking about capital allocation given those kind offers parameters and the spread between development yields and acquisition cap rates?

I think, Ross, what we look at is the ability to -- it's not just necessarily the short-term view of it, but the long-term view of what can we do to improve these properties. Not necessarily improve, but to show growth in those properties.

So I think that's what we look at in acquisitions. Then I think we look at the rest of our portfolio, and we look at the rest of our Company and see how we're going to generate capital, as I think you're aware, when we were a private company, we developed our community centers, and sold those off in a tax effective way, and regenerated that capital, and basically redeployed it in assets such as that.

With these recent acquisitions, we saw the opportunity to buy what we thought had good growth potential in those. Granted, the Oak Park cap rate was low, and gave us a little indigestion, but basically when you look at the numbers and you look at the potential that's there, as well as the introduction of new tenants, like Nordstroms, it gave us that opportunity to buy that, coupling that with the other two malls where we saw the opportunity for expansion and other potential.

So I think when we look at that, and then we look at how we can raise capital on the other side of the house, we think it was a wise investment for us. We likewise think that we have plenty of adequate capital and adequate capital sources to continue in an aggressive development program, which takes, needless to say, takes longer to do than to make acquisitions.

So coupling all of those thinking together, we felt that it probably made a good opportunity for us to buy that, as well as the fact that there was no debt on those properties, that the sellers basically were paying off the debt, and these were being bought.

In addition to that, we were able to issue about 52 to $53 million of our stock or units at a 25% premium, not to the stock price today, but if you took the stock price of yesterday, it was about a 28% premium, so needless to say, we thought it was a good transaction when you couple all of these things together, it's an opportunity for us, and we think it's a good opportunity for our shareholders as well.

Thanks, John.

Thanks.

We'll go next to Michael Bilerman at Citigroup.

Yes, two quick follow-ups. One was just on management thinking. What's your run rate now that you've sold Galileo?

It should be, Michael, about less $3 million off of the '04 numbers.

And how much of a gain was included in this quarter's number to back out? Is it going to be about 2 million a quarter going forward, 1.5 million, 2 million?

Michael, hold on just a second, we're -- it should be about $1 million a quarter.

Okay. And then are you guys in discussions on Jacobs' Tampa project?

You know, we talk with the Jacobs Group on a daily basis. I mean, we talk we talk about a lot of opportunities, whether it's Tampa, or whether it's anything that Mr. Jacobs is looking at. I think he's doing an outstanding job of finding excellent, excellent opportunities for us, and hopefully he'll include us in those in the future.

There's no guarantees, and Mr. Jacobs does what he feels best for his group, and we do what we think is quest for our shareholders, as well, so hopefully there will be more opportunities going forward, and I think that hopefully he's happy with what has happened to his stock price since we did the acquisition, which was like about a $16 pre-split dollar number. So hopefully we'll are involved in those others, as well.

All right. Great. Thanks.

Thanks, Mike.

And we'll take our next question from Michael Mueller at J.P. Morgan.

Hey, Michael.

It's Joe Dazio one more time. Based on what you know right now, do you guys have an idea of what potential land sale gains and merchant building gains and leasing may come to look like in the fourth quarter?

It should be basically, you know -- we haven't given any projections, and in the guidance numbers, it's not -- we don't take that into consideration? that, so --

Okay.

Thanks.

Thought I would give itself a shot. Thank.

And there are no further questions, so Mr. Lebovitz, I'll turn the conference back over to you for any additional or closing remarks.

I would just like to thank everyone for take time this morning. We'll look forward to seeing you at NAREIT. And we also just want to reiterate how pleased we are with our Board for the dividend increase that was approved yesterday, and that announcement. Thank you all very much.

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