Exhibit 99.2
CBL & ASSOCIATES PROPERTIES, INC.
CONFERENCE CALL, FIRST QUARTER
MAY 4, 2005 @ 10:00 AM EDT
Stephen:
Thank you. Good morning. We appreciate your participation in CBL & Associates
Properties Inc., conference call to discuss first quarter 2005 results. Joining
me today is John Foy, the Company's Chief Financial Officer 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. 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:
Thank you, Katie.
The first quarter was a great quarter for CBL with a 23.6% increase in FFO per
share, an impressive 10.7% increase in same-center NOI, a 4.5% comp-store sales
increase, and a 50 bps increase in occupancy. A significant portion of our
success this quarter is attributable to a full quarter contribution from our
2004 activities including 1.9 million square feet of new developments,
highlighted by the opening of Coastal Grand - Myrtle Beach and the nearly $1
billion in acquisitions we completed in the year. We expect that our 2005
development pipeline, which includes over 2.5 million square feet, coupled with
selective acquisitions should contribute meaningfully to the continued growth of
our Company.
DEVELOPMENT
Many of our development projects are the result of our focus on identifying
opportunities within our existing portfolio for re-tenanting, redevelopment,
expansion and renovation. This focus allows us to keep our tenant-mix attractive
and current with the latest trends. To this end, we have opened or have plans to
add big box retailers, "lifestyle" retailers, and restaurant locations at many
of our properties.
A prime example of this strategy is the redevelopment of Hamilton Corner in
Chattanooga, TN. We have redeveloped this Hamilton Place associated center into
a 68,000 square foot lifestyle shopping center offering many national retailers
new to the Chattanooga market including Ann Taylor Loft, Chico's, Coldwater
Creek, J.Jill and Liz Claiborne Shoes. We held the grand re-opening celebration
in mid-March and sales results to-date have been outstanding.
Another example is The District at Monroeville, a lifestyle expansion at
Monroeville Mall located in a suburb of Pittsburgh. We have already opened
several exciting new retailers including a 26,000 square foot Barnes & Noble, a
10,400 square foot Ulta Cosmetics and a Johnny Carino's Restaurant. Additional
committed tenants include Chico's, Coldwater Creek, and Monterey Bay Fish
Grotto.
-1-
Other redevelopments and expansions include the recently opened Tweeter's at
CoolSprings Crossing, the associated center for CoolSprings Galleria in
Nashville, TN. Additionally, in April we opened Coastal Grand's associated
center, Coastal Grand Crossing located in Myrtle Beach, SC, anchored by Lifeway
Christian Bookstore. Later this year we will open a 45,000 square foot, free
standing Dick's Sporting Goods at Citadel Mall in Charleston, SC, a J. Buck's
restaurant at St. Clair Square in Fairview Heights, IL, a Garfield's restaurant
at Stroud Mall in Stroudsburg, PA and a Steve & Barry's at Burnsville Center in
Burnsville, MN. We are adding 18,000 square feet of restaurants and small shop
space to Fashion Square, our community center in Orange Park, FL, which we
purchased in May 2004. The expansion is scheduled to open in July.
We currently have two renovation projects underway for a total investment of
approximately $28.0 million. The renovation of CoolSprings Galleria in
Nashville, TN is expected to be completed in Spring 2006 and the renovation of
Fayette Mall in Lexington, KY is scheduled for completion in the fourth quarter
of 2005. Concurrent with its renovation, Fayette Mall is undergoing a 144,000
square foot expansion including the addition of a two-level, 75,000 square foot
Dick's Sporting Goods, 14,000 square feet of exterior-oriented restaurants and
approximately 55,000 square feet of small shop space. The expansion is currently
over 96% leased and committed.
We also opened one new anchor store during the quarter, JC Penney at Greenbriar
Mall in Chesapeake, VA.
We plan to open or have already opened several new, ground-up developments in
2005. We completed the grand opening of Imperial Valley Mall in El Centro, CA in
March of this year. The grand opening was a success and we are extremely pleased
with the malls performance to-date. Another anchor, the 14-screen UltraStar
Theater opened last week. We continue to hear many positive comments from the
mall retailers and traffic and sales have both exceeded expectations. Occupancy
is currently 88%, with a number of new stores interested in coming into the
mall. We are excited at Imperial Valley Mall's initial success and believe it is
another solid addition to the CBL portfolio.
We currently have two community center developments under construction,
Cobblestone Village at Royal Palm in Royal Palm Beach, FL and Chicopee
Marketplace in Chicopee, MA. Cobblestone Village is a 225,000 square foot
project anchored by Target with approximately 40,000 square feet of specialty
shops opening in July. The project is over 83% leased and committed today.
