Exhibit 99.2
CBL & ASSOCIATES PROPERTIES, INC.
CONFERENCE CALL, FOURTH QUARTER
FEBRUARY 9, 2006 @ 10:00 AM EDT
Stephen:
Thank you and good morning. We appreciate your participation in the CBL &
Associates Properties Inc., conference call to discuss fourth-quarter and
year-end 2005 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.
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 adjusted to account for the 2-for1 stock split of the Company's common
stock and based upon a fully diluted converted share. Also, references made to
community centers are only those that are wholly owned or owned in partnerships
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.
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Stephen:
Thank you, Katie.
In 2005, our focus and hard work paid off, allowing CBL to post another year of
strong results. Through our investing activities we focused on creating and
enhancing value in our properties. This value flowed through to our shareholders
in the form of a 12.6% dividend increase and a one-time nine-cent special
dividend. Our success in the year was the result of a number of factors:
o We achieved strong internal growth through occupancy gains and rental rate
increases.
o We completed over $1.0 billion of value-added acquisitions and joint
ventures that provide both near-term and long-term growth potential.
o We opened a near record 2.5 million square feet of new developments
and completed the timely and profitable sale of our Australian joint
venture.
Although we are proud of our accomplishments in 2005, we have already set our
sights on achieving another year of strong growth in 2006. We realize that our
performance over the years has only set the bar higher for future results and
our goals and targets are focused on continuing this growth. We are committed to
maintaining our proactive approach and building on our past accomplishments.
DEVELOPMENT:
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2005 was a phenomenal year for CBL on the development front. We invested over
$280.0 million in approximately 2.5 million square feet of new and redevelopment
projects which opened in the year. Major developments included our first
California property, Imperial Valley Mall in El Centro, CA; Phase I of Gulf
Coast Town Center in Ft. Myers, FL, our joint venture development with the
Richard E. Jacobs Group; Southaven Town Center located near Memphis, TN in
Southaven, MS - which opened 100% leased and committed; as well as a number of
other exciting projects.
Going forward, we have announced over 1.6 million square feet of new
developments and redevelopments scheduled to open in 2006, comprising a total
investment of approximately $220 million. In addition, we have already announced
nearly 1.9 million square feet of projects opening in 2007 and beyond and expect
to announce additional projects in the coming months.
In November, we celebrated both the Grand Opening of the 440,000 square foot
Phase One and the ground breaking for Phase Two of Gulf Coast Town Center, in
Ft. Myers, FL. Once completed, this development will feature a total of 1.7
million square feet of retail and restaurants. Phase Two contains approximately
740,000 square feet and includes the regions first Bass Pro Shop, as well as
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JCPenney, Belk, Borders, Best Buy, Ross Dress For Less, with more tenant
announcements to follow. Early in 2007, we will open a 156,000 square foot
Costco with approximately 50,000 square feet of additional shops and restaurants
following later that year.
High Point Commons, our 297,000 square foot shopping center development in
Harrisburg, PA is a 50/50 joint venture with High Real Estate Group of
Lancaster, PA. The community center will feature Target and JCPenney as well as
approximately 73,000 square feet of shop space. The project is scheduled to open
in October 2006.
In Stillwater, OK, we began construction on a 207,000 square foot community
center, which will be anchored by Belk, Ross Dress for Less, Linens N' Things,
and two additional junior anchor stores. The center will offer shoppers over
70,000 square feet of shop space and is scheduled to open in October 2006.
Also under construction isThe Plaza at Fayette Mall, a 190,000 square foot
associated center adjacent to Fayette Mall in Lexington, KY. Phase One of the
project will include a 59,000 square foot 16-screen Cinemark Theater,
approximately 14,000 square feet of small shop space and several restaurants.
This project is expected to open in Summer 2006. Construction for Phase Two,
comprising 117,000 square feet, will commence later this year.
At our recently opened Southaven Towne Center, located just South of Memphis in
Southaven, MS, we will open a 159,000 square foot Dillard's in March, followed
by a 59,000 square foot Gordmans in April and a 15,000 square foot
Books-A-Million later this year.
We have announced several projects opening in 2007 and 2008, including The
Shoppes at St. Clair Square in Fairview Heights, IL, where construction
commenced in the fourth quarter. This 75,000 square foot associated center will
be located next to the 1.1 million square foot St. Clair Square Mall and will
open with retailers such as Barnes & Noble, Ann Taylor LOFT, Aveda, Chico's,
Coldwater Creek, J. Jill, Joseph A. Banks, Talbots, and other exciting stores.
The development is approximately 70% leased and committed and is scheduled to
open in Spring 2007.
Sitework has commenced for Alamance Crossing, an 870,000 square foot open-air
center located in Burlington, NC. This development will feature six anchors and
approximately 190,000 square feet of small shops and is scheduled to open in
2007.
