CBL & Associates Properties, Inc. (CBL) 2006 Q1 法說會逐字稿

Good day and welcome to this CBL & Associates Properties, Inc. conference call. Today's call is being recorded and will be available for replay starting today at 1 PM eastern time and running through May 9th at 8 PM eastern time by dialing 719 457-0820 and entering confirmation code 6381477. Again, that dial in number is 719 457-0820 and enter the confirmation code 6381477. 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 the CBL & Associates Properties, Inc. conference call to discuss first quarter 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 meaning of the Federal Securities Laws. Such statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ materially from the events and results discussed in the forward-looking statements. During our discussion today references made to per share, adjusted to account for the 2 for 1 stock split of the 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 partnership 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 Web site. This call will also be available for replay on the Internet through a link on our Web site at cblproperties.com. This conference call is the property of CBL & Associates Properties, Inc. Any redistribution, re-transmission or rebroadcast of this call without express written consent of CBL is strictly prohibited. During this conference call the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. A description of each non GAAP measure and a reconciliation of each non GAAP financial measure to the comparable GAAP financial measure will be included in the Earnings Release on Form 8-K.

Thank you, Katie. The healthy retailer environment we experienced in 2005 has continued into the beginning of this year as we are still seeing encouraging announcements of expansion plans from retailers including J.C. Penney, Belk, Coldwater Creek, Talbots and many others. We are meeting the demand for growth by retailers, not only through our existing portfolio but also with an expanding number of new development projects including large open air centers, large dollar expansions to our existing malls as well as new community centers. Our leasing staff is preparing for ICSC in Las Vegas later this month and we'll be marketing an impressive pipeline of new development projects. We are very enthusiastic about our development program going forward and believe that it will be a continued and an expanding contributor to our Company's growth.

We opened a number of new anchor and junior anchor stores at several of our properties this past quarter. At Southaven Towne Center located just south of Memphis in Southaven, Mississippi we opened a 159,000 square foot Dillard's in March and a 59,000 square foot Gordman's in April. Later this year we will open a 15,000 square foot Books-A-Million. This center is doing extremely well highlighted by the success of J.C. Penney, which was Store of the Year for 2005 for the entire company. At Burnsville Center in Burnsville, Minnesota we opened Dick's Sporting Goods in April on one level of a former Mervyn's department store. Dick's joined the Steve & Berry's, which we opened on the other level last year. Later this year we will open approximately 20,000 square feet of additional shop space as part of this redevelopment.

We currently have over 1.8 million square feet of projects scheduled to open in 2006. This represents a total investment of approximately $215 million. High Point Commons, a 300,000 square foot community center development in Harrisburg, Pennsylvania, began construction last quarter. This project is a 50-50 joint venture with High Real Estate Group of Lancaster, Pennsylvania and will feature Target and J.C. Penney as anchors as well as approximately 73,000 square feet of shop space. The project is scheduled to open this October. In Stillwater, Oklahoma we have a 207,000 square foot community center project under construction. This shopping center will be anchored by Belk, Ross Dress For Less, Linens and Things, Petco and Pier One. The center will offer shoppers over 70,000 square feet of shop space and is also scheduled to open this October.

Also under construction is the Plaza at Fayette Mall, a new 190,000 square foot associated center adjacent to our Fayette Mall in Lexington, Kentucky. This project will include a 59,000 square foot 16 screen Cinemark Theater, a 60,000 square foot Gordman's, Guitar Center, Old Navy and approximately 40,000 square feet of small shop space and restaurants. The shop space is approximately 75% leased and committed. The theater is expected to open in July with the remainder of the project opening later this year. Construction of phase two of Gulf Coast Town Center continues to progress with Belk, J.C. Penney and Bass Pro Shops opening this fall. Additional anchors and small shops will open later in the year and in the first quarter 2007.

Over the past year we have increased our focus on adding restaurants at our properties. Restaurants add a great deal of appeal to our properties and heighten the overall experience. This effort has been successful, as we have recently announced several restaurant additions to our properties. At Fayette Mall we are in the process of adding a PF Chang's and recently opened Abuelo's at the main mall entrance. At Hamilton Place Mall in Chattanooga, Tennessee we are adding PF Chang's within the Ring Road. At Cary Town Center in Cary, North Carolina we just added a Mimi's Café, Payway Diner and a Starbucks. At Cross Creek Mall in Fayetteville, North Carolina we recently added a Red Robin restaurant, Salsarita's Fresh Mix and a Starbucks. We are continuing to seek out new opportunities in our properties to add restaurants.

We are continuing to grow our 2007-2008 development pipeline, which currently stands at over 2 million square feet, of which approximately 790,000 square feet is already under construction. Our pipeline represents a total investment of approximately $330 million. We recently announced another 2007 project at Valley View Mall in Roanoke, Virginia where we began construction of the District at Valley View, a 76,000 square lifestyle wing. We are redeveloping a portion of the existing space and adding approximately 47,000 square feet of new space. This redevelopment and expansion will feature Barnes & Noble as well as a number of exciting new retailers and a broad array of dining options including Carrabbas, Abuelo's and Panera Bread.