Chicopee Marketplace is a 152,000 square foot community shopping center that is
currently 93% leased and committed. The center will feature an iParty, Staples,
Marshall's, and Sleepy's and is scheduled to open in September.
In October, we plan to hold the grand opening celebration for the 420,000 square
foot Southaven Towne Center located south of Memphis in Southaven, MS. The
property is currently 90% leased and committed and is anchored by JCPenney,
Linens N' Things and Circuit City with Dillard's opening next spring.
Last week we announced a 50/50 joint venture with The Jacobs Group to develop
Gulf Coast Town Center, a three-phase, 1.7 million square foot open-air shopping
center located in Ft. Myers, FL. Our initial commitment of approximately $41
million funded most of the cost invested to-date by The Jacobs Group. Phase I,
with a total cost of approximately $77 million, is under construction and is
scheduled to open in October of this year. The 425,000 square foot phase I is
98.0% leased and committed and includes a 185,000 square foot Super Target,
Babies "R" Us, Linens N' Things, a 16-screen Regal Cinema, Petco, Staples,
JoAnn's and several thousand square feet of small shop space. Phase II, which
will open in fall 2006, will include the regions first Bass Pro Shop as well as
JCPenney, Belk, and numerous national retailers and restaurants. The overall
project will ultimately feature more than ten anchors and approximately 120
specialty shops and restaurants. The total project is expected to cost
approximately $150 - $180 million and should provide an unleveraged initial
return of 9%. CBL will be responsible for development of Phase II and Phase III
as well as leasing and management of the entire project. We will fund the equity
for this development over and above the financing and will receive an 11%
preferred return on the equity funded. We will also receive management and
financing fees. We are pleased to be partnering with The Jacobs Group on this
project. The Jacobs Group secured an incredible location at the intersection of
I-75 at Alico Road with approximately one mile of highway frontage. The site is
only five minutes from the Southwest Florida International Airport, which is
currently undergoing a major expansion to add 70 gates. Immediately adjacent to
the project is Florida's Gulf Coast University, with an annual enrollment of
6,200 that is projected to double over the next five years. The Ft. Myers/Lee
County area has one of the highest growth rates in the country, with the
majority of housing growth occurring around the I-75 corridor. The population in
the primary trade area increased 97% between 1990-2003 and is projected to
increase 29% through 2010. Gulf Coast will also serve the more than 2.0 million
tourists that visit southwest Florida each year. While we realize there are
questions regarding the competitive dynamics of our project with Simon's Coconut
Point project in Bonita Springs, we are confident that the market has the
capacity and the growth to make both projects successful.
-2-
LEASING
Moving on, leasing is off to a strong start for us in 2005. We accomplished more
than 940,000 square feet of leasing in the quarter, including 388,000 square
feet of new leases and 552,000 square feet of renewal leases. This is a notable
increase from the 673,000 square feet completed in the prior year period with
247,000 square feet of new leases and 426,000 square feet of renewal. Both
periods exclude centers sold to Galileo.
For the first quarter, leases for the same small shop space of 20,000 square
feet and less, were signed at an average increase of 4.3% over the average base
rent per square foot of the prior leases.
Leases for both same space and non-comparable space of 20,000 square feet and
less were signed at an average increase of 6.8% over the average base rent per
square foot of expiring leases in the quarter.
Total portfolio occupancy in the first quarter 2005 increased 50 bps to 91.3%
from 90.8% in the first quarter 2004. Mall occupancy ended the quarter at 91.5%,
a 50 basis point increase from 91.0% occupancy at March 31, 2004. Occupancy in
the associated centers increased 320 basis points to 91.9%. Much of the increase
in occupancy in the associated centers was a result of the completion of the
redevelopment of Hamilton Corner.
Over the past few quarters we have enjoyed a strengthening retail landscape with
fewer bankruptcy announcements and store closures. Since June 2003, 136 stores
have closed totaling approximately 511,000 square feet and representing $9.4
million in lost annual base rent. We have replaced approximately 46% of this
space at increases of 3.3% in annual base rent per square foot.
RETAIL SALES
We were also pleased with our sales performance this quarter and anticipate
continued positive results by our retailers. Same store sales in the first
quarter 2005 for mall tenants 10,000 square feet or less in stabilized malls
increased 4.5% over the prior year.
Occupancy costs as a percent of sales was 13.9% for the three-months ended March
31, 2005 as compared with 14.2% for the prior year period.
ACQUISITIONS
We did not complete any acquisitions in the first quarter. However, yesterday,
we announced that we would be acquiring a 70% joint venture interest in Laurel
Park Place in Livonia, MI for $82.2 million, including closing costs. The mall
is anchored by two upscale, highly productive department stores, Von Maur and
Parisian. Mall sales for 2004 were $409 per square foot, and the tenant mix
features high quality stores such as Williams - Sonoma, Talbots, and Chico's.
