CBL & Associates Properties, Inc. (CBL) 2006 Q3 法說會逐字稿

Good day, and welcome to the CBL & Associates Properties Inc. third quarter 2006 earnings conference call. Today's call is being recorded and will be available for replay starting today, at 1:00 p.m. eastern time and running through November 10th at 8:00 eastern time by dialing 719-457-0820 and entering confirmation 1564833. At this time for opening remarks I would like to turn the call over to 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 third 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 are adjusted to account for the two for one stock split of the Company's common stock and based on a fully diluted share. Also, references made to 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 conditions and results of operations included therein for a discussion of such risks and uncertainties. A transcript of today's comments including the earnings release and additional supplemental schedules will be furnished to the SEC on form 8-K and will be available on our 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, 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. We are pleased to report that contrary to reports from some skeptics earlier in the year, the consumer is alive and well and spending at CBL malls. The strength of the consumer is resulting in continued healthy demand at our properties. Traffic and sales have trended upward. In addition, early forecasts call for a strong holiday sales season. During the third quarter, we achieved 8.3% FFO per share growth over the prior year's FFO of $0.72 per share after adjustment for $0.26 per share of one time gains in fee income related to the Galileo transaction. YTD sales growth was very good at 4.5% and leasing spreads have improved. We believe these trends will result in stronger occupancy and NOI growth during the fourth quarter and in 2007.

We continue to focus on growing our development pipeline and are pleased to have a number of projects coming on line in the fourth quarter, benefiting our growth. In October, we celebrated the grand opening of Lakeview Point. This 207,000 square foot community center in Stillwater, Oklahoma is anchored by Belk, Ross Dress for Less, Linen 'n Things, Petco, and Pier 1. The center includes over 70,000 square feet of additional shops and is 91% leased and committed. We also opened Target and J.C. Penney in October at High Point Commons, a 300,000 square foot community center development in Harrisburg, Pennsylvania. The project features 73,000 square feet of small shop space which began opening in October and will continue through first quarter. The project is 73% leased and committed. At the 866,000 square foot second phase of Gulf Coast Town Center in Fort Myers, Florida, BestBuy, Belk, Bass Pro Shops and J.C. Penney have opened. Costco, Borders and 225,000 square feet of small shops and restaurants in phase two will open during the first half of next year. The second phase is currently 92% leased and committed.

Last month, Kohl's opened in an expanded former profit store College Square mall in Morse town, Tennessee, the opening was successful with sales greatly exceeding Kohl's plan. Later this month we'll open the Shops at Pineta Ridge, a community center in Albon, Florida. This includes a 140,000 square feet Home Depot which opened this year and 30,000 square feet of shop space the project is 95% leased and committed. We will also complete the opening of the Plaza at Fayette mall this month. This project is a 190,000 square foot associated center located adjacent to our Fayette Mall in Lexington, Kentucky. In July, CineMart theater opened. Gordman's's if I tar center and Old Navy celebrated their openings in October and this month the 40,000 square feet of small shop space of restaurants will open. This project is 91% leased and committed. Earlier this year, we added an Abuelo's restaurant to the front of Fayette Mall and PF Chang's will open in early December.

At Cary Town Center in Cary, North Carolina, we are converting a portion of the existing mall space into an exterior oriented lifestyle element with front end parking and a streetscape atmosphere. We have relocated several existing mall tenants into the new space along with new additions of Chico's and Coldwater Creek. Chico's opened in late October and Coldwater Creek will open this month. This project is 100% leased and committed. We have started construction on our additional projects opening in 2007, including the expansion at Brookfield square in Milwaukee, Wisconsin. We will be adding a Mitchell's Fish Market and Claim Jumpers restaurant to the front entrance of the mall. In addition we're in the process of adding a free standing fresh market and corner outparcel development anchored by Abuelo's and [inaudible] steakhouse plus 20,000 square feet of small shops. This development is another great example of how we proactively enhance our existing mall properties. This new addition meets the growing demand in the Brookfield marketplace for additional shopping options and will further enhance Brookfield's dominant position in its market.

We recently announced an anchor redevelopment at Mall del Norte in Laredo, Texas. A 16 screen CineMart theater will join the recently opened Circuit City in a former Montgomery Ward location. The 72,000 square foot theater is expected to open next spring. Construction is continuing on Yorktown Center, the 280,000 square foot community center located at York, Pennsylvania. This project is anchored by Dick's Sporting Goods, BestBuy, Ross Dress for Less, Staples, and Bed Bath & Beyond and will include 84,000 square feet of shops and restaurants. This project is approximately 93% leased and committed and will open in fall, 2007. The shops at St. Claire Square is an 84,000 square foot lifestyle center that will adjoin our 1.1 million square foot St. Claire Mall in Fairview Heights Illinois. The project includes Barnes and Noble, Ann Taylor Loft, Aveda, Banana Republic, Chico's, Coldwater Creek, J. Jill, Jos. A. Bank and Talbots. The development is approximately 94% leased and committed and is scheduled to open in spring, 2007.

