Regency Centers Corp (REG) 2003 Q4 法說會逐字稿

Good morning. My name is Kelly, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regency Centers Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. [Operator Instructions]

I would now like to turn the call over to Ms. Palmer, SVP of Capital Markets. Ms. Palmer, you may begin your conference.

Thank you, Kelly, and good morning. Before we start, I'd like to read the safe harbor statement. In addition to historical information, this conference call contains forward-looking statements under the federal securities law. These statements are based on current expectations, estimates of projections about the industry and markets in which Regency operates, and management's beliefs and assumptions. Forward-looking statements are not guaranteed with future performance, and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, changes in national and local economic conditions, financial difficulties of tenants, competitive market conditions, including pricing of acquisitions and sales of properties and out parcels, changes in expected leasing activity and market rents, timing of acquisitions, development starts, and sales of properties and out parcels, weather, obtaining governmental approvals, and meeting development schedules. During the quarter, Regency's corporate representatives may reiterate these forward-looking statements during private meetings with investors, investment analysts, the media, and others. At the same time, Regency will keep this information publicly available on its website, www.RegencyCenters.com.

During this call, management may refer to certain non-GAAP financial measures, which we believe to be meaningful when discussing results in the REIT industry. Please see our supplemental information package on our website for a reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.

On the call this morning are Hap Stein, Chairman and CEO, Mary Lou Fiala, President and COO, Bruce Johnson, CFO, and Chris Leavitt, SVP and Treasurer. I will now turn the call over to Bruce.

Thank you, Lisa, and good morning. 2003 was a milestone year for the company. Regency successfully completed its 10th years as a public company, and during the year, saw the exit of our largest shareholder, GE Capital, through the public sale of their shares. This $1.1b sales was the largest in REIT history. The sale eliminated the uncertainty and the overhang from GE's majority stake and created much-needed liquidity in Regency's shares. The benefit of the transaction to the public shareholders is clearly demonstrated by the 26% appreciation in our share price since the transaction.

From an operation and investment perspective, we've had another very successful year. We've started $300m in new developments, we increased the leased percentage of our operating portfolio, we leased over 4.7 million square feet, we expanded our two largest joint ventures to a combined investment of $707m, we grew free cash flow by 31%, to $39m for the year, and we finished the fourth quarter with FFO per share one penny ahead of consensus. FFO for the quarter was 91 cents per share, and $2.97 per share for the year. These figures are in accordance with NAREIT's revised guidance on the calculation of FFO that was released that last quarter. Absent accounting for impairment writedowns and original issuance costs associated with redemption of preferred units, FFO per share for the year would have been $3.05 per share. This would have represented 5% growth, or $8m. The sources of this FFO growth are $6.2m from same property NOI, $16.2m from stabilizing developments and acquisitions, $9.1m from development profits and fees, and $800,000 from net interest cost reductions. This $32.3m positive impact was offset by $21.1m loss in NOI from our large disposition activity, a $2m reduction to rent leveling, and a negative $1.2m from increases in G&A, less reductions in non-real estate depreciation.

As discussed in our previous guidance, G&A was higher in 2003, primarily as a result of a full year of operations for the new offices open in 2002, increased costs related to Sarbanes-Oxley and the use of restricted of stock rather than stock options in our long-term incentive compensation program. Many of the same increases will have negative impact on 2004, and we expect G&A to increase in a range from $3m to $3.5m. Even though G&A has increased and will increase on an absolute basis, due to the growth in our joint ventures and subsequent increase in assets under management, G&A as a percentage of revenues from assets under management will remain in the range of 5%.

Our 2003 results are impressive, but more importantly, we are extremely well-positioned to implement Regency's business model that will accelerate the future FFO per share growth rate through sustained growth in same-property NOI and the investment of our increasing free cash flow into developments and joint ventures, that are continuing to generate very attractive returns on invested capital.

We believe that a higher growth rate can be achieved while transaction profits are reduced as a percentage of FFO. By 2005, we expect transaction profits to be in the range of 12% to 14% of FFO, and during the 2004 transition year, we expect transaction profits to be in the range of 15% to 17%.

With respect to guidance, for the quarter, we are comfortable that FFO per share will be in the range of 62 to 67 cents, and $3.10 to $3.20 for the year. This guidance assumes an estimated $4.1m of issuance costs for the early redemption of preferred stock that we expect to occur in September of '04.

Now I will turn the call over to Mary Lou to discuss our operating results for the year.

Thank you, Bruce, and good morning. Regency prides itself on our winning strategy of dominate grocers, best-in-class sideshop tenants, and irreplaceable real estate which produces exceptional results. We believe that the quality of our tenant base and the strength of our tenant relationships are fundamentally differentiating factors for Regency, factors that made 2003 another precedent-setting year.