In 2008, we plan to open another open-air project. The 700,000 square foot
Pearland Town Center will be located near Houston in Pearland, TX. This center
will feature Dillard's and Macy's, several junior anchors and approximately
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300,000 square feet of small shop space. This project will also include office,
entertainment, hotel, and multi-family components.
We have always placed a great deal of importance on keeping our malls fresh and
up-to-date. In keeping with this, we recently announced a total of eight mall
renovations to be completed in 2006. Including the previously announced
renovation of CoolSprings Galleria in Nashville, TN, Chapel Hill Mall in Akron,
OH; Harford Mall in Bel Air, MD; Honey Creek Mall in Terre Haute, IN; Madison
Square in Huntsville, AL; Northpark Mall in Joplin, MO; Park Plaza in Little
Rock, AR; and Wausau Center in Wausau, WI. Total renovation costs are estimated
at $69.2 million. CoolSprings Galleria's renovation will be completed in May
with the other malls finishing their upgrades this fall.
LEASING:
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For 2005 we signed approximately 2.7 million square feet of leases in our
operating portfolio, including 1.1 million square feet of new leases and 1.6
million square feet of renewal leases. This compares with 2.5 million square
feet completed in 2004, of which 1.0 million square feet were new leases and 1.5
million square feet were renewals. In addition to the leasing completed in our
operating portfolio, we also completed approximately 1.8 million square feet of
leasing on development projects in 2005. This compares with approximately 1.6
million square feet of leasing on development projects in 2004.
We disclose spreads in two different ways: total leasing and comparable space
leasing. Both are for leases on shop space of 20,000 square feet and less.
For total leasing, we achieved an average increase of 9.3% over the average base
rent per square foot of expiring leases in the year.
For comparable space leasing, we achieved an average increase of 6.5% over the
average base rent per square foot in the prior leases.
As a result of some of the comments we received from our analyst survey, we have
implemented some changes to leasing information included in our supplemental
package. We have removed the extraneous information while still providing a
complete picture of our leasing activity.
Maintaining high occupancy in our malls as well as the right mix of goods and
services is very important in creating an inviting and exciting environment for
our mall customers. In some cases retaining certain tenants in order to enhance
the tenant mix is as important as growth in rental rates and as such can impact
the renewal spreads in the short term. In our new leases we have been able to
achieve substantial double-digit increases, which we believe is indicative of
the strength of our malls.
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Total portfolio occupancy at year-end 2005 increased 50 bps to 94.5% from 94.0%
at the end of 2004. Stabilized mall occupancy at the end of 2005 was 94.7%, a 30
basis point increase over the close of 2004. Occupancy in the associated centers
increased 240 basis points to 94.1% at year-end.
BANKRUPTCY UPDATE:
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ICSC recently noted in their Retail Real Estate Business Conditions that
store-closing announcements in 2005 were down 33% from the prior year making
2005 the lowest level since ICSC began compiling the data. This rang true in our
portfolio as well. For 2005, 23 stores closed due to bankruptcy, representing
97,000 square feet and $1.1 million in annual base rent.
Unfortunately, 2006 has started off with a number of significant bankruptcy
filings. In January, Musicland filed for Chapter 11 bankruptcy protection. We
currently have 53 Suncoast Motion Picture and Sam Goody stores comprising
179,000 square feet and $4.0 million in annual base rent. Musicland recently
announced that they would be closing a number of stores and a Court approved
list was issued. In our portfolio there were 21 stores comprising 81,400 square
feet and $1.8 million in annual base rents included on the list. Three stores
included on the list had lease expirations as of the end of January. As the
Musicland filing does not come as a complete surprise to us, our leasing teams
have been working for several months to find replacement tenants and have lined
up retailers to take several locations.
G+G Retail, the owner and operator of Rave, recently filed for bankruptcy
protection. We currently have 42 Rave locations totaling 101,000 square feet and
representing $2.3 million in annual base rent. Wet Seal and BCBG have announced
that they are interested in acquiring the retailer. Wet Seal has done a great
job of turning their company around and we view the possible acquisition by
either retailer favorably.
Although they did not file for bankruptcy protection, Retail Brand Alliance has
closed their Casual Corner and Petite Sophisticate stores. We have 26 locations
comprising 147,000 square feet and representing $3.4 million in annual base
rent.
RETAIL SALES
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Holiday sales were healthy this season. Same store sales for 2005 for mall
tenants 10,000 square feet or less in stabilized malls increased 4.1% over the
prior year to an average of $331 per square foot. A number of our malls along
the Gulf Coast benefited from increased demand resulting from the aftermath of
the hurricanes.
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Occupancy costs, as a percent of sales, were 11.8% for 2005, compared with 12.0%
in 2004.
I will now turn the call over to John for our financial review.
JOHN:
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Thank you, Stephen.
ACQUISITIONS:
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As Stephen noted earlier, in 2005 we completed the acquisition and joint venture
of seven malls totaling over $1.0 billion including approximately $780.0 million
completed in the fourth quarter. As the acquisition environment has become more
challenging, our strategy is to continue to maintain our focus on acquiring
properties that are dominant in their markets and offer significant long-term
growth potential. With the number of opportunities available to us in our
existing portfolio of dominant mall properties, we believe we will be able to
continue to garner significant growth through expansion and redevelopment.
