Regency Centers Corp (REG) 2004 Q4 法說會逐字稿

Good morning. My name is Paula Times, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regency Center Corporation Fourth Quarter 2004 Earnings Conference Call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. If you have a question, please press star 1 on your touchtone telephone.

I would now like to turn the conference over to Lisa Palmer, Senior Vice President, Capital Markets. Please go ahead, ma'am.

Thank you, Paula, and good morning. On the call this morning are Hap Stein, Chairman and Chief Executive Officer, Mary Lou Fiala, President and Chief Operating Officer; Bruce Johnson, Chief Financial Officer; Chris Leavitt, Senior Vice President and Treasurer; and Jamie Shelton, Vice President, Real Estate Accounting.

Before we start this morning, I'd first like to recite the Eagles' Fight Song. No, just kidding. 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 and projections about the industry and markets in which Regency operates, and on management's beliefs and assumptions.

Forward-looking statements are not guarantees of 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.

During the quarter, Regency's corporate representative 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 in 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.

I will now turn the call over to Hap.

Thank you, Lisa.

Good morning, and thank you for joining Regency's Fourth Quarter Earnings Call. Here in Jacksonville, we're very excited, and it's not just because of the Superbowl. Just like the Eagles and the Patriots, the Regency team has worked exceptionally hard all year and achieved outstanding results.

FFO per share exceeded First Call consensus estimates by 3 cents and came in a penny above the high end of our guidance for the year at $3.21 per share.

Regency's results reflect a number of key accomplishments.

First, strong operating results from our high-quality portfolio, which produced same-property NOI growth of 2.75 percent.

Second, Regency's successful program, with over $270m in new development starts, the creation of an estimated $52m in value from completed developments, and nearly $700m in third party acquisitions.

Third, the continued execution of our capital recycling strategy, selling over $466m of developments, operating properties, and out-parcels.

And, finally, the expansion of Regency's co-investment partnerships.

Our joint ventures grew to almost $1.4b, an increase of over 70 percent. Notably, we added a third major partner, CalSTRS. Partnering with excellent partners, such as Macquarie Countrywide, Oregon, and now CalSTRS, enables Regency to profitably grow the operating portfolio and platform.

Now, Mary Lou -- now, Bruce and Mary Lou are going to recap our successful 2004 results. I will follow with a discussion on the progress of Regency's investment and joint venture programs, and close with a comment on the recent publicity related to the First Washington CalPERS portfolio. Bruce?

Thank you, Hap.

Good morning. As you heard from Hap, 2004 was a remarkable year for Regency. FFO for the year was $3.21 per share, an increase of 8.1 percent over last year. This growth was achieved despite higher-than-unexpected costs from incremental Sarbanes-Oxley implementation, the 4 Florida hurricanes, property impairment charges -- those 3 totaled $3m -- and a 5-cent expense associated with redeeming our higher-interest-rate preferred units.

Key components of the annual growth were 9 cents per share from same-store NOI growth; 4 cents from new investment NOI, net of dispositions; 14 cents from lower interest and preferred costs; 7 cents from increased fee and development profits; and finally, 4 cents' positive impact from higher rent leveling and not having impairment reserves quite as high as they were in 2003. These sources of growth were offset by a 10-cent increase in G&A and a higher number of outstanding shares.

G&A costs for 2004 were $6m higher than last year. This is higher than our guidance for last quarter as a result of the Sarbanes-Oxley 404 costs that I referred to previously, incentive compensation, and severance payments.

In 2005, we expect G&A to be approximately $4m in 2004. Significant increases are the implementation of FAS 123, resulting in an expensing of stock options and other stock compensation. This will have an estimated impact of $2.5m for the year. Net of this increase, G&A expense is expected to increase 5 percent over 2004.

In 2004, we strengthened our balance sheet while lowering our cost of capital. During the year, we refinanced 375m in debt and preferred units at significantly lower rates for a total annual savings of approximately $6m. At year-end, 300m was available under our unsecured line of credit facility, and debt-to-assets-at-cost ratio was 41.7 percent.

Our coverage ratios continued to improve at 3.4 times for interest only and a fixed-charge-coverage ratio of 2.5 times. We continue to maintain significant financial flexibility without compromising our investment-grade rating.

Additionally, 2004 free cash flow grew by 16.6m to almost $55m for the year.

