Exhibit 99.2
Investor Conference Call Script - Third Quarter Ended September 30, 2004
CBL& ASSOCIATES PROPERTIES, INC.
Conference Call, Third Quarter 2004
November 5, 2004 @ 10:00 AM EST
Thank you and good morning. We appreciate your participation in today's
conference call to discuss CBL's 2004 third quarter operating results. Joining
me today is Stephen Lebovitz, the Company's President and Katie Knight, Director
of Investor Relations who will begin by reading our Safe Harbor disclosure.
Katie:
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 upon a fully diluted converted share. Also, references made to
community centers are only those that are wholly owned by CBL & Associates
Properties, Inc. We direct you to the Company's various filings with the
Securities and Exchange Commission including, without limitation, the Company's
Annual Report on Form 10-K and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included therein for a discussion
of such risks and uncertainties.
A transcript of today's comments including the earnings release and additional
supplemental schedules will be furnished to the SEC on Form 8-K and will be
available on our website. Last night we posted the supplemental schedules on our
website which can be found in the investor relations section, under financial
reports. This call will also be available for replay on the Internet through a
link on our website at cblproperties.com. This conference call is the property
of CBL & Associates Properties, Inc. Any redistribution, retransmission or
rebroadcast of this call without the express written consent of CBL is strictly
prohibited.
During this conference call, the Company may discuss non-GAAP financial measures
as defined by SEC Regulation G. A description of each non-GAAP measure and a
reconciliation of each non-GAAP financial measure to the comparable GAAP
financial measure will be included in the earnings release on the Form 8-K.
Stephen's Comments:
Thank you, Katie.
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This past quarter has been a strong one for CBL. We are pleased with the results
of the quarter, particularly in light of our concerns earlier this year
regarding the impact of retailer bankruptcies on our performance. Business
results have been successful across the board including acquisition,
development, leasing and operating performance.
LEASING
On the leasing front, the past three months have been spent aggressively
addressing expiring leases, leasing up developments, and re-leasing the vacant
space that occurred as a result of bankruptcies and store closings. We have made
significant progress, as I will describe.
During the quarter we entered into approximately 626,000 square feet of new and
renewal leases, including approximately 192,000 square feet of new leases and
434,000 square feet of renewal leases. This compares with a total of 480,000
square feet of new and renewal leases completed in the third quarter of 2003.
Leasing for both periods excludes results achieved in the community center
portfolio contributed to the Galileo joint venture.
For the 451,900 square feet of vacant space resulting from bankruptcies and
store closures from June 30, 2003 through September 30, 2004, which accounted
for $8.0 million in minimum annual rents, we have re-leased approximately 46% of
the space and with increases in annual rent per square foot of over 5.6%.
Occupancy for the portfolio, excluding properties contributed to the Galileo
joint venture, was 92.4% at quarter-end, a 130 basis point increase from the
previous quarter and 100 basis points above the prior year period. Notable
lease-up in our three non-stabilized malls was a major contributor to our
overall leasing success this quarter. Based on the leasing success achieved in
the third quarter, we anticipate 2004 year-end occupancy will wind up near
year-end 2003 with occupancy in the range of 94% to 95%.
For the entire portfolio, leases in the third quarter were signed at 20.1%
higher average base rent per square foot than average base rent per square foot
on vacated space.
For the quarter, leasing spreads for comparable space in the total portfolio
were 1.9%, based on initial rents and 3.8% higher based on average rents.
DEVELOPMENTS
On the development side, we have commenced construction on several new
developments, redevelopments and anchor and big box additions. Since the
beginning of 2003, we have added or are in the process of adding over 25 big box
and anchor retailers to more than one third of our existing mall portfolio. Our
deal flow remains strong and we believe you will continue to see promising
developments, expansions, redevelopments and renovations throughout our
portfolio.
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During the quarter we announced plans for the expansion and renovation of
Fayette Mall in Lexington, KY. Fayette is one of our premier super-regional
malls with sales of approximately $500 per square foot. We are extremely excited
about this development. Approximately 148,000 square feet will be added to
Fayette Mall including the construction of a two-level 80,000 square foot Dick's
Sporting Goods and the addition of approximately 53,000 square feet of mall shop
space and two restaurants covering 15,500 square feet. The expansion is
currently 83% pre-leased or committed. Construction has commenced on the
expansion and the renovation is scheduled to begin in January with an
anticipated completion date of October 2005.
