CBL & Associates Properties, Inc. (CBL) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to the CBL & Associates Properties Incorporated conference call.

Today's call is being recorded and will be available for replay beginning today at 1:00 PM Eastern time and running through May 10, 2007 at 11:59 PM Eastern time by dialing 719-457-0820 and entering pass code 9349890.

At this time, for opening remarks, I would like to turn the call over to the Vice Chairman and Chief Financial Officer, Mr. John Foy. Please go ahead, sir.

Thank you and good morning. We appreciate your participation on the CBL & Associates Properties Inc. conference call to discuss first-quarter results. Joining me today is Stephen Lebovitz, President, 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 based on a fully diluted converted share. 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 operation included therein for a discussion of such risks uncertainties.

A transcript of today's comments, 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 CBL properties.com.

This conference call is the property of CBL & Associates Properties Inc. Any redistribution, retransmission or rebroadcast of this call without the expressed 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 that is furnished on Form 8-K.

Thank you, Katie.

During the first quarter of 2007, FFO per share was $0.78 compared with $0.83 per share in the prior-year period. FFO per share for the quarter included $0.03 per share of gains on outparcel sales and $0.03 per share in lease termination fees. This compares with $0.01 per share of gains on outparcel sales and $0.05 per share in lease termination fees included in the prior-year period.

As we indicated in our press release, we were not satisfied with the results we achieved this quarter. However, we did have some extraordinary items that we would first like to take a few minutes to review. We believe these items will help to explain the variance between the $0.78 per share that we reported this quarter versus the $0.83 we reported in the prior-year period.

First, FFO was reduced by $800,000, a non-cash income tax provision that was not included in the prior-year period. Second, in the first quarter of 2006, we experienced a recovery of bad debt expense, and in this quarter, we had a charge for bed debt. This negatively impacted first-quarter 2007 FFO by approximately $1.5 million. Third, we lost $2.9 million of income from properties that were sold in the second quarter of 2006. Fourth, we had an additional $400,000 franchise tax this quarter due to changes in state tax laws. This tax is not recoverable from tenants. These items total $5.6 million or approximately $0.05 of FFO per share. Excluding these items, FFO per share would have been approximately $0.83 for the quarter.

Same-center NOI declined 3% during the quarter. Excluding lease termination fees applicable to the same center for the first quarter of 2007 and 2006 of $3.4 million and $5.4 million, same-center NOI declined 1.8% for the first quarter of 2007 over the first quarter of 2006. Several of the same items that impacted FFO also impacted same-center NOI, including the $1 $400,000 franchise tax and the $1.5 million negative variance in bad debt expense. Excluding these negative variances and lease terminations from both periods, same-center NOI for the quarter would have been flat from the prior-year period.

Our cost-recovery ratio for the quarter ended March 31, 2007 was 98% compared with 104.5% in the prior-year period. We expect the cost-recovery ratio for the full year to be in the 100% range. One of the reasons for the decline in the recovery ratio was that property operating expense was impacted by a $1.2 million increase for snow removal. A portion of this expense was recoverable. However, as more and more tenants moved to fixed CAM expense, it will not move in parity with recoveries as they do with pro rata CAM. As a result, some quarters, we will recover more than we expand and in some quarters we will recover less, as a result of higher expenses. Overall, we expect the move to fixed CAM to be a net positive, as we continue to convert more tenants to fixed CAM. At quarter end, we had 60% of our leases converted to fixed CAM.

Additional highlights during the quarter included G&A represented approximately 4.1% of total revenues in the first quarter of 2007 compared with 3.9% of revenues for the prior-year period. Our debt-to-total market capitalization ratio was 46.8% as of the end of March 30, compared with 46.4% as of the end of the prior-year period. Variable-rate debt represented approximately 8.2% of total market capitalization as of the end of March and 17.6% of total debt compared with 25.2% in the prior-year period. Our EBITDA to interest coverage ratio for the quarter ended March 31, 2007 was 2.45 times compared to 2.56 times for the prior-year period.

In mid-March, we completed the $417 million in six separate, permanent financings. The new loans are ten-year, nonrecourse and are individually secured by the Mall of Acadiana, Citadel Mall, the Plaza at Fayette Mall, Layton Hills Mall, and Associated Center, Hamilton Corner and the shops at St. Clair Square. The new loans have a weighted average fixed interest rate of 5.67%. These loans replaced approximately $92.1 million in pre-existing loans secured by five properties with a weighted average interest rate of 6.87%. These refinancings allowed us to greatly reduce our variable-rate debt exposure.

As indicated in our press release, we believe we're on track to meet our previously issued guidance range for 2007 FFO per share of $3.44 to $3.50 per share, which assumes same-center NOI growth of 1.5% to 2.5%. The guidance includes an estimate of $0.10 per share for the full year for the gains on outparcel sales and a $0.05 gross or $0.03 net impact per share for lease termination fees for the full year. The lease termination estimate is net of lost rents from terminated leases. These amounts are estimated based on the first-quarter results, current market conditions, and historical performance and represents our best estimates at this time. The guidance will continue to exclude the impact of any future acquisitions.