Based on the Company's excellent results and future outlook, the Board has increased the dividend by 3.8 percent to 55 cents per quarter and $2.20 annually. This is the 10th consecutive year of dividend increases.

We are reiterating our previously stated FFO guidance for 2005 of $3.38 to $3.47 per share and establishing first quarter guidance of 85 cents to 90 cents per share.

I will now turn the call over to Mary Lou to discuss our great operating results for the quarter and the full year.

Thank you, Bruce, and good morning, everyone.

I'm pleased to report that our full-year same-store NOI growth of [275] made 2004 the sixth consecutive year of 2.5-plus-percent growth. Our operating portfolio occupancy rate of 96.1 percent continues to be one of the highest in our sector. Rent growth on a cash basis was 12.9 percent in the fourth quarter and 10.1 percent for the year, a favorable comparison to 2003's rent growth of 9.5 percent.

Our renewal rate was 81 percent and also compares favorably to last year's 75 percent. We continued to reduce our accounts receivable over 90 days, reducing outstandings to a half-a-percent of revenue in the fourth quarter.

During the quarter, over 966,000 square feet of new leases were -- and renewals were signed to 295 transactions. This brings leasing transactions for the year to 1,267 deals, representing 3.8m square feet.

Six years of impressive same-store NOI growth, double-digit rent growth, and rising occupancy levels speak to the quality of our portfolio and the continued stability of our operating results.

A quick update on PCI programs. We continue to have quarterly calls with many of our retailers to facilitate communication and ensure that deals are progressing smoothly. Benefits of this increased communication are continued discussions of, quite frankly, some contentious lease deal clients, as well as up-to-minute updates on their space preferences and changes in their customer profile.

For example, many have expressed a more aggressive out-parcel strategy and have asked to see a list of our available pad sites. As we continue to meet with top retailers and gain a better understanding of their business and strategies, we can better tailor our services and offerings to them, continuing to add value to the Regency relationship.

We also continue to monitor retailers for risk exposure, sales decreases, and industry threats. We disseminate this information to our leasing teams in the field and restrict the number of deals and terms agreed to with the retailers on our watch list. We continue to keep a keen eye on growth or performance not only in our portfolio but in public news as well. Knowledge of store closures, market exits, capital investments all help us take a proactive approach and guide our investment and disposition decisions.

For an example, of the 14 operating properties sold to third parties during the year, 11 were grocery anchored. These grocers averaged 17m in sales, or approximately $321 per square foot, compared to the Regency average of 23.5m, or $450 per foot.

Additionally, 8 of the 14 properties were located in the Dallas/Fort Worth metro area, a market that we continue to watch closely due to the highly competitive and challenging supermarket environment. The remaining 18 centers that we own in Dallas, market average is 24m in grocer sales, exceeding the overall Regency portfolio average.

I will now turn the call over to Hap for an update on our investments, our joint ventures, and our capital recycling program. Hap?

Thank you, Mary Lou. Thanks for those wonderful results.

As I mentioned earlier, and as you've heard from Bruce and Mary Lou, Regency truly had an outstanding year in 2004. Our goal is sustainable earnings growth, consistently growing FFO per share at 7 to 8 percent. A key component of Regency's strategy is capital recycling. We believe that it makes compelling sense to sell lower-quality and lower-growth centers and to redeploy the capital into higher-quality developments and acquisitions, especially through our joint ventures.

Acquisitions with and property contributions to our ventures are also an integral component of the strategy. Joint ventures, in our view, are a very profitable way to expand our portfolio, especially in markets that we've targeted for future development.

As many of you have reminded me throughout the quarter, I stated in our last call that we wanted to double the size of our joint ventures over the next 3, possibly 4 years. As a step towards that, in December, we formed a new co-investment partnership with CalSTRS. Regency's ownership percentage in the new venture is 25 percent. The venture will acquire $200m in assets, with the potential to expand beyond that. Currently, it holds 4 properties -- a completed Regency development in California, as well as 3 acquisitions, 2 in the Washington, D.C. area and another in Raleigh.

[Pearl Hollow][ph] in Northern California was developed by Regency and is anchored by Safeway and Longs Drugs.

One of the Washington area properties is Braemar Village, a property we discussed on our second quarter call. Braemar is a Safeway-anchored neighborhood center that is part of a master-planned community.