Another 2997 project currently under construction is the Shops at St. Clair Square just outside of St. Louis in Fairview Heights, Illinois. This 76,000 square foot shopping center will be located next to our 1.1 million square foot St. Clair Square Mall and will open next year with retailers such as Barnes & Noble, Ann Taylor Loft, Aveda, Banana Republic, Chico's, Coldwater Creek, J. Jill, Joseph A. Bank, Talbots and other exciting stores. The development is approximately 86% leased and committed and is scheduled to open in Spring 2007.

In Burlington, North Carolina construction continues on Alamance Crossing, an 870,000 square foot open-air center. This development will be anchored by Dillard's, J.C. Penney, Barnes and Noble, three additional anchors and will offer shoppers approximately 190,000 square feet of small shops. The 635,000 first phase of the project will open in Fall 2007. The remainder is expected to open in 2008. This past Friday we announced a new project in Milford, Connecticut. Milford Marketplace will be a 112,000 square foot open air center anchored by a 30,000 square foot upscale specialty supermarket and featuring an outstanding lineup of retailers including Ann Taylor Loft, Coldwater Creek, Chico's, Whitehouse Black Market, J. Jill, Joseph A. Banks, Blue Tulip, Tanga, Asian Bistro and others. Over 70% of the project is leased and committed. Construction is slated to begin this month with a grand opening scheduled for summer 2007.

We recently announced that Barnes and Noble has committed to become a part of Pearland Towne Center, our 700,000 square foot open air project located approximately 20 miles south of Houston in Pearland, Texas. This center will feature a 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 multifamily components. The opening of Pearland Towne Center will be in 2008.

As we previously announced we will spend approximately $69.2 million on eight mall renovations in 2006. The renovations include CoolSprings 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 in Huntsville, Alabama, Northpark Mall in Joplin, Missouri, Park Plaza in Little Rock, Arkansas and Wausau Center in Wausau, Wisconsin. Cool Springs Galleria's renovation will be completed in May with the other malls finishing their upgrades this Fall. These renovations play an important role in maintaining the dominance of our mall properties. Although there is no way to initially quantify returns from renovations, we are able to look back at the two to three year period following the completion of a renovation and see a substantial increase in NOI. For example, the four mall renovations completed in 2003 saw an increase of over 12% in 2005 NOI.

In the first quarter we signed approximately 800,000 square feet of leases in our operating portfolio including 298,000 square feet of new leases and 502,000 square feet of renewal leases. This compares with 815,000 square feet completed in the first quarter 2005, of which 263,000 square feet were new leases and 552,000 square feet were renewals. We also completed approximately 459,000 square feet of leasing for development projects in the first quarter. This compares with approximately 164,000 square feet of leasing for development projects in the first quarter 2005. For total leasing of space of 20,000 square feet and less we achieved an average increase of 9% over the average base rent per square foot of expiring leases in the quarter. This number was negatively impacted by several renewals with Limited and Music Store operators where the negotiated rents were lower than the prior rents. The renewed limited deals were signed for a one or two-year term to provide us with time to find a smaller space in which to relocate the downsized Limited stores and find replacement tenants.

Excluding these renewals for total leasing, our average increase over average base rent per square foot of expiring leases was 16.2%. For same space leasing we achieved an average increase of 3% over the average base rent per square foot in the prior leases. Again, excluding the Limited and Music Store renewals for same space we achieved an average increase of 10.6% over base rent per square foot in the prior leases. Total portfolio occupancy at March 31, 2006 was unchanged from the prior year period at 91.3%. Occupancy in the associated centers increased 10 basis points to 92% at quarter end. Stabilized mall occupancy at the end of the quarter was 91.3%, a 60 basis point decline from the prior year period. Our stabilized mall occupancy rate declined 60 basis points from the year ago period primarily as a result of the approximately 183,000 square feet of store closures related to Music land's bankruptcy and Casual Corner, Petite Sophisticate lease terminations.

With the bankruptcy season winding down we believe the greatest impact from store closures has already been absorbed. For the balance of the year if the retailer situation remains as healthy as it is today, our occupancy rates should begin to improve over the prior year period. We have made a good deal of progress on backfilling these vacated spaces. We already have approximately 25% of the space leased and committed and have proposals on the majority of the remainder. These closures have opened up a number of opportunities to bring outstanding retailers such as Georgio, Chico's, Hollister and Jimboree into great locations within the mall. Since bankruptcies were fairy limited in 2005, new bankruptcies in the first quarter of 2006 were higher than the prior year period with a total of 20 stores closing due to bankruptcy in the first quarter representing a total of 56,000 square feet and $1.1 million in annual base rent. This included 12 Music land stores representing 36,000 square feet and $687,000 in annual base rent. Subsequent to the quarter end we expect to close an additional 11 Music land stores representing 50,000 square feet and $1.2 million in annual base rent. In addition to the bankruptcies we had 26 Casual Corner Petite Sophisticate stores terminate their leases early representing 147,000 square feet and $3.4 million in annual base rent. In total the impact of bankruptcies and store closures year-to-date represents 253,000 square feet and $5.7 million in annual base rent.