At Valley View Mall in Roanoke, Virginia we're under construction with the 76,000 square foot lifestyle wing called The District of Valley View. The project will include Barnes and Noble plus fashion retailers and restaurants including Carrabba's, Abuelo's and Panera Bread. Abuelo's and Carrabba's will open this year with the remaining shops and restaurants opening in 2007. This project is currently 64% leased and committed. We recently commenced site work for a lifestyle expansion at CherryVale mall in Rockford, Illinois. The 82,000 square foot addition called the District of CherryVale will include upscale fashion retailer Coldwater Creek, Granite City Food and Brewery, Barnes and Noble, along with 10 additional first class stores and restaurants. This project is scheduled for completion in late fall, 2007 and is currently 80% leased and committed.

In Burlington, North Carolina we're under construction on the 622,000 square foot first phase of Alamance Crossing. This development will be anchored by Dillard's, Belk, J.C. Penney, Barnes and Noble, two additional anchors, and will offer shoppers approximately 170,000 square feet of small shops in a restaurant village. The project is currently 85% leased and committed and will open in fall, 2007. The 195,000 square foot phase two is expected to open in 2008. In Milford, Connecticut, construction is progressing on Milford Marketplace, our 112,000 square foot lifestyle center. The project is anchored by a 30,000 square foot Wild Oats and will feature Ann Taylor Loft, Coldwater Creek, Chico's, White House Black Market, Tengda Asian Bistro, and others. The project is 78% leased and committed and is scheduled to open in summer, 2007.

In the third quarter, we announced a number of the small shops joining the Pearland Town Center Development, including Chico's, White House Black Market, Ann Taylor Loft, Coldwater Creek, 346 Brooks Brothers, Tivo, Forever 21 and Hollister. This 700,000 square foot lifestyle center is located approximately 20 miles south of Houston in Pearland, Texas. The center will feature Dillard's and Macy's as anchors, Barnes and Noble, several junior anchors and approximately 300,000 square feet of small shop space. This project will will include hotel and residential components. The retail portion of Pearland is scheduled to begin construction in early 2007 and open in fall, 2008.

We are nearing completion on several of the mall renovations currently underway. Cool Springs Galleria's renovation was completed in May and the other malls will finish their upgrades this month. For 2007, we have mall renovations planned for Honey Creek Mall in Terre Haute, Indiana, Mall del Norte in Laredo, Texas, and Georgia Square in Athens, Georgia. Total estimated expenditures for the three renovations are $34 million. Last week Belk announced that they will be selling several of the Parisian stores they recently acquired. Included on that list are the Parisian stores at Hamilton Place Mall, Laurel Park Place and Citadel Mall. Parisian at Laurel Park Place is being purchased by the Bon Ton. The purchases at Hamilton Place and Citadel Mall have not been announced and we're working closely with Belk in this process.

In the third quarter, we signed a total of approximately 1 million square feet of leases, including approximately 700,000 square feet of leases in our operating portfolio. The 700,000 square feet was compromised of 340,000 square feet of new leases and 360,000 square feet of renewal leases. We also completed approximately 297,000 square feet of leasing for development projects in the third quarter. This compares with 550,000 square feet completed in the operating portfolio in the third quarter, 2005, of which 220,000 square feet were new leases and 330,000 square feet were renewals. For same space leasing of 20,000 square feet we achieved an average increase of 10.6% over the average base rent per square foot in the prior leases. For total leasing, we achieved an average increase of 8.8% over the average base rent per square foot of expiring leases in the quarter.

Stabilized mall occupancy at the end of the quarter was 92.4%. Although this represents a 100 basis points decline from the prior year period, our occupancy rate remains one of the highest in the industry. Total portfolio occupancy at September 30, 2006 declined 70 basis points from the prior year period to 92.6%. Occupancy in the associated centers increased 40 basis points to 94.9% at quarter end. The vacancy created from the decline in community center occupancy was immaterial totaling only 15,000 square feet. With the significant number of openings projected for the fourth quarter, we expect year end portfolio occupancy to be close to last year's.

We have made significant progress on backfilling the 147,000 square feet of vacant Casual Corner spaces. We have over 56% of the space leased and committed at base rent increases of over 20%. We're also making significant progress on the 120,000 square feet of former Musicland space. We have nearly 50% of that space leased or committed. With the former Musicland spaces, we have been achieving generally comparable rents on new leases. The Casual Corner and Musicland closings are still impacting occupancy as over 92,000 square feet of the leased and committed space was not yet opened on September 30. If all of the space we had leased and committed opened by third quarter end stabilized mall occupancy would have been 50 basis points higher.