Same property NOI growth for the quarter was 3.1% and 2.7% for the year. Occupancy remained above 95% for the year. Rent growth continued to be strong, at 9.5% on a same-space cash basis. Leasing demand continued to be strong, especially in our new developments. In our operating portfolio, we leased or renewed 2.8 million square feet this year in over 1,000 transactions. When you add in the leasing statistics of our development properties of an additional 1.9m square feet, our team leased 4.7 million square feet of shop space this year. New tenants are taking advantage of our proven strategy and joining an appealing tenant mix. Additionally, our renewal percentage held strong, at 75%. The success of our strategy is exemplified even further by the renewal rates of our PCI tenants, at 86% for the year. Additionally, PCI move outs for the year were only 2.6%, compared to 3.4% for non-PCI tenants. Rent growth in the PCI portfolio was 10.9% versus 9.2% for non-PCI.

Excellent locations, strong demographics, a well-merchandised tenant mix, and the highest quality tenants result in a leasing of more space and the retention of existing tenants. Our PCI program is successful as ever. Regency's Premier Customer Initiative has enabled the increase in best-in-class retailers throughout the portfolio. As a result of this initiative, we've been able to increase the percentage of square feet leased to these better operators. In 2003, our top eight PCI tenants opened 94 new stores in our portfolio. With this year's additional stores, 1/3 of this quarter's significant tenant list consists of PCI tenants that typically lease 2,000 to 6,000-square foot spaces. This is good, because not only are they better quality tenants in terms of name recognition and customer draw, but in the event that the space does turn over, these smaller units are much easier to release than a large box.

Although retail in general had a healthy holiday season, it did not translate into all categories. Supermarkets have average same-store sales in December. Part of this could probably be explained by the continued workers strike in the West, as well as the persistent loss to market share to Wal-Mart. You may have read about Wal-Mart's new urban supercenter prototype, in which they've downsized from roughly 184,000 square feet to 99,000. This was in response not only to many municipalities that limit supercenter size to 100,000 square feet, but also the challenges of finding ample space in urban markets and in particular in California, where land is at a premium. This new strategy further shows that Wal-Mart is a strong competitor and will find ways to compete and continue to garner market share. Our experience shows that the best insulation for the Wal-Mart threat for a grocer is to be number one or number two in that particular market, and to target higher demographic shoppers.

As we've shared with you before, we have 26 supermarkets that are located within three miles of a Wal-Mart Supercenter. Average household income within three miles of these stores approach $86,000. Average occupancy on these centers is 94%, and grocers average nearly $400 per square foot, and we've seen, on average, less than a 2.5% impact on grocer sales after the supercenter opening. In addition, Regency has proactively been monitoring the performance of all of our grocers and taking steps to cull at-risk stores from our portfolio. Of the 14 properties sold to third parties during the year, the average sales per square foot of the grocers were $314, compared to Regency's average of $443 per square foot. Five of the operating properties sold in '03 were anchored by Winn-Dixie, and we sold one earlier this month. These dispositions reduce Winn-Dixie's rent as a percent of total rents from 2.5% in the first quarter to less than 1% in the fourth quarter. We now have only seven remaining stores in our portfolio. Two have been targeted for dispositions in 2004, and the remaining five stores are all good real estate locations, and a couple of them are currently strong performers. We believe we would be able to backfill these sites with another strong tenant.

The bottom line is that our experience has further reinforced the appropriateness of Regency's sharp investment and ownership focus.

I will now turn the call over to Hap for a closer look at our development program and capital recycling results, as well a recap of our investment activity for the year. Hap?

Thank you, Mary Lou, and good morning. Before I address the development program and our investment program and our financing, I do want to take a moment to reflect on what's happened in the last ten years, because as Bruce mentioned, 2003 is Regency's 40th year in operation and the 10th year since we went public. At the time of our IPO in 1993, we had 20 shopping centers and four office buildings in four Southeastern states, but we were basically a Florida-based company. In our first annual report, we stated that our mission was to become the premier community and neighborhood shopping center company in Florida and the Southeast. We went on to say that we planned on achieving this goal by focusing neighborhood community centers, by intensively managing our centers in a way that maximizes returns and values, and that we would seek growth by selectively acquiring and developing additional quality centers, as well as sourcing attractively priced capital, which would enhance shareholder returns. Ten years later, it's pretty amazing to be living that vision. During the last decade, we're grown to 265 centers, we're operating or developing in 22 states, in the best markets in those states, and as of year-end, had a total market capitalization of $4.2b.