Renovation of Panama City Mall was completed this quarter. The multi-million
dollar renovation included updates to lighting, flooring, signage and the food
court, as well as other improvements. Two other malls are currently under
renovation; Cherryvale Mall in Rockford, IL and Northwoods Mall in North
Charleston, SC and both will be completed by the end of this month. Total
renovation expenditures for all three malls, excluding deferred maintenance
expense, will be approximately $23.0 million. We believe the periodic updating
and renovation of our properties is an essential element in enhancing each
mall's dominant position in the community and the consumer's shopping
experience. We find considerable value in performing these renovations on a
timely basis, and we believe that there is a noticeable difference in our
portfolio compared with others that may not take such a proactive approach to
maintaining and updating their malls.
Newly constructed anchors were opened at two malls this quarter: a Rich's-
Macy's at Arbor Place in Douglasville, GA and JCPenney at CherryVale Mall in
Rockford, IL. In October we announced the opening of Dick's Sporting Goods at
both East Towne Mall and West Towne Mall in Madison, WI and this month we opened
a Dick's at The Lakes Mall in Muskegon, MI. We have begun construction on a
Dick's at the associated center located adjacent to Westmoreland Mall in
Greensburg, PA and anticipate opening this store in Spring 2005. These additions
are just one more way in which CBL is able to enhance the portfolio. Providing
an appealing retailer mix and expanded selection keeps consumers coming back to
CBL malls.
Construction of Southaven Towne Center, our 407,000 square foot open-air
development in Southaven, MS is underway. The project is currently 94% leased or
committed. We have announced a number of attractive retailers joining the
development at Southaven, including Kirkland's, Lane Bryant, Pier One, Rack Room
Shoes, Yankee Candle and others. These retailers will compliment the anchor
stores, which include Dillard's JCPenney, Circuit City and Linens N Things. We
believe this development will be extremely successful and will provide a
shopping experience that is currently lacking in the South Memphis area.
Another project we began in the third quarter is the redevelopment of Hamilton
Corner, here in our hometown of Chattanooga, TN. Hamilton Corner is being
redeveloped into a 68,000 square foot upscale, lifestyle shopping center to
include such tenants as Ann Taylor Loft, Chico's, Coldwater Creek, J. Jill,
Bombay Company and a Bonefish Grill Restaurant. We are pleased to bring these
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quality retailers to The Hamilton Place Mall area here in Chattanooga and
believe the unique streetscape format will offer an alluring experience for
local-area shoppers.
In October we purchased land and commenced construction on a 156,000 square foot
open-air shopping center in Chicopee, MA. Chicopee Marketplace is currently over
70% pre-leased or committed with the grand opening slated for August 2005. New
additions to Chicopee's retail line-up include iParty, Sleepy's, Marshall's and
Staples. These stores will join Wal-Mart and Home Depot.
We also recently announced a new development in Royal Palm Beach, FL. The
225,000 square foot Cobblestone Village at Royal Palm Beach is anchored by a
185,000 square foot SuperTARGET and will feature an additional 40,000 square
feet of small shop space. Target opened on October 14th and we plan to open the
small shop space in early summer 2005. The small shop space is more than 70%
leased or committed.
Construction is progressing on the Village Shops, the 75,000 square foot
open-air expansion at Monroeville Mall in Monroeville, PA. Tenants will include:
Barnes & Noble, Ulta Cosmetics, National City Bank, and two restaurants,
Wolfgang Puck's and Johnny Carino's.
At Imperial Valley Mall, our 752,000 square foot 60/40 joint venture with
MGHerring Group in Imperial Valley, CA, we added several new retailers to the
line-up during the quarter, including: Anchor Blue, Baker's Shoes, Pacific
Sunwear and Verizon Wireless. These new additions will join previously announced
stores as well as our anchors, which include Dillard's, Sears, JCPenney and
Robinsons-May. The development is currently over 74% leased or committed. We are
on track for the March 9, 2005 grand opening and invite each of you to join us
at the Grand Opening Celebration and Gala.