In addition to the Casual Corner and Musicland space, timing issues and relocation at several of the malls have impacted our occupancy. For example, Turtle Creek Mall in Hattiesburg, Mississippi which has historically maintained 100% occupancy had a 15% decline in occupancy from the prior year. The principle reason for this was that three stores elected not to re-open after the hurricane last year. We have successfully released these three spaces to Hollister, S & K, Forever 21 and Man Alive with openings occurring last month and in November. The timing delay just at Turtle Creek accounted for 10 basis points of the decline in mall occupancy this quarter. There were several other malls where a similar issue occurred impacting occupancy on a temporary basis.

YTD we've been impacted by 46 store closures due to bankruptcies representing 151,000 square feet and $3 million in annual base rents. This compares to 17 stores comprising 37,000 square feet and $867,000 in annual base rent for the prior year period. We enjoyed a 4.5% increase in same-store sales for the YTD ended September 30, 2006 for reporting tenants 10,000 square feet or less in stabilized malls. For the trailing 12 months ended September 30, 2006, same-store sales in stabilized malls increased 5.8% over the prior year to an average of $340 per square foot. Occupancy costs as a percentage of sales was unchanged at 13.4% for the third quarter in 2006 compared with the prior year period. I will now turn the call over to John for our financial review.

Thank you, Stephen. Yesterday, we were pleased to provide our shareholders with a 10.4% increase in our regular common dividend to an annualized rate of $2.02 per share from $1.83 per share. This increase represents our fifth consecutive double digit increase and our 14th consecutive dividend increase. Based on the new 2006 FFO per share guidance that we will discuss in just a moment, we estimate that the FFO payout ratio for 2006 will be between 55% and 57%. During the third quarter, we completed $317 million in four individual new financing secured by four malls.

The new loans are 10-year, non-recourse with a weighted average interest rate of 5.96%. The new loans replaced one fixed rate loan and three floating rate term loans totaling $249.8 million that were scheduled to mature in the first half of 2007. These financings netted $64.7 million of excess financing proceeds that were used to pay down outstanding balances on our lines of credit. As a result of these refinancings, we incurred a one time expense of $935,000 for prepayment fees and the writeoff of unamortized deferred financing costs, which was reflected in GAAP net income and FFO in the third quarter. During the third quarter, 2006 FFO per share increased 8.3% to $0.78 per share from $0.72 per share in the prior year period adjusted from $0.98 [inaudible-- audio cut out] from the $0.26 per share and one time gains in fee income related to the Galileo transaction.

In the third quarter, FFO included approximately $4.9 million or $0.04 per share from lease termination fees, compared with $1.2 million or $0.01 per share in the prior year period. The majority of lease termination fees we received this quarter were related to a theater outparcel at Oak Park Mall in Overland Park, Kansas. We're looking at several possible development opportunities for that outparcel. We would like to note that the $3.3 million in termination fees that we received from this property were not included in the same center pool and there are therefore not included in the same center NOI this quarter. We recorded approximately $3 million or $0.03 per share in gains on outparcel sales in the third quarter 2006, compared with $2.5 million or $0.02 per share in the prior year period.

During the third quarter, we revised the depreciable lives of certain assets and liabilities related to the properties that were acquired in the fourth quarter 2005. This resulted in an increase of $6.3 million in depreciation expense as well as a $0.01 increase in net amortization of above and below market leases for the third quarter. All this quarter, increases in FFO was attributable to external sources. Approximately 27% of the increase in FFO YTD was attributable to internal sources and 73% of the increase was attributable to external sources.

Same center NOI was flat for the quarter and up 2.4% for the nine months. The flat growth in same center NOI was primarily due to a continued loss of rental income from the store closures and bankruptcies we've experienced this year. We've made progress in releasing these spaces, however, we had anticipated the reopening of new tenants to occur at a faster pace. Our leasing team is working to bring in new stores that will not only enhance our previous rental stream but also enhance the mall retail mix. We believe that taking more time with this process will provide for a better tenant mix and greater value.

Additional highlights in the quarter included, G&A represented approximately 3.8% of total revenues compared with 4.5% in the prior year period. Our cost recovery ratio was 102% compared with 103.1% in the prior year period. Our debt to market capitalization ratio was 46.9% at the end of September compared with 42.3%. Variable rate debt represented approximately 10.1% of the total market capitalization at the end of September and 21.6% of total debt. As we maintain an active development pipeline we expect our variable rate debt to continue to be 20% to 25% of total debt. Excluding variable rate debt related to development projects, variable rate debt as a percentage of total debt would have been around 17%.