As you know, the expansion out of Florida came through three strategically compelling acquisitions and mergers from 1997 through 1999. Regency is now a national company with shopping centers from Tampa to Washington, DC, to Denver, Colorado, to Orange County, California, with 18 offices nationwide. The unprecedented quality of the portfolio, industry-leading operating system, development capabilities, capital recycling program, joint ventures, and especially our top-notch management team, are combining together to grow FFO per share and create significant value for our shareholders.

Moving back to 2003, we had total development starts of $300m, and despite the slowing expansion of many supermarket chains and the difficulties of obtaining entitlements, the development pipeline for Regency has never been larger. During the quarter, we started ten new developments, which represent an estimated $206m of invested capital at completion, and with an estimated stabilized NOI yield of 10.3%. What's especially important to note is that when you compare that return of 10.3% with what these properties would sell for, somewhere between 7 and 8%; significant value is being created. These ten developments are in three different states. Five properties are in California, three in Texas, and two in Virginia.

The two developments in Virginia are continuing to expand our presence in the Washington, DC, area. These developments bring our total in-process development pipeline to 38 properties in 10 states. The estimated net total capital at completion of these developments will be $571m. When completed, these developments should generate an unleveraged return on investment of 10% to 10.5%. They are currently 76% leased and committed, and 61% funded, and once again, significant value is being created.

During the quarter, Regency also purchased three properties at a cost of $57m, and with initial average returns at cost of 8.2%.

During the quarter, we continued to successfully utilize asset recycling and joint ventures to take advantage of unprecedented demand for shopping centers and to cost-effectively finance high-quality developments and acquisitions. We sold five completed developments at an average cap rate of 7.8% and 11 operating properties at an average cap rate of 8.6%. These properties that were sold included properties in Montgomery, Alabama, Roanoke, Alabama, Warner Robbins, Georgia. Capitalizing on this continued and strong demand for shopping centers, we sold a total of 33 operating and development properties during the year for a gross sales price of $470m, at an average cap rate of 8.3%. Our share of the proceeds was $340m.

Non-strategic asset sales and sales to joint venture partners have fueled our capital recycling engine and enabled us to make acquisitions and to develop projects with attractively priced capital.

2003 was truly a remarkable year for Regency. Although our vision has expanded, our strategy to create shareholder value remains fundamentally the same today as when we released our first annual report 10 years ago. The key ingredients of our strategy really haven't changed. Quality properties, industry-leading and proactive operating systems, value-added development capabilities, a strong and conservative balance sheet, and a talented and engaged management team. We're more than a little proud of how far this focused recipe has taken us over the last 10 years.

So, where do we sit today? There's some very obvious challenges to the business. But more than ever, we are more optimistic than we've ever been that the key ingredients are in place to create shareholder value through accelerating Regency's FFO per share growth rate. Those ingredients include a national portfolio of grocery-anchored centers that is second to none in terms of quality and in terms of its resistant to the risk from Wal-Mart in economic cycles, and it continues to generate meaningful same property NOI growth.

Second, growing free cash flow and capital recycle in joint ventures that are being deployed into an investment program that is creating new, high-quality shopping centers, enhancing the quality of our portfolio, and huge amounts of value for our shareholders. And most important of all, I have the good fortune for work with a world-class management team that day in and day out makes the reality of Regency-- the vision of Regency a reality.

At this time, we'd be more than glad to take your questions.

[Operator Instructions] Your first question comes from Michael Bilerman.

Good morning. I'm here with Carey Callaghan as well.

Good morning, Michael and Carey.

Just maybe a two-parter on development. I was wondering maybe if you can share with us the hold versus sell decision, and really what are the main factors that you look at, and maybe you can talk specifically about some of the development sales that you sold here in the fourth quarter? I know it looked like development profits may have exceeded your expectations.

Well, first of all, for the most part, those properties and developments that are sold 100% are non-grocery anchored shopping centers. They're non-strategic assets, so-- or we sold, in the fourth quarter, a number of shadow box anchored shopping centers, and [Flat & Ranch], which was non-grocery anchored. So that's kind of-- part of question one.

The other part, as far as whether we contribute a center to a joint venture or decide to own 100% of that, you know, I think that depends on kind of various factors, including pricing in the joint venture, and what our presence may be in the market, and capital needs.

Right. And on development profits specifically, it ticked up pretty high in the fourth quarter, again, back-end loaded, as it was last year. Is that similar to what you're going to see in '04?

Bruce, do you want to answer that question?

It'll still be back-end loaded, but we don't expect as much as it was this year.

OK. If we switch to the JVs for a second, you know, notwithstanding the fact that you sold another $75m to Macquarie in December, you know, we're hearing from our Australian sources that Australian capital flows to the U.S. may be waning a little bit, given the significant appreciation of the Australian dollar. And if this is really the case, you know, how does that decreased appetite from Australia affect your joint venture strategy in any way?

