CBL & Associates Properties, Inc. (CBL) 2005 Q4 法說會逐字稿

Good day and welcome to the CBL & Associates Properties Inc., conference call. Today's call is being recorded and will be available for replay starting today at 1 p.m. Eastern time and running through February 16th at 8 p.m. Eastern time by dialing 719-457-0820 and entering confirmation code 1458819. And now, at this time, for opening remarks, I'll turn the conference over to the president, Mr. Stephen Lebovitz. Please go ahead, sir.

Thank you and good morning. We appreciate your participation in the CBL & Associates Properties Inc. conference call to discuss fourth quarter and year-end 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 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 on 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. In 2005, our focus and hard work paid off allowing CBL to post another year of strong results. Through our investing activities we focused on creating and enhancing value in our properties. This value flowed through to our shareholders in the form of a 12.6% dividend increase and a one-time $0.09 special dividend.

Our success in the year was the result of a number of factors. We achieved strong internal growth through occupancy gains and rental rate increases. We completed over $1 billion of value-added acquisitions and joint ventures that provide both near-term and long-term growth potential. We opened a near-record 2.5 million square feet of new developments and completed the timely and profitable sale of our Australian joint venture.

Although we are proud of our accomplishments in 2005, we have already set our sights on achieving another year of strong growth in 2006. We realize that our performance over the years has only set the bar higher for future results, and our goals and targets are focused on continuing this growth. We are committed to maintaining our proactive approach and building on our past accomplishments.

2005 was a phenomenal year for CBL on the development front. We invested over $280 million in approximately 2.5 million square feet of new and redevelopment projects, which opened in the year. Major developments included our first California property, Imperial Valley Mall in El Centro, California; phase one of Gulf Coast Town Center in Ft. Myers, Florida; our joint venture development with the Richard E. Jacobs Group; Southaven Towne Center located near Memphis, Tennessee, in Southaven, Mississippi, which opened 100% leased and committed as well as a number of other exciting projects.

Going forward, we have announced over 1.6 million square feet of new developments and redevelopments scheduled to open in 2006 comprising a total investment of approximately $220 million. In addition we have already announced nearly 1.9 million square feet of projects opening in 2007 and beyond and expect to announce additional projects in the coming months.

In November we celebrated both the grand opening of the 440,000 square foot phase one and the groundbreaking for phase 2 of Gulf Coast Town Center in Ft. Myers, Florida. Once completed, this development will feature a total of 1.7 million square feet of retail and restaurants. Phase 2 contains approximately 740,000 square feet and includes the region's first Bass Pro Shop as well as J.C. Penney, Belk, Borders, Best Buy, Ross Dress for Less, with more tenant announcements to follow.

Early in 2007 we will open a 156,000 square foot Costco with approximately 50,000 square feet of additional shops and restaurants following later that year.

High Point Commons, our 297,000 square foot shopping center development in Harrisburg, Pennsylvania, is a 50-50 joint venture with High Real Estate Group of Lancaster, Pennsylvania. The community center will feature Target and J.C. Penney as well as approximately 73,000 square feet of shop space. The project is scheduled to open in October 2006. In Stillwater, Oklahoma, we began construction on a 207,000 square foot community center, which will be anchored by Belk, Ross Dress for Less, Linens and Things, and two additional junior anchor stores. The center will offer shoppers over 70,000 square feet of shop space and is scheduled to open in October 2006. Also under construction is The Plaza at Fayette Mall, a 190,000 square foot associated center adjacent to Fayette Mall in Lexington, Kentucky. Phase 1 of the project will include a 59,000 square foot, 16-screen Cinemark theater, approximately 14,000 square feet of small shop space and several restaurants. This project is expected to open in summer 2006. Construction for phase 2 comprising 117,000 square feet will commence later this year.

At our recently opened Southaven Towne Center located just south of Memphis in Southaven, Mississippi, we will open a 159,000 square foot Dillard's in March followed by a 59,000 square foot Gordman's in April and a 15,000 square foot Books-a-Million later this year. We have announced several projects opening in 2007 and 2008 including the Shops at St. Clair Square in Fairview Heights, Illinois, where construction commenced in the fourth quarter. This 75,000 square foot associated center will be located next to the 1.1 million square foot St. Clair Square Mall, and will open with retailers such as Barnes & Noble, Ann Taylor Loft, Aveda, Chico's, Coldwater Creek, J. Jill, Joseph A. Banks, Talbot's, and other exciting stores. The development is approximately 70% leased and committed and is scheduled to open in spring 2007.

Site work has commenced for Alamance Crossing, an 870,000 square foot open-air center located in Burlington, North Carolina. This development will feature six anchors and approximately 190,000 square feet of small shops and is scheduled to open in 2007. In 2008 we plan to open another open-air project, the 700,000 square foot Pearland Town Center will be located near Houston in Pearland, Texas. This center will feature Dillard's and Macy's, several junior anchors and approximately 300,000 square feet of small shop space. This project will also include office, entertainment, hotel, and multi-family components.

We have always placed a great deal of importance on keeping our malls fresh and up to date. In keeping with this, we recently announced a total of eight mall renovations to be completed in 2006 including the previously announced renovation of Cool Springs Galleria in Nashville, Tennessee; Chapel Hill Mall in Akron, Ohio; Hartford Mall in Bel Air, Maryland; Honey Creek Mall in Terre Haute, Indiana; Madison Square Mall in Huntsville, Alabama; North Park Mall in Joplin, Missouri; Park Plaza in Little Arkansas; and Wausau Center in Wausau, Wisconsin. Total renovation costs are estimated at $69.2 million. Cool Springs Galleria renovation will be completed in May with the other malls finishing their upgrades this fall.