Our EBITDA to interest coverage ratio at the end of September was 2.51 times compared with 2.83 times for the prior year period. Excluding the effect of the Galileo transaction, the EBITDA to interest coverage ratio in the prior year period would have been 2.62 times. As indicated in our press release, we are providing a guidance range for 2006 FFO per share of $3.33 to $3.38 per share, which excludes the impact of any unannounced acquisitions, future gains on the sale of outparcels, future lease termination fees, and gains on the sale of non operating properties. The new guidance incorporates the $0.03 in outparcel sales achieved in the third quarter, the adjustment to FAS 141 and the $0.04 in lease termination fees which was partially offset by approximately $0.02 in lost rental revenue and recoveries from the lease terminations. The new guidance is based on full year 2006 center NOI growth of 1.5% to 2.5%. Development pipeline continues to ramp up, and additional projects are coming on line. Our existing portfolio of market dominant properties as well as our strong development pipeline will provide us with healthy momentum for the remainder of the year and beyond. Thank you again for joining us today. We appreciate your continued support and would now be happy to answer any questions you may have.

Thank you. [OPERATOR INSTRUCTIONS] We'll go first to Jeffrey Spector with UBS.

Hi Jeff.

Good morning. In August, we read an article that luxury retailers including Louis Vuitton and Tiffany opened in Nashville and many have announced they are seeking to expand outside the major Metro areas. Can you please comment on this? Sure.

This is Stephen. The openings in Nashville you're talking about were at Green Hills which is not a mall that we own but we have had a lot of interest from some of the higher end retailers in coming into some of our malls we just opened Sephora who's done extreme well at Oak Park in Kansas City and Cool Springs in Nashville. We're negotiating with a higher end brands some of the luxury names, like Tiffany's I'm not sure if they're on our immediate horizon but we definitely see a continued upgrading of the tenant mix through our portfolio and that's a continued priority for us.

Okay. And can you just comment on the Musicland and Casual Corner space? You said that you're being patient. You want to fill the space with the right tenants. Can you add a little bit more color on it? Are you trying to -- are existing tenants strong tenants looking to expand. Are you trying to bring in some of these luxury brands?

I'll give you one example at Oak Park in the mall we bought last year in Kansas City. We replaced Casual Corner with Puma and Road who is a fashion men's apparel store out of the Pacific Northwest and Road I think opened in the last week or so. Puma opened in the second quarter. In a lot of cases we are splitting up the spaces because they were bigger spaces and they were smaller users were using them to accommodate some stores that are undersized in the market like American Eagle who's had a real successful run in a couple -- across the board but who wants more state of the art facilities in different malls and also a lot of business with Hollister because of their expansion, so, we're seeing just -- it's hard to say across the board because they're different. But another one in Laredo, Texas, Mall del Norte. We are using part of the space for Sephora which is building off the success that they had at Oak Park . So each one is unique and different, but we're having success, especially the Casual Corner spaces, were better located in the malls.

The Musicland spaces didn't have as high quality of a location. They were more down towards the end zones of the mall. The rental increases that we've gotten haven't been as strong on the Casual Corner spaces but we are seeing continued interest in taking those spaces and we want to get the right tenants in there and maximize the tenant mix at the properties because even though we have an occupancy decrease, our occupancy levels are still relatively high and we expect to end the year in the 94% range and that's a strong level of occupancy. We want to use this opportunity to bring in some better stores.

Okay. Hi and then Scott Crowe here, how are you?

Hey, Scott.

Can you just give us some color if you compare the lease termination fees you got from Musicland and Casual Corner, how did that compare to how much rent you've missed out on since they've gone dark?

The Casual Corner we received lease termination fees of $5.6 million. And that's roughly nine months of rent. So it carried us through a good part of this year. Musicland was a bankruptcy. So there wasn't any lease termination fees associated with that.

Okay. Thank you.

Thank you.

Thanks, Scott. Thanks, Jeff.

We'll go next to Christie McElroy with Bank of America.

Hi Christie.

Good morning. I'm here with Ross Nussbaum as well. John, I was wondering if you could give us a little bit more color on your guidance. You raised the full year number by $0.02. You had about $0.07 in there of the unexpected lease term fees, and land sale gains. Could you break out that $0.05? Was the differential all occupancy driven or was there anything else?

No, I think we looked at our NOI growth that was the major factor in our pulling it down from that standpoint. We basically didn't pull it down, we adjusted it somewhat and granted we did have these lease termination fees, but in turn, as Stephen just pointed out that did impact rental income for awhile. We thought that those NOI growths that we're seeing was just not going to be there as positive as it was earlier on, but we think that for '07 and beyond with these new tenants later in '07 We should see some good NOI growth pickup and with these new projects in the development pipeline coming on, we think that's a good indication.

So the reduction in NOI growth was all occupancy driven or are releasing spreads coming in lower then your expectations?

No, releasing spreads are coming in good, better then what we expected or at a better level then we've had in the past but it's basically been that NOI adjustment.

Okay, and then you said you have the resale brand [inaudible] of Musicland space about 50% leased at this point. How long do you expect it to take you to re-lease the bulk of that space and seeing flat or positive year-over-year mall occupancy?

