Macerich Co (MAC) 0 Q0 法說會逐字稿

Good afternoon, ladies and gentlemen.

Welcome to the Macerich company fourth quarter 2004 earnings conference call.

Today's call is being recorded.

[Operator Instructions].

And now I would like to turn the conference over to Georganne Palffy, of The Financial Relations Board.

Please go ahead ma'am.

Thank you all for joining us for this afternoon's 2004 fourth quarter and year end conference call with Macerich Management.

If you did not receive a copy of this morning's press release, you may access it online at www.macerich.com.

During the course of this call, management will be making forward-looking statements, which are subject to uncertainties and risks associated with the business and industry.

For a more detailed description of the risks, please refer to the company's press release and the SEC filings.

During the course of this call, management will discuss certain non-GAAP financial measures as defined by the SEC Regulation G. The reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure is included in the earnings release for the quarter, which is posted on the company's home page under the section entitled financial press releases.

I would like to now like to introduce Mr. Art Coppola, President and Chief Executive Officer and turn the call over to Art for his opening remarks.

Please go ahead sir.

Thank you, Georganne and welcome to our call.

I will be hosting this call with my brother Ed Coppola.

He is remote in Dallas.

Tom O'Hern will not be joining us on the call.

He had a little issue.

His doctor gave Tom and his wife, Lori, guidance that they would be -- that she would be due with their fourth child on February 3, and a week later, today, right now, Tom is with his lovely wife, Lori, in the delivery room at St. Mary's Hospital in Torrance getting ready for their fourth child, a lovely daughter.

So please go easy on the FASB and the SFAS questions.

I will do my best on the extent that we don't have answers on specifics on that, we will certainly be happy to get back to you.

The quarter was a very strong quarter and it was a great year for us. 2004 was marked by a 48% total shareholder return.

In looking at our FFO performance for the year, we came in at 3.90 a share, which was above the range of guidance that we gave in the beginning of the year, which was between 3.78 and 3.88 and was within the range of our revised guidance that we gave three months ago, which was 3.88 to 3.95.

It was a great year in terms of performance, in terms of some individual acquisitions that we made, in terms of the bulk acquisition that we announced at the end of the year, the Wilmorite acquisition and of course the big news in the year was the grand opening of our Queens Center, which is and has been a fabulous development, redevelopment for us.

In the quarter, we had very strong tenant sales and strong year-over-year gains.

Our occupancy levels remain solid and our good (ph) and leasing spreads remain very strong.

Total same center sales for the year were up 4.2% in the fourth quarter, and up 2.6% for the year.

Looking at regions for the quarter, Southern California was up 5.9%.

Northern California was up 5.3%.

The Intermountain region was up 3.8%.

Central and Eastern regions remained flat, down 1%, and our strongest region remained our Arizona region, which was up 8.3%.

At year-end, we had total mall sales per square foot on a rolling 12 months at $391 a square foot, which compares with $361 a square foot at year-end 2003.

As I mentioned, on occupancy levels, we ended the year at 92.5%, which was 80 basis points less than the 93.3% that we ended 2003 at, but remained consistent with our year-end averages over the past four or five years.

Over the past five years, our year-end average has been, starting in 2000, 93.3%, 2001 was 92.4, 2002 was 93.9, '03 was 93.3, and '04 was 92.5.

So it's been a tight range that we've had, which is consistent with what we have enjoyed over the past ten years.

Looking at leasing, we had another great quarter.

We signed 208,000 square feet of new leases at $38.92 per square foot.

Starting new rent average releasing spread versus expiring rents for the fourth quarter itself was 34.2% up.

For the year-to-date, we've signed a 1.021 million square feet of new leases at 35.84 per square foot, which represented a 23.6% spread over the expiring rents.

In terms of looking at our FFO, FFO per share for the quarter diluted was $1.16, which was a 12.2% increase compared to $1.04 per share for the quarter ended December of 2003.

For the year, FFO per share was 3.90 versus 3.58 in 2003, so we had a 9% increase.

EPS diluted was $0.51 for the quarter ended December 31, 2004, compared to $0.44 for the fourth quarter of 2003.

Same center net operating income was up approximately 4% compared to the fourth quarter of '03.

There was about a $1.5 million decrease in straight lining of rents for the fourth quarter, and this was totally offset by lease termination revenue, which was up $1.6 million for the quarter.

CPI increases were $528,000 higher in the quarter ended December of '04 versus December of '03.

About 30% of our leases now contain CPI increases.

Bad debt expense was up about $0.02 a share over the fourth quarter of '03 and was primarily driven by bad debt from local tenants as well as some significant bad debt that we incurred with some of the new tenants that were in our Queens development, which is normal in a new development, when you've got rents averaging a $140 to $150 a square foot, it's normal to have, especially local tenants in a development like that, to have some fallout during the year, and we did have some of that fallout.