Same store sales for those tenants reporting for the first quarter 2006 from mall shops 10,000 square feet or less in stabilized malls increased 2.8% over the prior year to an average of $332 per square foot for the trailing twelve months. Occupancy costs as a percent of sales were 12.6% for the first quarter of 2006 compared with 13.9% in the prior year period. The decline in occupancy costs in the prior year period was primarily the result of lower occupancy costs in the recently acquired malls and inclusion of Southaven Town Center as well as the timing of receipt of percentage rents. I will now turn the call over to John for our financial review.

Thank you, Stephen. This quarter we did not complete any acquisitions although we continue to see opportunities in the market and have considered a number of possible acquisitions this quarter, we did not find anything that met our criteria. We are continuing to seek out new opportunities that fit with our dominant mall strategy. However, we believe that acquisitions will likely play a much smaller role in 2006 than they have in recent years. As we announced earlier this week, we have exercised our right to sell Springdale Center in Mobile, Alabama and Wilkes-Barre Township Marketplace in Wilkes-Barre Township, Pennsylvania to Galileo for $63 million in cash.

In addition, we also announced that we intend to exercise our right to sell three additional centers to Galileo including Fashion Square in Orange Park, Florida, Chicopee Marketplace in Chicopee, Mass. And Cobblestone Village at Royal Palm in West Palm, Florida. We expect to receive a total consideration of approximately $106.5 million with the transaction as estimated to close this month. We anticipate deploying the proceeds from the sale into a tax advantageous 1031 like kind exchange for the Layton Hills Mall in Layton, Utah that the Company acquired in November of last year. As a result of our intent to sell the three additional properties we have classified them as "held for sale" on our balance sheet. The sale of the three centers is expected to generate a gain of approximately $9 million, which will be included in GAAP net income in the second quarter but not included in FFO. The sale of the five properties will result in lost FFO of $0.05 per share but this will be partially offset by $0.04 per share in interest savings from the payoff of the note on Layton Hills Mall. During the first quarter of 2006 FFO per share increased 9.2% to $0.83 per share from $0.76 per share in the prior year period. In the first quarter FFO included approximately $5.8 million, or $0.05 per share, from lease termination fees related to the settlement with Casual Corner Petite Sophisticate and other store closures. This represents a $0.03 increase from the prior year period. We recorded approximately 1.6 million or $0.01 per share in gains on out-parcel sales in the first quarter. This represents a decline of $0.01 over the prior year period. 16.5% of the quarter's increase in FFO was attributable to internal sources and 83.5% from external sources.

Additional highlights for the quarter included same center NOI increased 3.6%. You may recall that in 2004 we had significant adjustments in our bad debt expense and other charges against revenue. However, in the same period 2005 we had excellent recovery of these adjustments, which positively impacted first quarter 2005 NOI growth and created a higher base from which to grow. For the quarter G&A represented approximately 3.9% of total revenues compared with 4.3% in the prior year period. We expect G&A for the remainder of the year to be between 4.1% and 4.3% of total revenues. Our cost recovery ratio was 104.5% compared with 103.4% in the prior year period. The cost recovery ratio for the remainder of the year should be within a range of 100 to 102%.

Our debt to market capitalization ratio was 46.4% at the close of the quarter compared with 44% at the close of the prior year period. Variable rate debt represented approximately 11.7% of total market capitalization at quarter end and 25.2% of total debt. Our EBITDA to interest coverage ratio at the end of March was 2.56 times compared with 2.92 times for the prior year period. This ratio was impacted by increased borrowings for acquisitions and higher interest rates. We are also in the process of refinancing several term loans. As indicated in our Press Release, we are updating our guidance range from 2006 FFO per share to $3.29 to $3.34 per share, which excludes the impact of any unannounced acquisitions, future gain on the sale of out parcels, future lease termination fees and gains on sales of non-operating properties and it's based upon 2006 same store NOI growth of 2.5% to 3.5%. Although we did receive lease termination fees this quarter of $0.05, there will be down time before we can release the space. As a result we expect to lose approximately $0.2 in FFO per share throughout the remainder of the year, which is reflected in our new guidance.

As we noted previously, the sale of the five centers to Galileo will result in lost FFO of approximately $0.05 per share for the remainder of the year, which will be partially offset by interest expense savings of approximately $0.04 from the pay down of Layton Hills Loan. Finally, we have adjusted our guidance downward by approximately $0.02 for interest expense based on our higher interest rate expectations for the year. Taking all the items into consideration our new guidance is $0.01 higher than prior guidance.

We were pleased that a number of you joined us for our property tour in early April when we visited three of our malls, Cary Towne Center in Cary, North Carolina, Triangle Towne Center in Raleigh, North Carolina and Cross Creek Mall in Fayetteville, North Carolina. Each mall serves a distinct market area and illustrates a unique set of benefits and challenges but all are prime examples of the success of our strategy. Our properties are the foundation of our growth and we are continually finding new ways to generate additional value. We are pleased with the results for this quarter and look forward to continuing to produce great results for our shareholders. Thank you again for joining us today. We appreciate your continued support and would now be happy to answer any questions you may have.