The $82.2 million includes approximately $50.9 million of non-recourse debt held
by the joint venture. CBL will receive a preferred return of 100% of the
property's net cash flow. Additionally, we have retained the right to purchase
the remaining joint venture interest for $14.0 million in cash or SCU's of the
Operating Partnership, at our option.
As we indicated on the fourth quarter conference call, the acquisition
environment remains highly competitive. However, as evidenced by this latest
acquisition, we are still confident that we will be able to complete selective
acquisitions.
I would now like to turn the call over to John for the financial review.
John:
Thank you, Stephen.
We are pleased with our first quarter 2005 results. FFO per share was $1.52 for
the first quarter 2005 a 23.6% increase from FFO per share of $1.23 in the prior
year period. Approximately 54% of the increase in FFO was funded from external
growth and 46% through internal growth.
-3-
In response to the letter issued by the Office of the Chief Accountant of the
SEC in February of this year, we reviewed our practices related to accounting
for rent holidays. We determined that while our accounting practices were
consistent with industry standards we would revise our accounting policy going
forward to include the period of rent holidays in the term of the lease over
which straight-line rent is recognized. The results for the first quarter
included an increase of $400,000 in minimum rents as a result of this revision.
This added less than a penny to FFO per share in the quarter. We also determined
that prior period adjustments were immaterial.
FINANCIAL REVIEW
Additional highlights in the quarter included:
A debt-to-total-market capitalization ratio of 44.0% for the first quarter 2005
compared with 44.5% in the prior year period. Our balance sheet remains healthy
providing us with a tremendous amount of flexibility to complete transactions
and grow our company. Variable rate debt comprised 9.9% of total market
capitalization at quarter-end and 22.5% of total debt. With our active
development program, variable rate debt will remain at this approximate level.
Our EBITDA to interest coverage ratio was 2.9 times for the first quarter 2005
compared with 2.8 times in the prior-year period.
For the first quarter G&A represented 4.4% of total revenues in the quarter.
This compares favorably with 4.8% in the prior year period.
Same-center NOI rose 10.7% over first quarter 2004. The $12.2 million increase
in same-center NOI is attributable to several factors including:
o Properties acquired in 2003 were included in the same-center
comparison this quarter. For these properties we received $1.0
million in percentage rents in the first quarter of 2005 compared
with none in the first quarter of the prior year.
o In the first quarter 2004 we took approximately $4.7 million in
bad debt reserve and other charges against revenue. Since that
time we have had greater than expected recoveries of $1.4
million. The overall result is a $6.1 million positive swing.
o $400,000 of base rent increase was a result of the rent holiday
adjustment.
The remainder of the increase resulted from increases in occupancy, specialty
leasing and sponsorship income, rental rates, and contributions from other
comparable portfolio improvements.
Our cost recovery ratio was 102% in the first quarter 2005 compared with 94% for
the first quarter 2004. The increase in recoveries was primarily a result of:
o Occupancy increases and profit from utility reimbursements from
the tenants at the newly acquired malls and from the existing
malls due to the implementation of efficiency optimizing utility
systems.
o As we stated earlier, we were successful in the recovery of bad
debt expenses and other charges to revenues that were recorded in
prior periods, thus reporting a favorable variance of $6.1
million.
On our last conference call we were asked how much of our CAM reimbursements
come from the recovery of capital expenditures. We have performed an analysis
and have determined that on average 4.5% to 5.0% of our reimbursements are
attributable to the depreciation of capex. This estimated range was derived
based on 2004 results and is consistent with historical levels.
-4-
GUIDANCE UPDATE
As noted in our earnings release we have increased our earnings guidance to
account for first quarter results. We are increasing our guidance to a range of
$5.88 to $5.96 per share from the previously issued range of $5.66 to $5.74. Our
guidance does not include any acquisitions, outparcel sales, gains from the sale
of non-operating properties, or termination fee income. The guidance assumes NOI
growth of 3% - 4% for 2005, a 100 bps increase from our prior guidance.
Additionally, our guidance does not include the acquisition of Laurel Park,
which we announced yesterday. We anticipate that this acquisition will add
approximately $0.03 to FFO per share in 2005 based on the transaction closing
within the next 30 days. We will include this transaction in our second quarter
guidance updates.
CONCLUSION
We believe that the healthy momentum we gained in the first quarter 2005 will
continue. With over 2.5 million square feet of developments coming on-line in
2005, this is one of our biggest development years as a public company. With
approximately 800,000 square feet of developments already announced for 2006,
including Phase II of Gulf Coast Towne Center and Lakeview Point in Stillwater,
OK, we already have a great foundation for growth in 2006. We are continually
looking at new possibilities and avenues of growth for our Company.
Thank you again for joining our call today and Stephen and I would be happy to
answer any questions you may have.
-5-