King Farm Village in Rockville, Maryland is the second D.C. property. King Farm really is a jewel. It's anchored by Safeway and located in the heart of a 430-acre master- planned community with enormous barriers to entry. At completion, the master-planned community will contain over 3,200 housing units, 3m square feet of office space, and 2 schools. The retail shops are within walking distance of all residential and office development.

The fourth property held in the new venture is Fuquay Crossing in Raleigh, North Carolina. Fuquay Crossing is anchored by Kroger and is 100-percent leased. The residential growth in the area has been explosive, growing over 67 percent in the last 10 years and expected to grow another 14 percent in the next 5 years. Fuquay has an impressive premier customer tenant line-up and further expands Regency's presence in the Raleigh market.

Asset management and incentive fees, when added to stable and growing returns from quality centers, make the joint venture vehicle, especially with strong partners like CalSTRS, Oregon, and Macquarie Countrywide, a profitable and powerful way to grow our portfolio. As a result of the substantial growth in Regency's joint ventures, in 2004, third-party fees increased by 66 percent to $10.7m. In addition to same-property NOI growth and joint ventures, development is the third key driver which is enabling Regency to continue to generate strong returns on invested capital.

At year-end, we had 37 in-process developments located in 15 states containing 4.6m square feet and net estimated costs at completion of a little over $600m. These developments are 51-percent funded and 80-percent leased and committed, with an expected NOI yield on net development costs of 10.3 percent. When completed, the value created from these developments should be approximately $200m.

In 2004, Regency started $270m in new developments. In spite of the challenges from slower supermarket growth, obtaining entitlements, and increased competition, the pipeline continues to be extremely promising at over $1b, with 300 to $350m expected in 2005.

Capitalizing on the continued demand for grocery-anchored properties, Regency sold 29 operating and development properties, including those held in joint ventures, for a total purchase price of $404m and proceeds to Regency of almost $300m. Of the 29 properties sold, 16 were operating properties, representing 1.9m square feet of GLA and an average cap rate of 8.4 percent. The remaining 13 development sales consisted of 865,000 square feet of GLA and an average cap rate of 7.6 percent.

In summary, Regency performed above plan by nearly every measure in 2004. The operating portfolio produced reliable, sustainable growth in NOI. Developments created significant value and generated attractive returns on Regency's capital. The joint venture partnerships enabled Regency to profitably expand our portfolio of high-quality shopping centers. The bottom line was a significant increase in Regency's FFO-per-share growth rate to 8 percent. As importantly, Regency's all-star team and time-tested and focused strategies position Regency for another outstanding year in 2005.

As I mentioned, I'd like to address recent publicity regarding the CalPERS/First Washington portfolio. We've obviously looked at and have an interest in the portfolio. It is our understanding that other private and public buyers are also actively pursuing the purchase. As far as we know, First Washington CalPERS has not made a final decision. It seems to me that there is no reason for us to comment or to respond to questions regarding the portfolio until if and when an announcement is made that First Washington has, in fact, agreed to sell the portfolio and who the buyer is.

We now welcome all your other questions.

Thank you, Mr. Stein. [Caller instructions.]

Michael Bilerman, Smith Barney.

It's [David Carlisle][ph] with Michael Bilerman and [John Litt][ph]. Question for you on the development starts. They appear to have come in a little bit light for 2004 relative to where your guidance was the last quarter. Are those being pushed into '05, or did some of those developments not materialize?

Most of what occurred was a push into '05. We came in at $270m. As we indicated, we are giving guidance of 300 to $350m, and it's our anticipation and hope that we'll be closer to the $350 range so we can continue our average of $300m a year.

Okay, and then relative to your first quarter guidance, does that include -- how much of that first quarter guidance is including development-for-sale profits? It seems like there's more of it front-loaded this year in the first quarter relative to how it's usually been more back-end loaded.

This is Bruce. Our guidance is slightly higher. Another analyst, in fact, commented on that, that it's higher than it had been historically in terms of growth, and it's related to transaction profits that we expect to achieve.

Okay, and then maybe switching gears a little bit, in terms of your dividend increase, your FFO has obviously been growing much faster than your dividend the past 5 years or so, and your pad ratio is continuing to decline. Do you expect that the dividend growth will be matching FFO growth going forward?