I will now turn the call over to Stephen.

Thank you, John.

With ICSC in Las Vegas just around the corner, the entire team here at CBL is busy preparing. We expect record attendance this year, and we are excited about the great pipeline of developments we will the marketing.

In addition to our wholly-owned projects, we acquired a few joint venture partnerships we're working on as well. On of our corporate goals is to reach a development investment of $500 million annually, and we're well on our way to reaching that goal. In 2007, we plan to invest over 365 million in 2.4 million square feet of developments and expansions, marking the largest single-year development investment in the Company's history. In addition, we will invest over $41.5 million in 450,000 square feet of redevelopments.

With the continued growth in our markets, we have a tremendous amount of opportunity to expand existing properties and develop new projects within these areas. In 2007, we have a number of developments slated for completion near or at existing properties. These projects are profitable, help maintain our dominant position and limit the threat of new competitive retail developments.

We've already opened one project within an existing market this year. The Shoppes at St. Clair Square (inaudible) new 84,000 square foot associated centers located adjacent to St. Clair Square Mall in Fairview Heights, Illinois. The Center includes Barnes & Noble, Ann Taylor Loft, Banana Republic and Chico's. It opened in March and is 97% occupied.

A number of other lifestyle additions to our malls are under construction. These include a 39,000 square foot expansion and redevelopment at Hartford Mall in Bel Air, Maryland. The project will add to and convert existing food court space into an exterior-oriented lifestyle wing with additional retail and restaurant offerings. The project is 84% leased and committed and is scheduled for completion in the fall.

At Valley View Mall in Roanoke, Virginia we are adding the District at Valley View, a 75,000 square foot lifestyle expansion. Carrabba's and Abuelo's restaurant opened in late 2006, and the remainder of the project will open in July and will included Barnes & Noble plus fashion retailers and additional restaurants. This project is currently 70% leased and committed.

The District at Cherryvale, our new 85,000 square foot lifestyle expansion at Cherryvale Mall in Rockford, Illinois, is also under construction. The expansion will include Coldwater Creek, Granite City Food and Brewery, Barnes & Noble, along with ten additional stores and restaurants. This is project scheduled for completion in late fall 2007 and is currently 82% leased and committed.

At Brookfield Square in Milwaukee, Wisconsin, Mitchell's Fish Market and Fleming's Steak House recently opened and next year Claim Jumper Restaurant will open. In addition, we are in the process of adding a freestanding Fresh Market and a corner outparcel development with Ethan Allen.

At Southpark Mall in Richmond, Virginia, a 16-screen Regal Cinema is currently under construction and is expected to open in July. Later this year, we will begin construction on a 17,000 square foot expansion to the Mall, including a new food court. The expansion is expected to open in the fourth quarter.

We also have a number of anchor locations that are currently being redeveloped. These redevelopments allow us to enhance the shopping experience and draw of our centers by incorporating new stores and restaurants that otherwise may not have the opportunity to enter the market.

At Parkdale Mall in Beaumont, Texas, Dillard's had two stores in the Mall. We purchased a Dillard's story that was damaged in the hurricane in 2005 and are now building the 50,000 square foot first phase of a new associated center, including a 30,000 square foot Circuit City that is expected to open in the fall. Additional boxes and restaurants will follow in 2008. Dillard's is currently remodeling and expanding their remaining store by 50,000 square feet to a total of 200,000 square feet.

At Northpark Mall in Joplin, Missouri, we are redeveloping the former Montgomery Ward's building for Steve & Barry's TJMaxx. The project will open in the fall.

At Columbia Place in Columbia, South Carolina, we are redeveloping a former J.C. Penney store for Burlington Coat Factory and Steve & Barry's. This redevelopment is also scheduled for completion in the fall. At Westgate Mall in Spartanburg, South Carolina, the former Proffitt's building was recently sold to Costco and has been demolished. Costco is working on building their new store, which will open in August.

At Mall Del Norte, we opened Circuit City last year in the former Ward's building and have a CenterMark theatre under construction for the remaining space. The new 16-screen theatre will open in July.

As far as new developments, in Burlington, North Carolina, construction is continuing on the 655,000 square foot first phase of Alamance Crossing. This development will be anchored by Dillard's, Belk, J.C. Penney, Barnes & Noble, and a 16-screen West End Carousel Cinema and will offer shopper's approximately 170,000 square feet of small shops and a restaurant village. The project is over 85% leased and committed and will open in fall of 2007. The second phase is scheduled to open in 2009.

Opening in September is Yorktown Center, a 270,000 square foot community center located near our York Galleria Mall in York, Pennsylvania. Yorktown Center is anchored by Dick's Sporting Goods, Best Buy, Ross, Staples, Christmas Tree Shops and Bed Bath & Beyond and will included 50,000 square feet of shops and restaurants. This project is 99% leased and committed.