I think we'll be looking probably into the first half of next year before we're able to get the rest of it done. So, hopefully we'll do better but probably that's what we're looking at.

Okay and then your tenant allowances ticked up in the quarter from the YTD run rate. It looks like you did the same amount of leasing in the quarter as in the prior two year quarters. What was that increase a function of?

We looked at the tenant allowances and it's actually -- if you look at what we had last year, it's down a little bit on a comparable basis. YTD is actually down about 10%, and this is the quarter where we have the most amount of spending because of retailers that are getting open for the holiday season. So, we're spending the tenant allowances now for stores that are under construction that will open in October and early November. So that's why it ticks up this quarter.

Okay and then just finally, a follow-up on that, can you gives us a sense for your total expected CapEx this year, if you expect it to tick up in Q4? I think in the past you have talked about 60 million of tenant allowances, 70 million of renovations and about 50 million of deferred maintenance. Does that still hold?

Yes, that does.

Thank you.

[overlapping voices] Thank you.

We'll go next to Matt Ostrower with Morgan Stanley.

Hi, Matt.

Hi. Just a question for you, John. In your prepared remarks you talks about the occupancy I thought explaining a $0.02 differential in the guidance. You sort of went through the positives, the $0.07 being a few different things, and then you said -- I thought I heard you say -- the $0.02 was tied to occupancy in terms of the reduction. But then in a prior question you were just answering, you tied the whole $0.05 differential to occupancy and NOI. Can you clarify that?

It was just the lease terminations in this quarter, Matt that we're referring to. That was the $0.02.

No, I know, but I thought -- well, I won't belabor it -- I thought at the end of that you talked about the positive. The sort of the $0.07 and there was one little thing that was a positive, and then you sort of said -- I thought you were explaining decline in guidance and you sort of said $0.02. I thought was attributable to occupancy and you were. Answer to a previous question you were saying $0.05 of the effective cut was attributable to that. I just wanted to make sure that was a consistent statement.

What we said from the script is, we said that the new guidance incorporates a $0.03 in outparcel sales achieved in the third quarter, the adjustment to FAS 141 and $0.04 in lease termination fees which was partially offset by $0.02 in loss rental revenues and recoveries from the lease termination.

Oh, in that particular quarter?

That's correct.

Great. And then on a different question. We heard in a couple of other conference calls so far this quarter. At least in the shopping center leverage buyers appearing to diminishing in their demand and that's leading to upward movement in cap rates at least to some degree, in the outdoor shopping arena. When you think about acquisitions over the next year, you've sort of had a hiatus in that activity so far. Are you feeling any more optimistic about your ability to buy property given the departure from the leveraged players out there?

Well, first of all we haven't really seen that as a trend. For example there's a mall in southern Florida, I think it's Southland Mall and there were eight to 10 bids from prior buyers and I think we looked at it and we dropped out pretty early because the pricing went much higher then we thought, so all of those guy we're private leverage buyers and I think that type of money is very much after the mall products. And we haven't seen cap rates adjust, if anything, they've stayed at a very low level and I don't see us getting more active on the acquisitions with the pricing levels like they are at a this point.

I guess that leads to two more quick questions. One is on the JV front. Why would some of your peers in the non-mall arena, anyway are using other people's money to try to make deals happen anyway and the given of asset management is that you have been there before. Is there any reason you're not pursuing that again now just to allow to you stay in that arena?

Yes, I think we wouldn't use that at every opportunity. I think it's a case by case basis as to whether you approach it. As an example, when we bought the Oak Park Mall in Overland, Kansas. A major pension fund wanted to come in and be our joint venture partner in that. We in turn basically felt there was good opportunities to expand, redevelop that mall and increase the NOI significantly, which we're in the process of doing. We felt that there were three specific areas that we focused on as to how we can do that and we're still focused on that and think that those are going to come to fruition, some faster then others. But we didn't see that it made sense to give up 50% to a joint venture partner when we could achieve this NOI growth or this growth in that particular asset for ourselves. So, I think Matt, what we would look at is each opportunity as it presents itself. We would view it as to whether we brought in a joint venture partner on it. Thus far, we have not done so.

In addition to that, our capital structure and our balance sheet is in great shape. So we can do anything that we need to do that makes sense for our shareholders and I think that's what we view and look at as to how we can maximize value for our shareholders and I think that was -- I think that leads to the fact that we've been able, since 2002 to increase our dividends at about a 12% compound growth factor. So, putting all of those factors together we felt that joint venture partners up to this point in time other than for land use or for department store commitments hasn't been on our radar screen. That's not to say we wouldn't do it in the future and not to say we weren't approached by other people who wanted to be joint venture partners.

But, John, is it because of labor putting in would be too much. Taking Steve's example, it sounds like the going in yield will be too low for you to make sense on your balance sheet but if you have JV capital at the ready, I don't understand why that wouldn't make sense in terms of just getting you to a higher initial rate of return? Is it that you would be deploying too little money for the work you would have to do to improve that mall?