There could be some lumpy bad debt in 2005.

We don't expect it to be material, but, again, it would most likely be fairly concentrated at Queens.

I'd say, at most, we're looking at maybe a penny or two pennies per share for that item, and that's all been built into our guidance.

Interest rates that the average portfolio interest rate during the quarter was 5.5%.

That compares to 5.68% at December of '03.

The average maturity on our debt is now 4.3 years.

At this time, we are not modifying our 2005 guidance for the acquisition of Wilmorite.

Our current guidance is 4.20 to 4.30 a share.

We will be updating that guidance for you once we have closed Wilmorite, which will most likely be in the first couple of weeks of April, my expectation, so by the time that we have our first quarter '05 conference call in the first week of May of this year, we'll be giving you further guidance on our guidance for '05 as well as some guidance on a quarterly basis.

On February 3, we declared our quarterly dividend of $0.65 per share.

This dividend is payable to shareholders of record on February 23 and the pay date is March 8.

Based upon an annualized dividend at this rate, in the midpoint of our 2005 guidance, we'd have an FFO pay out ratio at a very healthy rate of 61%.

At December '04, we had $3.2 billion of debt excluding non-consolidated entities and our pro rata share of debt from unconsolidated entities is 1.1 billion for a total of 4.3 billion at year-end.

Our floating rate debt to total market rate cap at year-end was 13%.

Our floating rate debt as a percentage of our total debt was 27%.

Total debt to market capitalization is 47% at year-end, and our interest coverage ratio was a healthy 2.76 times.

During -- at the end of '04 and in the month of January, we have completed three additional acquisitions in the Phoenix marketplace.

In November, we purchased Fiesta Mall.

This was a million square foot super regional mall anchored by Dillard's, Macy's, Sears and May Company.

Shops have annual sales per square foot of 362.

The purchase price was 135 million and concurrent with that closing, we put on an $84 million fixed rate loan at 4.87%

In January, we closed on a minority position in Metro Center Mall.

We bought 15% of the joint venture that bought the center, which was primarily led by Samara and AT&T, and we took over the management and leasing of that center.

A couple of weeks ago, we acquired a 50% interest in Kierland Commons in Phoenix.

This is a very significant upscale lifestyle center that does over $550 a square foot.

The total purchase price for our half of the property was roughly $90 million.

The purchase price also includes, in addition to that, an $80 million loan that is existing on the property.

Our going-in unlevered cap rate on that acquisition was around 6.5%.

Of course, the big acquisition news of the quarter and at year-end was the acquisition announcement on Wilmorite.

We're extremely excited about this transaction.

The more that we've gotten into it, we've found more and more opportunities there, and we do again, expect to see that transaction close in probably the beginning of April, the first couple of weeks of April.

On the development and redevelopment front, once again, the big news was Queens.

This opened November 19.

The final act of construction costs was under budget at around $270 million.

We anticipate a 12% stabilized incremental return on investment on that investment here in 2005, and anticipate terrific results from that.

Leasing activity of the property is that it is now 98% leased.

By December 31,'04, 91% of the spaces were actually open and operating.

The remainder of the spaces that have been leased are expected to be opening in the first and second quarter of '05.

Our 29th Street development in Boulder is preceding well.

We've demolished most of the center.

And we anticipate that property to be coming on line in 2006 and finishing up in '07.

Our new mall development in Gilbert, Arizona, San Tan village is scheduled to open in 2007.

We anticipate the entertainment section of that development to be opening up potentially in late '06 with the mall itself opening up in '07.

We're not releasing at this point in time estimates on the cost of that development, but the broad estimates, depending on whether or not we ground lease certain parcels or we build them are going to be -- will be that the cost will be something in excess of $200 million, and we do anticipate double-digit returns on that investment.

At this point, I would like to go ahead and ask Lisa to open up the call for questions, please.

Thank you, sir.

[Operator Instructions].

We'll go first to Jay Leupp with RBC Capital Markets.

Instead of Jay Leupp, it's Brett Johnson, and I promise to go easy on you.

Hey, Brett.

Hi.

Leasing spreads.

Obviously very strong this year.

Can you talk a little bit about what you are seeing in the first quarter and your outlook for 2005,and then also you commented on the tight range of occupancy.

At this point, what do you expect the Wilmorite acquisition to do to your overall portfolio occupancy?

It shouldn't have a major impact on the occupancy.

The tier one assets, Danbury Freehold and Tysons are all you know in the mid 90 lease to 95% lease.

Some of the smaller centers in upstate New York are roughly in the 85% neighborhood of occupancy level.

We anticipate being able to do some improvement on the upstate New York occupancies, so my anticipation is that it will not move the dial much in terms of our overall occupancy.

