Regency Centers Corp (REG) 2009 Q3 法說會逐字稿

Good afternoon. I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regency Centers Corporation third quarter 2009 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. (Operator Instructions). Please limit yourself to one question and one follow-up per turn. I would now like to turn the conference over to Lisa Palmer, Senior Vice President, Capital markets. Please go ahead, ma'am.

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

Before we start, first want to be sure that everybody on the phone knows that even though I have a dog named Jeter, I am a true blue or red Phillies fan. Seriously, before we start I'd like to address forward-looking statements that may be addressed on the call. Forward-looking statements involve risks and uncertainties. Actual future performance, outcomes and results may differ materially from those expressed in these forward-looking statements. Please refer to the documents filed by Regency Centers Corporation with the SEC specifically the most recent reports on Forms 10K and 10-Q which identify important risk factors which could cause actual results to differ from those contained in the forward-looking statements.

Bruce?

Thank you, Lisa. Recurring FFO per share for the third quarter was $0.70, which was within the guidance that we provided last quarter. We've begun reporting recurring FFO to provide more clarity and to aid in future projections. Obviously, our attempt at clarity created some confusion; however hopefully this additional disclosure will prove helpful in the future.

During the quarter, Regency recognized an impairment charge of $103 million related to land and operating properties held for sale. After these impairment charges and other non-recurring items, FFO per share for the third quarter was negative $0.58 per share. I would like to comment on the company's impairment policy. In accordance with GAAP, assets held for long term investment are carried at depreciated cost unless a triggering event or changes in circumstances indicate that the carrying amount may not be recoverable.

Such events include but are not limited decisions to sell properties, the probability of future development or sale of land held, as well as material changes to leasing assumptions in our in process portfolio. Of the 11 land investments that we impaired this past quarter, the most significant occurred on the Marietta marketplace and Petaluma projects. Last quarter we postponed the construction of Marietta marketplace when Target announced that although it had closed on the purchase of its pad and we had commenced site work, this location was under review.

In the last 30 days, Target notified us they are postponing this location until 2014, putting Lowe's lease at risk of cancellation and delaying the time of future cash loads. The result was a $36 million impairment. During the third quarter, the uncertainty of entitlement and Target's approval altered the probability and timing of development at Petaluma resulting in a $27 million impairment. After the writedown, Regency's new basis in the 504-acres is $123 million or an average of $5.60 per square foot.

Earlier this week, Regency finalized the formation of a new co-investment partnership with USAA, and simultaneously sold seven Regency shopping centers to the partnership with an eighth center that will close within 30 days. The net proceeds to Regency will be $104 million. Regency's ownership in the USAA partnership will be 20% and the Company will maintain property and asset management responsibilities. Prior to closing, USAA partnership locked rate on a seven year interest only mortgage at 6.8%. The transaction was sized to balance the dilutive impact of the dispositions while creating a partnership with enough critical mass to enable Regency to have an additional reliable source of external capital to fund potential opportunities.

Let me give you our view on the status of our receivables and reserves. We are comfortable with our policy and the adequacy of reserves. The reserves have been increased by more than $2.2 million, and more than cover 100% of all accounts receivable greater than 60 days. Fourth quarter FFO per share is expected to be in the range of $0.63 to $0.68. This includes nearly $5 million of severance charges not previously included in full year guidance.

Recurring FFO per share for the quarter is expected to be $0.54 to $0.59. For the full year 2009, recurring FFO per share is projected to be in the range of $2.63 to $2.68. Because we did not provide recurring FFO guidance last quarter, we placed a reconciliation on our website for your review. Looking forward into 2010, based on preliminary projections and an operating environment that remains uncertain, while we expect to experience a more modest decline in same property NOI, as we feel the full year impacts of lower occupancy and pressures on rents, it will be nearly offset by increases in non-same-store NOI. We will continue to incur a higher interest expense and G & A as a result of lower capitalization, combined with the dilutive impact from the April equity offering.

Mary Lou?

Thank you, Bruce. You know, we're nearing the close of one of the most challenging years for retailers in memory. The recession of 2009 shocked the consumer and the retailer into a state of paralysis and self-preservation. Retailers closed stores, reduced inventories, and cut staff while consumers stopped spending and increased savings. And although results may hover era long the bottom for a while, there are signs of recovery on the horizon. Consumer confidence has risen from its floor, retailers are emerging as smaller healthier companies that are better equipped for the current economic environment and a number of Regency's PCI tenants are continuing to expand and some are planning to open more than 50 and in some cases more than 100 stores next year, including Panera Bread, Great Clips, Chick-Fil-A Panda Express, Massage Envy, TJ Maxx, and Petco, and even Subway which is kind of a league of its own right now, looks like they will open 1200 locations next year, and grocers, specifically Kroger and Publix with continuing to expand at a healthy clip.

On the flip side, small shop mom and pops are still having difficulty obtaining financing and many are struggling to survive. Although allocating some of the TARP money to local business banks, if it occurs, should help. The stronger operators are surviving and we're capitalizing on the opportunity to relocate these retailers into our centers by mapping out our needs and increasing our marketing efforts to attract the best local retailers and we joined the National Franchise Association and we're using media outlets like Twitter to communicate to our retailers, and we're cold calling the top local tenants, especially in weaker competitive centers.

These operators recognize the benefits of being in centers with stronger anchors. Over 80% of our centers are anchored by market leading grocers producing annual sales of $25 million or $490 per square foot, and so far this strategy has proven successful. For example, Bike Line, a regional bike store with 14 locations in the Philadelphia area, upgraded to our Gateway Shopping Center anchored by Trader Joe's and expanded their space to 3200 square feet. and another local Operator located a 3500 square foot business to the Shops of Fair Hope Village recently completed a development anchored by Publix from an unanchored center just a few miles north.

In summary I'm encouraged by the positive signs we're beginning to see, especially the signing of 1.4 million square feet of new leases and renewals in the third quarter. The change in activity beginning since June is rather dramatic, and since then we've averaged 46 new leases per month which is comparable to last year and represents an increase of nearly 60% from the level earlier this year.

Brian?

Thank you, Mary Lou. Our operating portfolio was 93.2% leased at the end of the third quarter, up 20 basis points from the second quarter. This was mainly due to the disposition of Kingsdale, a property that was 43% leased. The sale of this asset increased the percentage of lease space by 50 basis points, and offset the net decrease in occupancy.