In March, we held the grand opening celebration for the lifestyle phase of Gulf Coast Town Center in Fort Myers, Florida. The 225,000 square feet of small shops space joined Belk, J.C. Penney, Best Buy and Bass Pro. In April, Costco opened. The project opened 97% leased and committed and we're working on a third phase that will included additional junior anchors and small shop space.

In Milford, Connecticut, our new 107,000 square foot lifestyle center Milford Marketplace is scheduled to open in the fall of this year. The project is anchored by a 30,000 square-foot Wild Oats and will feature Ann Taylor Loft, Chico's, White House/Black Market and others. The project is currently 80% leased and committed.

In Palm Coast, Florida, we are developing Cobblestone Village, a 280,000 square-foot project that will be anchored by Belk and Lowe's. The project is 88% leased and committed and is expected to open in October. This area in Florida continues to offer some of the best population growth in the country. With a five-year growth rate of 67%, USA TODAY recently named Palm Coast, Florida the fastest-growing micropolitan area in the country.

Our first mixed-use development is under construction and progressing well. Pearland Town Center will be located 20 miles south of Houston in Pearland, Texas. The project will include over 720,000 square feet of retail space, a court yard by Marriott Hotel, office space and residential. This Center will feature Dillard's and Macy's as anchors, Barnes & Noble, several junior anchors and approximately 300,000 square feet of small shops. A number of exciting retailers and restaurants have committed to the project, including Chico's, Charlotte Russe, Hollister and many more. Pearland currently has more than 61% of the retail portion leased and committed and is scheduled to open in fall of 2008.

For 2007, we have renovations planned for four malls, Brookfield Square in Milwaukee, Wisconsin, Honey Creek Mall in Terre Haute, Indiana, Mall Del Norte in Laredo, Texas and Georgia Square in Athens, Georgia. The total estimated investment for the renovations is approximately $50 million.

During the first quarter, we signed a total of approximately 2.1 million square feet of leases, including approximately 1.2 million square feet of development leasing and 880,000 square feet of leases in our operating portfolio. The 880,000 square feet was comprised of 375,000 square feet of new leases and 505,000 square feet of renewal leases. This compares with 1.25 million square feet of leases signed in the first quarter of 2006, including 450,000 square feet of development leasing and 800,000 square feet completed in the operating portfolio. Of the 800,000 square feet in the operating portfolio, 300,000 square feet were new leases and 500,000 square feet were renewals.

For total small leasing and same-space small leasing and the first quarter, we achieved an average increase of approximately 7% over the average base rent per square foot of expiring leases in the year. Total Mall occupancy at the end of the quarter increased 10 basis points to 91.2% from 91.1% in the prior-year period. Stabilized mall occupancy rose 20 basis points from 91.5% -- to 91.5% from 91.3% in the prior-year period. Total portfolio occupancy declined 30 basis points from the prior-year period to 91%. Occupancy and associated centers was flat at 92% at year-end. Community center occupancy declined to 80.7% from 91.9%.

Timing delays at the couple of our newly opened centers impacted total occupancy in the quarter. At High Point Commons, we opened the anchors but many of the stores are still in the process of taking occupancy. At Gulf Coast Town Center, the project is 97% leased and committed. However, many stores are still completing their buildout. Excluding High Point Commons and Gulf Coast, total occupancy would have been flat from the prior year and mall occupancy would have increased 30 basis points from the prior year.

In the first quarter, we had six store closures due to bankruptcies comprising 20,000 square feet and $690,000 of gross rents. This compares with 42 stores comprising 135,000 square feet and $4.8 million in annual gross rent for the prior-year period.

We were pleased to achieve a 5.4% increase in same-store sales in the first quarter, bringing our rolling 12-month average sales to $345 per square foot for reporting tenants 10,000 square feet or less in stabilized malls. Occupancy costs as a percent of sales was 13.4% for the three months ended March 31, 2007 compared with the prior-year period of 13.6%.

In summary, we are very focused on working to maximize the performance of our operating portfolio. We believe that investing in our properties through expansions, redevelopments and renovations will contribute significantly to future growth. We are also excited about our growing development and joint venture program and see that strategy adding to our bottom line in a more meaningful way over the next few years.

Thank you again for joining us today. We look forward to seeing each of you at ICSC. We appreciate your continued support and would now be happy to answer any questions you may have.

Thank you, sir. Today's question-and-answer session will be conducted electronically. (OPERATOR INSTRUCTIONS). Paul Morgan, Friedman Billings Ramsey.

Good morning. Given the weakness in the internal growth, I just want to kind of get some type of roadmap between -- even ex all of these items, you came up with 0%, which is sort of the third straight quarter. I want to get how we're going to get it from here to where your guidance is for the full year. Would it be -- is it accurate to assume that once -- that the flat growth is due to so much lost space last year and once those -- once you anniversary that, you're going to show higher -- you expect to show higher internal growth in the second half of the year?