If you look at our occupancy quarter-by-quarter over the last really 12 years, we have ranged from a low of 91.9% to a high of, like, 94%.

So we anticipate staying in that range.

In terms of leasing, you know, leasing remains strong.

It has been consistent.

We have been putting up in excess of 20% leasing spreads over the past several years, and we fully anticipate that for 2005, given the expiration schedule that we're looking at here in 2005.

So we anticipate spreads to continue really over the next several years, because if you look at our lease expiration schedule over the next three or four years, we're still in the $28 to $30 range, and we're signing leases, you know, roughly in the $35 to $40 range.

So, we anticipate continued, very strong leasing spreads and sustaining good occupancy levels.

Okay.

And then with the string of large acquisitions that you have done, do you anticipate to be very active selling off any assets in 2005 and what type of cap rates do you think you could realize, if you do so?

Well, actually, I did not mention it in my opening remarks.

We did sell off a series of ground leases in Phoenix, and I believe it closed in December.

It was roughly $48 million was the disposition price.

We sold that at roughly a 7X cap rate.

We do have some isolated dispositions that we are currently looking at for some of our non-core underperforming assets in 2005.

I'd say most likely we'd be looking at maybe 100 to 150 million of kind of selected pruning during the year, which is really consistent with what we've had over the last two or three years.

More importantly, I think what we're looking at is we're looking at a very significant introduction of private equity into the portfolio this year centered around the Wilmorite transaction.

We have received some very, very strong interest from some of our current as well as prospective joint venture partners to joint venture with us on the Wilmorite transaction, and we are in fairly serious discussions on that, and we would anticipate that we will be bringing in a joint venture partner into the Wilmorite transaction at an entity level.

So that will be a quite significant disposition, if you will, through the vehicle of a joint venture.

Okay.

And then just a last question -- what do you think the kind of the low point and high point would be in terms of dollars invested in redevelopment activity for you guys in 2005?

Well, we've got the Washington Square redevelopment that's currently underway.

We most likely will be doing Fresno.

I would say on the redevelopment front, you've also got 29th Street, which is $130 million project that will be invested over the next 24 months, and I'd say that the total amount invested this year will be roughly $150 million.

Over the next three to five years, my guess is that we will average between $200 and $300 million per year of either new developments or redevelopments, really, at a minimum.

Okay, Art.

Thank you.

Thank you.

We'll take our next question from Ross Nussbaum with Banc of America Securities.

Hi, Art, good afternoon.

Hey, Ross.

Can you go over the acquisition you did again in Phoenix, that lifestyle center?

What was the property?

I didn't see it announced previously.

Yes, we did not make an announcement because it was not really material.

It is Kierland Commons, a lifestyle center located in Scottsdale Road.

It does roughly $550 a square foot.

It's got some terrific restaurants.

It does not have any traditional anchors from the viewpoint of department stores.

We closed on that a couple of weeks ago.

Ed, you're on the call, would you like to comment on Kierland and how that transaction was structured, maybe the size of it.

Hey, Ross, how are you doing?

Pretty good.

Yes, you know, this is probably the finest lifestyle center example, or at least one of them in the United States.

It has a residential component to it.

It has additional development that can be done to it.

It was owned by a couple of, a private group made up of one of the long-time landowners since the 1950's and also the Woodbine Group, which is a big development group.

It's part of a 720-acre master plan community.

We bought the retail residential component, and there is a small office component.

There are people like Coldwater Creek, Barnes & Noble, Ann Taylor, Chico's, Tommy Bahama, Lee Gallery (ph), Restoration, Crate and Barrel, Cheesecake, Morton's, you know, Mastro's, a big steakhouse there.

It was 180 million with about $80 million worth of debt.

We bought half of it.

It was a privately negotiated transaction.

I will tell you that it took three years to do, because these people did not see any reason that they needed to sell it, and basically what we did was is that we convinced them that the right thing for the real estate and for that whole market was to have Scottsdale Fashion Square, Kierland Commons, and Biltmore controlled, you know, at least controlled by one group where we could exist peacefully instead of compete.

It was a great deal, I mean, a very sought-after piece of real estate.

I would also mention, Ross, just to clarify, which I don't think I mentioned, we did buy 50% of the property and we bought it in a joint venture, so we'll actually own 25%.

The other party that owns the other 25% alongside of us is Calper's (ph), which is also our partner in Biltmore and Scottsdale Fashion.

So your chunk of it is not $90 million, it's $45 million?

Correct.

From a dollar point it's not that significant, but from a strategic viewpoint of what it does for us in the Phoenix marketplace, it now gives us control of every high-end center in the entire marketplace, so it really kind of caps off our strategy, and it also is somewhat of a prototype for some other developments, and a lot of the tenants that we have, for example in Kierland, will be replicated in other centers that we will be doing in the Phoenix as well as other marketplaces.

