Cogdell Spencer Inc. Q2 2010 Earnings Call Transcript

Cogdell Spencer Inc. Q2 2010 Earnings Call Transcript
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Cogdell Spencer Inc. (CSA)

Q2 2010 Earnings Call Transcript

August 6, 2010 10:00 am ET

Executives

Dana Crothers – IR

Jim Cogdell – Founder and Chairman

Frank Spencer – President and CEO

Chuck Handy – SVP, CFO, Secretary and Treasurer

Scott Ransom – President, Cogdell Spencer ERDMAN

Analysts

Karin Ford – KeyBanc

David Shamis – Citi

Dan Donlan – Janney Montgomery Scott

Jordan Sadler – KeyBanc

Presentation

Operator

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Good morning, and welcome to the Cogdell Spencer Incorporated Q210 earnings call. All participants will be in a listen-only mode. (Operator instructions). Please note this event is being recorded.

I would now like to turn the conference over to Ms. Dana Crothers. Please go ahead.

Dana Crothers

Thank you so much. Welcome to Cogdell Spencer’s second quarter 2010 conference call. The press release and supplemental disclosure package were distributed yesterday afternoon, as well as furnished on Form 8-K to provide access to the widest possible audience.

In the supplemental disclosure package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements.

If you did not receive a copy, these documents are available on the company’s website at www.cogdellspencer.com in the Investor Relations section. Additionally, we are hosting a live web cast of today’s call, which you can access in the same section.

At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although Cogdell Spencer believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained.

Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in yesterday’s press release and from time to time in the company’s filings with the SEC. The company does not undertake a duty to update any forward-looking statements.

With that, we would like to begin the call with Jim Cogdell, our Founder and Chairman of the Board. Jim?

Jim Cogdell

Good morning. Welcome to our second quarter 2010 earnings call. Joining me this morning are Frank Spencer, Chuck Handy, and Scott Ransom. After our review, we will be available to answer your questions.

Before we discuss the second quarter results, I want to give a status update of several ongoing projects. Last month, we completed both the HealthPartners Medical & Dental Clinics; Minnesota Clinic; and Sartell, Minnesota, a suburb of St. Cloud, and University Physicians in Grants Ferry, and Flowood, Mississippi, a suburb of Jackson.

In July, we broke ground on two new projects at the Northwest region, associated with Good Samaritan Hospital in Washington State. These two projects are scheduled for completion during the second half of 2011. We are very pleased that Medical Pavilion at Howard County our Design-Build project with Johns Hopkins and Columbia, Maryland recently received Silver LEED Accreditation. Take a tour of the facility on

www.cogdell.com

.

I like to turn the call over to Frank Spencer now to give us a detailed review of the quarter.

Frank Spencer

Thanks Jim. Good morning everyone, and thank you for joining us today. Our core business remained stable with continuing improved results, and we are confident in our strategy of building the portfolio through development, recognizing NOI on new facilities immediately upon completion, typically within one year of groundbreaking.

Occupancy in the portfolio was 91% for the second quarter, and tenant satisfaction and retention remained high. On our 2010 tenant satisfaction survey, we had a response rate of 83% with an overall score of 3.59 out of 4.0 with four properties receiving a perfect score. We have found profitable and creative investments to deploy capital.

To summarize the quarter’s key activity, we completed 31.5 million in new development, broke ground on an additional 42 million in new build to suit projects, and acquired the $16.6 million St. Francis Outpatient Surgery Center in Greenville, South Carolina. That 72,000 square foot facility houses six outpatient operating rooms with both inpatient and outpatient radiology. The property is 100% leased by St. Francis Hospital, a subsidiary of Bon Secours Health System. We developed the property, and have managed it since its opening in 2001.

This acquisition was an off-market deal facilitated by our long-term relationship with Bon Secours and will result in outstanding return for our shareholders. The Northwest region projects that Jim mentioned, Bonney Lake OB [ph], and Puyallup OB, are both on balance sheet with substantially beneficial terms. These projects constitute approximately 142,000 square feet of medical space, and the facilities are pre-leased 100% and 73% respectively.

Cogdell Spencer ERDMAN is providing all services to complete these projects from ownership and financing, strategy to design, construction and property management. We expect to recognize NOI on these two projects beginning in the second half of 2011. We continue to enjoy access to loans for our projects, both in new development and in refinancing. Our policy of modest leverage and substantial preleasing has paid off for us.

Now, I would like to take a moment to address the impairment charge noted in yesterday’s release. This non-cash accounting entry is a write-down on the value of the intangible assets related to our third-party Design-Build business. Despite success with on balance sheet development, fee-based third-party Design-Build business as consistent with the overall construction market has seen a slowdown during the second quarter. Despite that, we have reached the profitability milestones needed to raise our guidance for the year to $0.47 to $0.51 per share and unit. Chuck will discuss the impairment charge in more detail when he gives his review of the financials for the quarter.

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