Regency Centers Corp (REG) 2006 Q1 法說會逐字稿

Good morning, my name is Paulatine and I will be your conference facilitator today, At this time, I would like to welcome everyone to the Regency Centers Corporation First Quarter 2006 Earnings Conference Call. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to Lisa Palmer, SVP Capital Markets. Please go ahead, ma’am.

Thank you, Paula. Good morning, everyone. On the call this morning are Hap Stein, Chairman and CEO, Mary Lou Fiala, President and COO, Bruce Johnson, CFO, Brian Smith, Chief Investment Officer, Chris Leavitt, SVP and Treasurer, and Jamie Shelton, VP of Real Estate Accounting.

Before we start, I would like to address forward-looking statements that may be addressed on the call. Forward-looking statements involve risks and uncertainties and actual performance, outcomes, and results may differ materially from these forward-looking statements that are expressed. Please refer to the documents filed by Regency Centers Corporation with the SEC, specifically the most recent reports on forms 10-K and 10-Q, which identify important risk factors which could cause actual results to differ from those contained in these forward-looking statements.

I will now turn the call over to Bruce.

Thank you, Lisa, and good morning to everyone. It is another great day in Jacksonville, Florida. As you will hear in more detail from Mary Lou, Brian, and Hap, all aspects of the business are performing well and 2006 is off to a great start.

FFO per share in the first quarter was $0.85, which is higher than originally planned, primarily as a result of earlier than expected out-parcel gain sales and termination fees. As both were timing variances, full year guidance for transaction profits and same-store growth remains unchanged.

Even with higher than expected transaction profits for the quarter, they were still 15% – 15% or $0.13 per share lower than the first quarter of 2005. This $0.13 decline offset considerable growth from same property NOI, new investment NOI, and fee income resulted in a 4.5% decrease in FFO per share year-over-year.

Capital recycling was robust during the quarter. We disposed of eight lower growth and higher risk operating properties and sold 11 out-parcels, generating total proceeds for Regency of almost $100 million. This is over and above the additional 10% interest in the First Washington portfolio sold to Macquarie for $270 million.

Reinvest and recycle dollars self-fund growth is a major component of Regency’s strategy that funds our acquisitions and developments, while enhancing the quality of the portfolio.

As we have said many times in the past, we are also committed to conservative financing strategies and to this end we hedged $400 million of fixed rate debt to reduce refinancing risks associated with bonds maturing between 2009 and 2011.

We took advantage of a very fat yield curve to lock what we believe are attractive rates at minimal, forward carrying costs. A total of 400 million of tenure notes are expected to be issued in 2010 and 2011 with an effective interest rate of approximately 6%.

And now, Mary Lou will discuss our operating portfolio results.

Thank you, Bruce and good morning everyone.

The operating portfolio continues to generate excellent results. Same-store NOI growth was 3.8% for the quarter. Rent growth accounted for nearly 80% of this increase, with the remainder coming from other income, primarily termination fees, a disproportionate amount of which was received in the first quarter.

Guidance remains unchanged at 3 to 3.5% for the year. Rent growth on a same-space basis again significantly exceeded 10%. Leasing activity in the operating portfolio was robust with 1.3 million square feet leased through 391 transactions. That number climbed to approximately 2 million square feet leased when development properties are included.

The PCI program continues to post impressive results. For the quarter, rent growth and PCI leases was 14.2% and 8.8% for non-PCI. Renewal percentages were higher for PCI than non at 85% and 78% respectively.

At Regency, quality is at the heart of our business philosophy. One of the main reasons Regency has been able to continuously attain such exceptional results is not only the quality of our team, but also of our portfolios. Quality that is consistent across the country. For example, in Northern California, 18 of our 20 centers are 100% leased. In Colorado and Arizona, our centers average 97% leased. In Southern California, rent growth for the quarter was 24% and in the Northeast it was well over 14%. Our Kroger stores in Ohio average $520 per square foot and Publix in Florida averages over $600 per foot. And in Texas, average household incomes exceed $96,000.