[Operator Instructions] Ross Nussbaum with Banc of America Securities.

Actually it's Christy here with Ross. In terms of your 2.9% same store growth in the mall portfolio with occupancy down year-over-year and the same store re-leasing spreads as 3%, was that the bad debt expense shift that drove that?

Partially from last year over what we were last year it did drive that somewhat.

What were the other drivers behind that?

We had leasing spreads that were really higher than what you had said that resulted in that as well.

Okay but for the same store re-leasing spreads were 3%, right?

Overall if you counted it that way and also lease termination fees went in there. It was 9% of total leasing.

What would it have been excluding the lease termination fee?

1.5%.

Okay and then we know you don't provide guidance on lease termination fees but will any of the additional store closings this quarter impact Q2 in terms of fee income?

Not any of the existing, Christy. And then lastly your percentage of rents seemed low year-over-year. Was there something one time in there or can you give us a sense for what drove that and where we should be thinking about that line going forward?

Yes we went back and looked at that and what I think is the true comparison is is to take the fourth quarter and the first quarter of each year if you go backwards and if you look '04, last quarter of '04 to first quarter of '05 and compare it to last quarter of '05 to first quarter of '06, there was actually about a 22% increase in that from about $16.5 million that we really achieved in percentage rent over the two quarters of '05 - '06 versus the other quarter of '04 - '05. That was 13% so percentage rents are still holding up very well and, in fact, was a 22% increase. I think if you also look at our occupancy costs for this quarter, it's a definite positive and the fact of these acquisitions basically should help us also drive our FFO growth. As an example, Hickory Point, which we bought in the last quarter of '05 from [Kopakin, Waite and Blit] is approximately 67% leased and we didn't pay for any of that vacant space so we think that's a tremendous opportunity to see FFO growth. So I think if you look at the bankruptcies and the lease termination fees, we did pretty good this quarter and it just gives us a base to grow over as well. Casual Corner spaces are excellent locations in the mall and, as I think everybody is aware, the music situation has been something that's been hanging over us for years and it ultimately came to a conclusion so I think if you look at all of this, I think that it speaks well for the future growth of our ability to continue to grow the FFO as well as to increase our occupancy rates.

[Christine Kim] with Deutsche Bank.

I was hoping to expand a little bit more on your development pipeline and what you have kind of behind what's currently under construction. Could you talk about how much you expect to invest in terms of new starts this year and what you expect the yield on those projects to be?

Sure. This is Stephen. The projects for this year, '06, total $215 million and those have all been announced. It's about 1.8 million square feet. When you look forward into '07 - '08 the pipeline is $330 million that has been announced and that includes all the different projects that I listed during the comments and then beyond that we've got a shadow pipeline of projects that it's too preliminary to announce them but we've got a real active program of projects that we'll be marketing in Las Vegas in a couple of weeks and we're very encouraged and it's a real mix of large open air centers, new community centers, the expansions and the redevelopment at the malls and we've really ramped up our focus on development over the course of the past year to 18 months and we're now seeing the results of that with a lot of new projects that have been announced and then a lot more that we're expecting to make progress on going forward.

Okay, so should we expect yields on projects that have not yet been announced to be comparable to what's in your current pipeline then?

Well, I think the yields are going to vary somewhat but I think the 8 to 10% range is probably pretty comparable to what we've announced and what we can expect. You know obviously some are higher and we're pushing to get them as high as we can but it is a climate with increasing construction costs and that's impacted yields somewhat and we're pushing the retailers on the rent side to try to make up for that.

Okay great and my next question is on the renewal rents. You mentioned that they were lower due to the limit and the music rents, the music stores and the couple of shorter term leases, one or two year leases that moved into the Limited stores. What's replacing the music stores?

Some of those we haven't replaced yet. Some of them we're working with FYE, which is Trans World Entertainment, to replace them and they're really the only music player that's left in the malls and they're strong financially but because of what's happened to the music business in general they're just not able to pay the same rents that we were getting from those spaces before so we've suffered deterioration in the rents on those spaces where we're replacing Music land. Also, we're working with just different uses. Toy stores have actually made a comeback so we're working with them and just other general uses that we want to add to the mix of the properties.

Great and my final question is so what are you looking for then in terms of same store re-leasing spreads for the full year?

We're still pushing for double digits and we think that this is going to be the toughest period of the year because of what we've been working through and also it's-- I know everyone's got to look quarter-to-quarter but when you look at leasing spreads in one quarter they can be really impacted by just a few deals and that's why we pointed out some of the Limited spaces because Limited when those deals were made ten years ago, the spaces were 20,000 square foot spaces and now that's not their business strategy going forward and we've renewed some of those on a one or two year time frame to give us time to really optimize the rent and maximize the uses and split them up and redevelop them and it's an opportunity for us but it just takes time and so it's hurt our leasing spreads for this quarter but we feel like long term it's going to-- we're going to benefit in terms of better retailers, better rents and it will strengthen the properties.