We continue to experience pressure on rents, particularly in Virginia, California, and Florida. It does feel like in most markets, rents are at or approaching the bottom. When we compared today's rents with rents on the leases that expire during the next few years. it appears there's minimal if any downside in the overall portfolio. I do want to point out that we are managing our rental rate declines such that the most significant negative spreads are found in the 160 leases signed year-to-date, with terms of 12 months or less.

Keeping the lease terms short allows us to work with good tenants in difficult times, without locking us into long term rents based on current economic flows, which is the right way to run the business. Conversely, longer term leases, those with terms greater than three years, are being signed with stronger retailers. These longer term leases represent 60% of all of the leasing activity year-to-date and the rent spreads associated with these leases are essentially flat. Simply stated, we are keeping our big rent declines to very short-term leases.

As Mary Lou mentioned, the pick up in leasing activity needs to be highlighted. In fact, for the operating portfolio, the third quarter was the best quarter of leasing that we've enjoyed since the First Quarter of 2008. We leased or renewed 1.4 million square feet of space in the third quarter, and 3.8 million square feet of space year-to-date. Similar to last quarter, the majority of these deals are small shops, averaging 3400 square feet. By category, food and restaurants make up the majority of these new leases.

I also want to mention the continued success of our PCI program. The renewal rate of our PCI tenants is 88%, compared to 69% for non-PCI, and we're actually seeing positive rent growth from the PCI tenants. As we move out troubled tenants, we are backfilling those spaces with strong operators who have survived and even thrived in spite of the economy. For example, a mattress store on a pad recently requested rent relief but we had little confidence in the tenant's outlook. We refused that request, moved out the tenant and replaced it with Sonic, a big upgrade in quality. Furthermore, as Mary Lou stated, we continued to receive interest from tenants currently located in inferior competitive locations looking to upgrade to a center with thriving anchor sales.

I'd like to turn now to an important step we are taking to right size the organization and enable the Company to more effectively achieve its key objectives. We are reorganizing by moving from a functional structure with separate operations and investment groups to one that is more regionally focused and market oriented. The managing directors, Jim Thompson, John Dellatore, and Mack Chandler are responsible for all aspects of the business. Each is extremely experienced in all aspects of real estate operations. Reporting to these managing directors will be market officers who will have hands-on responsibility for the asset management and leasing functions. This move creates the structure and the incentives for our very best and most experienced people to work more closely in partnership, utilizing our combined talents, judgment, experience, and relationships to meet the needs of the operating and in process portfolios.

We believe there are many other benefits to this structure. More experienced professionals will be involved in less management and more direct negotiations as a result of a flatter organization. We will operate in the field as one team, bringing together the best talent within the operations and investment groups. The people with development expertise will no longer focus exclusively on external developments, but will look within our own portfolio for opportunities to grow same-store NOI. It creates a leaner and meaner organization without taking away needed muscle in the critical parts of the business, especially leasing. It allows us to right size our development teams, while retaining a core competency that will be vital to responding to the myriad opportunities likely to present themselves, whether they be internal or external value add candidates.

The move to our greater efficiency without compromising effectiveness translates into long term cost savings as we significantly cut back on staffing, retaining only the best talent. Upon completion of this reorganization, we will have reduced the size of the organization by approximately 30%, with the development group having been reduced by more than 75%. The overall reduction in staffing has already translated to a $43 million cost savings in direct salaries and benefits over the two year period beginning 2008. As a result of lower capitalization and severance charges, however, net G & A in 2009 is expected to be 4.5 to $5 million higher than in 2008.

As you are aware, delayed anchor openings slow progress on leasing, lower rents and prices on out parcel sales have significantly impacted development returns and values. At the same time, we made some notable achievements in the in-process portfolio during the third quarter. The grocers in our newly opened projects are doing extremely well. The sales at Whole Foods in Santa Barbara have been so high they have asked us not to proceed on a planned out parcel building and instead allow them to lease the ground related to this building for much needed additional parking. The Publix at Shops at Fair Hope had the second strongest store opening in Company history, similar success stories were reported by Ahol's Martin's concept and by King Soopers.

We began construction on Seminole Shops, a relocation of an existing Publix store that is generating sales of over $920 per square foot in a dense in fill market with average annual household incomes of over $80,000. Construction bids came in 25% below budget and rents appear stronger than anticipated, suggesting that we could potentially out perform projected returns. This will be a typical prototype of our ground up developments in the future. Strong grocery anchor with limited shop space and dense markets with strong demographics.

In closing, while it's been a quarter of mixed results and continuing challenges I am excited about the future, particularly the reorganization which should allow us to better respond to the demands of the industry. Hap?

Thank you, Brian. 12 months ago, we all know that given the capital markets crisis and the deteriorating economy we were in for an extremely arduous journey. A year into that journey, it has become evident the economy has fallen farther and the fundamental of the shopping center business have been more severe than we anticipated. In spite of the unfavorable conditions, Regency has achieved several noteworthy accomplishments. We strengthened our balance sheet and it's obvious that the capital markets have thawed when the pleasant surprises of silver lining is more than anticipated by successfully tapping the institutional investor, common equity, sale and mortgage markets to raise nearly $640 million of capital.

We are projecting that we will have over $250 million of cash and not $0.01 outstanding on our line of credit at the end of 2009. CalSTRS purchase of a 65% interest in our co-investment partnership eliminated the refinance risk associated with the maturing CMBS debt in that portfolio. Furthermore, an option to increase our ownership in that portfolio is one of the best opportunities that I've seen in my career. As Bruce said, the average basis on approximately 500-acres of land held for development is now $5.60 per square foot. And most of the parcels have real anchor interest, are entitled and offer good prospects for development in the future.

And as Mary Lou and Brian said in one of the toughest leasing environments in memory, we signed nearly 1.1 million square feet of new leases and 2.7 million square feet of renewals. Finally, I believe that there will be substantial benefits from the new organizational plan beyond the significant savings in gross G & A cost. The new organizational structure will enable the team to more effectively and efficiently achieve our strategic goals and operational objectives, increase accountability, and allow for more personal management of our portfolio.

While there are many indications that the economy has either hit or is close to the bottom, I and the management team have no illusions that due to lower levels of consumer spending and a likelihood of future job losses, when we do start to experience a recovery, and we will, it will most likely be a fragile and gradual one, in which we are going to be operating in for several years. Not unmindful of the obvious challenges that we are facing, I'm confident that during the next several years Regency will successfully execute the following key strategies -- first and foremost, we will preserve and grow net operating income by increasing rent paying occupancy in our operating and development portfolios, minimizing any further rent roll downs and there's a huge amount of embedded growth to be harvested from increasing occupancy to 95%. While we have $250 million of cash on hand, no outstanding balance in the line, a strong balance sheet, manageable debt maturities and access to external sources of capital, we would like to further enhance the key ratios when it makes sense to do so. The bank lines will continue to be managed as a short-term source of capital.