First of all, Michael, we have not seen any reduced appetite. One of the things that did happen is you had several major LPT offerings that occurred in the fourth quarter, which depressed the LPT market, especially the shopping center LPT market, and as a result of that, you know, you did have some prices come down, and in effect, their theoretical cost of capital went up. But those prices have since rebounded, and there's still a very strong appetite for capital.

But let me just say, I think it's something important to note, is that with Oregon, we have a very strong domestic partner. With Macquerie, we've got a foreign source of capital, and we'll continue to have, you know, limited, but multiple sources of capital, from a joint venture standpoint.

OK. And then just an ending question on the lease rollover schedule. Looking at your '04 expiries, it seems that things are rolling at $17 a foot, which I think just seems a little bit high, and I didn't know if that was a mix issue or if there was something else going on?

No, it really is-- if you look at it, it is, you know, an estimation based on what we really think is going to happen, so--

Actually, let me-- I'll try to answer. You're probably looking at-- you're probably looking at-- are you looking at the pro rata in place of that, or are you looking at the--

No, I'm looking at the in-place at 100, doing the $27.6m over the 1.6 million GLA.

OK, then it must-- it would have to be just a mix issue.

Yeah, a mix issue, based on turnover of actual space that is budgeted. It's a bottoms-up budget when we do it, so--

Maybe we can talk offline. It just seems, relative to previous years, more around $15. It just seems very high.

OK.

My guess is, Michael, without looking -- this is Bruce speaking -- my guess is you'll see a higher weighting of West Coast properties, which have higher rents, but we'll look at that some more.

And Hap, it's Carey here. This is our last and we'll let others jump in, but just on the joint ventures, you mentioned you're happy with Oregon and Macquarie. Are you thinking about other alternative joint venture partners in '04?

Well, once again, you know, I think we've got two excellent partners and we're continuing to evaluate that. Both partners want to grow, and there's a limited amount of partners that you can-- you know, do a good job as far as managing and providing quality properties for, to allow those ventures to grow, but we'll consider our alternatives, and if it makes sense to add, you know, a third leg to the table of our joint venture partners, we will.

Thank you.

Thank you.

Thank you, Carey.

Your next question comes from Andrew Rosivach.

Good morning. I wanted to first ask Mary Lou a question -- I was just noticing, and I don't know if it was related to your grocery comments prior, but percentage rents are down both on a year-over-year basis and also lower than what you have, pro forma, and also it looks like you're anticipating that occurring in '04. Is that related to your comments on the grocery stores, are you changing lease structure, or anything like that?

Yeah, what happened is that we have several grocers this year, but in the third quarter, quite frankly, we renegotiated from the percentage earn-in to their base rent. We should have-- it's kind of an oversight on our part -- we should have changed that in our guidance, but it's not really any more than that. It was a positive overall, but it's a base rent versus a percentage rent, so--

OK, thanks. And then-- and Bruce, I wanted to just run through, you know, unfortunately you guys give the most detailed guidance page I know but it leads to a ton of questions. You guys have a bunch of refis coming in, in '04. What are generally the interest rate assumptions that you have tied into that, and I know that some of your unsecured is already hedged.

Well, the unsecured really is not hedged. What we hedged, in fact, was the maturity of the $200m of unsecured public debt that will come due April 1st. That's hedged at 5.6%, and is a reduction from, as I recall, 7.4%. In addition, we would expect to roll-- to-- most of the secured financings that occurred during the year would roll over into our line of credit debt, which is-- and that's a very small part of what occurs-- what'll occur in '04. Our assumptions would be an average of two and a quarter over the year, in terms of assumptions for LIBOR. And we think that's probably-- 50 basis points is an average higher than what current expectations are for LIBOR.

Bruce, I just want to make sure I'm right -- does this mean when you redeem the preferreds, you're going to redeem it off the line rather than refinance?

Excuse me, I didn't consider-- I thought the question was [inaudible] debt. The preferreds, in our model, we're currently using the assumption that we will refinance those. They're currently at roughly an average of 9%, and we'll refinance those in a preferred market at 8%.

Great. Thanks. And then finally--

That was $175m, for those who are aware of the amount of rollover potential.

And currently in the preferred markets, now similar credits are going for a lower rate than 8?

Our current credit on our preferred basis would be under 7.

Gotcha. And finally, what is your pro forma leverage, because you're not selling much and if you keep building it, it looks like it would be going up, unless you had an alternative source of capital coming in.

Andrew, I think what you missed there, the disposition-- the guidance on the back page, basically, has dispositions. That's just of operating properties, so you're not accounting for the development sales-- all the non-core developments, as well as what we will sell to our joint ventures.

OK. And how much would that be, potentially?

We've always given the guidance-- if you look down at our in-process development schedule, we will sell everything that is not grocery-anchored.