I think in that particular instance that Stephen referred to is that we felt that the upside, even for a joint venture partner that we would bring into the transaction didn't provide enough growth for both of us and that's why we backed off. I think that that we would treat any partner with the same type of approach that we would view and would want to make certain they're happy with any acquisition we make and we felt in that particular instance the cap rate was so low and even if you brought a joint venture partner in with the upside potential it wasn't there and it wasn't what we wanted to see.

Okay, and I guess it's a question you've been asked before but I think I'll ask it again. On the buy back front your stock has materially underperformed a lot of the other mall guys. I assume you look at that and assume it's pretty unjust in the terms of the way the market appear to be to be treating malls of your type versus Talbots or higher sales productivity portfolios. If you really believe that, I assume you think you're trading at some kind of discount to NAV. Why wouldn't you start deploying little bit more especially given how clean your balance sheet is these days why wouldn't you deploy money to show people you see the value is there?

I totally agree with your comments from the standpoint of the fact that we're stock price wise and value wise we're definitely under valued and personally, I've been definitely taking advantage of that, by exercising all of my options in buying the stock and Charles has basically been doing the same thing. As I pointed out before, Charles and I and Stephen since '95 have been taking our bonuses and salary increases in stock and so we personally believe that in discussions that we have with our Board of Directors every quarter on that very point we look at what our opportunities are and what the future provides for us and what we see today is that things that are on the radar screen and the fact that our development pipeline is picking up so dramatically, that we think there's just opportunities to redeploy that capital.

That's not to say that each quarter or each month or each day that we don't view that and look at that to see what makes the best sense for our shareholders and we'll continue to do so. We know that a lot of our shareholders are interested in that and we have not turned a blind eye to that and we'll continue to focus on that. But we think what we're doing in our capital expenditures and so on are going to provide great results for us, and give us the ability to continue to see that dividend increase at a double digit rate.

Okay.

We'll go next on Jonathan Litt with Citigroup.

Hi, this is [inaudible] in for John. Earlier you stated that you think that next year same-store NOI growth will be solid, given the re-leasing you have done. Do you have insight on what this number will be? Could you quantify it?

It's a little too early for us to quantify it. We are just finishing up the budgets and getting to the point of looking forward into next year and we do think that some of these steps that we've taken are in the category of one step back, two steps forward, but that we're going to position ourselves for growth in '07 and beyond at the properties, but we're not ready to quantify it at this point.

Okay, and then for bankruptcies, or lease terms for 2007, do you see it falling in the same range of 150,000 square feet or -- where do you see it falling out?

I think what we did -- it's interesting if you look back last year for the full 12 months of last year, bankruptcies were about $2 million. Thus far for the nine months it's been $5.2 million. We think that it's a positive -- that we think things are are going to get better going forward in '07. So, you know it's hard to say what's going to happen on that front but sales are strong. The Journal article this morning pointed out that margins were good and that those retailers are doing well. That's not to say that bankruptcies are all that bad. I mean, it's a short-term blip for us but it gets rid of some of the tenants who are weaker and gives us a chance to put in better tenants as Stephen pointed out what we're doing with the Musicland stores et cetera.

Okay and then in the third quarter you had a deal abandonment cost, which was less than $0.01. Can you give some color on what that was related to?

Yes it was projects that we basically had spent some money on in options and pre-engineering costs and so on that we had written off they are projects that we wrote off. That's developments that we're under development that we basically had option monies out and things where we had viewed making acquisitions, et cetera.

Okay. So, then, do you still think last quarter, you kind of outlined ramping up your development pipeline to 400 to 600 million. Do you still see that as probable in '07/'08?

Yes, I think we're seeing excellent positive results. The Wall Street Journal article of about two weeks to four weeks ago where the regional banks are getting a lot of scrutiny from the Feds as to their real estate exposure has also picked up where a lot of tenants have come to us and wanted to do joint ventures on new development projects, so I think that we should be able to pick up that development pipeline and as indicative in this quarter release is that our pipeline is really pretty robust but we still think that there's still more opportunities to increase that on a going forward basis. So, I think we're pretty positive on it.

Thank you.

Thanks, Alicia.

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

Hi guys. It's actually Joe [Dazio] here.

Hi, Joe.

A couple of quick questions. First, can you give us an early read on Q4 same store performance in particular specialty leasing how that's shaking out?

I think specialty leasing is looking good for the fourth quarter. It's probably up in the 5% range over where we were last year. I think -- I think as indicated by the lower guidance for NOI for the growth, I think we feel that our NOI's will be better then this quarter but not dramatically better, enough to pull us back up to where we had thought the NOIs would be earlier in the year.

Okay and then next question are there any other significant debt refinancings that we should look out for?