Makes sense.

And we have the management and leasing control of it.

Can you go back to Wilmorite for a second.

In terms of the JV you're in discussions on, what percentage stake would you see selling off?

50% of the entity.

And when you had given and reiterated your guidance, that's kind of taking that into consideration?

No, not at all.

Our guidance at 420 to 430 a share has not been -- first of all, we'll clearly stay at least within that range.

We won't drop below that range as a result of Wilmorite acquisition.

We anticipate, frankly, that we will probably be moving that guidance band upwards, but it will be influenced by numerous factors, including A, whether or not we bring a joint venture partner in, B, when we close, and the when we close factor is important because there is a huge expansion going on at Tyson's Corner right now that opens up in September, so we've got a $130 million expansion going on there.

Our half of it is $65 million, and we've got a $15 million incremental rent stream that comes on-line in September or so.

Again, our half of it is $7.5 million, so, you know, between the closing which might be, let's say, April, and say October 1st, our return on our investment will be lower than what the significant spike that will happen in October, so --

That will be bridged by the non-cash FAS-141, 142 that will help.

Yes, that will clearly be a large element of that.

And obviously, even though I said I wasn't going to talk about any FAS-141 or 142, it will be significantly also impacted by bringing a partner in, so there could be a period of time and it is our anticipation that we will end up closing on the transaction on Wilmorite prior to bringing a partner in, so there will be a bridge period of a month, two months, three months where we will have 100% of the 141 and 142 in common and it will be further modified when we bring a partner in.

My guesstimate is that we'll close in April and then by May early conference call, we will give real good guidance once we know exactly the closing date and the financial structure and the projected entry of a partner, to the extent we assume that, we will give updated guidance for the year and by quarter, because the quarters will be influenced by the factors that I mentioned.

Sure.

Last question.

I know Tom's not around.

The new breakout on your income statement with the management company revenue and expense, can you just explain why is the revenue lower than the expense?

Because we don't charge management fees on wholly-owned properties so you've got the expenses related to the wholly-owned properties.

Outside of operating expenses?

Right.

Got it.

Thank you.

We'll take our next question from Lou Taylor from Deutsche Bank.

Thanks.

Good morning, guys.

Hi, Lou.

Good afternoon.

Art, talk a little bit about comp or same center tenant sales with growth around 4%.

Did that meet your expectations or was that a little on the low end?

First of all, I never have expectations about sales because I'm agnostic but they're solid in terms of having 4% growth.

That's a solid growth from my view, and certainly in certain regions, sales were really on fire.

I mean, the Phoenix and the Arizona region where we obviously have quite a concentration, sales are, you know, they were up 8.3%, so we're pleased with our overall comp tenant sales increase for the year and the quarter and we're pleased with the whole portfolio sales per square foot at 391 versus 361 for the year previous.

Okay.

When you had mentioned the sale of the ground lease for 40 million is that the same as the Westbar sale?

That is the Westbar sale.

This is the Westbar sale.

Okay.

What is your expection with the SanTan Villages, the first and second phases?

Do you anticipate building them and keeping them, or do you think those will be candidates for sale?

Just what do you expect your longer-term ownership there to be?

Well, the community center components are being developed in joint venture with the ground owner, who is our partner, and generally, the ground owners that we do these new malls with, we participate with each other on the peripheral development or the community centers, and they're generally long-term owners themselves.

So, you know, for example, around Chandler, Chandler Village, Chandler Gateway, those are 50/50 community and power centers and our partner is the long-term owner and we're happy to remain as long-term owners with them.

My guesstimate is that those would be retained for quite the foreseeable future, and then when we move to the mall, of course, the ground owner is not our partner, and we control that 100%.

Great.

Thank you.

Thank you.

Our next question comes from Jim Sullivan of Prudential Equity.

Thank you.

Good afternoon.

Hi, Jim.

Hi.

Just a follow-up on the question on the management company line items.

In the quarter, the operating loss there was significantly higher this year than it was a year ago, and I know this may or may not be too specific for you, but do you know what was going on there Art?

You know what, if you don't mind, I'm going to let Tom may be address that with you.

There was a very significant element of Sarbanes-Oxley compliance that rolled into that quarter of over a half million.

So that was one element of it.

But other than that, you know, again, the primary difference between the fact that the expenses are higher than the revenues is that we don't charge management fees, obviously, on properties that are wholly-owned.

The Sarbanes-Oxley that you are referring to has to do with the recognition of expenses?

Yes, and all of the compliance issues around that, yes.

Okay, and the operating cost recovery rate was also significantly lower this year in the quarter than the year earlier, and I wondered if there was anything going on with that, whether the Queens Center opening had something to do with that.

No, that didn't have, you know -- that should not have had anything to do with that.