Matt Ostrower with Morgan Stanley.

Could you guys comment a little bit more, I guess more generally on demand for space? I definitely heard some rumblings from retailers and private real estate owners that demand at the sort of lower price point segments even in malls is softening to some degree. I appreciated your additional color on spreads, which makes them look healthier to some degree but even 10% spreads don't appear to be as high as we're seeing from some of the mall companies that have higher sales productivity on average than yours. So looking at those two things together is it fair to say that there may be some moderation in demand for space?

We're not really seeing the moderation in demand that you're talking about. I mean we still, and we've been in the middle of portfolio review meetings over the past two months and when we've got Vegas, and other than Gap who has continued to struggle and hasn't been really able to do new deals, we're seeing continued demand from Hollister, American Eagle, Aeropostale, Charming shops, PacSun. Finish Line has bought a new concept in the past couple of years that they're expanding. The jewelry stores are still expanding, Yankee Candle. I mean there's a whole host of retailers that are still-- their biggest problem is finding locations for their expansion program because there just aren't that many new projects being built and so they're still-- the demand is still strong. I think the other thing is that with occupancy costs down a little bit that helps as well because the retailers are, as everyone knows, they're under a lot of pressure to increase their profits and they're looking to minimize their occupancy costs wherever possible so it's always a negotiation that we get into with them but it hasn't-- we don't see any signs of less demand.

Okay great. And then, John, I was sort of sort of surprised to hear you explicitly say you expected fewer acquisitions this year. Is that just conservatism or I guess is there any possibility that things shake loose as an example from the Mills portfolio or any other transactions that are out there? Are you making that comment just because your own pipeline looks pretty empty right now?

Well, I think that total overall in the markets that you're going to see less acquisitions. I think that the pipeline is smaller as a result of so many acquisitions being obtained over the past years. We looked at a package of three malls and we passed on that as I alluded to in our comments because we didn't think it met our criteria. We've never really banked on acquisitions. We've been fortunate over the last couple years to really have accomplished some outstanding acquisitions for us and we basically have seen that the pipeline for our development program is so strong and we think that that's only going to get stronger as interest rates tick up because the small developers are not going to be able to achieve the kind of returns that they need to achieve nor get the capital that they need for development. So we think that there's a great opportunity for us and as evidenced by Stephen's comments, our development pipeline has really increased so we're not and never have been dependent upon growing the Company through acquisitions. We basically have been fortunate to do so. Then if you take into consideration those acquisitions that we've accomplished in the last couple of years the expansion potential on those is just amazing. If you look, and as Stephen again alluded to that in his comments about the expansion potential I think that we're all focused on that, hopefully we'll do some acquisitions but to grow this Company this year and to achieve double-digit FFO growth we don't think it's essential to have acquisitions.

And can you just comment-- I guess I'll ask the obvious question on Mills. Are you sort of strategically opposed to buying those assets or is it just a question of complete uncertainty at this point?

Well I think that we'll continue to look at any opportunity where we can create shareholder value and great returns for our shareholders so the Mills is not out of the question and neither is any other opportunity that might come along so no. Mills is on the radar screen with everybody I think and we're no different and we'll look for any opportunities where we see that we can make some good money for our shareholders.

Michael Bilerman with Citigroup.

Jonathan Litt is on the phone with me as well. Maybe just turning back to the lease renewals, out of the 500,000 square feet can you break out, Stephen, the amount of that was for Limited and the music stores and what sort of the rent spreads were specifically on those?

I can do that for you. The Limited was 42,000 square feet and the music stores were 32,000 square feet so it was about 70,000 square feet in total and the prior base rent was $34.30. The new rent is $17.44.

And you think market though on those spaces if you chop them up is greater than the $34 or you think it's still going to be south of where the prior rent is going to be?

I honestly I don't-- I mean you've got to look at space by space but I think it's much-- I mean our average rents on the deals are in the 30s so I think that that range is much more appropriate for where we'll see new leasing done.

And then on the developments you mentioned that there was-- is there $330 million of development that you've announced but that's not in the supplemental? Is that the way to think about that amount of money?

Whatever is under construction is in the supplemental but a project like Pearland in Houston is not in there yet because we haven't started yet and until we start construction we won't include it in there.

So above and beyond the 350 that's disclosed some of these other projects that you've announced, what's the totality of development costs, whether it be Pearland or Milford or some of the others that you've announced already?

It's just too early to say, Michael. I mean we'll-- I mean Pearland we're expecting to start late summer and at that point we'll announce it but it's just too premature to be giving those costs out.

When you think about you talked about an 8 to 10% development and which is obviously lower than what you've been able to attain previously and I think Alamance came in at 8.5 so that seems a little bit lower. Is it primarily construction costs? What other factors are occurring that's driving those yields down?

Construction costs are definitely a factor and I think we are seeing some higher interest. Land costs have gone through the roof over the past couple of years because of the opportunities for alternative development and when we announced our returns also we're including our development and management fees and contingencies and all the other costs to really fully load our pro forma so those are conservative numbers and we're also working like crazy to get those up because we want to have double digit returns on our development projects and we're definitely not satisfied with the levels we're at.

