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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 FINANCIAL AND OPERATING INFORMATION - CBL & ASSOCIATES PROPERTIES INC | exhibit993.htm |
Exhibit
99.2
CBL &
ASSOCIATES PROPERTIES, INC.
CONFERENCE
CALL, SECOND QUARTER
August 4,
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 second 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.
Last
month, we welcomed over 120 retailers at our 14th
annual Connection event in Chattanooga. We experienced a 25% increase in
retailer attendance this year and including few new retail names including
Cotton On, Clark’s, Aerosoles, Rue 21, Complete Nutrition and
others. This event has been an extremely successful leasing tool over
the years, providing us with a great opportunity to turn conversations started
at ICSC’s RECon into signed deals. We recognize that the leasing
environment remains challenging and macroeconomic trends have been
inconsistent. However, we are encouraged by the continuation of
positive sales growth, the limited retail bankruptcy activity, and the
retailers’ ability to maintain their improved operating margins.
In part
because of the strong relationships we enjoy with our retail partners, we have
been able to achieve marked improvement in our occupancy rates. Our,
portfolio occupancy advanced 160 basis points and stabilized mall occupancy
improved by 100 basis points compared with last year. Contributing to
this growth was the re-leased box locations taking occupancy in the associated
center and community center portfolio as well as specialty stores continuing to
fulfill their expansion plans and sign new deals. Our occupancy
improvements this year are an indication of the demand that we are receiving
from retailers and their desire to locate in our dominant properties in each
market.
LEASING
During
the second quarter we signed nearly 1.3 million square feet of leases including
1.2 million square feet of leases in our operating portfolio with the balance in
new development. The leases signed in our operating portfolio
included 725,000 square feet of new leases and 480,000 square feet of
renewals.
While we
are far from satisfied, we are encouraged that leasing spreads will improve as
we move into the second half of the year. On a same space basis,
rental rates were signed at an average decrease of 10.9% from the prior gross
rent per square foot in the second quarter. We would point out that
the expiring rents per square foot were about 7% higher on stabilized malls than
the first quarter expirations. There were a few deals that
disproportionately impacted our results this quarter that we thought notable
enough to mention. We signed nine leases totaling approximately
70,000 square feet with two national apparel retailers this
quarter. These nine deals negatively impacted our mall average
leasing spread by nearly 4.5%. The lease terms on these spaces are
two years or less as we intend to back fill the locations at market
rents. We are continuing to sign shorter term deals where the rents
are below where we would like to see them, but with less
frequency. This quarter roughly 40% of the deals had terms of three
years or less compared with 60% in the first quarter and roughly 70% in 2009. We
are pleased by this trend and, excluding the nine deals, feel the lease signings
this quarter overall were healthier than in prior quarters. We are
hopeful that lease spreads will improve through the year as retailer demand
grows and sales gains continue.
RETAIL
SALES:
Same-store
sales showed improvement through the second quarter. Year-to-date we
posted a 2.1% increase compared with the prior year. We are
optimistic that the positive trends will be sustainable for the remainder of the
year with ICSC and the NRF predicting healthy same-store gains from the
back-to-school shopping season and with retailers keeping a close eye on their
inventories.
BANKRUPTCY
UPDATE:
Store
closures due to bankruptcy have been limited year-to-date compared with historic
averages. The only major retailer in our portfolio to file for
bankruptcy protection this year is Trade Secret. We anticipate five
stores closing as a result of their bankruptcy, representing $266,000 in annual
gross rents and comprising 5,000 square feet.
DISPOSITIONS
During
the quarter we completed the sale of our 50.6% interest in Plaza del Sol, a
260,000 square foot shopping center in Del Rio, TX. We are continuing
to explore opportunities to dispose of non-core properties where we see
attractive cap rates. Many of you have seen the reports in the press
on six grocery anchored centers that we are in the process of
marketing. The centers include Settlers Ridge in Pittsburgh, Milford
Marketplace in Milford, CT; West Town Crossing in Madison, WI; Oak Hollow Square
in High Point, NC; Westridge Square in Greensboro; and Eastgate Crossing in
Cincinnati. Given the amount of recent interest and activity in the
grocery anchored space, we thought it would be a good time to test the market
with these six centers. They are all well-located, highly productive
centers with average occupancy in the mid-nineties. Since the process
is on-going it would not be appropriate to discuss any additional details
related to pricing or timing, but we have received strong interest and believe
prospects are promising.
DEVELOPMENT
This week
we commenced construction on second phases of our centers in Burlington, NC and
Pittsburgh, PA. In 2007, we opened Alamance Crossing and have now
started construction on Alamance West, the 210,000-square-foot second
phase. We have executed documents with the anchors, which include a
wholesale club, a sporting goods store and an 80,000-square-foot fashion
anchor. Alamance West is scheduled to open fall
2011. We are also starting construction on a 78,000-square-foot
expansion of Settlers Ridge, which we opened last year. The project
will include Michaels, Ross Dress for Less and an additional junior
anchor. The project will open next spring. The initial pro
forma returns on both of these developments are very healthy in the 9% – 11%
yield range on an unleveraged basis.
Construction
is also progressing on our ground up development in Madison, MS. The first phase
of this 75/25 joint venture community center project includes 110,000 square
feet comprised of three boxes, Dick’s Sporting Goods, Best Buy and Stein
Mart. The project is 100% leased and is scheduled to open later this
year.