These highlights in each region are clearly representative of the consistent quality in our portfolio nationwide. We believe that in addition to attractive demographics, the strength of the anchor is a critical component determining the success of a shopping center. Regency’s strategy has always been to own centers with market dominant grocers, category leading anchors, and specialty retailers.

For 2005, our grocer’s average sales were nearly 24 million or $475 per square foot. And on a comp store basis in our portfolio, grocer and anchor sales were an impressive 3.3% increase over 2004.

Market dominance and healthy sales, as well as high incomes and strong demographics are also keys to effectively compete against Walmart. Studies have shown that over the last three years, Wal-Mart’s market share has only grown from 5.9 to 8.3% in the 20 highest income markets and from 6% to 8.8% in the 20 largest markets.

With average household incomes of nearly $90,000 surrounding Regency Centers and a lion’s share of our centers in the largest metropolitan markets, Regency’s grocers produced excellent sales in face of direct Walmart competition. In fact, of Regency’s 62 centers within a three mile radius of a Walmart Supercenter that report sales the average is almost 22 million or just about $400 a foot. Kroger, with the largest exposure to Walmart in our portfolio, competes most successfully. Their Walmart impacted stores averaged 26 million or $425 per square foot, which is higher than the Kroger average portfolio as a whole.

I will now turn the call over to Brian to discuss our investment results in our pipeline.

Thank you, Mary Lou.

In the same way the operating portfolio consistently generates reliable growth, the successful execution of our investment strategy also continues to benefit Regency shareholders. The scope and successful track record of Regency’s development program has earned Regency a reputation as one of the industry’s leading developers. Despite the challenges of a very competitive development environment, we continue to leverage our presence in key markets and our investment officer’s excellent relationships with the best in class anchors to profitably develop and grow our development program. At quarter end, we have 39 projects under construction, with estimated net costs at completion of approximately $750 million and an expected NOI yield on those costs of 9.5%.

Additionally, the shadow pipeline remains robust and visible at approximately $1.4 billion, $500 million of which we placed in the high probability category for 2006, with expected returns still north of 10%.

Traditional grocery chains remain cautious with expansion plans that have slowed. Yet, within our high probability pipeline, we have 21 projects that are expected to be anchored by these grocers. In addition, there is continued strong demand for specialty grocers, super centers, and home improvement stores. As our relationships with these key retailers grow, the number of centers in our pipeline anchored by these retailers expands.

Within the high probability pipeline, 10 projects are anchored by Target, 8 by Home Depot, 5 by Walmart, and 3 by Whole Foods.

Expansion into new markets is another important ingredient to growing our development program. In the past, we have had success in entering a new market by making a few key acquisitions to establish an investment presence, which then helps lead to development opportunities.

For example, since entering the D.C. market in 2002 with a couple of acquisitions, not only do we now have a $1 billion operating portfolio, we have also stabilized 90 million of new developments and we currently have $135 million of developments in process or in the pipeline.

We expect to duplicate this success in the Chicago market, where we have acquired several assets and recently opened an office that includes a strong development team.

With this approach in mind, we’ve acquired two centers this year, Apple Valley Center in Minneapolis and Twin City Plaza in Boston. The acquisition of Apple Valley adds to our presence in the Minneapolis market. Apple Valley is anchored by Rainbow Foods, which is the number two grocer in the market and is prominently located at a main and main location in a strong trade area with dense population and average household incomes exceeding $91,000.

Twin City Plaza, just two miles from downtown Boston, is a Shaw’s anchored center in a very densely populated, urban and sole location. We believe this acquisition will build on Regency’s reputation in the Boston investment community. The seller is a successful developer, well-connected in the market, and building a relationship with him could be a source of more business in New England.

In summary, I am confident that we will achieve our goals for this year. With expanding anchor relationships and market presence stronger than ever and a focused and talented team, Regency’s investment program is positioned for future, profitable growth. Hap?