Oak Park Mall in Overland Park, KS, is a prime illustration of the potential
available within our existing portfolio. The recent acquisition of Oak Park not
only broadens our retailer base, but also presents a number of opportunities for
additional near-term growth through new leasing, specialty leasing and
sponsorships, as well as long-term growth through redevelopment and expansion.
STOCK REPURCHASE PLAN:
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In December, we completed our previously announced stock repurchase plan. In
total, we have repurchased 1,371,034 shares at an average cost of $40.11 per
share. We have retired these shares.
FINANCIAL REVIEW:
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During the fourth quarter 2005, FFO per share increased 6.0% to $0.89 per share
from $0.84 per share in the prior year period. For 2005, FFO per share increased
23.2% to $3.34 from $2.71 in the prior year period. As previously announced, we
recorded a one-time charge of $5.2 million or $0.045 per share of FFO in
prepayment penalties and write-off of unamortized deferred financing costs in
the fourth quarter, as a result of favorable refinancing activity. Additionally,
FFO per share for the year included approximately $30.0 million or $0.26 per
share in one-time gains and fee income resulting from the recent transaction
with Galileo America, LLC. Excluding the prepayment penalty and the gains from
Galileo, FFO per share for 2005 would have increased 15.3% over the prior year
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period. In 2005, excluding the prepayment penalty, 31% of the increase in FFO
was attributable to internal sources and 69% from external sources.
Additional highlights for the quarter and year included:
o Same center NOI increased 3.1% for the quarter, and 5.8% for the year.
o For the year, G&A represented approximately 4.3% of total revenues,
compared with 4.5% in the prior year period.
o Our cost recovery ratio was 103.2% for 2005 compared with 102.1% in the
prior year period.
o Our debt-to-total market capitalization ratio was 47.8% at the close of
2005 compared with 42.4% at the close of the prior year period. Variable
rate debt represented approximately 11.5% of the total market
capitalization at year-end and 24.0% of total debt.
o Our EBITDA to interest coverage ratio at the end of 2005 was 2.87 times,
compared with 2.85 times for the prior year period.
o Outparcel sales were $0.01 in the quarter compared with $0.01 in the prior
year period and $0.11 for 2005 as compared with $0.03 for the prior year
period.
o Gains on sales of non-operating properties were $0.00 in the fourth quarter
and $0.03 in the year, compared with $0.02 and $0.04, respectively, in the
prior year periods.
Please note that we have reclassified certain prior period amounts in our
consolidated financial statements of operations to present marketing fund
revenues and expenses on a gross basis in accordance with Emerging Issues Task
Force Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an
Agent. As a result, the following amounts in our consolidated statements of
operations have changed from the previously reported amounts for the three
months and year ended December 31, 2004: tenant reimbursements have increased by
$9.5 million and $27.3 million, respectively, other revenues have decreased by
$0.8 million and $3.1 million, respectively, and property operating expenses
have increased by $8.7 million and $24.2 million, respectively. This
reclassification did not change our previously reported amounts of net income
available to common shareholders and funds from operations.
GUIDANCE UPDATE:
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As indicated in our press release, we are providing an initial guidance range
for 2006 FFO per share of $3.28 to $3.33 per share, which excludes the impact of
any future unannounced acquisitions, lease termination fee income, gains on
sales of outparcels, and gains on sales of non-operating properties. We expect
2006 same property NOI growth to be in the range of 2.5% to 3.5%.
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CONCLUSION:
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As we hear talk of a cutback in consumer spending and the effect that will have
on malls, we would like to reiterate our continued confidence in our dominant
mall strategy. Over the years, we have been extremely selective in choosing to
acquire or build properties that are the foremost retail facility in a defined
trade-area. In addition, we look for markets that are healthy, growing and boast
a diverse employment base. Our properties are often in state capitals,
university towns, or are a regional hub for healthcare and other services. They
are well insulated from the boom or bust phenomenon created by the swings in the
economy. Over the years, through various stages of economic health, our strategy
has consistently been proven right and as a result we have been able to provide
our shareholders with impressive growth. Despite this track record of success,
there are still a few skeptics that continue to insist that our markets and
properties are more susceptible to decline during an economic downturn. We have
found that this simply isn't true. Our properties are an embedded and vital part
of the communities they serve.
We would like to invite everyone to join us for a tour of three of our market
dominant properties on April 4th in Raleigh, North Carolina. We will be visiting
Cary Town Center, Cross Creek Mall, and Triangle Town Center. Following the tour
we will host a dinner featuring guest speaker, Bill Wilson, EVP of real estate
and store planning for Belk Department Stores. We hope you all will have the
opportunity to participate.
Thank you again for joining us today, we appreciate your continued support and
would now be happy to answer any questions you may have.