We will utilize our market presence and later relationships to take advantage of investment opportunities when they arise at attractive pricing that are accretive to earnings and to NAV. In that regard, as soon as we've completed the review of the final 2010 budgets, and we're comfortable with the expected future performance of the portfolio, we will exercise our option to purchase MCW's interest. In spite of recent set backs in our development program, development remains an important differentiating core competency that will enable Regency to create future value, albeit on a more selective and modest scale and with more focus on in fill, internal redevelopments and distressed opportunities. Most important of all, we will preserve our special culture and engage and motivate our newly organized team, which in my view, is second to none in the industry.

In closing, the reset button has been pushed and values rents and NOI have returned to where they were several years ago. The management team and I have the challenge of building on what will hopefully be the bottom in the economy next year. I sincerely believe regency has all of the critical ingredients to begin to grow earnings and intrinsic value again, taking Regency back to a high performance level.

Before the call is turned over for Q & A, I want to vary from the script a bit. As everyone knows, Mary Lou will be retiring at Regency's COO at the end of the year and this will be her last participation on Regency's investor call, so Mary Lou, on behalf of Regency's customers, shareholders and 400 employees, I'd like to take a moment to express our sincere gratitude and appreciation for the fabulous contribution you've made to Regency's success. You are the shopping center industry leading expert on the retail business. As evidenced by Regency's PCI program, you're an innovator. You're an intensely focused, goal focused leader. People Manager Extraordinaire, mentor to many, wonderful Chief Operating Officer, value-added partner, inspiration to all who know you, and how you balance the successful career with your love and devotion to family and your special friend.

The last 10 years you blessed Regency in your role as a top executive and we now look forward to continuing to receive your insights as one of Regency's Directors and especially to our ongoing friendship. We thank you.

Thank you, Hap. I'd like to take a moment to thank all of you for the last 10 years that we've had. I can't tell you how great I feel about leaving this team and the operating portfolio into the hands of Brian Smith, and I continue to have overwhelming confidence in Hap's strong leadership and vision for the future direction of our Company.

Bruce has been a valuable partner to me and I know that he will continue to be with Brian as well, and Hap, Brian and Bruce have been not only wonderful colleagues but dear friends over the years. I believe that Lisa Palmer's Capital markets expertise is the strongest in the industry, and her experience and leadership skills make her a valuable mentor and role model to both men and women in our Company as well as the industry, and the entire team has just done a wonderful job to help all of us.

The operations group has been tested this year and the challenges have made them stronger and better equipped to manage our portfolio, and I can tell you I am generally excited about the company's new organization, allowing for increased focus and attention to our portfolio, more accountability, and more importantly, utilizing our development expertise to redevelop and revitalize our older centers. This is an untapped resource for us that's already proven to have great value, and I'm also looking forward to my new role on the Board that I'll be able to maintain the relationships that have been built over the years and continue to be a useful resource for Hap, Brian and Bruce and the entire team. I want to thank you for the faith you've had in Regency, the partnerships that we formed, and I'm confident that the changes that Brian outlined today will produce future earnings growth.

Bruce, I think you have a few things you want to add. Thank you, all.

I'd like to make a correction with respect to some of my comments regarding recurring FFO. Unfortunately I misstated the numbers, so for recurring FFO per share for the fourth quarter is expected to be $0.53 to $0.58 and for the full year 2009 recurring FFO per share is projected to be in the range of $2.59 to $2.64. These ranges tie to the guidance in our supplemental. At this time, we'll entertain questions from the audience.

Thank you. (Operator Instructions). We will take our first question from Christy McElroy from UBS.

Good afternoon everyone. Bruce, just following up on that comment about your recurring FFO guidance, you've got it going from $0.69 in Q3 to let's call it $0.56 at the mid point in Q4. I know $0.06 of that are the severance charges but can you just help me reconcile that difference as it relates to which transaction profits you're considering recurring versus non-recurring and is some of that downside in core given that your occupancy guidance suggests you see potential for declines in the quarter?

Well first of all, there were no transaction profits would be in recurring.

Or severance charges.

Excuse me, or severance charges.

No transaction profits at all?

Or severance charges.

Okay, so it's going from $0.69 down to call it $0.56. Can you just sort of reconcile that difference?

Just roughly I think NOI is going to be about $6 million. $3.5 million of that relates to one-time related to our insurance captive that we recognize in the third quarter and then you've got primarily term fees that we're getting that will amount to almost another $2 million from term fees in the development as well as the same-store portfolio, which accounts for the majority of that $6 million. Much of it's in a seasonality basis, and then if you look at the Asset Management fees from our JVs, that amounts to another $2 million effectively.

Okay, so none of that is core? Kind of your occupancy?

It's all core. It's a difference between the two in terms of reduced fees that relate to our asset management fee reductions as well as Chris was there promote in there as well?

What we had was we experienced a decline in the overall portfolio values that are the basis of the asset management fee calculations. In the third quarter, there was a recalculation in the asset management fee through a negotiation with Macquarie that it caught up the fee based on the values prior to the GRI acquisition and revaluation of that portfolio, and that added about $900,000 of Asset Management fees to the third quarter that don't reoccur in the fourth quarter. On top of that, we have significantly higher leasing Commissions that are recurring on a quarter to quarter basis and we've reduced those expected leasing commissions by about $700,000 in the fourth quarter.

That makes up the combined lower fee income that we consider to be recurring fee income for the fourth quarter of roughly $1.8 million.

Recurring basically would have no development profits, no major transaction fees, no severance cost, and no impairments. Those are the major components.

And one thing I'll add-on the NOI comments Bruce made is although we're lower as it relates to our insurance captive profits in the fourth quarter, we collect those profits routinely in the third quarter of every year and if you look back historically you'll see the same spike in that line item in the third quarter. By about the same amount.

Okay, and then my second question, I assume we're still into the two question rule, Lisa.

Don't forget, you're right.

On the development schedule, I noticed the new disclosure, this three year yield, I'm just wondering if you can say what exactly that means and how it compares to the NOI yield after partner participation because you got 5.4 versus 7.6.