We basically have, minimal, for next year about $38 million worth that would be refinancings for next year. So they're minimal. We basically covered that we can refinance some of our term loans that are in place. We're in the process of financing our mall -- our new development in South Haven, Mississippi. Which should close by the end of the year. That was on a term loan or construction loan and they're having great results.

We will basically over finance or over fund that on a non recourse basis and still have an extremely good, positive cash flow. As far as for '08 we'll look for opportunities in our portfolio but we don't have anything that we have to refinance and so we're very positive that's for '07 as well as '08. We'll have some refinancings in '08 more so than '07, but nothing staring us in the face. All of our lines of credit have been extended and we have long-terms on those. Again, our balance sheet is in great shape. We have a lot of liquidity. So we can react very quickly to any opportunity that we see that's going to create shareholder value.

Okay. And then next question. The FAS 141 income sort of doubled from 2Q to 3Q is that the right run rate we should use going forward? It's a little accelerated. It should be $0.02 we made an adjustment and also the lease termination fees pushed it up this quarter. So it should come in around that $0.02 number that we've basically been running. Okay and then last question. Sorry if I missed this during the comments on the predevelopment pipeline but it looks like the square footage at Gulf Coast Town Center phase three, went down a little bit sequentially. Any comments as to what happened there or--?

Yes, the total project is still 1.7 million square feet, phases one, two and three. What we did was we moved Costco into phase two because they're under construction now and they're opening next year. So that increases the square footage of that part of the project.

Okay, got you. Thank you.

Thanks.

We'll go next to Dennis Maloney with Goldman Sachs.

Hey, Dennis.

Good morning, guys. The CapEx figures that you quoted to Christie, earlier, do those hold for '07 as well?

The CapEx should be pretty much flat from what it was this year. The mall renovations is a little bit less because that's 34 million for the three malls that we're planning to renovate next year.

Okay. Great, thank you and just wondering if you guys are far down the path with any acquisitions right now?

There's nothing that-- no, nothing that we can comment on at this point that that's far along.

Okay, and then we're coming up on a year since you took down the Copaken portfolio. I'm wondering if you could give us some color on how the turnaround at Hickory Point and Eastland is going, in terms of occupancy.

We've got -- both of those actually we've had good leasing results and occupancy is up is. The Hickory Point we've had 38,000 square feet of leases that have gone up. That have come on board this year and those are executed now for signature. Some of the stores are Pacson, S & K, Buckle and so that project's made some good progress. Eastland was 85% when we acquired it. It's now 97% leased and we've done a number of deals, some cell phone deals, a new Limited deal. And so we've been able to actually make some really good headway on both of those since the acquisition. And Oak Park, you didn't ask about it but I mentioned a little bit earlier, some of the new leasing we've done there. We're really excited about that.

Sephora, I mentioned. Puma. Road. We're working on a big deal with Forever 21. That'll be really exciting. We did a BMW dealership in the mall right outside of the Nordstrom's that is a real strong addition. It has gotten a lot of good reception from the customers. That's going very well as well and also like John mentioned, we did an early termination of the AMC theater which was an undersized facility and that they wanted to get out and we're doing a redevelopment of the 10 acres where they were relocated into some jobs and restaurants and other type of development. So there's a lot going on with the Copaken portfolio. We're really happy with the acquisition. What we've been able to accomplish since then.

Yes. It sounds great, like very good progress and lastly should we view your 10% dividend hike as your FFO guidance for next year given you are bumping up your dividend payout ratio if I remember correctly?

Well, I think it's what we've been doing and I think that we've had double digit FFO growth since going public except for one year and we're working to try to achieve that double digit FFO growth this quarter and we -- that's definitely our goal.

Great, thank you very much.

Thanks, Dennis.

We'll go next to Lou Taylor with Deutsche Bank.

My questions have been answered.

[overlapping voices] Thanks.

We'll go next to David Fick with Stifel Nicolaus.

Hi. Most of my questions have also been answered. I would like to follow back though on the bankruptcy question. I see you are having worked nicely through much of the Musicland issues and other issues. I am just wondering what do you worry about now in terms of the forward view on the next cycle of bankruptcies and space takebacks in terms of categories? Obviously you can't talk about specific tenants what do you think about in terms of the volume of potential space coming back and what categories that might come in as we look into '07 and '08?

Yes, I think there's a couple of categories I mentioned. Some of them malls have older theaters in them that are not 40, 50, 60,000 square foot state-of-the-art Stadiums those we're going to be and replacing because they're not competitive in today's market. That's kind of in general one category. I think we talked more last call about Limited and some of the releasing and it wasn't really as much as a factor this quarter but I think they've got a lot of big spaces in the malls and it's opportunity for us to work with them and either expand some of their other concepts and bring in new retailers, I don't think there's any type of credit issue with them, but I think it's more just getting the most productivity out of those spaces and that's a big push for us and our whole peer group is increasing the productivity and accommodating the new and growing retailers as much as possible in the malls and even outside the malls.