For 2005, we signed approximately 2.7 million square feet of leases in our operating portfolio including 1.1 million square feet of new leases and 1.6 million square feet of renewal leases. This compares with 2.5 million square feet completed in 2004 of which 1 million square feet were new leases and 1.5 million square feet were renewals. In addition to the leasing completed in our operating portfolio, we also completed approximately 1.8 million square feet of leasing on development projects in 2005. This compares with approximately 1.6 million square feet of leasing on development projects in 2004.

We disclose leasing spreads in two different ways -- total leasing and comparable space leasing. Both are for leases on small shop space of 20,000 square feet and less. For total leasing we achieved an average increase of 9.3% over the average base rent per square foot of expiring leases in the year. For comparable space leasing, we achieved an average increase of 6.5% over the average base rent per square foot in the prior leases.

As a result of some of the comments we received from our analyst survey, we have implemented some changes to leasing information included in our supplemental package. We have removed extraneous information while still providing a complete picture of our leasing activity.

Maintaining high occupancy in our malls as well as the right mix of goods and services is very important in creating and inviting an exciting environment for our mall customers. In some cases, retaining certain tenants in order to enhance the tenant mix is as important as growth in rental rates and, as such, can impact the renewal spreads in the short term. In our new leases, we have been able to achieve substantial double-digit increases, which we believe is indicative of the strength of our malls.

Total portfolio occupancy at year-end 2005 increased 50 basis points in 94.5 percent from 94% at the end of 2004. Stabilized mall occupancy at the end of 2005 was 94.7%, a 30 basis-point increase over the close of 2004. Occupancy in the associated centers increased 240 basis points to 94.1% at year-end.

ICOC recently noted in their retail real estate business conditions that store-closing announcements in 2005 were down 33% from the prior year making 2005 the lowest level since ICSC began compiling the data. This rang true in our portfolio as well. For 2005, 23 stores closed due to bankruptcy representing 97,000 square feet and $1.1 million in annual base rent. Unfortunately, 2006 has started off with a number of significant bankruptcy filings. In January, Musicland filed for Chapter 11 bankruptcy protection. We currently have 53 Suncoast Motion Picture and Sam Goody stores comprising 179,000 square feet and $4 million in annual base rent. Musicland recently announced that they would be closing a number of stores, and a court-approved list was issued. In our portfolio, there were 21 stores comprising 81,400 square feet and $1.8 million in annual base rents included on the list. Three stores included on the list had lease expirations as of the end of January. As the Musicland filing does not come as a complete surprise to us, our leasing teams have been working for several months to find replacement tenants and have lined up retailers to take several locations.

G&G Retail, the owner and operator of Rave recently filed for bankruptcy protection. We currently have 42 Rave locations totaling 101,000 square feet and representing $2.3 million in annual base rent. Wet Seal and BCBG have announced that they are interested in acquiring the retailer. Wet Seal has done a great job of turning their company around, and we view the possible acquisition by either retailer favorably. Although they did not file for bankruptcy protection, retail brand Alliance has closed their Casual Corner and Petite Sophisticate stores. We have 26 locations comprising 147,000 square feet and representing $3.4 million in annual base rent.

Holiday sales were healthy this season. Same-store sales for 2005 from mall tenants 10,000 square feet or less in stabilized malls increased 4.1% over the prior year to an average of $331 per square foot. A number of our malls along the Gulf Coast have benefited from increased demand resulting from the aftermath of the hurricanes.

Occupancy costs as a percentage of sales were 11.8% for 2005 compared with 12% in 2004.

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

Thank you, Stephen. As Stephen noted earlier, in 2005 we completed the acquisition and joint venture of seven malls totaling over $1 billion including approximately $780 million completed in the fourth quarter. As the acquisition environment has become more challenging, our strategy is to continue to maintain our focus on acquiring properties that are dominant in their markets and offer significant long-term growth potential. With the number of opportunities available to us in our existing portfolio of dominant mall properties, we believe we will be able to continue to garner significant growth through expansion and redevelopment.

Oak Park Mall in Overland Park, Kansas, is a prime illustration of the potential available within our existing portfolio. The recent acquisition of Oak Park not only broadens our retailer base but also presents a number of opportunities for additional near-term growth through new leasing, specialty leasing, and sponsorship as well as long-term growth through redevelopment and expansion.

In December we completed our previously announced stock repurchase plan. In total, we have repurchased 1,371,000,034 shares at an average cost of $40.11 per share. We have retired these shares. During the fourth quarter 2005, FFO per share increased 6% to $0.89 per share from $0.84 per share in the prior year. For 2005, FFO per share increased 23.2% to $3.34 from $2.71 in the prior-year period. As previously announced, we recorded a one-time charge of $5.2 million, or $0.045 per share of FFO in prepayment penalties and write-offs of unamortized deferred financing costs in the fourth quarter. As a result, a favorable refinancing activity.

Additionally, FFO per share for the year included approximately $30 million, or $0.26 per share, in a one-time gain and fee income resulting from the recent transaction with Galileo America LLC. Excluding the prepayment penalty and the gains from Galileo, FFO per share for 2005 would have increased 15.3% over the prior-year period. In 2005, excluding the prepayment penalty, 31% of the increase in FFO was attributable to internal sources and 69% from external sources.