OK.

And then it really varies, as the things stabilize, of the remainder-- of 2/3. We'll hold some and we'll sell some to our JVs.

Another way to approach that, the company has given guidance that we manage our debt to gross assets before depreciation at 43% or less.

Got it.

So that's a key factor for us, in that regard.

Great. Thanks a lot.

Thank you, Andrew.

Your next question comes from Craig Smith.

Hi. I have a question on cap rates. I noticed your disposition cap rate guidance is 9% and it sounds like at least two of those assets may be a Winn-Dixie anchored center. What are the cap rates-- the cap rates for some of the more troubled Winn-Dixie anchored assets?

Those can be north of 10. I mean, the asset that we sold, we sold the one in January, which was in Alexander City, Alabama, home of Russell Industries, and that cap rate was north of 10.

OK. And some of the other dispositions, are the more related to demographics than anchors? Or are there other anchor issues as well?

Talking about for--

'04?

For '04? Typically, we will sell an asset if we believe there's some meaningful level of long-term risk related to the asset, which often will be anchor-related. Sometimes it could be a [inaudible]

Change in demographics.

Change in demographics, et cetera.

OK, thank you.

Thanks, Craig. I would say, this is something we're extremely proactive about and it is a bottoms-up process. The-- both from an operations standpoint and our investment officers that are in the market help us select the assets that are going to go on that disposition list, and we've got a plan for every asset that we feel there's some risk. Some of those assets, we think there are some pretty good assets that are on that-- not on the disposition lists, but are on the troubled asset list.

I think, too, one comment that if you look at last year and what was our disposition list, the demographics, in terms of income, was closer to $50,000 and this year, you look at it, it's significantly higher so we've been very aggressive, as Hap said, of culling out lower income centers that really don't fit the Regency profile and that we do not feel, overall, will be resistant to competition.

The company now owns no centers in Mississippi or in Alabama, outside of Birmingham.

[Operator Instructions] Your next question comes from [Matt Astrower].

Hi, it's actually [Suzanne Sorkin] calling in for Matt. We just had two questions. On your non-real estate depreciation line item, why this quarter did it turn positive, and is that related to the sale of development assets that have been held for longer than expected? And then given your outlook for 2004, with the development pipeline, do you have any guidance for this?

Well, Suzanne, I think what you-- and what we do when we add back the depreciation line, we actually include the depreciation related to our joint ventures, so if you want to reconcile that number, you can pick up the depreciation from our joint ventures in the depreciation-- or excuse me, in the joint venture income statements that we have on page-- on the supplemental, I've forgotten what page it is, but-- and you'll be able-- you should be able to reconcile that between the amortization and-- that's page 18.

Got it.

Yeah, then you should be able to amortize exactly what's going on with respect to the depreciation add-back.

OK. And then just going back to the development for sale gains, which obviously came in higher than you expected, were you expecting some of that to close in 2004 and it was actually in 2003, so your 2004 number would be slightly lower?

No, I think, you know, it's right in line with the guidance we've given, with respect to development gain. What we were giving-- the guidance we had given was, in fact, on transaction profits, and so that number was right on top of the number. We saw your note this morning, but I think it's a fact that there may have been some confusion, that what we were talking about was total transaction profits.

If you recall, last quarter, the $25m to $30m was just development profits. When you combine that without parcel sales, our total guidance that we've been-- that we have given before, we gave it in Boston, was total profits of $30m to $40m.

OK, thank you so much.

Thank you, Suzanne.

Your next question comes from Jeff Donnelly.

Good morning, folks. Hap, rumors are sort of rampant around consolidation in the industry involving names like Pan Pacific [inaudible] and other folks, and I know you guys can't comment on these deals in specific or even your interest in that, but I was wondering if you could share maybe your feelings about, you know, the prospect for what the volume of these sorts of transactions might look like, or you'd expect to see in this year, maybe how realistic you think, call it ``portfolio sellers'' expectations are, and I guess by implication, I mean, how many of these sorts of larger deals do you think will actually occur?

Jeff, I have no idea.

I had to try.

Although if-- you know, a friend of mine that owns a company in San Diego were to say, if the price-- anywhere close to the price that are being talked about, I wouldn't discourage him from selling, so-- Jeff, I really don't know.

OK, that's fair. I was just curious, because there seemed to be a lot of activity, just generally, in the industry.

There's certainly a lot of-

There's certainly a lot of talk.

There's certainly a lot of discussion.

And Bruce, as far as, you know, out parcel gains, or sale proceeds in your guidance, I mean, historically I find that they tend to slide back over the course of the year and become more back-ended. You know, can you give us maybe some insight on the timing of that recognition of your guidance? I guess may be a quarterly breakout or some suggestions there, and maybe how far along are you? I know we're early on in the year, you know, with out parcel sales.