We look at that very closely, and we've increased the dividend growth partly as a result of our -- the fact that we're getting closer to what I call the legal limit. In that sense, what has a large impact on us is how much of our dividend is capital gains, and that's one thing that's a little bit more difficult for us to measure. So I've said historically that I expected that our legal limit is a little ways off, and I still say it's a little ways off at this point. Did that answer your question?

Yes, yeah, and the maybe a final question. Just a quick question on the balance sheet. You've got about $95m of cash. Are you holding that for a specific purpose, or you know, why not just pay off the line at this point?

We did reduce the line in January. Used some of that cash. The cash balance was a result of a number of closings that took place right at year-end, and we were unable to then transfer the funds and reduce the line at that point. We also had significant accruals at year-end that we had to pay off related to interest-preferred unit and stock distributions first week of January.

Okay, great. That's all my questions. Thanks.

Thanks, David.

Andrew Rosivach, Credit Suisse First Boston.

I was wondering -- you talked about how your fee business is building up. You know, when I looked at your forward guidance, the one thing that surprised me was you're adding a joint venture, you did -- looks like 5.4m fees in the fourth quarter, but you're only guiding to 10.5 to 12.5 in '05. Were some of those fees in the fourth quarter variable? And if that's the case, what's kind of the percentage of assets, percentage of revenues' recurring fee number?

Andrew, this is Lisa. In the fourth quarter, we closed the CalSTRS transaction, and we also closed the [branch] transaction, so there was a significant acquisition fee that was included in the fourth quarter run rate. So our guidance for '05 remains at the 10 -- what's on our last page -- the 10.5 to $12.5m.

So of that 10.5 to 12.5, how much of that is kind of transaction oriented, like an acquisition fee, and how much of it is kind of a recurring percentage of revenues number?

Currently, we're modeling less than $500,000 in 2005.

Of transaction --

So over 90 percent is --

Recurring.

-- is recurring.

Fantastic. And then I guess if one thing surprised me, since you guys have been working on reducing this as a source of earnings, that you were showing such a high percentage of -- well, you could have a really big uptick in transaction profits in '05. Wondering what's behind that number and trying to figure out if there's any way you can tie in through the guidance and not see it as a reduction in the anticipated growth of the core? Long story short, if you get 42m --

Right.

-- that that would be a big part of your '05 growth, and that would -- that would argue that the rest of your earnings weren't really going up so much.

Well, let me respond if I can, Andrew, to that. I mean it's a fair question. If you look back at the models we've talked about historically with respect to our business model and where we expect to see those -- those components of growth come from, we'd still say the same. We would like to reduce transaction profits to a lower level. We're going to be in the same -- maybe in the same ballpark percentage-wise, but I think still over time our business model that we're running today would indicate that would go down.

And, also, I mean if you do equate it to our guidance, 36m to $42m of transaction profits equates to about 16 percent to 18.5 percent of FFO, which is right in the range of where we were this year. So it's actually not an increase in percentage of FFO when you look at it on a relative basis.

Let me put it to you this way. If you get the 42m, that ties to the high end of the range. That would get you to the 347 number. Is that appropriate?

If you get to 42m, that's about 18.5 percent of -- yes, in terms of the range, which is above where we were.

Right. No, I just mean if you get to 42m, you're going to be at the high end of your FFO range. I mean what scares me is you do 42m and then you do 340 in FFO. Do you know what I’m saying?

Our FFO-per-share guidance has been given, and I mean all of the assumptions on the guidance page basically have ranges, and that's -- we believe in our model, and there's going to be some variability in -- not only in transaction process but possibly in same-store NOI growth as well.

Okay, okay. Thanks a lot, guys.

Chris Capolongo, Deutsche Bank.

Hap, could you go into the shadow pipeline? You said it was $1b? Just in a little more detail? Are we looking for an increase in the number of -- really, what are the types of communities that are in that pipeline?

What are the -- you mean where is the location, or what are the types of centers, Chris?

Types of centers. Are -- more big box or, you know, part of [inaudible - multiple speakers] --?

Let me just also -- let me clarify. We, internally, and as we reported, divide our pipeline into high probability, which we believe is 75 percent -- or from the field point, 75 percent of probability that it's going to start, and then medium probability is about 50 percent. And as I've indicated before, there are a lot of variables that are making it more challenging to start developments from a timing standpoint related to supermarkets, slowdown in growth, decisions related to that, entitlements, and the competitive nature of the landscape that's out there. We indicated that our high probability of pipeline is a little bit north of that 300 to $350m expectation that we have for 2005. So that's one clarification in that regard.