Additional highlights for the quarter and year-end included same-center NOI increased 3.1% for the quarter and 5.8% for the year. For the year, G&A represented approximately 4.3% of total revenues as compared with 4.5% in the prior-year period. Our cost recovery ratio was 103.2% for 2005 compared with 102.1% in the prior-year period. Our debt-to-market capitalization ratio was 47.8% at the close of 2005 compared with 42.4% at the close of the prior-year period. Variable rate debt represented approximately 11.5% of the total market capitalization at year-end and 24% of total debt.

Our EBITDA to interest coverage ratio at the end of 2005 was 2.87 times compared with 2.85 times for the prior-year period. Outparcel sales were $0.01 in the quarter compared with $0.01 in the prior-year period and $0.11 for 2005 as compared with $0.03 for the prior-year period.

Gains on sales of non-operating properties were $0.00 in the fourth quarter and $0.03 in the prior-year period compared with $0.02 and $0.04, respectively, in the prior-year periods. Please note that we have reclassified certain prior-period amounts in our consolidated financial statement of operations to present marketing fund revenues and expenses on a gross basis in accordance with the emerging issues task force issue number 99-19, reporting revenues gross as a principal versus net as an agent. As a result of the following amounts in our consolidated statement of operations, have changed from the previously reported amounts for the three months and year-ended December 31, 2004. Tenant reimbursements have increased by $9.5 million and $27.3 million, respectively.

Other revenues have decreased by $800,000 at $3.1 million, respectively, and property operating expenses have increased by $8.7 million and $24.2 million respectively. This reclassification did not change our previously reported amounts of net income available to common shareholders and funds from operations.

As indicated in our press release, we are providing an initial guidance range for 2006 FFO per share of $3.28 to $3.33 per share, which excludes the impact of any future unannounced acquisitions, lease termination fee income, gain on sales of outparcels, and gains on sales of non-operating properties. We expect 2006 same-property NOI growth to be in the range of 2.5 to 3.5%.

As we hear talk of cutbacks in consumer spending and the effects it will have on malls, we would like to reiterate our confidence in our dominant mall strategy. Over the years we have been extremely selective in choosing to acquire or build properties that are the foremost retail facilities in the defined trade area. In addition, we look for markets that are healthy, growing, and boast of a diverse employment base. Our properties are often in state capitals, university towns, or are the regional hub for healthcare and other services. They are well insulated from the boom-or-bust phenomena created by swings in the economy. Over the years, through various stages of economic health, our strategy has consistently been proven right and as a result we have been able to provide our shareholders with impressive growth.

Despite this track record of success, there are still a few skeptics that continue to insist that our markets and properties are more susceptible to decline during an economic downturn. We have found that this simply isn't true. Our properties are embedded and vital parts of the communities they serve.

We would like to invite everyone to join us for a tour of three of our market-dominant properties on April the 4th in Raleigh, North Carolina. We will be visiting Tarrytown Center, Cross Creek Mall, and Triangle Town Center. Following the tour, we will host a dinner featuring guest speaker, Bill Wilson, executive vice president of real estate and store planning for Belk Department Stores. We hope you all will have the opportunity to participate.

Thank you again for joining us today, and we appreciate your continued support and would be happy to answer any questions you may have.

[OPERATOR INSTRUCTIONS]

Michael Bilerman with Citigroup.

Good morning, I have Jon Litt on the phone with me. Just on the predevelopment pipeline, Stephen, I think you mentioned $1.9 million post-'06. Is that just Alamance Crossing and Pearland, and can you just give us a sense of what the cost is, then, for those two projectds?

Yes, Michael, that does include Alamance Crossing, which is '07; Pearland, which is '08; and then we announced the associated center at St. Clair Square, which is an '07 project as well. We haven't announced costs or returns on the projects, but, in total, we're looking at $150 million to $200 million in those three projects, and both Alamance and Pearland -- actually, all three of these are projects that are 100% owned by CBL, so there aren't joint venture partners in them. And, for Alamance, we expect to be announcing more details as far as some tenants and information on the project in the next 30 to 60 days -- so there will be more detail out there on that.

And then you have about, let's call it, 2.5 million square feet of other projects that you're working on. Can you just give us a sense of how close are those to being announced that they would actually hit '07 or '08 in terms of deliveries?

I know that you put in your note that you'd like us to give some more color on those, but we've tried to be consistent in terms of announcing projects when they're at the point ready to start construction and when the retailer anchors are committed, so I just can't give any more detail at this point. I can tell you, though, that we've got the busiest pipeline of new development projects for '07, '08, and even beyond that we've had in a long time. We've got a ton of projects we're pursuing, both CBL projects that will be 100% owned, a lot of joint ventures, so we feel very positive about the pipeline of development projects that we'll be announcing, going forward.

Am I allowed a second question at this point, or was that my follow-up?

Go ahead, this is it, though, no double questions.

Just on percentage rents, they were clearly very high this quarter, upwards of 6.5 of your minimum rents. Clearly, the first quarter tends to be your bigger amount. Can you just give us a little bit more color what drove the increase?

Actually, it was interesting. There were a couple of factors that drove the percentage increases and, you're right, it usually doesn't happen in the fourth quarter. One of the factors was that the malls along the Gulf Coast had significantly higher sales because of the people needing to replenish their apparel and their goods after the hurricane. So malls like Turtle Creek in Hattiesburg; Parkdale Mall in Beaumont, Texas; Panama City Mall in Panama City, Florida; and then Acadiana Mall in Lafayette, Louisiana, were all up significantly in the fourth quarter, and those were the big drivers of the higher-percentage rents. And then also some of the new acquisitions, primarily Acadiana, which I just mentioned, contributed as well.