Thank you, Brian. As you have heard from the team, the fundamentals are strong in each key facet of the business. Regency’s focused and disciplined approach to our investment, operating, and recycling strategies has enabled us to build a national shopping center portfolio of exceptional quality that is generating reliable growth and net operating income that has averaged over 3% for the last 8 years.

Secondly, the value being created in the development program is extremely transparent. With $2.2 billion of in-process and pipeline projects, it should result in $300 to $500 million of new developments coming online annually in each of the next three to five years at returns that should realize over $500 million of value.

The capital recycling and joint venture initiatives are being expertly implemented with over $370 million generated from property sales and out parcels so far this year. When I recently reviewed Regency’s annual reports for the last five years, I was reminded that Regency’s current strategy that is built around quality shopping centers, development and capital recycling joint ventures has been totally ingrained in the company. The increasing brilliance with which the team has implemented Regency’s strategy in each of the last five years might cause some to take our results for granted. However, from where I sit, from my perspective, what is most important is that Regency has diligently and artfully put in place the building blocks that will help us achieve what I believe are ambitious goals over the next three years. I hope to be on the Regency investor call in 2009 and checking on my outlook, I think that date should be May 7, and sharing with you Regency’s achievements, including that Regency has averaged 3% same-store NOI growth over the last ten years. I think this would be a remarkable achievement.

That $1.5 billion of new developments were started since 2006. That during that same three year period, Regency’s high quality platform has grown by $1.5 billion, primarily through our joint ventures, a substantial growth in our profitable asset and investment management business.

That FFO per share has compounded by over 8% annually over the prior five years. And that return on equity has grown to an excess of 15%.

I think that these accomplishments, as a matter of fact, I know that these accomplishments have made my management team, my fellow shareholders, and me pretty darn happy.

We appreciate your time, and will now answer any questions that you may have.

Thank you, and our first question comes will come from Ross [Goosebom] with Banc of America.

Hi, it is Christina Goldray here with Ross. Can you provide a bit more color on the tenant mix in your development pipeline? It looks like you are shifting away from the grocery anchored centers. Does that imply that you will be selling a greater percentage of your developments going forward, given that you tend to sell off your non-grocery anchored centers?

I would say that it is, you are seeing larger products being built. Those are the ones anchored by Target, community centers, Home Depots, and so forth, but there is certainly no shift away from the grocery-anchored centers. I believe in our pipeline we have 21 grocers that, that, plus 3 Whole Foods, so 24 grocery-anchored centers are in the works. The mix of the non-grocery centers would be always anchored by a very dominant retailer. Typically Target, Walmart, in some cases a Home Depot, but generally the Home Depot’s are also with the Targets. So, that is the mix you asked about. In terms of whether we will sell them.

I think one of the things Christina that we are giving consideration to is, number one, we like the centers a lot. We think they have good, long-term prospects. They may not have the same internal growth prospects. As a result of that, we’re in the process of exploring joint venture opportunities and using this an opportunity to further grow our joint venture program.

Okay. And then my second question is, at the shops at Highland Village, you are projected NOI yield to sell by about 40 fifths from last quarter to 8.8%, but the pre-leasing has not changed. Given that is the largest project in your pipeline, can you just give us some color on what’s going on there?

Sure. In terms of the returns, they have fallen. There are 2 reasons. First there was an oversight in last quarters supplemental. The number that we reported for the return was pre-joint venture, partner return. In other words it did not include the participation that our partner gets. That alone was worth $2.1 million. Then there was some other cost increases that took the pre-JV return down from 9.21 to 9.03, but those cost increases totaled about 343,000. So the bulk of the erosion of the yield you’re seeing was not really an erosion since last quarter, it was just the fact that we failed to include the partners return.

And that I might add, that only occurs if the development is successful.