Yes, I think that's true. I think, you know, we've seen our portfolio. I think there is a misconception to a certain extent with regard to the leasing spreads. It's because, if you look at what we've been able to do -- is that -- is on the renewals, we basically have been able to keep certain tenants. Then we've gone back and replaced those tenants, and as you can see, those replacement tenants are paying us 30%. So all of that feeds into the fact that we think our guidance that we issued at the end of last year still holds true for this year.

We don't give quarterly guidance. Therefore, we think that's why our guidance for this year will hold.

So I mean, the implication is that you will be able to do basically 3%-ish quarterly internal growth to get to your range for the full year, and you're comfortable with that right now?

Yes, I think some quarters will be greater than that or whatever, but over the full-year period of time, we should see that growth between 1.5 and 2.5%. So needless to say, because we were flat or somewhat down this quarter, we will make it up over the next three quarters.

I would just say also that the occupancy is going to pick up over the course of the year, so I think what you said about there being a little bit of a lag time and as the year goes on, the income from that previous vacancy starting to kick in, will help us as well.

Right, okay. But it's still relatively modest compared to your peers. I just wondered if this is prompting you at all to give any more thought to what many of them are doing with pruning the mall portfolio of some of the centers that are just not really growing very much right now.

Well, I think what we look at, Paul, is return on capital to a certain extent. That's what we look at -- is to maximize that return on capital and what we can do with those projects. So you know, we always look at the portfolio to make determinations as to whether we can best utilize that capital somewhere else by pruning the asset or refinancing it and achieving better results as a result of that. We continually point to Del Rio, Texas, which is our lowest-producing mall. There, our sales per square foot are very, very low, but when you can refinance it and not have the tax impacts, it makes more sense than if you sold that asset. The occupancy in that mall has always been in the high to 90% range. So we look at that. Granted, it does impact the sales per square foot for the total overall company, but if you look at return on capital on those assets and what we can do with those assets, we think that that's the right decision. But again, I emphasize and appreciate your calling it to our attention -- is that if we think we can get a better return on our capital, we will definitely prune our portfolio, as we did with Galileo.

Okay, thanks.

Jonathan Litt, Citigroup.

This is Ambika Goel with Jon. Given that there are several negative one-time items in the first quarter but you are maintaining the full-year guidance, can you go through what the additional positive factors are in the back half of the year that keep you to maintain guidance and same-store NOI growth?

Yes, Ambika, I think we expected what we announced this quarter, and we anticipate that, over the year, we will make a those differences that resulted in this. We think that, as Stephen pointed out, occupancy should go up, we should see a flattening out and get some additional income from our CAM expenses and we will see that disparity in the recovery ratio go away. As we go to fixed CAM, as pointed out in our comments, you are going to see some lumpiness with regard to those recoveries. So I think we have not changed our guidance; we've not changed anything. As we pointed out, we're not satisfied but we also think that we're on course to make what we basically pointed out that we would make.

Okay. Does the same-store NOI guidance of 1.5% to 2.5% include lease term fees and redevelopments coming online?

Yes, it does. We pointed out, in our conference call script here, that we've given you that analysis of what we project that those sales will be for this year, even after all of the gross nets out for lost income as a result of those lease terminations.

Then excluding redevelopments, what would same-store NOI be?

I don't think we have that number, Ambika.

Okay.

It's all factored into our numbers but we don't break that out separately.

But given the timing of those, I mean most of them are coming on in the fall or later in the year, so it really doesn't have that much of an impact on this year. I think the redevelopments, we see the benefit of that over the two to three years after they open.

Jeff Spector, UBS.

Good morning. A question on the fixed CAM -- how many tenants or what percent of your tenants have converted to fixed CAM as of 1Q?

We are right at 60%. I can't tell you the exact number of tenants, but we expected that to continue to increase. So hopefully by the end of the year, we will definitely be up to 70%.

We also -- what we do when we do the fixed CAM conversion is we negotiate fixed increases of 3% to 5% on the fixed CAM amount. Then when the leases come up for renewal, we will go to whatever the current CAM rate is for the Mall. So if there's been some expenses and the CAM rate needs to be adjusted higher, then we will do that when we sign new leases.

You know, one thing we don't do is we don't report gross lease spreads but we do look at that and with the fixed CAM, that helps the total income as well.

We try to increase the fixed CAM portion, because there you get your fixed increases versus just the percentage sales. So that impact the spreads that we also announced. So all of this combined has a definite impact on the spreads that we announced.

Okay. Then a question on occupancy, the tenants that you said had delayed openings. Are we saying that CBL did not receive rents when, even though the tenants -- it sounds like it was the tenant's problem?