Chris Capolongo with Deutsche Bank.

Just a quick question on some of the problem tenants that you mentioned. I'm wondering how you budgeted the tenants' revenue throughout 2006? What are you expecting to get back, and what's the real impact even though you kind of outlined $11 million in rent. What do you expect to lose next year?

Chris, we'll have some short-term income that we project that will pick up in our special leasing program, especially over the holiday period, and then we'll fill up those spaces as the year progresses. In a lot of these situations, we haven't gotten back these stores, but that doesn't keep us from being proactive with our leasing guys out there doing a very proactive job, as such. And the other -- the Casual Corner, the other things, we haven't gotten those back as well but --

With Musicland, like I said in the script, we've gotten their list of stores, and that's $1.8 million of annual base rents, and we've been working hard to replace those. So, like John said, between specialty leasing and replacements, hopefully, it won't be that full amount but it will definitely be a significant hit.

The Rave, it's just too early to say because we're hoping one of these companies, Wet Seal and BCBG, will buy Rave, and we won't be impacted, although there is some overlap primarily with Wet Seal and Rave in malls where they have duplicate locations. So that could be a factor. So it's definitely going to be worse than last year when we only had $1.1 million in base rent. We don't project -- we project fallout when we know that tenants are going to -- we expect tenants to be closing, but we don't project bankruptcy fallout.

Okay, and then just a follow-up -- given your expectation that there are some duplicate locations, what does that mean for -- I know you don't give guidance on lease term income, but, realistically, what are you expecting from the fallout?

Well, I think with Rave, of the 42 locations, I think there were roughly half of those with Wet Seal where there were duplicate locations. And BCBG had virtually no overlap. So it just depends on which one ends up with it, and what we do is when we hear about a retailer having problems, we charge or leasing group to find backups and replacements so we're ready to go when we get the space back. But from a practical point of view, until we get the space back, and we know which spaces we're getting back, we just can't say what the impact is going to be.

But taking all that into consideration, we still think that our NOI growth projections of 2.5 to 3.5% is very realistic.

Ross Nussbaum with Banc of America.

A capex question for you -- in the supplemental it says you had almost 53 million of tenant allowances in 2005? If I divide that number by the 2.7 million square feet of leasing you did, I come out with about $20 a square foot on a blended basis, for new and renewals. Am I looking at that correctly or is there any anchor tenant allowances inside of that 53 million number?

Ross, the 2.7 million square feet doesn't include the development leasing. So the development leasing was 1.6 million square feet, and in development projects that's where a lot of the allowances are included.

Oh, okay, so that 53 million tenant allowance number includes spending on the developments, if I understand it correctly?

Say that again, Ross?

So you're saying that that $53 million tenant allowance number in your supplemental includes tenant allowances being spent on your developments?

What I just said was not correct, so let me take it back. The 53 million does not include the new developments. So your original comment was correct, about the 53 million being on the leasing for the existing centers.

Okay, so if I compare that to the 2.6 million that you -- or 2.7 million in square feet you leased last year, about $20 a foot sounds like the right math?

Yes, that's correct.

Okay, and then my one follow-up is somewhat related -- on the Casual Corner Petite Sophisticate -- since they're not bankrupt, are they going to be paying you a lease termination fee?

I think that's a negotiable thing that discussions are going on with regard to that. So we think that they have not filed bankruptcy, we think that's a good indication of the fact that they won't file bankruptcy. We think they settled with a number of our peers, and negotiations will be going on.

Back to your question on tenant allowances is to attract a lot of these good, new tenants, the tenant allowances could be somewhat higher than that, so the average does come out to $20 a square foot. But that's totally consistent with our view to put the best retail tenants in these malls to continue the dominance of those malls in those market areas. And so that's what we've been doing, and that's what we'll continue to do because I think it's reflective of what we're seeing as far as percentage rents and increases in sales as well.

Paul Morgan with Friedman Billings Ramsey.

In terms of the store closings, how does that impact your outlook for -- you talked about same-store NOI, but in terms of occupancy and rent spreads. It sounds like -- would you say that based on what you've seen so far this year, in terms of occupancy, looking a lot more like 2004 when you had Toys R Us and some of the others?

First, on occupancy, I mean, it's definitely going to -- we're going to have to play some catch-up to pick up over where we are, and we picked up, as we said in the script, 30 basis points at the malls over last year, and we are hoping to increase that this year as well. We think that we'll be roughly in the 94.5 to 95% range, and it's early in the year, so we'll have time to make up for it. And a number of the locations, especially the Casual Corner and Petite Sophisticate are spaces that we've known about for a while, so we've had time to queue up replacements for that. So we don't think it will impact our occupancy. And then our rent spreads, it's been a real push for us to continue to increase those. We made good progress in '05 over '04 and '03, and we're looking to have comparable results or better for '06.

Okay, so basically you're saying for the occupancy, kind of down and then back up to where you are pushing to go even higher?

Yes, occupancy always goes down in the first half of the year.

Well, I understand that, but --

We do think it will push up. It will be right in that same range where we are, and we think we'll continue to push to increase occupancy.

Okay, and my follow-up, I guess, would be regarding Musicland. Would it be fair to say that those are, maybe, tougher spaces to release at similar rents, given the -- I think, maybe, particularly, Sam Goody would be some larger spaces, often, at, maybe, the end of the mall? Would this be tougher than some of the other space that you might get back typically?