Right. In terms of the leasing, what your seeing only 14% leased right now, but what we do have is tremendous activity. There’s activity on about 80% of the space, activity being either a negotiating letters of intent or working through leases or signed leases. We have almost 19,000 square feet out for signature, which is about 5%. We’re well into lease negotiation on over 110,000 square feet, which is another 32%. And then we have real estate committee approval and in draft -- in lease draft on another 4%. That right there would take us to 55% what we would consider committed to the project. And then in addition to that we have 24% or over 83,000 square feet in LOI negotiation.

And I might add, even though we own the land and we are doing the site work, we will not commence literal construction until a substantial portion of what Brian just described is fully signed.

Moving on we’ll go to Michael Bilerman with Citigroup.

Good morning. John Lutz on the phone with me as well. I was wondering, Mary Lou, can you go over the lease spread, the new page you have in your supplemental and talk a little bit about the lease spreads on the renewals being higher then the lease spread on the new leases and what’s sort of driving that and maybe also talk a little about the effect of fixed renewals and whether those are included?

Okay. Well first of all, hopefully you all like the new disclosure that we’ve added to our supplemental, giving you a little bit more color on our business.

To answer your question Michael, let me start with renewals. The reason why renewals have been so high is strictly a result of our PCI program. As the retailers come up and their options come up, as we’ve stated about 85% of our PCI retailers actually renew, it’s slightly over that. And we’re getting, significant run increase from them, higher then we get in our totals. So that’s driven by successful shopping centers with strong anchors producing high sales and then our retailers keeping their -- taking their option and willing to step up and pay. So it’s really a great success story.

In terms of new leases, what’s occurred if you look as it really boils down to that being lower then our new leases. It was third quarter of last year and we had 2 large boxes that were in shopping centers that are currently up for disposition that we put in new retailers. Quite frankly, we leased them up so that they could sell. And we took a hit and that’s overall our numbers. I think you’ll see over time, the new leasing changing. If you look at our first Washington portfolio and the opportunities that we have for the future, we’re seeing that big boxes will become available. Any of them are significantly under market rents and so there’s a lot of upside opportunity. So that pretty much answers the question.

If you look at what -- as far as in rent kind of bounce in there and then look at overall NOI growth, 1.3% of our growth comes from actual contractual rent bumps that are built the leases. So, you know, you can count on that. When we look at our growth overall, we have about 1.3% comes out of contractual bumps but 1.6% comes out of rent increases and then the remainder is either termination fees, percentage rent, etc. So hopefully that helps and hopefully you like that new page.

You know this is -- it’s definitely very helpful. And on the renewal front does this exclude any fixed renewals at what would perceive to be lower spreads?

No. No.

This is all blended in together.

Yes. Absolutely.

Okay. Just on the same store in the Y, what would the growth have been without the lease termination fees and can you just comment on what that amount was in the quarter?

Well it would have been about 3.3% without lease termination fees.

Okay.

Michael I know we – I apologize I didn’t know half of the other – to the 2 question rule but I think we have to implement it here. You’re welcome –

That’s fine.

You’re welcome to come on the line.

Moving on we’ll go to Paul Morgan with FBR.

Good morning. I want to go back to the Highland Village Development, pretty clear life style center project and ask how you view that, same with developments by giving away those, any more of those in your shadow pipeline?

Well in terms of how we view it, you know, I think the business is going that way. I think the customers like it, the cities like it and of course the retailers like the format, they’re doing very well in them. So I think that it’s going to become a little bit more of our business but certainly not a large part.

In our pipeline right now, we do not have another life style center. We are exploring some, but you know these are the kind of things that we only do in the best of locations. You know, if you take a lot at Highland Village, the average household income, there’s a 112,000 the median income is 93. A typical life style center has $85,000 average – or median household income. So you got to make sure that it’s – you check all boxes in terms of income, densities, competition and so forth. Highland Village we have it. Other properties, we’ll look at, a lot of them just won’t check the boxes. And even if they did, we would keep it to a pretty small percentage of our development pipeline.

Okay. I guess my other question would talk about a couple of your top tenants. Maybe just sort of an update on, you know where you see Blockbuster and the rents versus market for those locations and do you have positions on the center, etc and then maybe Albertson as well given the gradual sort of liquidation of some of those there?