And just remind us what, these are initial yields also so it's not fully stabilized? Is that correct?

That is correct.

And so what sort of occupancy are you building into your initial yields?

The 90 to 95% range.

On the initial yields is probably much lower than that. It's like in the 80s.

Yes and also that's just the small shop portion so really the occupancy is higher when you include some of the boxes and all that.

And so how much additional yield do you think if you were to get these to stabilize? Is it adding 150, 200 basis points?

Yes you can use I'd probably say 100 to 200. Again, it depends on the project and the time frame you're talking about.

And can you just refresh just on the eight remodels what your total cost is going to be and I know you said it takes some time to get that return but what is sort of the implied yield that you're going to get up front by spending that capital?

You know we got rid of our two-question limit but next time we're going back because of you. It was $69 million of total investment this year for the renovations.

69 and what is your expected I guess up front yield you're going to get on that capital.

We don't do a pro forma because there's not offsetting income against the expense. We recapture it over time through the higher LI that I talked about during the script and I gave the example of the four renovations from '03 where we have 12% higher NOI for '05 from those and that's typical. We do see a pop in NOI. We see a pop in sales and then parts are recovered through CAM and through reimbursements from the tenants of the renovations so it does come back over time through different sources.

And just the last question is on the balance sheet, John, you mentioned you're going to refinance Layton Hills which would take your floating rate debt percentage down. Is there anything else that you're planning on doing in terms of the capital raising to sort of get floating rate as a percentage of total debt down from 25 to a number more in line with peers in the industry?

Yes I think that we've done a number of acquisitions that we did with term loans and what we did is that over the-- from the time we acquired the properties until today is is we've been able to push up those NOIs and as a result of that we've been able to achieve or will achieve higher loan amounts consistent with our whole theory and the strategy we pursued since we started CBL is is to leverage as few properties to the maximum so we will we will be in the market, have been in the market, will be refinancing a number of our term loans. The only maturity of any significance is Hamilton Place, which matures next year so you can always look at those maturities as well but we would definitely do some refinancings of our term loans and fix those rates as well.

And how much was the totality of the term loans that you're looking to refinance?

It's in the range of say $400 million or so.

And so that will take you down to south of 20% by next quarter or the quarter after?

If you take into consideration everything that we're looking at, term loans as well as our lines of credit and other things, it would run about 400 million but if you specifically look at term loans, which your question was, it's about $200 million.

Craig Smith with Merrill Lynch.

Just looking forward the non-mall development seems to be grabbing a much larger share of your development pipeline. Is this a permanent shift that you guys are reading or is it somewhat temporary?

It's definitely the case today that that's really where the market is and demand is. I can't say it's permanent because I think that it could shift back and we've seen over the course of the past cycles different types of development are more in vogue with thee retailers. I think one thing driving it though that is permanent is the consolidation of the anchors and you look at a project like Pearland and we have two anchors, Macy's and Dillard's as opposed to the conventional malls that we've built over the years where we'd have four or even five anchors and we have the boxes and we've got the mixed use components with multi-family and hotel is part of that so having the open air projects does allow for more flexibility in terms of adding those other uses up front and then allowing for flexibility down the future. The one thing that's consistent though in terms of these large projects is we're still looking for the same dominance in their markets and the same characteristics that the malls have and so I think that in terms of the growth opportunities for us going forward these 800,000 square foot projects have a lot of growth and a lot of good future and I think the existing malls also just have a stronger franchise value because there aren't new ones being built so from a competitive point of view they're smaller projects maybe that are being built around the malls but that's really nothing new.

And just one other thing, the increased emphasis on restaurants, do you think we will start to see a slight pick up of cap ex bringing those restaurants in?

I think that will be somewhat the case, that the restaurants, depending on who they are they involve a pretty significant investment and so we're still depending on who it is we'll ground lease or sell on an out part but when we're talking about building the restaurants up against the mall or into the mall, then we do end up putting in the investment and that can be $100 per foot or even slightly more in certain cases and we're obviously looking closely at the financials so for someone like PF Chang we feel comfortable with that kind of investment.

Paul Morgan with FBR.

I just wanted to go back to the Limited there for a second. I mean you've got 1.4 million square feet with the Limited and you cited 42,000 square feet. That seems like kind of a typical rollover at least in terms of amount of square feet in a quarter so what should give me comfort that this same event wouldn't happen in other quarters going forward and the renewal spread wouldn't be similar?

Well I think there are no assurances that it can't happen in the quarters going forward. I think if you look at a track record of our Company historically in down times as well as great times we've always been able to achieve the results that have benefited our shareholders, increasing our dividend as a result of the FFO growth that the Company has enjoyed. Speaking specifically to the Limited operation, you've got to look at the Limited as a company with so many divisions that basically that they can spread across the board and also some of their concepts might not be as hot as some of their other concepts so what will happen is is that take for instance the Victoria's Secret, which is a hot concept. We'll expand that and things such as that so I don't think you can-- there's never any assurances in this business that that won't happen again but I think if you look at our track record our ability to achieve even in light of those types of situations it turns out to be a substantial benefit sometimes when this occurs. The short term, it impacts us. Long term it basically gives us the ability to bring in those new updated tenants as well as push up sales per square foot. When they downsize that will help their per square foot sales too basically.