The spaces where the music stores are, for the most part, 20, 30-yard-line spaces. So they're not as much in the middle of the mall as, say, Casual Corner, but there is still demand, and the rents on those spaces have been adjusted over the past few years because of the struggles that the music business has been. We've been through around, already, with Musicland when -- Capitol just bought them -- of adjusting their occupancy costs and trying to preserve them in a number of cases, and there are other music operators. We just had a portfolio meeting with FYE, and they've got a lot of exciting things that they're doing in their stores to compensate for the changes in the digital music and the technology, and we think they're very viable and strong financially, going forward. So the spaces are tough, but we feel good about our ability to replace then and to end up with a better tenant, going forward.

Matt Ostrower with Morgan Stanley.

So when you guys gave guidance last quarter, I think it would have implied sort of a mid point of $0.90, I think, for the fourth quarter, which is not far from what you produced. And then we sort of thought that you had done what we expected, but I got a call from an investor this morning who made the point that when you add in land sale gains, which I had, according to your [unintelligible] being a penny, lease termination fees of two pennies, which were not supposedly in your guidance. And a penny of impairment charge netting out to two pennies, that sort of puts you pretty much in the low end of your fourth quarter guidance from last quarter. Can you comment on that? Like, what would have caused you to not hit the mid point or better?

I think that was the guidance that we gave and what you pointed out that we did take some prepayment penalties and write off those as such. And then in addition to that, we did take the impairment charge of approximately $1.1 million on a project that we were putting a new plan together to sell those. In addition to that, the FIN 47, which is the adaptation on environmental, basically, on the balance sheet cost us about $2.4 million. So as a result of that, if you take all those into consideration, we were at the high end of the guidance, as such, and we would have hit your numbers, as such.

Okay, and, I'm sorry, just as my follow-up, I guess, on the FIN 47, can you -- that would appear on the income statement in what line item?

$500,000 is reflected in the repairs and maintenance category. That FIN 47, as you know, is with regard to environmental questions. So what we did is, we took a very proactive approach with regard to it as getting all of our malls to give us that, and we came up with a positive as to how we handled that.

Okay, because as a thing that you mentioned, I think the guidance sort of included the lease prepayment charge that [cloaked] the numbers. So what you just lifted out for me, about 500,000, is the one thing that would have come, I guess, as a surprise. I don't want to split hairs, but it's still, I think, would have put you a little bit below the mid point of your guidance before.

And then the Musicland situation basically impacted it some.

Some of that did flow through in the fourth quarter?

That's correct.

Okay, all right, and that would have been -- would that have been included in your same-store NOI grown calculation?

Yes, it would.

Okay, so same-store NOI was still -- what is surprising to me is the same-store NOI was still pretty good. Three percent was not a low number to us. I don't think -- probably was a lot lower than you were expecting but, still, the results still seemed a little bit soft compared to that.

Well, I think that the overall year was basically an exceptionally good year. We've picked up a lot with regard to the NOIs in the prior quarters. So, as a result of that, maybe the fourth quarter -- and in addition to that, we were coming off an extremely good fourth quarter in the prior-year period of time. So if you take all those into consideration and the fact that we did take the impairment charge, we did take the FIN 47, and these other situations, you know, we can always do better. We're never going to be satisfied with the results. We're always going to be pushing to do better for our shareholders, and I think it just basically flows through to the bottom line, and we think we can continue that growth. I mean, a 12% increase in our dividend to our shareholders was, we felt, a very good one. And, as you know, we are big shareholders ourselves, so we continue to own our 20% of the company. So we're still vitally interested in making certain that we can produce.

David Fick at Stifel Nicolaus.

The only question that I have left is can you talk about the incremental yields on the $69 million of mall renovations that you've detailed?

On the mall renovations, it's pretty consistent with what we've done in the past is that we can't basically put our finger on how much you see as far as an increase in everything, but if you look at it, and you go back historically even 12 to 18 months later, you can see a significant increase in your sales per square foot. You also have been able to attract excellent tenants for those malls. As an example, in West Town, in Madison, Wisconsin, Pottery Barn and those tenants would not have come to the mall unless we had done the remodeling. So what you'll see is, you'll see it continue to improve those models. It keeps the competition away from coming into the market areas, and we think it's money well spent.

So there's no incremental GLA being created with that?

Not in that $69 million number, no.

Jamie Feldman, Prudential Equity Group.

Could you please compare your outlook for acquisitions today versus 12 months ago in terms of what you see and what -- I know you wouldn't provide guidance on it, but kind of a qualitative estimate?

Sure, well, I think last year at this time we were pretty negative, and we didn't really have a lot that we announced -- maybe one deal or so in the pipeline, and we were pushing hard, and it ended up being a great year. This year, we don't have anything to announce this quarter, but we're still pushing. It's definitely challenging. There are fewer properties out there that are of interest to us, but there still are properties out there. The challenge is the pricing has gotten to the point where we just -- we're being careful in terms of -- on the acquisitions that we pursue have the proper growth, and if the cap rates are going to continue where the market has them, then we've got to see the growth opportunities in these acquisitions. So it's tough, but we're still out there turning over the stones and looking for opportunities and hopefully we'll be able to find some. But, like we've said, we don't project any, we don't budget any, we don't want to be forced to make any, and that's why we don't model them into our numbers.

But we're also happy that we're in the middle markets where we think there is more potential than some of the guys who have to go after trophy properties, and we have that ability and skill to handle middle markets and do very well with those projects.

I guess I would take from your comments that your outlook is less optimistic than last year for the volume?

Yes, that's correct.

Okay. And then, similarly, on our personal gains, how would you compare your current portfolio of land you could sell versus a year ago?