Well let me talk a little bit about Blockbusters or -- but it’s really if you look at the whole video category, that’s an area that we continually watch. And we look at we’re significantly below market rents, we’ve all ready started a proactive approach with Blockbusters, as a matter of fact we scheduled a meeting with them, sat down, looked at locations. We’ll take back 7 of their locations by the end of this year. But in terms of overall how we feel about the real estate, we feel great. I mean it is great real estate, great centers. Interestingly they were looking at their overall portfolio in stores that they were considering closing or trying to not renew leases and in Regency’s centers we had the fewest amount of any of our carriers in terms of number locations that were not performing up to the standard that they wanted them to. And as I said in many locations we have taken the space back because we know that we can have a better use for it. So it’s something that we definitely watch but there’s upset in rent and we’re excited about getting them back. But we are definitely looking at the whole video category and taking it back.

As far as Albertson’s goes it really -- there’s not a lot of new news, as the operating portfolio. I mean, you know, Servers and Kemco took over a portion of it and SuperValue took over the rest. And publicly Super Value has taken somewhat of a toll and I think they’re comp store sales have been a little bit tough but, again when we looked at our 32 Albertson’s that we had in our portfolio and looked at how are they performing in general, I think it was 27 of them were still producing well over 22 million and over $400 a foot. So it’s good real estate and we just need to go through this process with the new owners.

And like 24 of the 27 are going to be going into the Super Value –

Correct.

going into the Super Value acquisition.

Moving on we’ll go to Matt Ostrower with Morgan Stanley.

Good morning. Could you just, I guess just two matrix, GNA where are you at versus budget seems like the first quarter was a little high and then for the second question just comment on operating margins which seemed a little high as well.

I’ll take the first question and Mary Lou will take the second one, Matt. As I think you indicated in your note, we’ve given guidance that GNA would be roughly $4.5 million in excess of what it was in 2005 for 2006 and we’re still reasonably comfortable with that number, it might be slightly higher then that, but still reasonably comfortable with that number.

And as far as recoveries go, as you know first quarter we always do cam reconciliations and well they definitely were favorable this year in this quarter and that was a result of why our recovery ratio is higher. We gave guidance from 79 to 81% and they’ll stabilize throughout the rest of the year, so we think we’ll be in that 79 to 81% probably closer to the higher end of that range.

[OPERATORS INSTRUCTIONS] Next we’ll go to Lou Taylor with Deutsche Bank.

Thanks. Good morning. Bruce or Hap, could you talk a little bit about your development profits a little later on in the year? I mean you’re sales are a little -- are skewed toward the back end, any concerns about higher cap-rate then those sales lowering margins?

You know I think there is some possibility, Lou with it that, you know, you may have some squeeze on margins but we still feel very comfortable with the timing and the depth of the pipeline and feel very good with the lines that we’ve given from a development in profit stand point.

And it will be back end loaded. I would expect some where in the neighborhood of about 10 to 20% of each quarter and then the majority of the sales occurring in the fourth quarter, a lot of visibility there.

That would be total transactions profits not just development profits.

What – I make one of the comments I think, Lou, what we’ve noticed in addition I think in the last quarter, we still see continued reduction in cash rates on A qualities, which we think where all of these properties are. So while Bs and Cs may have backed up a little bit, we’re still seeing very, very aggressive market for A properties.

And next we’ll go to Craig Schmidt with Merrill Lynch.

High. I just – back on the Albertson, looks like Super Value’s going to be putting in a lot of money in the improving the Albertson stores, have they been in contact with any of those that are in your portfolio?

Not yet.

Okay. And then second I just wondered, in the last 6 months or so have there been any new retailers that are being added to you PCI group and who might they be?