But you signed one to your short term sales but is there any agreement at that point when space frees up as to a rent or is it just we'll see what happens at that point?

We didn't want to have any agreement at that time because that gives us a period of time within which to find maybe a better operator. If they're still having some problems with that specific division or they're downsizing that division, we'd rather get rid of it and be proactive so that's why we basically have done the short-term versus the long term type of approach. It gives us the flexibility and likewise to work with that tenant and find them additional space so no, we're very positive when we see a tenant who basically is not achieving what they should be achieving it basically shorten that term on them and it gives time to find them and find new operations.

Okay I missed your comment on the percentage rents. I mean as a percentage of sales they seem to drop versus the first quarter of last year materially. I think you may have given a comment as to that. Could you just repeat that maybe?

Yes what we said, Paul, was is that fact is it's a timing situation. It's as if sometimes and under the GAAP rules you have to recognize that percentage rent when it's actually achieved or is due to be achieved so what we did is is that a number of retailers gave us their percentage rents numbers or their sales numbers earlier in the fourth quarter so we had to take those sales into the fourth quarter and that in term impacted the first quarter sales, percentage sales. So we think the way to view percentage sales is to look at the last quarter and the first quarter and combine those two together. If you look at those two and you go back historically-- we went back one year and basically it shows that there's still about a 20% increase in percentage rents, 16.5 million versus 13.5 over the prior two quarters. That's what I think is and in this business timing is always going to be something. You know it will run off a quarter and it will show up in the next quarter but as far as percentage rents and so on we're very pleased wit hit. In fact, the percentage rents quarter-- using those two quarters was up 24.06%.

The one other thing that I had was in terms of the guidance you suggested that $0.02 per share was related to lost occupancy but when you gave that guidance in February wasn't at least the Casual Corner component of that already contemplated in the number?

No, we had not made any deal with Casual Corner. We knew that they were closing operations and stores. There was no negotiation at that-- there was no conclusion to negotiations. There had been contacts. We knew that they were settling with other people and it was a determination in our mind as to the appropriate lease termination fee that we would ultimately get, but there was none at that time and so we continue to keep Casual Corner as a number in our occupancy, as we as in our FFO numbers.

Michael Mueller J.P. Morgan.

Just two questions here. Where do you expect to stabilize mall occupancy to end the year relative to last year?

We think it should end up by the end of the year up about 40 basis points over the prior period.

And then just lastly, the buyback that you put in place in the second half of last year, what's the status of that? Have you completed that?

We did complete that and that was the match off against the units that we gave in the [Kopakin] transaction, so we completed that by year-end of last year.

We'll take our next question from Eric Rothman with Wachovia Securities.

I'm curious; you had mentioned re-leasing spreads or rather re-leasing rental rates somewhere kind of in the mid 30s. What type of TIs are you spending to get into that level and where are your net effective rents washing out?

It was 5 million for the quarter is what we did in the supplemental or in the Press Release.

Sure, but I guess I'm just kind of talking more globally, where do you think your market rents are versus kind of what you also need to spend to on TI?

Well, I think it depends on who the tenants are, as Stephen alluded to earlier, as is with PJ Chang we basically paid-- we gave them a bigger allowance to attract them from that standpoint, but they've been averaging around the $10 square foot range or so, but that's really probably not an appropriate number because if you take the restaurants and add all of those together and everything it's going to be a little hither than that, so you can't average that out as such. So it's a dollar number that we gave you and I'm sorry I couldn't be more precise on that and such.

Sure. I guess maybe if we think about it related to the Casual Corner and Music Land spaces, what type of TIs do you think you're going to have to give on those specific spaces--?

Again, I think it depends upon the tenant. If it's the hot retailers today, Chico's and people like that, the tenant allowance will be somewhat higher, but what in turn they do is if they bring additional tenants that give you the benefit of them being there. So it's sort of a-- well, I shouldn't say it, but there's somewhat of a herd mentality is is that if you get the Chico's and some of those people you'll attract the other retailers and in turn you'll-- it's a positive for the center and it's also a defensive measure in that it stops any other lifestyle centers from being created in those market areas. So with the Chico's and the hot retailers today they demand probably a higher tenant allowance, but their sales per square foot ultimately should produce better percentage rents.

Do you anticipate a need to split up any of those Music Land or Casual Corners boxes or are they in the appropriate size that you easily re-leased?

Yes, Eric I would think we'll probably end up splitting some of those. I think a great example is what we did to Hamilton Place is, is that we had some of those stores are fairly deep and what we did to Hamilton Place was we could shorten the depths of those stores and bring in those retailers who like more frontage and in the back we create and sell storage that we really got some significant rents off of as well. So I think we are very adaptive and creative when it comes to the need redevelop those spaces and I think that's what you'll see over a time frame is, is if we got a retailer who needs more frontage and less depth, but will produce the sales and will create additional traffic for us, we can take that back space and use it to self storage and generate some additional revenues such as that. I think that we can be creative.

