Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - CBL & ASSOCIATES PROPERTIES INC | form8k.htm |
| EX-99.1 - EARNINGS RELEASE - CBL & ASSOCIATES PROPERTIES INC | exhibit991.htm |
| EX-99.3 - SUPPLEMENTAL - CBL & ASSOCIATES PROPERTIES INC | exhibit993.htm |
Exhibit
99.2
CBL &
ASSOCIATES PROPERTIES, INC.
CONFERENCE
CALL, FIRST QUARTER
APRIL 29,
2010 @ 11:00 AM EDT
Stephen:
Thank you
and good morning. We appreciate your participation in the CBL &
Associates Properties, Inc. conference call to discuss first quarter
results. Joining me today is John Foy, CBL’s Chief Financial Officer
and Katie Reinsmidt, Vice President - Corporate Communications and 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. 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. During our
discussion today, references made to per share amounts are based upon a fully
diluted converted share basis.
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
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 that is furnished on
the Form 8-K.
Stephen:
Thank
you, Katie.
Over the
past year, one of our strategic priorities has been to stabilize our NOI results
in the face of unprecedented challenges in the economy. While we
would like to see our NOI grow, we were pleased with the 1% decrease in
same-center NOI compared to first quarter last year. The commitment
of the CBL team and the strength of our relationships with retailers and our
financial partners has been an important contributor to this result. During the
first quarter we worked to reinforce these relationships by visiting face to
face with quite a few of our major retail partners. Consistent with a
number of recent news stories, the retailers indicated that they are feeling
better about their business and are more confident that the economy is moving in
the right direction. Similar to the results in our portfolio,
retailers have generated significant sales increases in 2010 year-to-date, which
is encouraging. The important moves that they made last year to
reduce costs and increase margins along with their recent sales increases have
produced better profitability and increased liquidity. As a result,
retailers have openly discussed investing in existing stores and reinstating or
increasing their new store expansion plans. All of these bode well
for CBL and our future lease negotiations as well as our ability to stabilize
and grow NOI at our properties.
While we
are encouraged by these improvements, one quarter of positive sales results was
not enough to significantly improve our leasing spread results. These
spreads, representing comparable leases signed in the quarter, are the result of
negotiations that started months ahead of the signing. Retailers will
need to see evidence of a sustained positive trend in sales before our
negotiating position becomes more favorable. We are hopeful that the
positive sales trends will continue and lease spreads will start to improve
throughout the year.
LEASING
AND OCCUPANCY:
During
the first quarter we signed more than 1.1 million square feet of leases
including 942,000 square feet of leases in our operating portfolio and 197,000
square feet of development leases. The leases signed in our operating
portfolio included 402,000 square feet of new leases and 540,000 square feet of
renewals. Total leasing activity in the operating portfolio was down
slightly from the 1.2 million square feet signed in the prior year quarter,
primarily due to anchor renewals last year. However, we were pleased
to complete roughly 30% more leasing in the mall portfolio
year-over-year.
Compared
with the prior quarters, spreads are trending in the right direction and average
spreads on leases signed with a term greater than five years were
positive. For the first quarter, on a same space basis, rental rates
were signed at an average decrease of 10.4% from the prior gross rent per square
foot. Several retailers have indicated that they plan to renovate
their stores and sign longer terms on renewals which should positively impact
our leasing results. We believe this will continue throughout the
year as the economy recovers. We will also be looking to improve
shorter term deals that we have signed over the last twelve months.
One of
the contributors to our NOI results this quarter was our ability to increase the
occupancy in the portfolio. Stabilized mall occupancy increased 60
basis points to 89.7% compared with the prior year. Total portfolio occupancy
increased 20 basis points from the prior year to 88.8%. We are
maintaining our forecast to achieve a roughly 100 basis point increase in total
portfolio occupancy by year end compared with 90.4% at the end of
2009.
RETAIL
SALES:
It has
been encouraging to see retail sales year-to-date, which positively impacts our
cost of occupancy, allowing retailers in our malls to be more profitable.
Same-store sales in the first quarter for our portfolio increased 4.7% from the
prior year period. For the rolling twelve months ended March 31, 2010
same-store sales were down 3.1% to $316 per square foot. Sales in
March were outstanding, partly due to the shift in timing of the Easter
holiday. Traffic in the malls is up and indications so far for April
are positive as well.
BANKRUPTCY
UPDATE:
This
quarter we experienced limited bankruptcy activity with just a couple of small
retailer filings. Retailers’ balance sheets are now stronger than at
any point in recent years. We are optimistic that this year will
result in fewer bankruptcies and store closures compared with the average for
the past few years.
DEVELOPMENT
Even
though we have scaled back our development program, the 2.5 million square feet
of new projects opened in 2009 and this year are contributing positively to our
FFO results. On March 10th we
celebrated the grand opening of The Pavilion at Port Orange, our open-air center
located near Daytona Beach, FL. The 415,000-square-foot-first phase
opened with a leased or committed rate of more than 92% with anchors including
Belk, Hollywood Theaters, HomeGoods, Marshalls, Michaels, PETCO and
ULTA. The center has been extremely well-received with retailers’
sales well above plan.