Well 1 that just came up that they’re growing, and I think it’s great, is a concept called Massage MV and Massage MV has kind of taken the, what I say the Great Clip, Super Cuts kind of thing in the massage business. Because right now you either have the very high end and you go to a spa or you have the pretty cheesy one that you don’t probably want to go to. So this is for a fee that you can do 49.99 a month, join, get one free massage a month and you can add to it and get spa treatments and it’s kind of legitimized that business and more of that moderate price business.

I’ll just tell you that in general what’s happening in our shopping centers is just definitely a transition of our centers to -- of your local neighborhood center and that’s all I’m talking about, not the larger centers that we’re developing, it’s really the grocer, it is services, whether it’s plastic surgeons, massages, dry cleaners, just all services and then casual dining in restaurants. I mean it is definitely the mix of businesses has continued to change over time. We’ve tracked that to see what’s happening and you’re just seeing some of the other retailers have a little more difficult times.

The other couple of new ones in this area is one that’s called Swoozie’s which is kind of a high end Hallmark, they do cards and gifts but they also do like theme party things and it’s good. I mean they’ve operated real well and David Dwarkin, he’s out of Atlanta, he’s the CEO and he’s done a great job.

And then there’s another one called the Grape which is kind of a wine bar restaurant that we’re starting to put. We just put one in Cameron Village. So there are new concepts coming and then I Sold It On EBay, which is great. We have several of those in our shopping center and that’s where you have things at home, don’t really want to go through EBay yourself, take it in to the store and give it to them, they get a percentage profit out of it and they’ll sell it for you and you get the money. So it’s an easy thing and it’s more in higher incomes that are doing that, people who just don’t want to take the time. So there is, you know, it’s changing but it’s exciting. Things are good.

So what we need is start monitoring service received then adjust retail sales.

Yes, I think so.

Moving on we’ll go to Ken Aberlose with Raymond James.

Hey Mary Lou, I think you’re previous question is part of the answer to my question but I really wanted to ask you about small shop tenants and just in general all your tenants and seeing the strong rank growth that you’re passing through. How do you guys think about sort of the risk, the retail sales and consumer given where gas prices are, where income growth is and sort of the overall economic back drop?

Well, you know it’s interesting and it’s happened over the past I would say 18 months, is that the retailers are being much more selective in their locations. They definitely want to focus on higher income, at least our retailers, even in the service and in restaurant they want the middle to higher income markets. So it’s played into our portfolio with the quality and with our demographics and you have the have and have-nots right now. You have the retailers who are growing like crazy and then you have a lot of them who have definitely slowed down or having a difficult time making money, but the source of their problems are not the rent as we meet with them. The source of their problems are sales. It’s that. We’ve met, like I mentioned, with the video folks and they’re having -- kind of going through sales difficulties.

There are other retailers out there that we’ve met with that, based on our PCI, we have a relationship. They’re having sales difficulties and we’re taking back as much space as we can because there are so many [hats] people out there, so the economy, knock on wood, has not affected nor has gas prices affected our business but, on the other hand, I would said one of the things with lower gas prices is -- with higher gas prices, people stay in their neighborhood.

I don’t think it’s going to have -- unless it significantly changes, it’s going to have a negative impact and, to some extent, it’s had a positive impact.

Thank you. Next, we’ll go to Asad Kazim with RREEF.

Hey guys. Just wondering. Relative to malls, the retail sector runs a lot lower in terms of balance sheet leverage yet the risk in portfolios is a lot lower. It’s pretty low, too, especially Europe portfolios, a high quality portfolio. What do you guys think about introducing more risk into the portfolios, specifically getting more local tenants where you get higher rent or adversely increasing the leverage if you do keep the quality of the portfolio as high as it is today.

I’m not sure that we would get higher rents from more local tenants. I think what’s the process with our PCI initiatives is in fact that we’re getting more rent because they recognize that the business mall that we’re employing today of dominant grocers or dominant major tenants in high demographic markets is providing them with superior sales where they can pay more, more rent effectively.