Yes, actually I think we'll try and clarify that further. The three year yield is basically our definition of when we move properties from in process into the operating portfolio and we have a footnote on that schedule that it is the earlier of three years from the last anchor opening or four years from site work and so what we're trying to show is that when we do move these properties into our operating portfolio that's the return will be achieving at that time. And then the final NOI yield after partner participation is when we lease it up and the environment with the delayed leasing, typically they would have been the same because we would have been moving it into the operating portfolio as when it was 95% leased but we're moving it in when they're slightly lower leased. I think what we will provide to you to help clarify that further as to when that occurs is maybe the date of what that three year yield actually when it occurs.

That would be really helpful because I'm looking at shops at Highland Village it's 2.84%. Is that the current yield?

That's the three year yield, so that says that when I think that date is some time in 2011 if I remember correctly so that would be four years from when we started construction we're going to move that and it may even be as early as 2010, we'll move it into the operating portfolio and at the time that we do that, that's the expected return.

And that reflects as does every other return whether it be a stabilized or three year basis, the projected returns and what we're assuming even though it hasn't occurred yet that and other properties wherever we expect to see rent roll downs we've already incorporated those into the returns.

There's about $8.3 million of roll downs related to Highland Village alone in 2010 and 2012.

Got you. Okay, thank you.

Thank you, Christy.

We'll go next to Michael Bilerman with Citi.

Hi, it's Quentin Velleley here with Michael. I think Brian, you mentioned that for the short-term leasing you were doing in the portfolio, the rental spreads were much weaker versus just your longer term leases. Could you maybe out of the leasing that you did in the period, could you sort of break out what the short-term leasing was and give us some understanding of what the spreads were on that short-term leasing versus your longer term leasing?

We broke it down for less than 12 months and year-to-date that rent growth was about 13% and it represented about 15% of the deals.

13% down.

Yes, negative 13%, negative rent growth. From 13 to 36 months was about 7% and that represented negative 7% and that represented about 25% of the deals and as I mentioned from 37 up, it was 60% of the transactions and it was pretty flat, about minus 0.6 and altogether those will give you the negative 3.6% rent growth year-to-date.

Got it. And then I think you made the comment that for next year you saw minimal downside for leases. Does that infer that we can expect to see sort of flat spreads the next year outside of the new leases?

Yes, I wouldn't say it would be necessarily flat but let me explain what we did. What we did was we took an analysis of all of the leases that are expiring over the next two or three years and we looked at what those rental rates are and we did that for both retailers smaller than 10,000 square feet and we did it for those greater than 10,000 square feet and then we went back and looked at 2009 leasing to date and figured that's a reasonable proxy for what mark the rental rates are and when you did that, you found that on the shop tenants the expiring leases where they have been slightly above market, not very much, so I think there's 3.5% roll down from those and then on the anchors when you did it that way it looked like they were actually significantly below market which was allowed for substantial rent growth. Now, the problem is there was such a small sample set with the anchors that we then went back and talked to all of the people in the field and asked them what they thought the rental rates were for the anchors when those specific leases renewed and it was pretty flat so when you put it all together I'd say that our belief in what we were looking for in doing that is there significant risk there's additional rent roll down and the answer to that is "no" so where we see it coming I'd say somewhere from flat to slightly negative.

And I'll just add, just to caution some of you we provide the lease expiration schedule in our supplemental that when you look at the anchor rents and you see they might below, many of those tenants have options and so it may seem that there's some upside but in many of those cases, we will not be able to capitalize on that even if market rents are higher on that if they exercise their option.

This obviously varies by market but the key underlying assumption here is that rental rates have stabilized or close to a floor and it kind of feels that way, but we're still with increased unemployment increasing, there's obviously risk on the other side.

And just to clarify, Brian, you had the 13% down, that was a year-to-date number I think. What was it for the third quarter?

We disclosed that. I believe it was negative 7.4%.

And this is for the short-term?

For the short-term.

So I'm just wondering whether it got worse in the third quarter or whether you were doing more of it in the third quarter versus the earlier part of the year.

Yes, we don't have that. We start to take a look at that it's not as dramatic as year-to-date or we just wanted to focus on the longer term data if you will than just a short quarter. So you got a better representation.

Got it. And my second question--

You're assuming that clarification did not count as your second question.

Isn't it a line of questioning?

That's great. If you could get back in the queue, we would appreciate it.

Okay.

Thank you.

We'll go next to Nathan Isbee with Stifel Nicolaus.

Hi, good afternoon. First of all Mary Lou, wanted to wish you the best.

Thank you.

Last quarter and I can appreciate that you were talking about leasing velocity picking up but last quarter you talked about the small shop tenants who just stopped paying rent. Could you just talk a little bit more about that, has that continued?

Yes, it's Bruce. I think that really things haven't changed a lot. It is the same, what's interesting, Brian indicated that the restaurants we were doing more deals with restaurants but we're losing and having more move outs with restaurants than any other category as well so it's still the same kind of environment that they're having and tenants, they may just finally give up at the end of the day so I'm not sure that changed a lot what I think the biggest change we've seen is the change in activity on the leasing side and specifically new leasing.

Just a comment on that. I would agree and I think that as far as tenants' inability to pay it's been pretty consistent for the past couple quarters and I think it's still going to be difficult unless some financing opens up to some of these people that they're just not going to be able to pay it which is all incorporated into all of our plans. I think the other thing is that in terms of rent relief requests, Brian what were they?

The rent relief requests were way down. If you look at what we have gotten this quarter it's about 50% less than the rent relief request from last quarter and about 75% lower than what they were in the first quarter so they are down dramatically.

And as a follow-up, not as a second question, have you seen any of those that have--

We were laughing. We didn't hear your follow-up.

Yes, those that had stopped, have you seen any of them reverse course and start paying again? Have you seen any of them recover?

Well, there's probably some of that but not a lot. What we see happen sometimes is they see there maybe a threat of starting legal proceedings against them and then they will send us a check.

We do have an example we took one tenant all the way through to the litigation and got a judgment against them for $50,000 and then it was a national retailer and that national retailer showed up with a check, so obviously people are pressing us and testing us and in this case we took them to the mat and got where we needed to be.

Okay, great. And then just the new co-investment partnership that you formed I'm curious, given your somewhat negative experience this year with the Macquarie JV, your thoughts about as acquisition opportunities present themselves over the next year or two, why you would go that route to acquire versus acquiring on balance sheet and funding with new equity.