Secondly, we are doing a -- as we have in the past, we continue to do a number of developments, not only with the supermarket chains, but we're using our relationships and market presence and knowledge, etcetera, to also do a number of target anchor centers and have continued to grow that and doing some development with -- on Wal-Mart-anchored centers, in addition to the, you know, the stable of the supermarket anchors.

Okay, and as a percentage of the total pipeline, would you say that the target anchor and [big block][ph] centers are 50 percent?

I would say that they would be -- you know, if you looked back to 2004, I think that 60 percent of our starts were traditional supermarket-anchored and 40 percent were non-grocery anchored, and about 25 percent of those were anchored by Target and/or Wal-Mart.

I guess what I’m getting at is going forward, do you anticipate maybe getting involved in bigger developments?

Well, we've done a number of larger developments. We developed a fabulous center in the Bay area, the San Francisco Bay area, El Cerrito Plaza, that was a $50m-plus development that was anchored by Albertson's, Bed, Bath & Beyond, and Barnes & Noble. We've done -- or completed a number of Target-anchored developments, so this is nothing new from the -- from our development standpoint, Chris.

Okay.

It'll continue to be a key part of the Company's growth. Is it possible that it may be a higher percentage of that? I think there's a reasonable probability of that.

And I mean just interesting color to that, if you look at our 3 of the largest 4 we have in process today, they're grocery-anchored.

Okay. And then just in terms of acquisitions, I mean is it a fair comment that if there was a big acquisition, that it would be both leverage neutral and accretive?

Look, I mean I think it's the Company's stated, you know, objective that, you know, we're going to do things that, you know, all end, are going to produce good growth, that we're going to finance it on a leverage-neutral basis, and therefore, I think it's -- and good returns on our invest -- on Regency's invested capital. As a result of that, we would expect that things would be -- it would be additive to earnings.

Thank you very much.

Thank you, Chris.

Jeff Donnelly, Wachovia Securities.

I guess, Lisa -- well, first off, as a Bostonian, I'm offended you aren't rooting for the Patriots! But 2 questions for you.

First, cap rates on acquisitions and dispositions in your 2005 guidance are going in opposite directions compared to where things [count] in prior year. To me, I guess this could imply conservatism on your part, you know, statement about the quality of the assets you're selling and buying, or perhaps an expectation you might be involved with First Washington, which is being marketed in those low-6 cap rates. I'm just curious. What's driving your thinking on that guidance?

Was that 2 questions in terms of acquisition cap rate and also the disposition cap?

Well, I'm curious why is one rising by about 40 to 50 basis points, and the other one looking at, just, for example, joint venture acquisition cap rates; it's declining by almost -- you know, either 10 to 110 basis points.

I'll answer the acquisition cap rate, and I'll let Hap address the dispositions. But on the acquisition front, even if you did -- if you looked at our most recent transaction, which is King Farm, that was purchased at about a 6.5-percent cap rate. And then within the past couple of weeks, we were looking at an asset in Austin --

Irreplaceable.

-- irreplaceable real estate, you know, we believe probably the best shopping center in the Austin market. We made what we believe was an aggressive bid. Did not even make the final rounds.

With our partner.

With our partner. And the acquisition cap rate was certainly within that range at the low end. So cap rates have continued to fall in the existing environment despite the threat of rising interest rates.

And then on the disposition side, Jeff, we've continued to say we're going to, in effect, call the portfolio whatever the cap rate may be, and I think we're just trying to make a reasonable estimate, you know, of what it's going to take to sell these lower-quality, lower-growth assets.

Okay, I guess I just didn't expect that there would be many -- almost 9 cap assets in your portfolio.

Well, and I mean you even said it. It could -- in terms of conservativeness, I mean as many of you accuse of us of being on some other variables, we -- it may be a conservative number. I mean if you do look at our dispositions over the last 3 quarters, especially over the last 2, they have been sub-8. So I mean there could be some conservative modeling in there, but we feel comfortable around, you know, an 8.75- to 9-percent rate on the dispositions.

And if we do better, so be it.

Right.