There is some volatility rate in the recovery ratios there.

We are moving from pro rata to fixed can (ph) leases, but we would anticipate our recovery rates in '05 to be as good as they were in '04 or higher.

We don't expect it further continued downward trend.

Okay.

Switching gears to the institutional investor participation, the Wilmorite deal, would their pricing, albeit they may not come in at your closing but later, would their pricing be the same?

Yes.

And a final question from me, can you talk a little bit about what's been happening with your specialty leasing, generally, what kind of increase you had in the quarter and looking forward how much further you think you can continue to grow this part of your business?

You know, we don't make as big a deal about that as certain other people make.

It is clearly a piece of our business.

It's part of the normal operation of our business; you know we generally ran double-digit increases in that.

We anticipate having some nice increases in specialty leasing in the Wilmorite acquisition, for example.

You know, I expect it to remain consistent in '05 and '06 with double digit increases, but by no means do we view specialty leasing as being a primary driver of growth of our company.

You know, you have to remember a lot of specialty leasing is, you know, taking vacant spaces and putting temporary tenants in there and keeping the space, you know, feeling alive and occupied, so from one extent, frankly, you know, we don't really look for specialty leasing to be a large factor going forward, but going forward, it should be double digit increases, but again, we don't see it as being a solid primary driver of growth.

Okay.

Thank you.

We will go next to Michael Bilerman with Smith Barney.

It is Michael and Jon Litt's on the phone with me as well.

Art, I was wondering if there was anything in your reported results that took you to the lower end of your revised '04 guidance, and if there is anything that may positively impact into '05.

The fourth quarter had $0.02 of share of bad debt in excess of the bad debt that we had in the fourth quarter of '03, and some of that was unanticipated, and it was a lot of that was related to tenants at Queens that some of the local tenants that opened up in March and ended up not making it through to the end of the year or ended up being late on their rent.

And also, just some reserves that we built up at Queens to take into consideration the possibility of tenant failure, which is again quite normal in a center, in any new center, and especially in a new center where you've got average rents of $150 a foot.

I would identify, to the extent that we were a penny or two below people's consensus, I would say it's virtually 100% attributable to unanticipated bad debt which we don't expect to be something that is going to continue in '05.

Just a detailed question on the (indiscernible) you got, $1.5 million depreciation allocated to minority interests.

What does that relate to, and how should we think about that?

That was specific to the fourth quarter, not to the full year, also $0.02.

I don't have a precise answer for that except that it could -- I don't have an answer for you on that.

Was it the bad debt related to, did you say unconsolidated or consolidated?

No, it's depreciation.

Depreciation related to unconsolidated or unconsolidated.

It just says minority interest.

It could be, and we'll clarify this for you, we did enter into several joint ventures during the year, and it could relate to that.

Okay.

Can you talk a little bit about the acquisitions that you did in the fourth and early in '05 that you haven't commented about.

Kansas City Life announced in late December that they sold you the other 50% of Paradise Village.

Can you comment on that and how much capital you spent and what the deal was on buying their interest?

Yes.

We bought -- that's a series of ground leases surrounding Paradise Valley, probably, Paradise Valley Mall, and there were five centers there surrounding Paradise Valley Mall.

We bought their interest.

We were 50/50 partners and we bought their interest for approximately $50 million.

Our going in return on that was around 6.5% or 7%.

They wanted to sell their position and we wanted to buy it because we wanted to basically take that entire 300 to 400 acre urban village development and put it all under one ownership.

Now that we've got it all under one ownership, both the mall and these five community centers, it is an interesting candidate for a joint venture with a pension fund to come into the entire development, including all of the ground leases and the community centers and the mall, and so we were very happy to be able to get control of those parcels so we could offer up that type of an opportunity to a joint venture investor.

If you had to ballpark the value of the entire project, where would you put it?

I won't hold you to anything.

I don't mind if you hold me to anything.

I just don't want an investor to hold me anything.

You can give me a broad range.

Well, we bought the 50% interest of Kansas City Life for $50 million so that would imply that we think that those ground leases surrounding the mall are, you know, worth at least $100 million, and the mall itself clearly is worth something in the high 200's, so between the ground leases and the mall, you are looking at probably something between $350 and $400 million of total value.

Is that something that you're trying to actively market right now?

No.

As a matter of fact, what happened was while Kansas City Life was looking to dispose of their interest, they started showing their interest to some joint venture partners themselves and now some of those joint venture people that they were looking to sell their position to have approached us about not only buying into those ground leases but the mall itself, so they kind of seeded the clouds for us.

Just a balance sheet item and then Jon has a question.

Do you have the mix between fixed and floating of total debt?

Yes, the floating rate debt, as a percentage of total debt, I think I said was 27% of total debt.

Is that adjusted for swaps?