Currently, we have approximately 2.1 million square feet under construction,
excluding renovations. This represents a net total investment of approximately
$161.4 million. We are enthusiastic about our development pipeline and the
opportunities we are pursuing and look forward to bringing these and other
projects on-line.
RETAIL SALES
Updating the status of our outlook on the current retail environment, we
continue to see steady improvement in the market as well as in our own
portfolio. Leasing has been strong and retailers are continuing to expand
existing formats as well as develop new concepts. We are in discussion with
retailers about adding their new stores and are eager for the possibility of
locating some of these emerging concepts at our malls. We are constantly working
with fresh new retailers that we believe will blend well with the already strong
retail base of our malls.
Although reports indicated a weaker than anticipated "back to school" season and
sales were impacted from the hurricanes along the Florida and Gulf coasts, our
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stabilized mall portfolio showed strong sales growth. Sales per square foot for
the nine-months ended September 30, 2004 in stores of 10,000 square feet and
less that have reported increased 4.0% over the prior year period. Based on
current reports from our malls, we anticipate a good holiday sales season.
ACQUISITIONS
This has been an extremely busy year for our acquisition team as they have
reviewed a number of acquisition opportunities. Year-to-date, we have closed on
over $700 million in accretive transactions at a favorable weighted average cap
rate of 7.83%. These acquisitions represent six malls totaling 5.3 million
square feet with average sales of $360 per square foot for 2003. Over the past
12-months, we have acquired ten malls totaling approximately 8.0 million square
feet for a total investment of nearly $1 billion. Please note that our cap rates
are based on income in-place. We do not, nor have we ever based our cap rates on
forward 12-month or projected income. We continue to review a significant number
of acquisition opportunities that fit within our investment criteria and
anticipate making more announcements before year-end.
I will now turn the call over to John Foy to discuss our financial results.
John's Comments:
FINANCIAL REVIEW
Thank you, Stephen and good morning everyone.
I will begin with a review of the financial highlights that occurred in the
third quarter:
On a diluted, fully converted basis, Funds From Operations per share for the
third quarter was up 12.1% to $1.30 per share, compared with $1.16 per share for
the third quarter of 2003. Approximately 88% of the growth in FFO this quarter
was attributable to external sources resulting from the acquisition of eleven
malls and three associated centers since the second quarter 2003, as well as
contributions from Coastal Grand, our new mall in Myrtle Beach and other new
developments. The remaining growth was attributable to increases in same center
NOI.
For the portfolio, same center NOI growth for the third quarter was 4.1% or $4.0
million. Major contributors to the growth in NOI this quarter were the occupancy
gains over third quarter 2003 and contributions from specialty leasing, branding
and sponsorship income and tenant reimbursements. Same center NOI in the mall
portfolio grew 3.3% or $3.0 million, associated center NOI declined 0.5% or a
loss of $22,000, community center NOI rose 30.8% or $800,000 and other NOI grew
16.4% or $304,000. The cost recovery ratio was 102.8% for the third quarter and
we would anticipate the year to wind up in the high 90s.
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The following are some specifics of our financial results:
1. We received $0.01 per share of FFO from lease termination fees, flat
from the prior year period. We do not include lease termination fees in
our guidance.
2. Gains from the sale of non-operating real estate contributed $0.02
in the third quarter 2004 compared with none in the comparable period
in 2003.
3. Outparcel sales contributed $42,000 to the quarter or less than a tenth
of a penny. Outparcel sales contributed approximately $837,000 or $0.01
to the prior year period. We do not include outparcel sales in our
guidance.
4. SFAS 141 and 142 - Amortization of debt premiums and above and below
market leases, combined, added $0.05 per share to the third quarter
2004, compared with a negligible amount in the prior year period.
5. Management, development and leasing fees were up 135% in the third
quarter 2004, primarily due to fees from Galileo, the American Express
gift card program and guarantee fee income triggered by the refinancing
of the Coastal Grand - Myrtle Beach construction loan with a long-term,
fixed rate financing.
6. Other income increased by 53% or $1.9 million in the third quarter
2004, primarily due to increased income from our taxable REIT
subsidiary. This was offset by an increase in the Other Expenses line
item of $3.0 million in the third quarter 2004, primarily due to a $1.6
million write off for abandoned projects and increased expense from our
taxable REIT subsidiary.