I’ll now
turn it over to John for the financial review.
John:
Thank
you, Stephen.
The
strength of the credit markets over the past few months has improved
considerably, including the reemergence of the CMBS market. In June
we announced almost $300 million of financing activity at a weighted average
interest rate of 6.58%. We closed five separate non-recourse loans
including three CMBS loans and two institutional loans. In total,
these financings generated net excess proceeds of $51.5 million. In
July we paid off Parkdale Mall and Parkdale Crossing in Beaumont, TX and
contributed the properties to the collateral pool for our $560 million credit
facility. It was encouraging to receive more reasonable appraisal
valuations on our most recent financings than what we experienced a year
ago. We have three remaining permanent loans maturing this
year, secured by Stroud Mall in Stroudsburg, PA, Wausau Center in Wausau, WI and
York Galleria in York, PA. We expect that Stroud Mall and York
Galleria will be paid off at maturity and contributed to the $560 million credit
facility. We anticipate refinancing or paying off Wausau Center at
maturity.
Last week
we completed the extension and modification of our $105 million secured line of
credit through June 2012. This facility was scheduled to mature in
June 2011. It has been our practice to negotiate an additional
one-year extension of this facility each year. The terms of the
facility stayed substantially the same, maintaining the current interest rate of
300 bps over LIBOR with a rate floor of 4.5%.
As of
June 30, 2010 we had more than $550 million available on our lines of
credit. Our financial covenants remained sound with a debt to GAV
ratio of 54% and an interest coverage ratio of 2.3 times for the rolling twelve
months.
FINANCIAL
REVIEW:
We
reported FFO per share for the second quarter 2010 of $0.49, excluding the
impairment of real estate. We have previously talked about Oak Hollow
Mall in High Point, NC, having negotiated a cash flow mortgage with the
lender. This quarter, the lender indicated that they would be willing
to write down the loan. As a result, we determined that it was likely
that we would sell or convey the property to the lender, which resulted in the
impairment charge of $25.4 million or $0.13 per share. We have
entered into a contract to sell the center and the prospective buyer is
currently conducting due diligence. In connection with the sale we
have reached an agreement with the lender to reduce the $39.6 million loan to
equal the net sales proceeds. When we complete the disposition, we
expect to record a gain on the extinguishment of debt of approximately $27.6
million. When the sale is completed this would provide a $2.2
million favorable impact to FFO for the full-year, net of the
impairment. While we are still in the early stages of the sale, we
anticipate that the sale will close and we will be able to recognize the gain
before the end of the year.
Total
same-center NOI for the malls in the second quarter, excluding lease termination
fees, declined 2.9% from the prior year period. Portfolio same-center
NOI, excluding lease termination fees, declined 3.3% from the prior
year. As expected, NOI is experiencing pressure from the lower rents
on leases signed over the last year. As we have previously indicated,
our expense reduction measures were fully implemented by the second quarter
2009, creating a more difficult comparison. We are optimistic that as
traffic and sales continue to increase throughout the year we will gain traction
in the lease negotiations as well as benefit from improvements in specialty
leasing, sponsorship and percentage rents.
Other
major variances in this quarter’s results included:
A $1.4
million decline in bad debt expense from the prior year period.
A $5.1
million decline in depreciation and amortization expense, which was primarily
the result of the decline in tenant allowance write-offs.
Our cost
recovery ratio for the second quarter was 100.5% compared with 105.8% in the
prior-year period.
Variable
rate debt was 18.3% of total market capitalization at June 30, 2010 versus 17.6%
as of the end of the prior year period. As of June 30, 2010 variable
rate debt represented 26.8% of our share of consolidated and unconsolidated debt
compared with 21.2% at the close of the prior year quarter. Our
variable rate debt has increased over the prior year as a result of the
expiration of $400 million of swaps that were in place in the prior year as well
as borrowings under our $560 million line of credit to pay off certain CMBS
mortgages.
GUIDANCE:
We have
increased 2010 FFO guidance by $0.05 per share to the range of $1.87 to $1.95
per share. The guidance incorporates the net $2.2 million favorable
impact of the impairment of real estate on Oak Hollow Mall this quarter offset
by the anticipated gain on extinguishment of debt later this year. We also
adjusted our guidance to reflect savings from the continued favorable interest
rate environment. Other major assumptions include estimated gains on
outparcel sales of $3.0 million to $5.0 million and same center NOI growth of
negative 1.5% to negative 3.5%.
CONCLUSION:
While we
are never satisfied with negative same-center NOI, second quarter results were
inline with our expectations. We have an optimistic outlook for the
remainder of the year and are focused on returning to positive internal growth
by maximizing opportunities within our portfolio. As the economy
slowly moves forward, retailers are beginning to unveil expansion plans and we
are confident that our portfolio will be an important source to satisfy those
plans. The stability of our markets and profitability of the stores
in our malls is an attractive prospect for retailers as evidenced by our
occupancy improvements year-over-year. We expect that to continue,
and as the supply-demand dynamic moves back in our direction over time, we
anticipate our results will benefit from improved leasing metrics.
Thank you
for joining us today and we appreciate your support. We are now happy
to answer any questions you may have.