Nathan, once again what it gives is multiple sources. If it makes sense to acquire on balance sheet, we have no obligation to do that, to the extent it may not make sense to acquire on balance Sheet we can do it in the partnership, so it gives us a tremendous amount of flexibility and in addition there's a huge opportunity, we've got our partnership with CalSTRS . We've got our partnership now with USAA so we think that it's a, we also wanted to, as we stated, we wanted the minimum size of things Bruce indicated to give us enough critical mass to do what we want to do, depending on opportunities in the future, and I think to be honest with you, our experience with our MCW partnership, I think number one they have been great partners and they did have some financial issues but to be able to bring in CalSTRS as a partner which strengthened MCW, but also we've got a great partner who wants to continue to expand and given the option that we've got and then the fees and promotions Regency has been paid that's a very favorable experience for

Let me ask it different. If you had a 250 to $500 million portfolio come to you today are you more likely to do it on balance sheet or off?

Our preference would be to do that on balance sheet depending on that making sense and if we could especially do that in a way to where we could combine that with an opportunity to enhance our balance sheet. But that may or may not be available to us, especially with the uncertain environment that we're in.

Great. Thanks.

That would certainly be our preference.

Thanks, Nate.

Okay, thanks.

We'll go next to [Samir Kanal] with Morgan Stanley.

Yes, good afternoon. Just wondering about your thoughts on retailer bankruptcies, store closing going forward and can you give us some sort of update on your exposure to the movie rental retailers given the accelerated closings on that side?

We've got obviously the two big ones there, you've got blockbuster and the Hollywood Video. Blockbuster we have 71 locations not counting the new Neptune Beach one and our exposure, we found out there that they're probably going to be looking to close about 12 of their units over 2010 and 11. We've already got seven of those closures built into our plan so there's not much to worry about there. We looked at the rents of those expiring leases. The 12 spaces that we would lose on a pro rata basis about $1.1 million worth of risk and we think that we can release those at almost the same rent, remember we've always said that's some of our best space in the center so we're forecasting right now that the releasing rents would be about 1.5% less.

Hollywood Video, we've got 17 of those in our portfolio. One of those they've already committed to continuing to pay rent and the other 16 they are negotiating with us if you will. We think it's mostly a rent relief play. Again, if you look at our opportunities of what to do with that space we've looked at them space by space and if we were to do what Hollywood wants to do, there would be about a $4.20 per square foot roll down which translates into about $200,000 of pro rata rent reduction. If we were to release those spaces we think there would be a minimal reduction, maybe $0.50 to $0.60 or about $28,000 pro rata impact, so the Blockbuster is real. There are 12, there is only 12. They just notified us about that yesterday and as I said we've got most of that baked into our plan and with regard to Hollywood we think it's a rent negotiation play.

And just in terms of cap rates, do you think we're getting closer to price discovery for shopping centers and where do you see cap rates for assets in the coastal area versus the interior markets?

Well, what's changed this quarter is that the A quality centers, in the coastal markets, the urban markets just the A quality markets we've probably seen a 25 to 50 basis point decrease in that. There's a lot of capital out there chasing the highest quality grocery anchor centers. For example, here in Jacksonville, there is a Publix anchored center and it just went to market and got 36 bids, 20 of which are going to best and final and that one will probably settle out at about an 8.0% cap rate so we think the core high quality grocery anchor centers have fallen from 8.5 to the low 8s. Everything else pretty much starts with a nine after that, if you've got a community center, if you've got a grocer anchored in the secondary or tertiary market or B or C quality properties you're probably talking nine. The biggest difference being those kind of properties is going to be very difficult to get financing and a lot of seller financing is required for those so really positive outlook if you're looking at dispositions of A quality properties, not so good if you're looking at B or C.

Okay, great. Thank you.

We'll go next to Ian Weissman with ISI Group.

Yes, good afternoon. Just to clarify, I think last June, you discussed how your developments if you did no further leasing you would be yielding about 6%. Maybe I just misunderstood the three year yields. What's changed in the drop down to 5.4%?

You mean from 6% to 5.4%?

Yes, when you said in June if you did nothing your development yields would be about 6%, so it just looks like that keeps slipping. I wonder whether it's tenants pulling out or something has changed.

On the current returns which we were talking about before, there's really not much change. In fact it's gone up. I don't remember what the exact number is.

I think what you're confusing Ian is that some of those three year yields could be early 2010 and so we may have a lease in place but not rent paying yet and is not expected to be rent paid until later in 2010, so they're really different numbers. The current yield, what we refer to is theres no further leasing with Brian because it hasn't changed very much.

I think there's very little change in that regard.

It's all a matter of how much lag there is between rent commencement between lease execution date and in some cases it's a pretty lengthy amount of time.

Well staying on this development question, whether it's one or two, but if you look across the $3 billion of Real Estate you guys have developed let's say since about 2000 and I would say that you've targeted 9 to 10% returns I'm not sure you've done the math but where would your development portfolio be yielding today?

2010?

Well I'm saying since 2000 you've done about $3 billion of development, you've always targeted 9 to 10% stabilized returns. I'm just wondering in the properties that you have delivered to date, what would the current yield on those developments be?

You know, it's interesting. One thing, one number that I can tell you is we've recognized from since 2000, $300 million worth of recognized profits and that doesn't include, that just includes what we've sold and that doesn't include what's unrealized.

We don't have that handy here in the room.

What would you say that if you were targeting nine today they've really just seven?

They were delivered at nine, then they are still--

We went through a period from about 2000 to 2007 where everything we started and delivered was in a 9.5-10.5 range. Not everything but on average we were and it has been we're still, we still got--

We just pulled it up. All of our completed developments are currently yielding about 10.2.

I was going to say we had a slide that we have in the Company presentation that talked about what the returns were with like 121 properties that's under written at 10.3 and delivered at 10.2.

Substantial amount of value creation and realization, but unfortunately we've given a large amount of it back.

And finally, just housekeeping. Your other operating expenses spiked in the quarter to 3.2 million, Bruce, what's the run rate on a go forward basis and what was the cause of the spike?

Yes, I think that it's real estate taxes primarily but again,--

Well you have a separate line item for real estate taxes. I just wonder what's in that other operating expense/income.

There was some more snow removal this year. You're talking specific third quarter aren't you?

Yes.

Our utilities were up significantly, snow removal is up significantly.

Okay, so should temper that on a go forward basis, is that fair to say?

Yes, I would temper that on a go forward basis, yes.

Okay, thank you.

I would say to you that if you were to average the last three quarters, that would be a better comparison run rate going forward.

Correct.

Okay, thank you.

Thanks, Ian.

We'll go next to Jeff Donnelly with Wells Fargo.

Good afternoon, folks. Mary Lou, certainly it goes without saying that you will be sorely missed.

Thank you, thank you, Jeff.

And Lisa I'm a Red Sox fan and for his safety and mine I could never name my dog Jeter.