No, that's pure floating rate debt number.

Do you know what the average rate is on the fixed and the floating?

Yes, I mentioned that in my comments.

It's -- hang on.

It is -- I think it's 5.5%.

Hang on.

It's 5.5% at year-end on the total debt in the portfolio, which compares to 5.68 at year-end December of '03, with an average maturity on the debt of 4.3 years.

What was the split between fixed and floating, that was the question?

Floating is 27% of the total debt and fixed is 73% of the total debt.

The rate, sorry.

I apologize, the rate on --

The floating is probably roughly around 4.75 on average, so, you know, go ahead and do the weighted average, and so the fixed is probably closer to 6.

Hi Art, it's Jon Litt.

Hi, Jon.

I was curious on the acquisitions.

Wilmorite has obviously been very big in high profile, but you've done a couple of interesting smaller acquisitions that looks like there is good synergies with the company for value add opportunities, et cetera.

What is your policy on talking about some of these smaller ones that, you know, we are hearing about for the first time somewhat randomly on the call?

Well, I mean Kierland, for example, the -- our total investment in Kierland is like $45 million total, of which equity was around $20 million.

Frankly, we just don't consider that to be very material.

Secondly, on Kierland, in particular, the -- our joint venture partners asked us not to make a big splash about it because they're a very closely-held local private family.

On Metro Center, again, we just didn't consider it to be material.

We bought 15% of the whole, which was, you know, $24 million total investment.

The equity component of that was only 6 or 7 million, so the balance was debt, but it is an interesting opportunity for us, because our partners, Samara and AT&T, they put it under contract and then came to us and asked us to take over the management and leasing of it, and also to make an investment into it, you know.

It will be a good fee generator for us.

We're going to see a very good return on our equity investment, probably 25% to 30% return on that, but, you know, frankly, Jon, we don't think it's worthy of a press release for something that's not that big.

Yes, I mean just part of your quarterly discussion I think it kind of shows a better picture, and we're obviously going to pick this stuff up in the asset and liability and the balance sheet, you know, and save us some digging if you did it in a formal way on your calls.

And I do think it is - a lot of this stuff is good value stuff.

I appreciate your guidance on that, and we'll take that under consideration.

Frankly, really, when we think about it, Jon, the Kierland thing was just a very sensitive issue with our partner in terms of publicity, and, frankly, as Ed mentioned, he was working on the deal for three years and one of the reasons they didn't want to do a deal was that they didn't want to, you know hear announcements about how they sold half of their property, you know, and then start getting hit up by local charities for contributions, and on Metro Center again, it just wasn't that material, but we'll clearly take your advice under consideration.

Thank you.

They're both very, very good operationally for the company.

While they don't involve a lot of money, they are both also very FFO accretive.

Okay.

Thank you.

We will go next to Paul Morgan with Friedman, Billings Ramsey.

Good afternoon.

Do you have a number for the return on the Tyson's expansion?

Yes.

The total cost is $130 million.

The return on that cost is $15 million, approximately.

Virtually all of the leases to deliver that $15 million incremental return are in place, so we're looking at an 11.5% to 12% return just from the expansion on cost.

We expect it to come in on budget, both from a cost viewpoint as well as a revenue viewpoint, and it should be a fabulous, fabulous addition to that property in terms of adding an entertainment component, a lot of restaurants and a lot of exciting new tenants.

Everybody, the theater and everything else are opening up at the same time?

I would say probably 80% of the 400,000 square foot expansion wing will open up by October 1.

It is a very significant, half a dozen sit-down restaurants and the licensing and permitting process in Fairfax County is a little bit difficult, so some of the restaurants may lag a little bit, but I think clearly by the end of September, we will be at least 80% open.

We are currently, you know, 95% to 98%, either leased or committed or under letter of intent.

There will be some stragglers, but certainly by year-end, I think we will be over 90% open and paying rent.

Are you contemplating putting, placing other malls into the JV with Wilmorite, with the institution?

No.

So just the Wilmorite?

Right.

Okay.

And you mentioned the fallout at Queens.

Do you have a sort of number of how many square feet were lost to that?

Whether you've already released that or --

Approximately, you know, again, the rents are still high, we're only talking about 10 or 12,000 feet of tenants that we had fallout on but that's, at $150 a foot and that adds up pretty quick.

So you're in the re-leasing process for that space?

Yes.

We're currently 98% leased, signed leases, and we're currently 91% open and paying rent and anticipate the other 7% of the 98% to be opening over the first two quarters of this year.

But there will be fallout.

It will be normal especially when rents are that high for tenants to basically have to be fine tuned over the first couple of years, but, you know, the center looks great, feels great and it's been extremely well received in the community.

Lastly, what is the retail square feet at Kierland?

320,000 feet.

Okay, thanks.