No, it wasn't a question of receiving rents; it's just that the opening of the stores is occurring over the first three or four months. So for example, the Gulf Coast, we held a grand opening on March 15 where, like we said, we are committed almost 90%. You know roughly a third of the stores opened. One of the frustrating things about that area is, with all the growth down there, the permitting is taking longer so stores have trouble getting building permits and they are opening in March and April and May. So, that reduced the occupancy as of the end of the quarter.

So were you -- did you not receive rents from the tenants there were delayed?

Correct. We get the rents when the stores open.

Okay. Then can you give any color on the new projects that are coming online late this year and into '08, some sort of guidance on expectation for same-center NOI, first year, second year to the third year to stabilization?

I think what we do there, Jeff, is we basically, in the supplemental, we give you the returns on the nonleveraged basis on those projects.

Bear in mind that in those announcements that we do, we include a management fee as well as a development fee. So there is no comparable, from an NOI basis, on a new development going forward. But what we've seen historically on acquisitions and other projects is we've seen anywhere from a 20% to 40% increase in NOI growth, year-over-year, going forward. We wouldn't see -- it's maybe a little slower in the new developments because you've really push those rents as high as you can, but on acquisitions and things such as that, we've been able to push those up 20% to 40%. NOI growth on a new development we would hope would be at least in the range of 20% or something like that. But that's just a wild guess to a certain extent.

Okay, thank you.

Dennis Maloney, Goldman Sachs.

Could you just -- did you mention what was behind the decline in the renewal leasing spreads?

Yes, Dennis, what happens there was that we did, like at Hickory Hollow Mall in Nashville, we went -- the Limited was about a 15,000 square foot store. We went to a percent in lieu of at that location because we felt that it was very important to keep the lights on in that store to continue to find new and additional tenants.

What's happened historically is that, if you look at examples of where we've done this in the past, is that in the Turtle Creek Mall, we replaced Structure and Express and Limited with Hollister, Forever 21 and American Eagle at higher rents, almost up 100% over what the prior tenants were paying us. We did the same thing at the Asheville Mall where we replaced Express with Gap, Gap Kids and Maternity for like a 43% and 77% higher gross rents. The same thing at Georgia Square. We could go through a lot of those examples. So that's what we are seeing and that's what happened, and that's why we do that oftentimes.

Okay.

Yes, I think a lot of the renewals are more short-term, where we are keeping -- like John said, we are keeping income flowing while we are working to bring in new stores to replace those tenants because their performance is lagging.

Okay, great. Then you mentioned the permanent financings that you did this quarter. What's left to do on the balance sheet over the course of the year?

I think we've basically done most of those. We probably will look at doing Gulf Coast, because we've opened that up, and if what we did on South Haven is any indication of the results that we should have there, it should be extraordinarily good for us. As we did on South Haven, were able to finance almost 100% of our costs on that and still had about a $700,000 positive cash flow. So we would envision, on Gulf Coast Town Center, that we should be able to do that as well. So that's the biggest deal that that we will probably close the remainder of this year, unless we see some other things to occur.

Then you guys mentioned that you were looking to do about 500 million a year in terms of development and redevelopment. How do you think that will break out in terms of development and redevelopment? Then could you offer some comments on your shadow pipeline beyond what's on your supplemental?

Yes, I think it's probably 75/25, 70/30 new development, expansions, redevelopments, so they are both important components. The redevelopments in general, the total dollars aren't as big, although we have a lot of projects going on just at different malls, as I'm sure you heard in my remarks. The shadow pipeline, we can't really comment on it. If you want to come by our booth in Vegas, I'm sure you can learn more.

Okay. Just really quick lastly if you could just comment on the acquisition environment. Obviously there's the large portfolio out there. I don't know if you would have any comments there or comments on anything else that's out there and what might be appealing.

Yes, well there is the pyramid portfolio out there that everyone seems to be linking us to. You know, our position is going to be on that what it's been on everything over the years, which is that we will look at any opportunities that we can that we think are a good fit for us and see if it's something that we want to pursue. In that case, there's not any information out there, so there's a lot of speculation.

You know, I do think that cap rates have continued to stay low and have even maybe gone lower in the past 12 months. There haven't been a lot of Mall transactions but there's still a lot of liquidity, a lot of potential buyers out there and a lot of interest. So we are not expecting, all of a sudden, a favorable cap rate environment, but if we see the opportunities to generate the growth in acquisitions, then we will pursue them.

Great, thank you very much.

Matt Ostrower, Morgan Stanley.

Good morning. Just to make sure I understand, on the same-store NOI decline, that's going to be a product specifically then of the bad-debt decline. There was one other factor also I'm forgetting off the top of my head now. Just can you more specifically explain the decline in same-store NOI?

Then as a second question, you referred -- I guess is the acceleration from here simply a result of those sort of tough comps going away, or as I think, John, you referred it -- one of the other questions, you referred I thought sort of vaguely to a few things that were going to happen. Can you be a little more specific about what is going to be positive in terms of driving the acceleration going forward?