Doesn't seem right, does it?

That's right. Two loyalties. I'm not sure if you're able to talk about it but looking out you've got about 2.2 million square feet of anchor explorations coming in 2011 and 2012. I know it's a little bit of a ways off but it's a little more than twice the volume of expirations you have in just about any other year that's rolling. I guess I'm curious given the realities of the junior anchor market that's out there, how are you guys thinking about retention approaching those tenants for renewal? How should we be thinking about rent as we come up on those maybe in 2010?

Well, I think as Jeff said, it goes a little bit to what I was saying before is if you look at we've gone through a lot of the in the next two or three years those anchors that are expiring and looked at their rates and again a lot of those did have options and looked at what we think the current market is and we just don't see that there's that much of a roll down. It is a tougher environment on one hand, but there's a lot of space out there in the market and the anchors have enjoyed pretty good leverage, but what I will say too is that they want to be in the centers more than ever. They're generating the top sales and I'll give you an example. We have a property in Southern California in the Inland Empire, Falcon Ridge and they are one of the national apparel guys who is the toughest you can deal with was on a co-tenancy situation and they came with us with the expiration of the co-tenancy and said we want to renegotiate a lower rent. We knew they were doing well and generating the sales and we said no and they are staying paying the full rent, so I guess I feel while it may be a challenge it's going to be okay.

The other thing is the age of the centers makes a big difference and a lot of those are expiring, those leases are significantly older and especially with the anchors since they have long terms and the leases were set, the lease rates were set many many years ago. The places where we will see the biggest challenges will be just like as reported this quarter, the markets that enjoyed the highest rental rate growth. California we did more of the big boxes, we enjoyed the highest rates and there, Florida, and DC is likely to be the place where you see the biggest roll down.

And I have the analysis that Brian referred to earlier in front of me in terms of how we looked at the next three years with expiring rents we have it broken down by anchors, even though we're showing north of 2.2 million square feet of anchor VLA expiring through 2012, all but 400,000 of that have options, and we show the pro rata expiring average based rent that it takes 2012 for example, to $9.64, we've estimated that current rents should actually be $1 north of that but again, a lot of those have options so we're not going to be able to really realize that full potential.

One thing if I point out too Jeff is if you look at right now, I'd say let's hope that this is about as dark as it gets and we've got two situations that you talked about where we've got a lot of anchor activity and in Southern California we have our Grenada Hills redevelopment and there will be a vacant SteinMart and we have the old Ralph space and six retailers competing for that. We've got 20 boxes in total and if you look at the leases we're working on right now, we would experience 9% rent growth and some types rent growth doesn't tell the whole story. For example, in the Bay Area we're doing leases with anchors again the toughest apparel national guys $19 whereas in most markets they're single digits and now those are lower than they were but I think still indicative of a pretty strong centers.

Just a second question, concerning cash rents. The declines have been significant thus far and we've seen that around the country. I guess I'm trying to figure out how temporary or lasting the declines have been and maybe you can separate it this way but when you look at your markets around the country, how much of the decline do you think is a function of the condition of oversupply of the space in the market versus weakness in retailer sales in those profitability and of their ability to pay the market rents, because I guess one is maybe a more lasting condition and one is more temporary, are you able to break that out for call it anchors versus small shop?

With the anchors we think a lot of it is temporary which is exactly why we're doing the short-term leases because we think that things will improve there and may do not want to be locked in for a long period of time. I think for the anchors, I don't know, do you have a feel on that one?

Yes, I think for the most part it is a bit of both so there's no doubt about it, but most of our centers are located, they are older centers, they are advanced markets, better income, and I think right now, it's less of a supply and demand issue and more of negative comp store sales wanting rent relief, doing what they can to try to survive through this which is why we had a greater negative growth. We've taken the approach of the fact that with these tenants that we think are strong tenants that we're going to go ahead for 12 months give them rent relief knowing that as things turn around and if it's an operator that we believe in, that we will be able to go back and continue to get nice rent growth and we think this is the right way as Brian said in his comments to run the business and so it looks definitely that in the short-term we have lower rent growth, in the long term, I think it's a winning strategy.

One of the things we're doing too, just again to give you a little bit of color on it, we have the retailers are also telling us, especially the small shops they think it's tempo after it. There is a center in Virginia Beach and a restaurant there, really great restaurant in the market and they were interested going to one of our centers, and they were going to put a lot of dollars into the space to get their restaurant going but they just said in the short-term, we're worried about sales and we would like to come there if you could help us out in the short-term we'll make it back up to you, and in that case we signed a lease that was about 51% negative rent growth but it was a center space that had been vacant for four years, we put them in there and structured the lease so that within three years those rent steps go back up 50%, so I think it just goes to the mind set of the retailers in this case which is it's temporary.

Thank you.

Thanks, Jeff.

We'll go next to Craig Schmidt with Banc of America - Merrill Lynch.

Thank you. I first want to say to Mary Lou the whole REIT team here hopes you have a happy retirement and I would ask you if you were traveling but I don't want to lose a question.

Thank you so much and after this call you can give me, we can talk and I'll be glad to give you the whole deal. Thank you.

And you won't lose your question.

It's not a question.

The question I did have though is in the past year, how many of the anchors that would have owned their own space have postponed store openings like the Target at Marietta?

Well the only one that I can think of that has really postponed is Target. Some of the others have pushed out there, well, some of them were co-tenancy situations that were tied for example, to at our Deer Springs project we had Home Depot and we had several anchors who were tied to its opening, so they may have been pushed out a quarter, but Home Depot is opening I think next month and everybody opens with them but the only one that has said we're just not going forward with this was the Target at Marietta.

So but they have, I mean I assume they have that right then? Since they own their own pad?

Well that's the problem is when they buy their own pad, they demand a lot more in the way of--

Economy.

So now we have some rights in those cases where if they terminate and then they don't proceed, we can also buy the pad back but that's not what we want to do in this market right now.

I hear you, okay, thanks.

Thanks, Craig.

We'll take our next question from Michael Mueller with JPMorgan.

Yes, hi. Want to go back to a prior question on the Q3 to Q4 reconciliation. Just think I'm missing something and I want to see the moving parts again. Brian or Bruce, I think you mentioned it was about $6 million or 5 million of lower NOI which is about $0.06 a share, a couple million of lower fees which is $0.02 a share, that's about $0.08 out of the $0.14 to $0.15 drop off and I'm not sure if you mentioned--

I'm sorry, you've also got the impact of the USAA transaction which is effectively two months, $104 million, 8 3/4.