Well, let me say, they've all been identified. We know what they're going to be for the year, we're working on them now. A number of them are under contract, as we speak. We would expect in this area to be much more level than they've been, but still slightly back end-loaded, and-- you'll see more of what happened in the third quarter, than all of them being-- than half of them, as an example, being in the fourth quarter.

OK.

Is that helpful?

Yeah. And then just one last question, actually for Mary Lou, and again, I know it's early on in the year, but is there any preliminary take you folks have on, you know, January and maybe what you're kind of expecting for your leasing pace?

Well, we're-- you know, we haven't seen at all a slowdown in lease activity. It continues to be extremely strong, and I'll reiterate the fact that our strategy of having better demos and a strong-performing grocer and the reputation that we've earned from our PTI tenants over the years, that we're fortunate, that quite honestly, especially in our developments, you know, we're kind of the first place that they go to, to meet their goals for '04. So, you know, knock on wood, but today we're seeing just real continued strength in terms of leasing.

What about-- I guess on the flip side, any post-holiday closing activity that's ahead of, or conversely, behind what you might have experienced in prior years?

You mean in terms of re--

Yeah.

--actually it's a little bit better. A year ago, we saw a decline right after holiday with some of the mom and pops and the poor operators. Earlier in '03, we saw some of the franchise businesses, where it's a local operator but a good brand name, you started seeing some turnover in a couple of those categories, and so I think that's going to continue, to some extent, really depending on the brand as well as the actual type of business. But we've seen a leveling off, and actually increased and renewed activity in certain categories.

OK, great. Well, thanks a lot.

Thanks, Jeff.

Thank you, Jeff.

Your next question comes from Mike Mueller.

Hi. I have a few development-related questions as well. First, when you were talking about contribution from development profits of 15% to 17% in '04, 12% to 14% in '05, relative to FFO, is that FFO including or excluding all of the preferred charges?

It's net of those charges. I mean, our thought is, the guidance we've given of 310 to 320, that's kind of the guidance we're focused on as far as operating the business and in those numbers, we include $4m of--

But on an absolute dollars basis, your total transaction profits, which would be [inaudible] development profits plus out parcel sales would be in the $30m to $35m range.

$30m to $35m?

I want to make sure it's clear, because you used the word, just development-- that number does include out parcel gains.

OK. And that is net of taxes, correct?

Net of taxes.

So development profits--

--with out parcel sales being net of taxes, $30m to $35m.

OK. And in '05, does that-- if we see it going down, are we to imply that you think you may be holding more of the developments for [inaudible] box, or just do you see other areas of your business growing?

Yeah, I think that we may continue to-- I think we'll continue to hold some more properties. We may also be forecasting that, you know, the cap rates may not be as low then as they are today.

And last question -- can you talk about, and potentially quantify, what the profit margins were in '03 and how that compared to '02?

Just in general, Mike, the margins have increased substantially. The cap rates of what we've sold have gone down, and I think that we'll continue to enjoy that in 2004, and I think you're talking about probably taking margins from 15% to 20-plus percent.

OK. OK, thank you.

Thank you, Mike.

Your next question comes from Jim Sullivan.

Good morning. I have two brief questions. First of all, regarding internal growth, if you could remind me, what percentage of the internal growth is accounted for by the bumps in the leases?

Well, when we look at it, is, you'd say, based on what's built in, it's about 1.7%, and that's assuming that you maintain occupancy.

Right. So if all else is held constant, you should have internal growth of 1.7%, simply because of the bumps in the leases?

Yeah, and that's assuming termination fees and everything else is the same as the previous year.

Jim, that's based on--

And then the rest-- oh, OK.

--based on 20 million square feet in the same store pool. Out of that would not be the joint venture assets nor the development assets.

OK. Second question from me is a brief balance sheet question. Looking at the tenant receivable number at the end of the year, it was, I think, $54.5m and the actual revenues, the consolidated revenues, were actually slightly down, I guess because of the asset sales activity. Can you just explain what's going on, why that receivable number was so much higher than the year earlier?

The year-end transaction of Macquarie, we actually took a note back for the portion of their equity, which is what we've typically done in all the transactions while we secure financing, while we secure mortgages, so it just happened to carry over year-end. We would expect to repay that and place mortgages within the next 30 to 60 days.

OK, so that's on the tenant receivable line? And then that's on the tenant receivable line?

Correct.

OK.

I'm sorry, that's on the notes receivable line.

What would be the tenants receivable line, where it went from-- you know, it rose about 13% to 14%, even though the revenue line was pretty constant, was pretty much the same, year-over-year, for the quarter?