Yes. I think, Matt, you hit it with regard to the NOI -- was that you take those bad debt recoveries and the bad debt expense, that was a significant portion of it. Then you add to that the franchise taxes that we incurred and some possibly increases in property taxes. That all had an impact on it.

As to your second question, Stephen (multiple speakers).

Yes, I do think that part of it is the comparables. Like we said in the press release, the first quarter of '06 had a very high growth in NOI, so as a comparable period, this was a tough period for us. As the year goes on, the increases weren't as high, so that will help our comparable levels.

Are there any specific positives, Stephen, that you can see off in the next nine months? I know you don't want to give quarterly guidance or anything, but are there other things that would help explain, other than the tough comps, or the comps getting easier I guess is another way of saying it -- other than comps getting easier, are there some specific positive things you could point to like some leases that you know that are rolling that are going to really support higher spreads or something like that?

Yes, no, I think the -- I mean our renewal leasing spreads or were not that great a number but the new leasing spreads, the 32% average increase is the best we've ever had. I think that we are going to see more of the benefit of the redevelopments. When we look at the detail, at the renewals this quarter, there's still some bookstores and some music stores that are dragging us down. As our occupancy increases through the year, which it's going to do, then we will be able to take out and replace some of those guys as well. So I mean, we think that the business is good and strong. It's hard to look at our business quarter-to-quarter, and 90 days is a short period. But we think this is going to be a good year and we see a lot of positives in the underlying business.

Okay, great. Then you mentioned that the quarter basically came in according to your expectations. Were there any variances at all in terms of anything other than minor things I guess? Was there anything significant that did vary from your expectations, maybe things that offset each other or --?

No, I think we were basically budgeting pretty close to where we thought we were going to end up. Interest expense was up somewhat. You know, we saw I think LIBORs increase 60 basis points year-over-year. As a result of that, the move-in of tenants impact that as well because we start expensing interest once we get those centers open and operating. So when you don't open as quickly as you'd like to, that has an impact upon it. But you'll see that taken up in the other quarters. As Stephen pointed out Gulf Coast permitting in Florida is a difficult thing for even the small shop guys, so that will pick up and that will improve.

As we pointed out, the development pipeline continues to be ever-fulfilling and it's going to be I think a sweet -- we are very positive with regard to the year. I mean, granted we were not satisfied with these results. We'd always like to meet consensus or beat consensus and things such as that, but that didn't happen this quarter but we think, for the year, our guidance is going to hold true.

Okay. Then I guess just, under the circumstances, rather than asking you about a specific quarter, but under the circumstances, the progression of the year looks pretty linear for the next couple of quarters, going from 78 to 80 and then 83 and then 1.04, consensus-wise. Under the circumstances, do you want to make any comment at all about whether you'd like to see a different progression I guess rather than trying to get you too caught up on one quarter?

No, I don't think -- we're not going to do quarterly guidance. It's just impossible to run a business on a 90-day basis, especially in a business like we are in today.

All indications are -- we read all the reports, BusinessWeek article this week was about the consumer is still busy and active. Another report by Society Generale said that notwithstanding the blowups with regard to subprime mortgages, everything is very positive. Sales, as we pointed out, are up, so we tend to be very positive about this year and positive about our business.

I think that, in the market areas where we are and what we're doing with our malls, we are putting them in great structured positions. We are seeing more and more benefits in these market areas where we are. We see more benefits coming from government health and assistance and new developments through TIF financing and things such as that. As Stephen pointed out, come by and visit our ICSC Booth and you'll see that the traffic and the excitement by the retailers and the projects that we will be announcing at that project and premarketing stages is probably the best we've ever had. With that in mind, I mean, we continue to invest in the companies ourselves.

Okay. I guess just one final question. On the recoveries, it seems like this is the first time at least I've seen where it looks like the fixed CAM might actually work against you to some degree, given the snow-removal costs. Any lessons learned there in terms of making you think about -- or reimbursement levels that you budgeted and are they appropriate under the circumstances? I assume that this is all noise in your eyes but I just thought it was an interesting sort of change there.

Well, needless to say, we would like it to snow a lot less and we don't think it will snow in the second and third quarters. So needless to say, that's the case.

But if you go back and look at our partner, the Cafaro Company out of Youngstown, Ohio has always going on a fixed CAM basis. In conversations with Tony and his people -- is that some quarters it's better than other quarters but by and large, you make money on CAM. It's a positive approach to it and we think that it makes a lot of sense to go to fixed CAM. You're getting those annual step-ups in the 3 to 5% range. So based upon that, we think fixed CAM is very good. This was just a quarter -- and I think you'll see lumpiness when you go to the fixed CAM.

David Fick, Stifel Nicolaus.