We just opened PF Chang's here in Chattanooga earlier this year and it's great. It's just a terrific addition to the property but it's bringing a ton of customers to the mall that, even though the restaurant's right outside in the parking lot. The lifestyle additions that we did are really important for us to do that as well both from a competitive point of view and maintaining the dominance of these malls in the market. It never stops. It's not just bankruptcy driven it's trying to maximize the productivity of the spaces.

Do you see any significant [inaudible -- phone ringing] of use in the conversion of parking lots to residential or office with deck parking, that sort of thing that works well in the highly urbanized locations? I think, David, I think that's definitely a potential and possibility.

I think we're getting a lot of inquiries from hotels and people who are interested in adding hotels to our projects. I think that the department stores have likewise recognized that their parking lots are valuable and it's creating joint ventures with us to maximize the value on those as well. I think that we -- malls are just a franchise unto the territories they serve and the interesting thing I think too is that you're starting to see more, at least in our market areas, where we're market dominant in these market areas, we're seeing more assistance and more help and more encouragement from governmental authorities to help us and assist us in trying to make the projects even better. We are the golden goose that's laying those sales tax revenues for them. They want help us and make certain that our projects stay strong. There's no question that the regional mall is alive today and doing well.

Great, thank you.

Thanks, David.

[OPERATOR INSTRUCTIONS] We'll go next to Paul Morgan with FBR.

Hey, Paul.

Good morning. Just looking at the renovations that were opening this fall. If you could just kind -- that's about $70 million, I guess. Kind of characterize the way you view the return on investment for those, I mean I notice that in a number of those markets there -- it looks like sort of competing lifestyle-oriented projects and how you think about the allocation of capital to what might be a defensive renovation?

Yes, each one has got it's own unique circumstance and actually of these, most of them were acquisitions where we had programmed in the renovation when we did the acquisition. That was definitely the case with the Park Plaza in Little Rock which was the largest one we did this year. That mall is on fire. Sales are up roughly 14% this year. It truly will end the year over $500 a foot and this is with a relatively small new lifestyle center that just opened across the street but we really think that the renovation just solidifies that mall. And it's defensive in a respect but it's also offensive and positioning the mall and what we've been able to do in that case is we renewed Banana Republic, we renewed Talbots and we expanded Talbots, so we really were able to solidify and upgrade the leasing. We just did a new Forever 21 in a space that was right adjacent to the food court. There had been a vacant theater when we bought it. So there's just a ton of activity happening at a project like that.

Another one that we're renovating this year, Chapel Hill Mall in Akron which was an acquisition from phase inn. Sales up are up 11% this year with the renovation and it's not the largest remodeling that we did, but it needed some lighting and some upgrading at the entrances. Hartford Mall outside of Baltimore, sales are up 10% and in conjunction with the remodeling we're also taking a part of the food court and some of the spaces along the front of the mall and facing them outward and we're adding a couple of restaurants and some specialty retail. And again -- it does help from a defensive point of view because it keeps out some potential competition by locking up some expanding retailers and it also positions the mall to it have really good NOI growth going forward.

Okay. Great. I might have missed this because my call got cut off at one point. In terms of the retail categories, are there any that maybe you're concerned about heading into the holidays if you think about? I mean, you still have a fair exposure to music and then your jewelry or other concepts?

I think some of the, maybe the home categories have shown some softness this year like Kirkland, or Bombay. But I don't think we're worried. I mean they're still good, strong viable retailers and their sales might not be as strong this year but that's more a function of some of the macro factors in the economy with housing that have impacted them and I don't think we see some of the big red flags like we did last year. We're continuing to work through the music category and there's still questions out there about what it's going to look like going forward out there what it's going to look like going forward a lot of bookstores in our malls we're adding lot of Barnes and Noble in a number of the malls and replacing some of the smaller book stores. That's a process that takes time but having that category in the mall is really important and the Barnes and Noble and Borders have music in them as well and so that might be the way five years from now that we're addressing that category.

Would you say that there's fewer chains that are on the bubble this year going into holidays then there were last year at least in terms of store count?

I think there's fewer, I mean we -- and Casual Corner was a big -- was a big retailer that we knew we were going to have deal with because of some announcements they made and so, I think that's the case.

Okay. Thanks.

At this time we have no further questions. [OPERATOR INSTRUCTIONS]

If there are no other questions, I would like to summarize and say we appreciate everybody spending time with us today and appreciate the questions that were asked and look forward to meeting many of you, if not all of you, hopefully in San Francisco at NAREIT which is coming up next week. So, we should have an excellent NAREIT meeting and we welcome the community to visit with you in person, and again you're always welcome to come visit with us in Chattanooga and we welcome any opportunity to show you our properties in our market dominant areas. Thank you for being with us and have a great weekend.

That does conclude today's conference call, thank you for your participation and you may disconnect at this time.