7. General and administrative expenses were up 14.6% or $1.0 million in
the third quarter 2004, primarily due to increases in personnel
expense. We have added 16 new employees in the past 12-months. As a
percentage of revenue, G&A represented 4.3% of the total revenues in
the quarter, compared with 4.4% and 4.5% for the prior period and
second quarter, respectively. We believe that third quarter G&A
approximates a good run rate for fourth quarter.
DIVIDEND ANNOUNCEMENT
Yesterday, we were pleased to announce a 12.1% increase in our quarterly common
dividend beginning in the fourth quarter 2004 and representing an annual
dividend of $3.25 per share. This increase marks our third consecutive year of a
double-digit dividend increase. We are delighted to continue to extend our many
years of dividend growth and look forward to a long future of increasing
shareholder returns.
Based on FFO per diluted, fully converted share and our common dividend
distributions per share, our payout ratio was 55.8% for the quarter and 58.2%
for the nine-months ended September 30, 2004.
Our total debt-to-market capitalization as of September 30, 2004 was 48.2%
compared with 49.4% as of June 30, 2004 and 46.9% as of September 30, 2003. Our
floating rate debt accounted for 25% of the total consolidated and
unconsolidated debt outstanding at September 30, 2004 and 12% of our total
market capitalization at the close of the quarter. We work hard to maintain a
conservative balance sheet, as we believe it is our job to maximize return on
capital but not take a disproportionate amount of risk. We will continue with
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our strategy of always seeking out opportunities to replace short term, variable
rate financing with longer-term, non-recourse, fixed rate financing. This
quarter, we took the opportunity to replace a construction loan at Coastal Grand
with 10-year fixed rate financing at a very favorable rate of 5.09% for the $100
million securitized portion of this loan.
The interest coverage ratio as of September 30, 2004 was 2.73 times compared
with 2.79 times as of September 30, 2003. The change in coverage was primarily
the result of an increase in the debt level due to the acquisition of ten malls.
CONCLUSION
We view our impressive results, including the 12.0% FFO growth, 100 basis point
increase in occupancy, 4.1% increase in same center NOI as well as other
improving metrics, as a testament to the success of the quarter. We believe we
are well positioned within an improving retail market to continue to achieve
record results and we look forward to returning that success to our shareholders
in the form of dividend increases. We continue to see acquisition opportunities
available and anticipate adding to our portfolio in the coming years with
properties that offer ample opportunity to increase value.
Based on third quarter operating results and our expectations going forward, we
have adjusted our 2004 FFO per share guidance to a range of $5.14 to $5.19 from
a range of $4.98 to $5.03. Included in the guidance is our increased NOI
expectation. We now anticipate NOI growth for the year will be within a range of
2.0% - 2.5%. This increased expectation contributes approximately $0.05 to the
low and high end of our increased guidance. In addition, we have added
approximately $0.08 to the low and high end of our guidance to account for
additional accretion from completed acquisitions and developments, higher than
expected tenant reimbursements and lower cost of capital. We intend to provide
2005 guidance in the fourth quarter earnings release. Please note, that we have
added a section to page ten of our supplemental and will be posting the updated
version to our website following the call.
OUTLOOK
1. We are encouraged by the strong retail sales reports for October,
particularly the gains posted by mall-based specialty apparel retailers
such as The Limited, American Eagle and Abercrombie & Fitch. We expect
to see retailers continue to look to broaden their sales by adding new
stores and rolling out the new concepts they have announced.
2. Our development program is very active with 2.1 million square feet
of projects under construction today and several future projects in the
pipeline. We continue to follow our disciplined approach to new
development by requiring that pre-leasing and investment return hurdles
be met.
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3. Our joint venture with Galileo continues to perform well and our
partners in Australia are enjoying excellent success.
4. This month we completed our eleventh year as a public company. As
indicated by our 12.1% dividend increase, we have a confident outlook
for the coming year and look forward to continuing to grow FFO and our
dividend and to generating superior results for our shareholders.
We appreciate your continued support. Stephen and I would now be glad to answer
any questions you may have.
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