Do you have a lease occupancy rate there?

99%.

Great.

Thank you.

We'll go next to Alexander Goldfarb with Lehman Brothers.

Thank you.

Good morning out there.

Metro Center, I know the Macy's is closing there and it looks like the stuff around Paradise Village, what you bought looks like a candidate for some redevelopment.

So all told between Metro Center between potentially Kierland and the Paradise surrounding area, what is the total spend you may consider on redevelopment?

We don't have any new money budgeted for ierland.

It's virtually done.

As far as the Paradise Valley stuff that's virtually mostly all ground leases to tenants.

The stuff around the mall itself, that was the original structure, so we have no significant capital plan there, and at Metro Center, the total redevelopment spend, I believe under different scenarios is in the $30 million neighborhood, and our pro rata share of that would be $4 to $5 million only, so we are under $10 million total for all three of those projects that you mentioned over the next two or three years.

Okay.

Moving to the land sales, the $7 million of land sales that were in the quarter, one, were those in the guidance, and two, looking out into '05, how much are you budgeting for land sales, and then obviously, there may be a pickup in Wilmorite, depending on how some of the developments shake out.

We're not anticipating any land sales in the Wilmorite portfolio, and, you know, we don't have a large pipeline of land that is available for sale in the portfolio.

My anticipation would be that '05 would be similar to '04 in terms of total land sales.

It's really not that predictable but it's also not that significant.

So less than $10 million?

You know, I really can't answer you exactly on that, because it is not predictable, and it's not that significant.

My guess is the $10 million could be a reasonable number.

We just closed on a $2.5 million land sale of a few acres of land that we owned in Phoenix to an apartment developer a week ago, but on a run rate, $10 million probably is a predictable number, and if anything there would be upside to that number, not downside.

Okay.

And then on the property management, and maybe this is something that Tom would have to get back to me on, but can you just say which line items those were buried in previously?

I believe that they would have been in shopping center expenses.

Okay.

And the revenues would be in the base rents?

The revenues would have been offset -- would have been a contra to shopping centers expenses.

Okay.

All offset in that one line, perfect.

On Tyson's, I understand that there is the redevelopment potential, but then there is also a possibility of infrastructure improvements which the owners in that area would be responsible for.

Are you going to be responsible for any of the improvements to the rail infrastructure?

Definitely.

Okay.

We, as a property owner, a while ago, Wilmorite agreed to opt in to be taxed for a share of that infrastructure.

The Metro is being funded, I believe, 50% by the federal government, 25% by the state, 25% by property owners affected by it, so, Tyson's ownership opted in to that program and agreed to be taxed, and their share of that tax, you know, will most likely be in the neighborhood of $700,000 or $800,000 which will be an ad valorem tax which will be passed back on to the tenants.

It is, the fact that the Metro is going to be coming through there that is the reason that the county is very favorably looking at approving our request for the right to go ahead and add 3 million square feet at this point in time of mixed-use office and residential.

Okay.

You said your tax would only be about 700,000 to 800,000?

That's our current guesstimate is that the tax relates to us would be in the 700,000 to 800,000 per year.

Okay.

Because I see the total spend might be in the neighborhood of $1.5 billion.

Yes.

There's a lot of property owners that are sharing in that spend.

Again, it is 50% federal, 25% state and 25% property owners.

Okay.

The final question is just going back to the JV structures.

Would you consider JV in Queens Center and if you would and if you do would that be before the fifth level is developed?

We have no current plans to do a joint venture on Queens, frankly.

We see, you know, there are further development opportunities at Queens that we see and would like to tap into those before we consider bringing a joint venture partner in and we may never bring a joint venture partner into Queens but we clearly have no current plans.

Okay.

Thank you very much.

We'll go next to Craig Schmidt with Merrill Lynch.

The occupancy at 92.5 at year-end, I assume it's somewhat related to the KB closures earlier?

That would be in the mix.

Is there a sense you could get back to the 93.3 that you had at the end of '03 and '05, assuming, you know the bankruptcy and store closing environment is pretty similar to '04?

Yes.

We anticipate improving our occupancy, Craig, in '05, and overall, you know, our guesstimate is that we should be able to improve our occupancy in '05 by 50 to 100 basis points on average versus '04.

Great.

Thank you.

Thank you.

Our next question comes from Matt Ostrower with Morgan Stanley.

My questions have been answered.

Thank you.

We will go to Michael Mueller with JP Morgan.

Hi.

Hi, Michael.

Hi, a few things here.

Given the initial Wilmorite guidance was FFO neutral in '05 and you are talking about raising the potential of range, is it safe to assume that a chunk of what the range will be driven by 141, straight line rents, debt premium amortization et cetera?