Jim, I think what you're looking at there is we've become more efficient and are billing [cam] and tax recoveries earlier than we have in the past. Historically, we've accomplished that in the month of January, and we do our true-up then. This year, we were able to accomplish most of that in December and trued-up and put up higher receivables as a result of that.

So that accounts for that differential? That's a pretty big differential, but do you think that's what accounts for it?

They're nodding their heads.

Yes, that's the lion's share.

OK, all right, thanks.

Thanks, Jim.

Your next question comes from Ross Nussbaum.

Hi, good morning, everyone. I'm here with Jon Litt. First question is for Mary Lou -- you're showing 4% to 6% rent spreads for 2004 in your guidance, yet the past two years, you've done closer to 10 to 11% rent spread number, and if I recall a year ago today, you were forecasting, you know, probably something similar to what you're forecasting now, and it came in significantly above it, so are you just being conservative here?

We are. I mean, a year ago, if I remember correctly, at this time, we actually were closer to 3-5%, and then as we went into second quarter and the rent growth continued to perform, we upped the guidance to 4% to 6%. You know, we're seeing, as you can see, you know, almost 10% rent growth. But if you look at it around the country, what you'll find is that there are certain markets, like this past year, Southern California, the Mid Atlantic, and quite frankly, Texas, where there were mid-double digits, but the rest of the country really is in this 4% to 6% rental growth, so we do take a conservative approach on this. But we're not seeing anything different today.

OK, Bruce, two questions for you. First, it looks like the straight line rents have been going down considerably throughout 2003. Why is that?

I can answer it for you. It's really dispositions. If you look at this year versus last year, it's primarily almost all dispositions.

We expect that number to increase now that the disposition activity seems to be a little lower?

Correct, and we show a slight increase and it might-- then the next year may be a small decrease. But you know, as you go over the hump and a straight line, you would see a natural decline in that number, unless you're adding new properties and then that depends upon how your leases are structured with the new properties we specifically are-- development deals, and then it depends upon the lease structure that we're doing in those development deals.

OK.

Typically they have bumps, but as an example, they may be CPI bumps, which we don't-- does not have an impact on rent leveling.

Right. Last question for me, and then I think Jon has one. Bruce, how should I be thinking about modeling out your provision for income taxes, because as I look at the numbers, you know, maybe on a full-year basis, you know, this year, you had an income tax number. Last year, it was actually a positive contribution.

Yeah, that's-- you know, you were not the only one to ask that question, and you know I think that what I'd say to you is that we were extremely efficient last year in terms of how we managed the tax. We had some carryovers, we did some tax planning that allowed us to basically be extremely efficient in '03. I think that from your perspective, I would look at-- what we expect, excuse me '02 versus '03, I would expect '03 to be much more similar-- '04 to be much more similar to '03, and use that kind of as your guidance.

Is there any tax rate that we could infer or is it just--

Part of the problem, as you know, if we contribute properties into our joint venture, in an efficient manner, we're not paying tax on that, so part of it depends upon if that's occurring, so it's a little bit more difficult for us to use tax rates here. We think, in terms of our own planning process, we're currently using somewhere in the same ballpark number.

OK. I think Jon has a question.

Yeah a couple of questions. First, how much of your developed pipeline do you plan to sell? That assets that will stabilize this year?

I think the guidance that we give, Lisa, is--

It's a range of-- in the actual supplemental, 40% to 80%, and it really depends on what is stabilizing. And you can--

Well, you have 250 to 275, you're forecasting to stabilize this year.

Right. And if you look at what is stabilizing is non-grocery anchored, and I don't know that number off the top of my head. That would be planned for sale, and then--

And I think there was a reference made that 2/3 of it is grocery-anchored?

That's approximately correct, yes.

So using 60% would be reasonable?

Well, that means that a 1/3 would be non-

Sorry, 30% would be--

--correct, and then there will be some percentage of the grocery anchored that we will sell to our joint ventures.

OK, that's a pretty big range. What drives the push to one of those two points, 40 or 80?

It depends on how much is non-core.

How much of your development is non-core?

Right.

But you should have a good sense of that.

Well, you can actually pick it up in our guidance.

The range, at any point in time, is 40 to 80 because it may be one quarter that 70% of what stabilizes is non-grocery anchored, or what is ready to be sold, so therefore we would sell all 70%. That's the range.

All right, I'll follow-up with you offline on this. You have disposition activity coming down. It's been decelerating from '02 to '03, it looks like it's going to go down more in '04. Is that, you know, a kind of stated strategy, maximum you want to sell, or is-- are you going to sort of play it by ear and see how the market develops?