We understand the quarter-over-quarter analysis and your hesitancy there, but the same-store NOI issue in terms of lagging the Group has been there for two years. You know, rolling down rents 7%, you know, I hear what you say about that but it really begs the question, why is the underlying store performance lagging? What are tenants saying to you when they demand reduced rents or a percent rent in lieu of fixed rent?

The bottom line for me is what is different about why your malls are performing this way, struggling to keep positive NOI, compared to the other public mall REITs that you compete with?

Well, I think some of it, you know, some of it is you can say that the retailers (inaudible) down in those specific market areas. As we pointed out earlier, in Turtle Creek, when you replace Structure, Express and Limited with the Hollister, Forever 21 and American Eagle, they are doing really well. Their sales per square foot are increasing. If you look at the total overall sales per square foot, it's basically our sales are good. I mean, we've seen increases there.

(inaudible) show up in rents? I hear you on that. That's anecdotal upgrade, which is wonderful, but at the end of the day, those are transactions that are happening over the last two years while you've been sort of pushing this thing upstream to keep or to get some sort of NOI growth that your peer group appears to be getting. So is it a portfolio aggregation thing? You know, one of the earlier questions was should you guys be [calling] and I understand the tax issues associated with that. But it would seem that, on a compound basis, you know, you are really having a difficult time gaining traction over a longer period, not just quarter-over-quarter.

If you look at '05, David, we're coming off some pretty good comps in '05. It was like a 5.7% NOI growth and last year's was in the range of 3% to 4% NOI growth. Granted, you know, don't tell me what you did for me yesterday. What are you going to do for me tomorrow and the next day, going forward?

Right, okay. The same-store sales numbers do look really good. I assume that some of your upgrades are not in those comps yet. The apparel stores have been pretty weak, especially the last couple of weeks of reporting on comps. Where is that growth? What sectors are you seeing or retailer types are you seeing that same-store growth coming from?

Abercrombie, American Eagle, the food operators are doing well. The guys that we're seeing a downturn in is athletic shoes and cards, music and books. Those are basically the same things that have pulled it down. I think, if you've looked at the others, it's basically the same in other people's portfolios.

My last question -- when did the standstill on the Jacobs portfolio burn off?

It was a 12-year standstill and I think we closed that in '01, so it's basically 13.

From a portfolio-management perspective, what does that mean in terms of your ability to call off there?

I think that we can also do 10-31 exchanges with those properties. I think that, if you look at the portfolio, we continue to see NOI growth in that portfolio in the range of 20% to 30% per year. The NOI growth has been impacted in some other areas adversely, but that's -- there are some malls in the Jacobs portfolio -- Town Mall is probably the lowest performer that was in that portfolio. So you know, we are working to do something with that mall to redo that mall and open it up and do more lifestyle with it.

Okay, great. Thanks, guys.

Michael Mueller, J.P. Morgan.

A couple of questions here. First, I know you're talking about stopping by the ICSC booth to get a feel for the shadow pipeline, but I was just wondering. With the goal of 500 million, it looks like you have about 300 million ,350 million coming online this year between what's open already and what should open by year-end. Can you give us any sort of sense as to the '08 openings? Do you think it will be in that ballpark, lower, higher?

I think, for now, you can use that range. I mean, we are hoping some of these projects will come online and will reach that 500 million, but that's a conservative number to use.

Okay, so even though we don't see it in the supplemental, do you think over the next couple of quarters you're going to have projects materialize in there that come out and kind of keep it at least flat year-over-year?

Yes, we are not -- our convention is really not to announce a project until we are starting it or close to starting it, and so we have to start projects in the second and third quarters of this year to get them open in '08. So I think we will be doing that over the next few months.

Okay. Going to the year-over-year occupancy decline on the non-stabilized portfolio, I think it was 350 basis points. Was all of that due to the late openings that you were talking about, or a portion of it?

It was basically the non-stabilized mall, Harrisburg and Gulf Coast.

Okay, so it was those two that really drove that (multiple speakers)?

Yes, Gulf Coast really. Harrisburg is in the community centers, but --.

Gulf Coast, okay. Then last question -- you said same-store would have been flat if you kind of break out the noise of I guess the bad debts, the recoveries, the franchise tax. Was that flat when you strip out lease term as well, the negative impact on lease term?

Yes.

Dave AuBuchon, A.G. Edwards.

Good morning. John, you talked about the generally positive fundamental environment, the returns that you're getting on the developments, the still very competitive acquisition environment and where cap rates are. Is your stock cheap enough to buy here?

Well, I continue to exercise all of my options and buy those, and Charles does the same thing. Since 1995, we individually have taken our bonuses and salary increases in stock.

But from a corporate perspective, obviously?

Yes, from a corporate perspective, we basically look at that on a quarterly -- at each of the quarterly Board meetings, and the Board, at the present, up until the present Board meeting has always felt that, with the pipeline going and the use of the capital, that we didn't need to do a stock buyback and we see the use of that capital. We will continue to discuss that. Our Board meeting is next week and I'm sure that is an agenda item that will be discussed at that time.