So that's a couple cents on top of that so that's $0.10 or $0.11. Anything else in there?

I think that covers the differential I think.

That gets you to the high end of the guidance and something beyond that would just be potential further move outs and we just don't know.

I think that's probably what you missed. I didn't mention it to Christy when you asked the question.

Okay, fair. And then looking at the development page and I don't believe this was touched upon earlier but it may have been, the yield on the in place portfolio dropped it looks like 30-40 basis points somewhere in there this quarter. Was there anything in particular that was driving that or was it just a little bit here and there?

You talking about the 7.58% yield?

Yes.

Actually on an apples-to-apples basis the change was only one basis point. As we always have with these, there's, we move some properties in, we move some out. Some stabilize, so but if you look at just the same properties, just the one basis point difference.

Okay. Thank you.

Thanks, Michael.

We'll go next to Jim Sullivan with Green Street Advisors.

Hi, it's Nick Vedder here. I just had a question related to a prior question. You mentioned looking at some opportunistic acquisitions or possibly if you were to do a deal you'd look to do it on balance sheet as opposed to in a joint venture. Just curious, are any of your joint venture partners currently expressing any interest to you to do more deals?

Yes, USAA would have loved to have done double, triple, quadruple the size of this partnership. They would have done $500 million.

And I'd say CalSTRS and CalSTRS are in the same position, both expressed an interest in expanding.

Okay, so and then in terms of your flexibility in doing it on balance sheet versus doing it in these partnerships, I know before you had a capital allocation process where you worked on sort of a rotation basis, is that still what would be going forward?

We have no requirements with CalSTRS or with USAA. We do with the open end fund and CalSTRS and Oregon, but Oregon is fully invested. CalSTRS is on the sidelines.

Okay, thanks.

We'll go next to Jay Habermann with Goldman Sachs.

Hi, good afternoon. Just given that you're doing more deals on a shorter term basis could you speak maybe to the downside in occupancy this could result in over the next 12 months given that retailers in general still seem to be pretty cautious and then also how are these deals being negotiated?

What was the last part of the question?

Just how rents on these deals are being negotiated.

Rents. The rents are being negotiated.

Oh, well mostly short-term leases, that are being done again are being done at ours, they aren't being done because they want the space long term. We don't want to tie up, tie ourselves up by doing rents based on the current distress in the economy and the market and have that continue to burden us for many years to come, so I don't see that as an issue. Leasing hasn't been the problem for us whatsoever as I mentioned this has been the best leasing quarter since the first quarter of 2008. What's been dragging on us would be the move outs, and so I guess I would probably answer it by saying what's going to happen with the move outs going forward. There's some unknowns, none of us know what's going to happen in terms of bankruptcies but we're going to see our move outs continue. In the past we used to average about 1.5 million square feet. This year we're a little over 2 million square feet and we think that will settle down next year to maybe back to 1.8-1.85 million as we start moving some of these ARs problem tenants out, so right now, we are in the process of evicting those that are kind of our dead beats and that's going to take time. Some of the states are just very difficult to work with, so that will cause us to probably continue to drift a little bit lower and then bottom out.

Just to kind of add to what Brian said is if you look at our tenants that we've done these 12 month leases with, it's primarily if you remember when we talked about rent relief request and how we did it we looked at their balance sheet, they had to come up with the business plan and we really looked at do we see they're viable tenants so the question is do we see a big risk in terms of decline and occupancy with these people that we've structured these leases and no, we don't see a big risk, and I think Brian addressed the rest of your question.

You did ask something about the rents and how it's being structured. There's really for the most part no difference. Our TI are very close to what they have been. They are very reasonable. We aren't buying it up or giving free rent. There is some creativity that goes on out there. I mentioned the one where we got 50% rent growth over the next three years and we've also got a situation out in Maryland where one of our centers where the anchor went dark and we convinced a good retailer to go in there and we set the rent low, but as soon as we get an anchor tenant in there that rent bumps up pretty significantly, so doing creative things like that.

Brian it's actually Jay. You mentioned Virginia, California, Florida as some of your weaker markets. Is that where the bulk of the shorter term deals are occurring and I guess can you give us some sense of the magnitude maybe in some of your worst affected markets?

I don't have the break out of the short-term leases in terms of what market those are in. We could get that for you but I don't have that.

Okay, thank you.

Thank you.

We'll go next to Chris Lucas from Robert W. Baird.

Good afternoon. Bruce, I just need a real quick question. Earlier in your comments you talked about I think one of the transition revenue items related to a third quarter seasonal effect on is it insurance recapture program or could you explain that for me?

Yes. We effectively do first dollar coverage through a captive in our portfolio, so we don't have a deductible amount an that's billed through to our tenants and to the extent we have profits after what the expenses were with respect to that captive insurance entity, it shows up in the third quarter.

So it's a true-up in the third quarter and that is in your recurring FFO number?

That is as it always has been. It's something that we get every year.

And for this quarter that number relative to sort of prior quarter run rates is what was that, sorry.

This quarter it's $3.5 million which is about the same as it's been in prior years.

And that's in the other income line?

Yes. We moved it into the other income line.

Perfect, thanks a lot, Bruce.

Yes.

Thanks, Chris.

We'll take our next question from [Sunit Parek] with Oppenheimer.

Good afternoon. My question is in regards to the new joint venture. Can you describe the quality and location of these assets, maybe relative to your overall portfolio and on the 8.75 cap rate was that on in place NOI or was that a forward-looking NOI?

It was basically in place NOI, a representative portfolio basically from a quality standpoint, pretty close to that and it was across the country and remember, the transaction, the pricing was basically negotiated in the second quarter when things are not, there wasn't quite as much clarity as there is right now.

Understood. And then on the 6.8% interest only debt that you guys got on those properties just wanted to see if you could give some clarity on what you're seeing in the debt markets right now. Is pricing pretty much around 7% on seven to 10 year date and based on that what are your thoughts on the sustainability of these rates going forward to next year?

In terms of our forecast, the 10 year is probably we use the Chatams forward curve and I think as I recall it's up about 20 basis points by the end of the year, so what we would see that go up even though effectively it's not a spread over Treasury, it's actually a fixed rate so we'll probably see that 7% number hold through the next six months. As you're aware we have a big tranche of financing that's coming due to related to our joint venture in GRI that we're in the process and working through right now, but we expect that that would still be the 7% range is kind of a good number for the next, low sevens.

Okay, thank you.

Thank you.

We'll take a follow-up question from Michael Bilerman's line with Citi.

Yes, hi, it's Quentin again.

Welcome back.