I think as you develop new properties, you increase your inventory. So we think, you know, that there is still good potential. We have fairly good inventory. We are focused on doing a lot more ground leases than we are sales, so I think that has some impact, as such. So we do have a good inventory of properties, and as we continue to develop new properties, you'll continue to see that pipeline increase and do well.

Are these ground leases included in guidance?

Yes.

Okay. So sales would -- outparcel sales would not be but ground leases would?

That's correct.

Michael Mueller, J.P. Morgan.

Just to be clear, kind of going back to the same story again, does the same-store guidance at 2.5 to 3.5% reflect anything in terms of the drop-off from -- what you were talking about before the different tenants -- Musicland to Rave, et cetera -- is there anything factored into that 2.5 to 3.5% number? And, I guess, if not, what do you see happening that would cause your same-store to drop off significantly relative to where it's been the past few years?

Well, the 2.5 to 3.5% takes that all into consideration in the budgeting process that we go through year-over-year, and so I think there are pluses and minuses that come up and that will be reflected in those NOI numbers. But I think we're still comfortable with that 2.5 to 3.5%. We don't think that this year is going to be any different than last year, other than we'll probably see more bankruptcies. But the ability to continue to budget and project our NOI growth, we think, is pretty consistent.

I'm sorry, what was your other question?

Well, that was it. It was all kind of inter-related. But one other one -- can you just talk about the inventory of community centers that you're holding that can be, I guess, candidates for sale to recognize [unintelligible] gains. What exactly are you holding on your balance sheet at this time?

We have about three or four, and as we continue to develop those, you'll see those in our announcements and so on.

Dennis Maloney, Goldman Sachs.

Just wondering -- given your 1 billion plus of acquisitions last year, how much 141, 142 income is baked into your guidance for the year?

About $0.14, Dennis.

Eric Rothman, Wachovia Securities.

Just a quick question with respect to the ground leases versus selling those outparcels --have you shifted your strategy at all in terms of what you're deciding to keep versus sell?

No, I don't think we have changed our strategy. I think that in those situations, depending upon who the tenant is and what we can get out of those tenants, we would basically try to retain the real estate as often as we can. We think real estate, especially around the regional malls, which are the dominant marketplaces in their economy, will always see better growth and potential. Certain situations, you have to sell to those operators because they won't ground lease because they can't finance off of it or whatever or it save policy. I think we're consistent with the policies we've followed in the past. I don't think we've changed anything in that respect.

Have you seen any change in the universe of users for those ground parcels? We're hearing that, in some instances, the restaurants are being priced out of parcels. Can you confirm that or deny that?

We've actually been trying to bring the restaurants closer into the malls, and so it's a little different strategy that we've been pursuing for the outparcels. Some of the sit-down restaurant -- we just opened a restaurant called J. Buck's last year at St. Clair Square in St. Louis that's off to a great start, and throughout the portfolio we opened 12 restaurants that were attached to the mall, and that's been a big priority for us, and we're working on that, continuing throughout the portfolio, and those are -- they're not sales, we're ground leasing or leasing in those situations. So that's a little bit of a change.

We are still seeing, though, good demand from their traditional restaurant outparcels -- the Brinker's, the Darden's, the users like that, and we've got good relationships with them and continue to enjoy success. So I don't see anything, really, that's changed, that land values have gone up, but I think the restaurants have recognized that and have continued to step up in the right locations.

Volume, if they get the right volume, rental is just such a small, small piece of the total overall cost that it really hasn't been reflected or hasn't impaired our ability to continue to push those up. And then we're likewise seeing excellent results in those market areas where we are from financial institutions. We want to put branches in, because they're broadening their financial service and horizons as well. So they want to be where the people are, and with our dominant malls, that's where the people are in our market areas.

Rich Moore, Keybanc Capital Markets.

Operating expenses were quite a bit higher this quarter as they typically are in the fourth quarter, but they seemed even higher than usual, and you addressed it a little bit, I think, with the 500,000 you were talking about. But is there any bad-debt expense in there or anything else that might be unusual?

The majority of the operating expense increase was attributed to new acquisitions. There wasn't really anything other than that -- no bad debt. It was just because we've added so many new properties.

Okay, so nothing special in there?

No, that's correct.

Okay, and then, kind of along the same lines, it's kind of obscure, I realize, but the depreciation -- your share of depreciation from joint ventures, which goes back into FFO, was up pretty substantially. What's going on there exactly?

When we did we did the joint venture on Triangle, it's such a huge asset, that it basically impacted the quarter. So it was Triangle, basically, that impacted the quarter. That's the joint venture with the Richard E. Jacobs Group.

So, John, that continues, then, going forward, would you say?

Yes.

And Imperial Valley is a JV, too, and that factored in there.

Craig Schmidt, Merrill Lynch.

I'm going to apologize, this is a leasing spread question, but I was just noticing in the last eight quarters, your mall same-store, mall NOI, was higher than your initial leasing spread. I wonder what's driving the NOI beyond those initial leasing spreads?

In addition to the leasing spreads, it's specialty leasing, which has picked up and had a great year for us in 2005 and also sponsorships and percentage rents. So when you factor all those in together, that's really what's driving the same-store NOI numbers up.

Okay, and I saw that Bon Ton is coming to your Monroeville mall?

No, it's actually Boscov's.

Boscov's, sorry. Do you see that as a positive or is that neutral or a negative in terms of your ability to lease that wing?