And then kind of switching gears really quickly I wanted to talk about the sale of the assets to Galileo. First of all, do you expect on those three developments, are those going to be included in the gains that are going to be included in FFO?

No, they won't because they weren't from merchant buildings and we also had got a rental income in from it before we sold those projects, so they will not be included in FFO. It will, as we pointed, will impact FFO because we lose that rental income.

Sure. And then the two that you're selling back to Galileo, those were the two that you took the impairment charge on last quarter, is that correct?

Yes, Springdale was one that we took an impairment charge on last quarter.

And can you just walk me through really quickly that transaction, in terms of why you took those back, and why you have the impairment charge, and why this in and out of Galileo?

When we originally structured the transaction with Galileo we wanted it structured as a tax-- to the extent that we could, we wanted to be able to be in a position to do a 1031 like-kind exchange cognizant of the fact that there are definite tax rules and structures that have to be taken into consideration. And so with tremendous background and tremendous deliberation from our tax people and so on we took back those assets to ultimately if we wanted to do a 1031 exchange we could do that. And that's what we did. We took back those two specific assets. What we found and the reason we took the impairment charge was is that a theater in the portion that we had retained originally was closing down and, therefore, we felt that we needed to take an impairment charge as to that. We would have been happy holding those two assets, but in turn we saw the ability to pay down our debt with Layton Hills and so on, so it was a great opportunity for us to accomplish this tax free exchange. The assets are good assets. We think that Layton Hills and what we're doing with that money improves our return on capital significantly and fits more in with our strategy.

And then just lastly, does Galileo hold any other options to purchase or I guess I should say do you hold any options to sell to Galileo on any other assets?

No, that concluded all of our puts and calls on both sides, so no there are no further puts or calls either by Galileo or by ourselves.

[Operator Instructions] And we'll take a follow-up from Ross Nussbaum.

Quick question on your cap ex disclosure in your supplemental on page 12. You're number for tenant allowance is for the quarter 5 million is a lot lighter than the run rate that we've seen out of the Company for the past couple of years. I'm assuming that number's going to ramp up over the rest of the year?

It would be typical for it to ramp up some.

Okay because last year you did a little over 52 million in tenant allowances, which is triple the run rate of what you did this quarter. Should we anticipate a number for 2006 that's going to be similar to last year?

It should be in that range, maybe a little higher depending on what we do with the FYE space and the Casual Corner spaces and the ability to push up those rents as well, so yes tenant allowances and doing these restaurant deals will definitely impact--

And we have more malls going in there, so I mean there's more leasing, so it's-- the quarter number was seasonally low.

That's what I thought. And the other question, I think I heard you on the renovation number, the 69 million, but on the deferred maintenance line, again, that run rate-- well, obviously, you didn't spend much during the quarter. You spent a little over 30 million last year in deferred maintenance. Where do you see that in 2006?

It's going to be in the $50 million range. Deferred maintenance items basically pass through CAM, so--

Right.

It doesn't really impact FFO or whatever.

We'll take our next question from David Fick with Stifel Nicolaus.

Hi, some other calls starting right now, so I'll just ask one question. Your share price is the same as it was a year ago where most of your peers have performed better than that. I was just wondering if you could comment of what you think has caused the under performance, number one, and what might you do? You've commented that you completed your stock buyback program. I'm wondering if it might make sense to reinitiate that?

Well, I think management still continues to own 22% of the Company. We're extremely pleased with our ownership. I can speak for the management team here. We're extremely pleased with that. We also have been increasing our dividends on an average of 10 to 12% on a compound basis, so I think from that standpoint we are in this business to create value for our shareholders and to serve our retail clients and our patrons at our shopping centers. Ultimately people will catch on to the fact that we can continue to produce this. We've done it since going public in '93 and even before going public in '78 it's been a tremendous growth vehicle for us. I think there are some people who are skeptical of the markets and think that the middle markets aren't going to do as well as the major metro markets. I think that they fail to realize and focus on the fact that occupancy cost is what the retailer looks at and he doesn't look at the size of the market and if his occupancy costs is within a range and he sees that he can make money he's going to go to those market areas whether it's New York City or whether it's Hattiesburg, Mississippi so I think that could possibly be one of the elements, but let me assure you that from management's standpoint we continue to be very positive and we continue to invest our own personal money in this Company through bonuses and things such as that taking back stock. So, David, I can't speak for the market, but I think we think that our Company's headed in the right direction and we continue to focus on our business and will continue to produce results and continue to see FFO grow. And as you pointed out I think in one of your pieces is that there's a number of REITs who have reached their net taxable income number and, therefore, what the FFO growth is should basically track the dividend growth, so hopefully--

And you're in that camp?

We are in that camp.

And there appears to be no further questions at this time.

I'd just like to thank everyone and we're looking forward to seeing you all in Las Vegas in a couple of weeks at our suite and at our brunch, so thank you all for joining us today.

And this does conclude today's conference call. At this time, you may disconnect.