And, Lisa, just as a follow-up, if you'd indulge me again because I asked you this last quarter, could you just remind us or update us on what the remaining capacity is in the outstanding, you know, major acquisition or development joint ventures? I know some of them recycle, but --

Sure. Oregon committed an additional $50m of equity -- actually, 100m -- 50 went to the Cameron Village purchase and another 50m, which basically when levered, gets us to about 100m. We actually purchased 1 asset this quarter for $15m. It is true that they do recycle. We sold 3 assets out of that joint venture in the fourth quarter, so those -- and the proceeds of those assets were close to $100m, so that'll be recycled. But that's about another $200m for Oregon, and with the recent CalSTRS, we have about $100m of capacity left there, and Macquarie, there's no set threshold.

Let me kind of ask a question as a follow-up to that, just-- and then if you want to continue, Jeff, you can, but why don't you talk about how we alternate between joint ventures.

The 3 joint ventures, with an acquisition, it's purely on a rotational basis. Regency is actually also in that rotation. However, we -- in the past, we've elected to pass for 100-percent owned on everyone except for the ones that have been units transactions.

Okay, thanks. And then, Bruce, I know you can't speak to the rumors that are out there on a transaction, but to the extent Regency is involved and it's successful, I think funding a large transaction is going to be on the minds of your investors. So just in that regard, could you review for us where you guys might be able to source funds, just specifically what your cash is on hand today, and what your current borrowing capacity is? And to the extent you do have, as Hap mentioned --

It doesn't -- Jeff, it doesn't change much quarter to quarter.

Okay.

That's how I respond to that.

And as far as the assets that you guys are holding for sale, I mean do you have an expectation that they will sell in the sort of first half of 2005?

It's probably an average just after the middle of the year on an average basis.

Yeah, we've got some properties currently on the market, and we're finalizing our sales strategy for kind of for the remainder of the properties that are going to be sold.

Okay.

And they come through the same process as we go through. We go through a bottom-up analysis and identify properties for sale, and then we -- they come through our same cap allocation process kind of in reverse. So we've got -- you know, we'll be going through that process with a list in the weeks ahead.

Okay, and just, I guess, the last question for you, Hap, is in the last quarter -- or last quarter, you said you'd expected to see continued pressure on your after-tax development yields, which had been staying north of 10 percent. Guidance for '05, you know the range is 10 to 10.5. You know, last few years you guys have been keeping it steady at around 10.5 percent. I guess how comfortable are you with that range, and what's the risk that it could go below 10 this year? Or do you really think 10 percent is a conservative or safe lower bound?

Nine, ten (9, 10) is our current expectation, but I think there is a risk that those yields could be -- it's been our expectation for the last 2 to 3 years that 2 things would happen -- interest rates would go up and returns on developments would go down. Fortunately -- knock on wood -- we haven't seen that on either front, but you know, I think, obviously, where the returns are, we could stand, you know, some reduction in returns, but we just haven't, fortunately, experienced it to date.

Okay, thanks, guys.

Thank you, Jeff.

[Caller instructions.]

[Josh Betterman][ph], JP Morgan.

Quick question for Mary Lou. Looks like you guys are expecting occupancy to dip about 110 basis points next year. What's going on there?

First of all, as you know, we are conservative in terms of how we plan it, so you know, that's what our guidance has been over the past couple years. Unfortunately, we've been able to exceed our plan.

But in real life, one of the things that are occurring is that we have several big boxes, more than usual, in our portfolio that, you know, space -- you know, they're coming up for renewals, and we're not sure, quite honestly, if they're going to renew. If they don't -- and we, again, plan conservatively -- a big box takes longer to, you know, fill with another tenant. So it is a conservative plan, but we do have more of the larger spaces turn over potentially this year than typically.

Okay. And then the 2, 2.5 same-store growth seems also conservative.

Yeah, you know -- as you know, that's --

Yeah.

-- it's a modeling basis, and that's pretty much what we use. We did -- if you've noticed, our guidance and rent growth typically is 3 to 3 and -- or 3 to 5 percent, and we did up it from 5 to 8 percent. But it's more for modeling purposes. Obviously, we're going to achieve what we can and keep pushing.

Okay, great. Thank you.

Matt Ostrower, Morgan Stanley.

Most of my questions have been answered. I guess just one for you, Hap. If we say, just for the sake of argument, that, you know, high-quality grocery-anchored shopping centers, on average, are trading at 6.5 cap rates today, where's that cap rate going to be in a year-and-a-half?

Matt, if I knew the answer to that --

But what's your -- I mean you've got to run a business. What's your -- what's your opinion about that?