The plan, and I guess we've said, is we plan on selling approximately $100m a year on a going-forward basis. We were-- we had-- we started the program during the last couple of years, combined with a favorable market, enabled us to accelerate kind of above and beyond that. We're at a level right now where, you know, I think $100m a year makes sense. We may be able to, depending on the market, to go beyond that, and if we do, we'll probably-- you can probably count on us to 1031 some of those into acquisitions, as opposed to doing all of our-- I think our plan right now is to do $150m of acquisitions on a joint venture basis. We may do-- if we did more than that, from a disposition standpoint, that would enable us to ramp up the acquisitions of 100% owned properties.

Now, last year, you did about $75m in acquisitions, but you own 100% of it. This year, '04, you're saying you're not going to do any acquisitions where you own 100%. With the exception offsetting a sale above kind of your $100m number and a 1031 into another buy, would you-- is there a particular reason why that number is zero, for '04?

I think that's just from a, you know, a modeling standpoint. We've got-- it just makes sense. There's a very-- there is a good possibility that like-- I think the numbers were similar in '03, and we ended up buying $75m of properties that we owned 100% of.

In your new developments, you're talking about five in California, can you talk about the expected yields on those?

They're north of 10%.

North of 10 in California?

Yep. Don't tell anybody.

And are those grocery-anchored?

Most of them are.

Those are my questions. Thanks, guys.

Thanks.

Thanks.

Your next question comes from [Patrick Letale].

Yeah, this is I think for Mary Lou. Mary Lou, with regards to the PCI program, can you refresh my memory, how long that has been in place?

We've been working on that. We started it five years ago, and probably four years ago, we really set forth, you know- five years ago, we said what are the mix of businesses that should be in our centers, who are the best operators, and we created the database. And then four years ago, we went out and started visiting these best operators, and so it takes time and I think that's really the key with this, is patience and time, because as you know, leases are usually three to five years, and it takes a proactive approach to work with these retailers and how to get them into your centers over time. So-- and then it's just been great for our development program, to literally sit down, look at these developments, sign the anchors, and then have, you know, about half the sideshop space already committed or lease to the PCI tenants.

OK, if you related this to a baseball game, what inning in this process would you say that this process--

Good question.

You're assuming that Mary Lou knows how many innings are in a baseball game.

I know! It's four!

OK, well, we can relate it to football, then, right?

Either one. I would say that, you know, we're halfway through it. I mean, I feel that where we've started, it's hard to say, because where we started was kind of creating it, so there's a lot of hoopla in that. But at the same time, what you're finding is that retailers are changing from being in the malls into neighborhood centers, so the dynamics of the business and I think our next step is really educating retailers who aren't normally in a neighborhood center, showing them profitability models of how it works, and changing the mix in our centers as some of our traditional retailers in neighborhood centers, their business, you know, either fails or their product hype goes away, or they've reach cannibalization, based on their product type, in the grocery stores or in a Wal-Mart. So I think it's going to continue to evolve. So I think, if you ask, I'd say we're probably in the fifth.

OK.

And then the other thing I would just add, just to that, is where we're taken it and really we're in the early innings with this is the out parcels, in creating, you know, just a year ago, we created the same database for out parcels, our best-in-class out parcel users, and we've really just started that whole process.

This is a long-term- -this is an extra inning game, so to speak, or game without end, because this isn't a program that we plan on stopping five years from now.

Sure. Do you have an idea, then, as far as the penetration rate for the portfolio, with PCI tenants, or is there a goal?

We haven't really set a goal. Our goal is just to continue- I think you're always going to want a certain percent of the tenants in a shopping center to be experts locally. You know, the best music store, the best little Italian restaurant that everybody knows, and I think that you're always going to want some of that. I think where we are today, of having our national and best regionals at 77 to 80%, is probably that 80% range is where we'll end up, but I doubt very much if you'll ever get past that. But I think the real significance if not only the sustainability of the income that we've had and will continue to have as a result of this, but also the resistance to the Wal-Marts and the supercenters of the world, having, you know, a top-producing grocer and high demos with this pretty strong line-up of credit tenants that creates a stronger draw to that shopping center than you'd see in a lot of the other neighborhood centers. So I think it's a strategy that will enable us to kind of take the heat.

OK, thank you very much.

Thank you.

Thank you.

There are no further questions at this time.

Let me just-- a clarification on Jim Sullivan's question, regarding the receivables related specifically to the tenant receivable line. For Jim and those that were interested in the answer, we have responded-- our initial reaction was that it was-- our earlier-- earlier billings of- for tenant billings for [cam] reconciliations, it does include that, but it also includes receivables we have from tenants for construction work related to what we're doing for them. You'll note there's a corresponding increase in our accounts payable, which relates to the same item.

If there are no further questions, I just want to tell everybody how much we appreciate your interest in Regency and wish everybody to have a wonderful day. Thank you very much.

This concludes today's Regency Centers Fourth Quarter Earnings Conference. You may now disconnect.