Well, they will definitely be 144 -- 141 increases that will come in to play at the closing and, you know, other people have speculated that it's in the $0.10 to $0.20 per share neighborhood, which probably is not out of the question, but, it also will be -- we anticipate and again, we have not finalized the joint venture or the final financial structure or the timing of the closing.

We also don't know how many operating units some of these fellows are going to elect to take.

We anticipate that it will be accretive in the first year of ownership but we will get real specific on that once we have the answers to the variables that will influence the exact numbers, so both on a pure cash accretion basis as well as a 141 basis, it will be accretive, but we just prefer to leave our guidance where it is right now until we have the answers to the questions that I mentioned earlier as far as variables.

Was the cap rate that was quoted pro forma for the Tyson's expansion?

That 6% cap rate, unlevered for the whole portfolio is what we anticipate for the first 12 months of ownership, assuming that we close, say, April 1st.

The reason that we said that the second 12 months of ownership that we anticipate it goes up to 6-3/4 is somewhat driven up by the fact that the Tyson's expansion comes on line roughly 6 or 7 months after we close.

Okay.

And last question, with respect to Washington Square coming on-line, is it the full project coming on-line or just phase one?

Washington Square, we're just building an expansion there, and that will becoming on-line later on this year.

Okay.

Okay.

We will go next to Rich Moore with KeyBanc Capital Markets.

Hi, guys how are you?

Hey, Art, on bankruptcies, what are your thoughts right now?

What are you seeing early in the year here?

We don't see any significant impact from bankruptcies this year.

Those are significantly lighter than last year?

I would say consistent with last year.

Okay.

And then on the May- Federated situation, it looks like you have some overlap.

What are your thoughts there?

I mean, if May and Federated were to get together.

You know, I don't see any compelling reason, frankly, for them to get together, but if they do get together, we've gone through each of our properties where we have overlapped, and in virtually all of them, we think that there are significant opportunities for upside if there were to be a consolidation.

So, you know, we would see it as being something that could easily be a positive for us if it were to happen.

We have gone through and analyzed what possible impacts are, what we can't predict, for example, is what the Attorney Generals of the various states where there is significant overlap, like California, Southern California.

I'm sure the Attorney General in Southern California is going to have a lot to say, as well as owners of shopping centers in Southern California are going to have a lot to say about what the combined entity has the ability to do in centers in southern California where both May Company and Federated have a store.

That happened when Federated bought Broadway department stores back, you know, in 1995-1996.

The Attorney General basically put significant restrictions on Federated, basically put some, he eliminated some of Federated approval's rights on keeping other competitors out of certain centers, required Federated to dispose of certain stores where there was competitive overlap, and we believe that that where we have significant overlap, that between our efforts, the Attorney General's effort and working with both May Company, Federated, the combined entity, which we have great relationships with both of those companies, that it will end up being a net positive for us, you know.

This is very much a Darwinian retailing world that we live in.

There are many, many department stores that have been consolidated amongst themselves, and the net result for us is that our shopping centers, overall, have become stronger, and, frankly, the barriers to entry have become higher, because there are fewer department stores to fuel new centers, which, therefore, makes existing centers more scarce, drives up the values, and drives up the rents.

Okay, very good.

Thank you.

And then on your luxury brand initiative, you didn't really talk much about that at all, or at all, I don't think.

How is that going?

It's going great.

We had a big turnout at ICSC in December in New York.

It's been very well received by some of the luxury tenants.

It's obviously in its early stages, and it's really more of a marketing initiative than anything, and we're basically just trying to get the message out to that fraternity of luxury brands that we've got a number of opportunities for them, and we kind of tailor make our management and our leasing and our marketing efforts on those centers to them.

It's doing great but it's in its very early stages.

Okay.

Good.

Last thing for me is, and this may be something for Tom, too.

On the depreciation recapture for joint ventures, that was up quite a bit for the fourth quarter, kind of unusually so.

Do you happen to know why that is?

I don't have an answer for you on that.

Why don't we let Tom go ahead and answer that, but I think it could relate to some of the joint ventures that we entered into during the year, but we'll let Tom answer that for you, if you don't mind.

Okay.

Thanks, sir.

Thank you.

Gentlemen, at this time, we have no more questions in our queue.

I would like to turn the call back to our speakers for concluding remarks.

Great.

We're thrilled with our results for 2004, everyone.

We are looking forward to a great 2005.

We're off to a great start.

Obviously, the addition of Wilmorite and those properties to our portfolio gives us a very, very, very strong platform on the East Coast, and really broadens our overall platform, so we look very much forward to reporting to you further as the year goes on, and collectively, please all send your best wishes to our beloved CFO Tom.

I haven't heard anything yet, but I think he's still out there doing his job.

Anyway, we look forward to talking with you again soon.

Thanks.

This concludes today's conference call.

We thank you for your participation and you may connect your line at this time.