It just got announced, but we do it as a positive there. We view the whole -- it's not just Boscov's, it's the whole transition where you have Macy's coming in and kind of breathing new life into their store, their existing store, and then Boscov's taking over, and then Boscov's does very well in Pennsylvania. We've got them in a couple of other malls, they've got a good name, they've got a good strategy, and just having a new retailer in a significant way like that is a good thing. It adds new excitement, and in Monroeville, also, last year we opened our lifestyle expansion called "The District," which has Barnes & Noble, a couple of restaurants, Chico's, J. Jill, Coldwater Creek, so since we bought that mall a little over a year ago, we've really been able to upgrade it, and Boscov's will just be part of it, and then we're continuing to have ideas for redevelopment beyond that that we're going to pursue.

Do you think Boscov's will do the same or better productivity than the closing Federated-May store?

I think they'll be about the same.

Michael Bilerman, Citigroup.

I just had a quick follow-up on the lease term fees. Can you talk a little bit about where those came from? It's a little bit surprising to see a larger number in the fourth quarter.

There was a restaurant -- it's sort of a restaurant. It's called Crispers. It's sort of a delicatessen in Orange Park, that was one. Then the AT&T situation as a result of their merger basically came in and paid us some lease termination fees for those. So those two were the significant ones that really came about, and we're in the process of releasing those spaces, and AT&T, I think, we're making good progress on that as well.

Is there any majority of lost rents on those spaces?

It's not of significance, as such, versus, I think, what we were able to do was negotiate very good lease termination fees from those guys.

And then when you think about next year, I know your guidance, at least the way it's written, says it excludes any unannounced lease termination fees. I assume that you have -- would your guidance include anything that you already have received?

No, it would not.

And then what is your current outlook coming in the first quarter? You've obviously talked about some bankruptcy and store closures, how do you see lease terminations flowing coming into the first quarter?

Michael, you are very, very good, that's a good way of asking a question, and if I were to give you that guidance, we would violate one of the rules that we've helped give guidance with regard to lease termination fees. But, as I think you can see, and as it's occurred in the past, it will be lease termination fees, but what those are and what we can negotiate, it's totally dependent upon the various things that go into the negotiation. So that's why we don't do it, and for us to say to you, "Well, we think it's going to happen," would just basically be an inconsistency that I don't think that we would want to do at this point in time.

Understood. On G&A, what's your forecast for next year?

It should be in the range of a 5% increase, 5 to 6% increase in G&A for the year.

Paul Morgan, Friedman Billings Ramsey.

John, I apologize if I missed this, but you historically give the breakout of your gross by internal and external means. Did you give that or not?

Yes, we did. It was 61% external and 39% internal.

Ross Nussbaum, Banc of America.

Hi, guys, a couple of follow-ups. First, what was the lease renewal percentage for '05?

Approximately 62%.

How does that compare to where you've been historically?

It was about 90% for '05. We're 62% today. We think it's pretty well tracking.

For '06.

For '06 it's 62%.

That's what we've done, so far.

Okay, so you've renewed already 62% of your expirations for 2006?

That's correct.

And then for last year, of your leases that were coming up for renewal, you got through 90% of them?

That's right.

Yes.

Okay. What was the occupancy cost for the full year '05? Did you give that number?

It was 11.8%.

Okay, and then last question, and I think, John or Stephen, you may have sort of addressed this, but why was the base rent for the renewal leases so much lower than the lease rate for the new leases?

Hold on a minute, Ross.

It was, I think we were talking, there was a good $4 a foot difference, and I know it's not a same -- maybe a little bit of an apples-and-oranges comparison, but at least the numbers I'm looking at, for the full year you had almost $29 a foot on your rents for new leases. Your renewals were just under $25 a foot. And I guess the question is, why would that be -- why would the renewals be so much lower if, in fact, you're getting $29 on new leases?

On the renewals, it's a couple of things. Some of it is impacted by some of the weaker categories, which we've been saying for a couple of years. But we're still working to preserve books, music, you know, cards has been a category that's been tough, and we want to keep these categories in the mall, but to do that it's impacted our renewal leasing, and we've had to get their occupancy costs in line so that they can be viable, going forward. So that's part of it.

And then the other thing is our renewal, you know, it's a negotiation, but we're always trying to push up the numbers as much as possible, and the retailers are fighting the other side, and new leasing just naturally has higher numbers that better associated with it. Also, new leasing will typically have an allowance involved, so that gets built into it, and that's not the case so much for a renewal. And then there's longer terms on the new leases.

So it's a little bit of apples and oranges, and I know we put it all together when we're doing the leasing spread information, but then by breaking it out, we allow you to do the comparisons.

Right, we obviously appreciate the disclosure, but obviously it opens you up to questions like this.

We're okay with that.

Eric Rothman, Wachovia Securities.

Just a quick follow-up to Ross's question -- do those renewal numbers include options that have been exercised? And that would perhaps explain why maybe the rent is a little bit lower.

It does, yes, that is, thank you.

And then, I guess, with respect to -- let me back up here -- some have speculated that CBL might be able to benefit from a presence in the outlet business. I guess based on what you guys know about the niche and what you've done and looked at it, is that something you'd ever be interested in exploring?

Well, I think the lines are blurring, to a certain extent, anyway, by retailers. They're coming into our projects as well, whether they call them outlet stores or whatever, but I think retailers are expanding their reach, so whether it's going totally into the outlet business, I don't think we would see ourselves doing that at this point in our career. I think that if we see the opportunities to bring a lot of those outlet guys in their new formats into these projects that we have. So I don't envision us becoming an outlet developer.