Are there any structural hurdles that -- maybe some covenants with debt or anything like that -- that may prohibit you from buying back stock or at least a meaningful portion?

No, we have really significant room in all of our debt covenants. There's no balance sheet or no other restrictions that would prohibit us from doing so. I think it has basically been the view of the directors that the use of the funds, while it could be used versus basically buying back stock today and then needing it 12 to 24 months later because of a great development program going forward and then you're going to pay another 3% to 4% to an investment banker to sell it.

In addition to that, we've been buying back units of these people as they have come available to us, so the people who we've given units to have converted their units. Most of the time, we have been able to buy those back at a discount. So we have bought back some.

Remind me how much capacity you have on your line of credit.

We've got about half of our line of credit still unused, and we can do construction on some -- a lot of projects that would even free up more of it. So there is tremendous success of financial capacity.

Rich Moore, RBC Capital Markets.

What was your guys' occupancy costs during the quarter?

13.4%.

Say it again? I'm sorry, John.

13.4.

Okay. So if retailer sales continue to be as strong as you guys think they will be and as strong as they were in the first quarter, are we seeing that kind of come down because sales are going up but rents aren't necessarily following?

Definitely the case, and therefore what you should be able to do is push those rents up. A lot of that is not being reflected because, as Stephen pointed out, when you go to fixed CAM, you try to allocate as much to CAM because their you're getting your fixed increases. So if you have your choice to explain to the analyst community, you would probably like to push up the spreads from my perspective. But from a corporate standpoint, from what makes the most sense for the Company and for our shareholders, is to push up the CAM expense because 3% off of $5 is better than 3% off of $2. So you'll see that in the negotiations that our leasing people do.

Okay, but in your mind, should we anticipate continued strong growth in same-store sales year-over-year, the kind of 5.4% range that you've had? Is that kind of where this is going?

Yes. If you look at these various reports that you see coming from economists, they don't see the consumer going home -- and that we think that those should hold up in that same range (multiple speakers).

So you would say, I guess, that you don't see anything wrong with the middle markets out there, as far as sales go?

Absolutely to the contrary. I think the middle markets probably can provide you with the greatest growth. As Stephen pointed out, the Florida market area was one of the best from a microeconomic standpoint. If you see where we are located and where our malls are, we are in university towns, medical centers, state governments and things such as that, which are basically resistant to the downturn in the economy.

Also, we are the golden goose that's laying a lot of the sales tax revenues for the local governments, so we're going to see a lot more help from these authorities. You look at Huntsville, Alabama, which is where NASA and all of the technology is growing; you've got Myrtle Beach, where you constantly see the growth and people moving into that market area. I don't think that there's -- we are not in bloom-or-bust economies; we are just in good, slow -- good-growth economies.

But another thing -- the 5.4% was on top of the fact that some of the malls that have been in the Gulf area in Texas that were impacted with the hurricanes have come back down to where they were before. They are up a little above but they had extraordinary 25, 30% increases in that year following because of the rebuilding. Now, they've settled back down to normalized levels, so the 5.4 took that into account.

Okay, very good. Thank you. You know, the development yields in the supplemental, they seem somewhat modest. Should we think of those as conservative, given that there's good retailer demand out there? Maybe some of the rents go higher than you anticipate? Also in conjunction with that, what do you think in construction costs -- are those mitigating at all?

Yes, I think that what we do in the supplemental is that you've got to keep in mind that that's after a 7% development fee and after a management fee and a vacancy allowance in those numbers that we put in there. Also, as an example, in Pearland Town Center, it does not include the revenues from the hotel or off any of the revenues from the office space that we will be adding to that particular project.

Then if you go look at the redevelopments or the expansions on these projects, as an example, the Hartford Mall in Baltimore -- we basically back out any lost revenues or space rental that we get from the tenants when we come up with that number. So the food court there was not producing as the revenues that we thought it could produce by adding this lifestyle wing to it, by putting in restaurants and so on to pick up that traffic. So we took out -- in other words if we had tenants that were paying us $200,000 a year in rent, we subtracted that from the income on the expansion, so it tends to drive down the yields.

Now, I don't know whether or our peers do that or not, but we think that's a proper way to evaluate the project. In that particular situation, we saw that doing this was going to really enhance the traffic flow significantly by bringing in those restaurants and doing those things.

Okay. Do you think, John, that construction costs have moderated somewhat?

Yes, I think that they have flattened out. I think that we are not seeing the push-up in those construction cost that we have. Then I think also people are getting more conscious of the fact of value engineering and things such as that.

Very good. Thank you, guys.

Gentlemen, having no further questions, I'd like to turn the conference back to Mr. Lebovitz for concluding remarks.

Again, I'd just like to thank everyone, and we look forward to seeing you in Las Vegas in a couple of weeks. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may disconnect your phone lines at this time.