My opinion is that cap rates on supermarket-anchored centers are going to be -- a year-and-a-half from now, we're going to be reasonably conservative, and we think there'd be some modest increase in cap rates between now and then because I think you'll see a meaningful increase in interest rates and 10-year treasuries, and I'm hypothecating. I think it's going to take a pretty meaningful increase in interest rates to move cap rates up in any meaningful way, so I'd say there's a potential for some increase in cap rates, and we're making buys, we're doing our underwriting, based upon some type of a modest potential increase in cap rates over time.

Having said that, you know, I really do -- you know, I think there may be -- might be at the kind of a cyclical inflection point here of a low from cap rate standpoint, but I do think there's a secular change that's occurring here to where investors, because of all the positives from real estate and especially shopping centers, the stability and reliability of the income strain, I think that you've seen a secular reduction in rates. But I think that anybody that, you know, would have to -- when they're making decisions would have to be somewhat conservative, you know, that things may change from here. And we take that into account in our underwriting.

Okay. And then, I guess, just one last question for Bruce. At least the way I look at your numbers, your balance sheet looks, you know, significantly less levered today than it did a year ago, and I know that's been intentional on your part. Can you just talk to me about your -- and you touched on this a little bit in your comments, but can you just touch a little bit on your view? You know, looking at the balance sheet today, what are your opinions about the thresholds for leverage here?

Well, I think our guidance is clear on that area. We use a 43-percent on total gross assets. We also look through on a joint-venture basis so we know where we are with respect to that. But that's where we'd want to be. We want to protect our ratings at the end of the day.

So it's 43 percent on total gross; that is your target. Where are you today?

Forty-one (41).

Yeah, 41.5.

Okay, so that doesn't -- that wouldn't suggest a large amount of debt capacity --

No.

-- [indiscernible] today.

Well, the capacity's there, but if to stay within the range of --

Yeah, to stay within range is what we've indicated.

Okay, thank you.

[Caller instructions.]

[Eric Rothman][ph], Wachovia Securities.

I just wanted to -- you know, how much leverage are you going to be using in the CalSTRS joint venture?

About 50 percent.

Fifty percent (50%). And then back to how you manage the conflicts between all of the different joint ventures, where I guess you mentioned you're on a rotation basis, how does that work when you run into a portfolio of properties? Do you rotate through each property in order or --?

No, I mean -- I mean an acquisition opportunity, whether it's 1 property or whether it's 6 like the GLP, is considered an acquisition opportunity, and it's thrown into the rotation.

So the guy who, I guess, didn't look at it last gets the next joint -- the next portfolio to look at?

That would work if we had --

Regardless of how big it is?

That would work if we had 2 partners, but we have 3, so --

Right, right.

-- 2 guys that didn't look at it, you know, it's the one that got the third one before. Yes, it's purely -- it's purely rotating.

Okay, thank you very much.

[Ken Abels][ph], Raymond James.

Can you tell me if you think there's been a pressure building in terms of development from competitors?

What --

I.e., increased pipelines from other people that want to build. Are you seeing increased development in your markets?

You know, the development is basically -- one of the things that we like about this, the supermarket and neighborhood and community shopping center business, is for the most part, you have to have an anchor to build, and one of the other positives, in our view, as far as our long-term [indiscernible] in the business, of the slowdown in supermarket new store openings is that there's been less new store development, and there's going to continue to be less new store development if companies -- as companies like Safeway, which I think's the right decision, continue to spend more capital in renovating their stores than in new stores.

So in effect, our view is that -- and then there's still intense -- as a result, there's intense competition out there, but you know, fortunately, we feel like we're getting, continuing to get, you know, more than our fair share, but we have to work very hard at it.

Thanks. Would you make the same statement about the big-box development?

It is basically controlled by -- you know, I think a lot of it, you've got the same rationality that's happening, although many of the larger discounters, Target and Wal-Mart, seem to be performing well, so you're seeing more growth in that sector.

Thanks.

Thank you.

And there are no further questions at this time. Mr. Stein, I'd like to turn the conference back to you for any additional or closing remarks.

We appreciate your participation in the call, and we want to ask for all of you y'all to think -- and those of you that pray, pray -- for good weather in Jacksonville for the next 3 to 4 days for the Superbowl. And, everybody, have a great week. Thank you.

That concludes today's conference. We do thank you for your participation.