And from a balance sheet standpoint. In our view, having significant balance sheet flexibility is critically important. We’ve got a development pipeline in profits and developments of $800 million. We’ve got pipelines of a billion and a half dollars. We’ve got a very active joint venture program and we think that the current level of leverage and the flexibility that it provides is more important than the moderate benefit we might get from leveraging up.

I think I have to add this because I think it’s interesting to note that Bruce still didn’t answer that question aside when 7 years ago when we started talking about the PCI program and introducing this, that was basically Bruce’s concern that we would see lower rents from our PCI tenants and, over the past 7 years, it has not proven to be the case.

I hate to admit, she is correct.

And we do have a follow up from Michael Bilerman with Citigroup.

Just a follow up. Just on -- you sold some of the First Washington assets at pretty high cap rates and given your comments that you’ve seen the B and C’s pick up a little bit, I was wondering maybe if you could frame for us how much of that portfolio you would sort of put into that category and whether you’d start being a little bit more aggressive in selling down some of those assets.

You know, overall, the assets are absolutely superb and we’re thrilled with them. We do have a few more assets in a few markets that we have slated for ’06 and potentially some of them for our ’07 disposition, but it’s really a very small percent of the total, Michael, and so far we’ve been able to dispose of some of the ones that were problem centers and we do have a few more. But it’s not a high percent at all. It’s small.

We have very high standards at Regency and when you have substantially less than 5% of the portfolio over a period of time in a very slight distribution -- disposition, that speaks volumes about the uniform quality of the acquisition.

And this is a question on the fees and commissions and certainly appreciate the break out between the categories. It’s very helpful to understand what’s happening. Is there any other deal fees coming in the second quarter when you sort of look at that guidance from 28 to 30, is there anything that we should be thinking about knowing that the First Washington asset management, property management fees will kick in at the end of the year. Just wondering more if there is anything transaction oriented?

Yes, Michael. If you recall from last year, 9 – we had a deferral of the acquisition fee of $14.2 million? And we had said at that time that 9 million was expected to be earned in the second quarter of 2006, and I would say that we’re still comfortable saying that but, remember also, we would just get 75% of that 9 million. So that would still be expected to be earned in the second quarter of this year.

So 75% of the 9 million. Is that a net number or is that after tax?

That would be a net number.

And the net number is what is in guidance at 28 to 30 for the year? Just to match it up?

Yes, that’s correct.

And the fees that were earned in the first quarter in terms of the deal fees that was on the sale at 10%?

Right. That was on the sale at 10%. Basically, the 10% sale if you looked at what the fees that we earned last year anywhere to gross them up, that would get you to about $2 million. And then we also had close to a million dollar debt placement fee. We completed the permit mortgage for the [McCory II] in the first quarter of this year and we have small acquisition fee on the Apple Valley acquisition.

I think it’s also important to note that with the coming on line of the asset management fee on the First Washington portfolio and the growth of the property management fee that we expect what I call recurring fees in ’07 to replace the one time transaction fees for next year, so we feel very, very comfortable with that.

Next we’ll go to Mike Mueller with J. P. Morgan.

With Macquarie taking down a bigger slug at First Washington now, can you just talk about how you see your JV partner’s appetite for marginal capital deployment?

I think our JV partners have a very strong appetite for capital deployment, the issue is there a difference between the bid and the ask today in the market place, and it -- it’s challenging for our partners to be, and for us together as partners, to be competitive for 8 centers in today’s -- in today’s market place. And we’re just trying to get in positions where we can somehow do off-market transactions.

Okay.

We’ve been much more successful in off-market than marketed transactions.

Okay. And does that have implications on your developments going to the partnerships, at the margin versus acquisitions?

It could, but once again, we feel pretty comfortable with the way this will work out with our partnership program.

And we do have a follow up of Matt Ostrower with Morgan Stanley.

The taxes in the quarter without the development gains, is that attributable to the land or fees or something ?

Yes. To the land.

The land? Okay, great, thanks.

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

Once again, we appreciate your time, your interest in Regency and hope everybody has a great day. Thank you very much.

And that concludes today’s conference. We’d like to thank you for your participation.