In March
we started construction on the first phase of a 75/25 joint venture community
center project in Madison, MS. We converted our ground lease position
into a 75% ownership position in the development. The anchor stores
were very desirous of seeing the project move forward given the strong results
of our recent new development in D’Iberville, MS, as well as the strong retail
demand in the Madison, MS area. The first phase of this project is
110,000 square feet comprised of three boxes, Dick’s Sporting Goods, Best Buy
and Stein Mart. The project is 100% leased and will open in the
fourth quarter 2010.
We are
focusing our development and redevelopment efforts primarily on opportunities
within our existing portfolio. We have a number of phase II projects
at centers we have opened over the last two years that provide opportunities for
future growth. With anchors and box retailers beginning to open up
their expansion plans, we are seeing strong interest in these future
projects. We are also making good progress in releasing our inventory
of vacant boxes and have now leased or committed 50% of the boxes vacated in the
past few years with new users.
I’ll now
turn it over to John for the financial review.
John:
Thank
you, Stephen.
During
the first quarter we raised more than $127 million in a follow-on offering of
our existing Series D preferred stock. We priced the offering at
9.08%, including accrued dividends, or $20.30 per share. Net offering
proceeds were used to reduce outstanding balances on our lines of
credit. The equity raise and cost containment measures that we have
undertaken over the last year resulted in a decline in our overall debt levels
by more than $600 million, or 9% of our total debt, as compared with a year
ago.
We made
excellent progress during the quarter, refinancing our upcoming mortgage
maturities. We refinanced the loan secured by St. Clair Square mall
outside of St. Louis in Fairview Heights, IL. The loan was placed
with a new lender and achieved excess proceeds of approximately $14.0 million
after the payoff of the existing $58.0 million mortgage. The new
$72.0 million non-recourse five-year loan bears interest at a floating rate of
400 basis points over LIBOR. Concurrent with the closing we entered
into a two-year LIBOR cap with a strike rate of 3%, effectively capping the
interest rate at 7%. Year-to-date we have paid off two
separate CMBS loans totaling approximately $47.9 million secured by Park Plaza
Mall in Little Rock, AR and WestGate Crossing in Spartanburg, SC. We
then pledged these assets to our $560 million credit facility.
We are
encouraged by the improvements in the capital markets. We are
actively making progress to refinance our remaining mortgage maturities this
year and are experiencing increased demand from lending institutions including
interest in the re-emerging CMBS market. Interest rates remain
attractive in the 6% to 7% range. We have term sheets or commitments
on the remaining loan maturities for this year and anticipate closing those
loans on or before the maturity date.
As of
March 31, 2010 we had more than $540 million of availability on our lines of
credit. Our financial covenants remained sound with a debt to GAV
ratio at March 31, 2010 of 54% and an interest coverage ratio of 2.32 times for
the rolling twelve months.
FINANCIAL
REVIEW:
As
Stephen said, during the quarter total same-center NOI for the portfolio,
excluding lease termination fees, declined 1.0% from the prior
year. NOI during the quarter continued to benefit from the
incremental improvements in the cost containment program that we implemented in
late 2008 and 2009. We are still experiencing success in controlling
costs; however, most of the measures were in place at the end of 2008 or early
2009 so we anticipate the incremental benefit to moderate throughout the
year. NOI will experience pressure from the decline in rents on
leases signed over the last year. We are seeing some improvements in
leasing spreads and continue to aggressively pursue occupancy. These
steps have allowed us to compensate for anticipated declines in top line
revenue. We are optimistic that as traffic and sales continue to
increase throughout the year we will experience growth in specialty leasing,
sponsorship and percentage rents.
In the
first quarter of 2010, we achieved FFO of $0.49 per share compared with $0.76
per share in the prior year period. FFO in the current quarter was
diluted by $0.31 per share as a result of the 66.6 million common shares issued
in the June 2009 offering and the common shares and units issued as part of the
April 2009 dividend. One-time items impacting FFO in the prior year
quarter included an impairment charge related to the Company’s investment in
China of $7.7 million.
Other
major variances in this quarter’s results included:
Bad debt
expense in the first quarter 2010 of approximately $1.5 million compared with
$2.1 million for the prior year period.
Our cost
recovery ratio for the first quarter was 99.7% compared with 96.8% in the
prior-year period. The cost recovery ratio in the current quarter was
impacted by $900,000 of higher snow removal expense.
Variable
rate debt was 18.9% of the total market capitalization at March 31, 2010 versus
23.3% as of the end of the prior year period. As of March 31, 2010
variable rate debt represented 28.4% of our share of consolidated and
unconsolidated debt compared with 25.3% at the close of the prior year
quarter. We have interest rate caps on 16.3% of our variable rate
debt, limiting our interest rate exposure.
GUIDANCE:
We are
maintaining 2010 FFO per share guidance in the range of $1.82 to
$1.90. Major assumptions in our guidance include outparcel sales of
$3.0 million to $5.0 million and same center NOI growth of negative 1.5% to
negative 3.5%.
CONCLUSION:
As we
have said recently, our ongoing objective is to continue to strengthen our
balance sheet including reducing leverage levels. We were pleased to complete
the $127 million preferred offering during the quarter and continue to prudently
evaluate all of the various sources of capital that are available. We
remain in discussions with possible joint venture partners; however, we are very
selective on the structure and the properties that we would include and believe
it is important to maintain our long-term outlook and operating
philosophy.
We
appreciate you joining us today and are looking forward to visiting with many of
you at the ICSC RECon convention next month in Las Vegas and at NAREIT in
Chicago in early June.
We are
now happy to answer any questions you may have.