Have tenants told you that maybe they would like to see you have an outlet offering in your arsenal?

No. I think that the tenants basically, to a certain extent, view us as developing the centers in the middle market, sort of the dominant properties, and that's what they want us to continue to focus on; that they basically see that the ability to penetrate these middle markets where a lot of retailers have not been able to penetrate unless they've gone with us to do the job for them. So I think as a result of that, we haven't seen any pressure or any suggestions by us to get into the outlet business, as such.

Rich Moore, Keybanc Capital Markets.

Hi, guys, just a couple of quickies. What was the impairment for? Did you say? I think I might have missed it.

Yes, the impairment was basically in conjunction with -- we put into place a program where we think we will sell a couple of our projects -- Springdale and Wilkes-Barre were two projects, if you recall, we had to put rights to under the deal with Galileo, and those were the basic ones where the impairments are. We have a -- under the accounting and standards, since we have a program or a thought process in place as divesting of those projects, we needed to take that impairment, and that was the proper and correct way of doing -- of handling that. So that's why we took the impairment in light of the put rights as well as the plan that we have in place.

Okay, thanks, John. And then, just last, could you -- Stephen, could you give us an overview of how you see the tenant world out there right now? I mean, would you characterize the demand for space for us?

Yes, we just came off a couple of good ICSC meetings, and I'd characterize it as very strong. I think that what we're seeing is continued new concepts by a lot of the companies that we're working with, and we're starting to get our share of those, and whether that's Gap and the Fourth in Town or whether it's American Eagle, Martin & Osa or a thing that Abercrombie is working on or Build-A-Bear or PacSun, you know, we're doing a lot of work with Chico's and with [Soam] and White House/Black Market, so it's very healthy out there, and we're expecting to be able to bring in a lot of new retailers to the malls, and that's definitely one of our primary focuses for this year, Rich.

Jamie Feldman, Prudential Equity Group.

How would you characterize the strength and traffic at Trans World Stores versus the Suncoast and Musicland?

We just came out with Trans World and FIE in the past couple of weeks, and they're just a different company -- nothing against Musicland, but they've had more consistency of ownership, of strategy, they've done a better job of putting in listening posts and figuring out a way to keep the customers coming into their stores, even with the digital music and the iPods and all those things, and they move the merchandise around, they bring in the DVDs. It's just -- they've just done a better job. They are continuing to expand. You know, we're renewing and adding them to malls. They're looking at some of the Musicland stores where they're not in the malls -- to take those over, and they're a good, strong retailer, and we're pleased to have a good relationship with them.

Are they on your watch list?

No.

You're not reserving anything?

No.

Michael Mueller, J.P. Morgan.

The environmental costs, is that a recurring item or is that one-time?

It's a one-time item, Michael.

Our final question, Michael Bilerman, Citigroup.

I guess the assets that are held for sales, $63 million, those are the two assets that you have to put rights on?

Yes.

And then, you know, this transaction closed last quarter, what made you take an impairment to what you thought value was a few months ago?

I think a few months ago we did not have any client or any thoughts with regard to putting these assets to them. But in light of looking back and seeing what we have in the swaps we could do, the 1031 exchanges and things such as that, it only makes sense for us to take that impairment charge and have to discuss with the auditors. And that was their conclusion, and we agreed with that conclusion.

But why should it matter what you can reinvest the proceeds and dump the assets in sales have a certain value that when you sold the Galileo stake, you took in exchange through assets that were worth [inaudible] million, and now they're not worth $65 million.

Well, I think what we did is in basically thinking about those transactions to do 1031 exchange or to do the other situations basically meant that we needed to look at those assets. It wasn't -- we didn't have a definitive thought process for tax reasons when we did this transaction. And when we looked back and talked to the auditors about that, we felt that the impairment should be taken in '05 and especially in the fourth quarter, as such, especially in light of the fact that we could do something with those assets, as such.

So you're saying that because you're going to have to sell these for 1031 purposes, the value you're going to get less than selling them outright?

No, no, I don't think that's the case. I think, though, that under our put rights, we would be limited as to the dollar number that was basically agreed to at that time. What we're saying is that now there is a possibility and a probability that we would make that exchange in this year. And because the dollar number is set, Michael, it was based upon, I think, a 7.5 cap rate, and that's the dollar number. But what we've basically looked at is that our ability to take Springdale and Wilkes-Barre and do an exchange with those for properties that we've bought in the past, that timeframe was closing in on us, so it would occur probably this year, if we were going to do it at all.

So you brought the assets on your books upon a future and line date past 2006 and given the 7.5 cap and some growth in NOI, the value brought on your books was higher, and now that you're selling in '06 off of a lower NOI number, you want to take an impairment charge?

Yes, and we also lost a theater tenant in Springdale, which is one of those properties. So when we lost that theater, it impacted the NOI. It didn't impact the sales price that we had negotiated with the put rights to it. So when we look back, we basically said with the loss of the theater and possibly some other things that could occur at those projects, it was more likely that we would sell those projects than we wouldn't sell those, and that theater only closed in the fourth quarter, which had an impact -- a fairly significant impact as far as rental income into Springdale.

With no other questions holding, I'll now turn the conference back to management for any additional or closing remarks.

Again, we'd just like to thank everyone for taking the time this morning to hear our report on our results for 2005, which, I'm sure you can tell, we're very proud of. We are optimistic also about our ability to continue such successful growth in 2006, and I'd just like to put in another plug for our April 4 Investor Day in Raleigh, North Carolina. We hope that all of you can join us for that. Thank you very much.

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