It's good to be back. Going back to the joint venture, you mentioned that the USAA had a desire to make that joint venture, is it open end, can they increase the size of that joint venture and what were the fees and just wondering if there's a promoted interest?

There's an asset management fee, there's property management fees.

And sort of what size could the joint venture potentially increase there?

It could increase by several hundred million dollars and as Bruce and Lisa have been reminding me, we also have a partner that's been on the sidelines in CalSTRS, looks like they're coming back into the market, so we at CalSTRS is very active so right now our preference number one is to do something on an on balance sheet standpoint to the extent we can do that but secondly we've got multiple sources external capital from in place partnerships.

This is Michael Bilerman. A question, just in terms of this whole structural move down to the regions and moving a lot of the investment groups, how far along I guess are you in that process and any time organizations go through large changes there's always some bumps or hiccups in the road and how can we get comfort in the next 12 months that we'll be able to see or we won't be able to see any of those.

Well for those reasons we'll be working on it for quite some time, I think we're ready to implement, really just reflects the field operations, kind of the transactions if you will, a person who is on the development side and has 20 years experience and has great anchor relationships, solid judgment and everything, there's no reason why we can't bring that kind of talent on to our operating portfolio to help with that and vice versa. What we're not changing would be the property operations platform.

That is run on a national level so we have consistent policies, collection procedures, contracts, and things like that so that group will continue to report to John Dellatore who handled before to see no change there. And also in our national transactions group which did the acquisitions, dispositions, they get very very involved with the joint ventures or part of our capital market strategy, that are part of our balance sheet strategy, they continue to operate on a national scale and so really all we're talking about would be the field operations on the transaction side. The other thing that--

Transactions you mean leasing.

Yes. The other thing that should give you comfort is these people are now responsible for all NOI in the field. It doesn't matter if it's development NOI, doesn't matter if it's operating property NOI. They are responsible for it and if you look at the people we've got running it, we're fortunate to have guys who have worked on both sides of the business for many many years and they've got great experience. Jim Thompson used to run half the country for the operations, he will now run one-third of the country. John Dellatore has been doing it on both sides, he's been doing investments and he's been doing operations and he will have the center part of the country as well as the national property management platform and Matt Chandler we brought him back specifically because of her experience and knowledge of those markets and I think we're just very very fortunate those people should give you great comfort so while some things changed not everything changed.

The key thing is the line leasing people, the line leasing officers aren't changing, we're changing their focus and we're enhancing their focus, tightening their focus is what we're doing and my expectation and I think it's a good question, Michael, but my expectation is on the downside of it, I think that it's going to give us a better chance with a greater focus as we've mentioned before from harvesting the embedded growth in the development portfolio of the $15 million plus of NOI from signed leases and taking that portfolio from 78 to 95% leased there was another $15 million plus of NOI, I think there's enhances our ability to harvest that embedded value there.

And Michael, I'd just say one thing, first of all this is so well thought through and it was thought through with a great group of people and Brian and I together worked on it, and I can't feel any better about it is why I made that comment, but I think one of the things that is so good about what's happening is we have removed some layers and so now you have people who have more experience in the business who are going to be directly involved as opposed to just managing and Brian said this, really involved in more of the leasing, more hands-on. I think everybody is going to be much much more hands-on so you've got these people with anywhere from 10 to 16 plus years of experience who spent more of their time managing in the past and because they had bigger territories now will have smaller territories but really focus and know those markets inside and out but years of experience that will help benefit us, so I think unlike what normally happens, I think--

You've been through a lot of these.

I've been through nine mergers and not that this is a merger but I've been through a lot, I have to tell you I can't feel any better about it, about the process, about the results, about the talent. We've always been credited ourselves in the depth of management and talent and this is just a perfect indication whether it's Brian, the President in running both operations and investments and then having his three guys who are more specialists and now they're going to be generalists of smaller market and then taking that all the way through, it's the same guys, it's what we've touted all along and I'm confident that you're going to see these results and you won't see hiccups as a result of this change.

If I can follow-up on our previous question in terms of the leasing, if you looked at in the supplemental on page 25 and looked at your weighted average lease term over the last four quarters, you've gone from 4.9 to 4.8 to 4.7 and this past quarter you dropped down to 4.2 years with the largest negative rent spreads and so Brian when you talked about 15% of I don't know if you're using the 2 million square feet or the 3.5 million total with 100% of the JVs but 15% of the leasing being under 12 months, I'm assuming that there was a much much greater percentage of that occurring in this quarter and I'm just wondering I know you said you want to take a more longer term view but what we're trying to get at is there a difference or a trend in how you're approaching the leasing today relative to how you were doing it at the beginning of the year.

All I could say we would have to dig into those numbers to answer specifically what you're talking about but there's no difference other than what we talked about. We're focused on, I think for all companies in the really great markets you didn't have to worry so much about tenant quality because you signed somebody up and if it didn't work out you replaced them and that view changed and that's a significant fundamental difference in the Company and we're doing everything we can to proactively move out the weaker tenants to replace them with the stronger. The only other issue that we're doing that I would say is different is just making sure that if we have those retailers that we want to keep but it's going to take significant rent writedowns then we're going to do that on a short-term basis so it's not to cut off our nose, but other than that there's no change.

And that, because of the market conditions as they deteriorated from a year ago or six to nine months ago that's become more of a part of our strategy.

Okay, thank you.

Thank you, Michael.

We'll go next to David Fick with Stifel Nicolaus.

Good afternoon. I'm tempted to ask what the reorganization what Hap and Bruce are going to do, but my question is just a follow-up on the Publix-Kroger comment.

That was your first question. That was both questions.

It might be the second question.

Well we know what you're going to do, Mary Lou. The question is this, you observed at both Kroger and Publix are still in the market. Is there anything specific not that you would disclose but are you in conversations about specific deals and specific locations that could turn into potential development upside in the next year and are they willing to meet pricing that's logical in this market?

We are talking to them on a case-by-case scenario. It's just of any opportunities that may make sense to them, we've talked to Publix about a few of redevelopment opportunities within our own portfolio and we're going forward with that and we do have discussions going on but our pipeline is very small. In fact we don't have any new, we have I think one new development that's in the high probability pipeline for the next year or two, so we're talking, it's still early, in fact Publix expressed one of their biggest problems is they want 35-55 new stores and they're having trouble getting developers to give them those stores, so we are in conversation.

We are doing a major redevelopment with them in our own portfolio. Secondly, I'll remind you that was it this quarter or the last quarter, we were aware of a couple centers where they have the first right of refusal and we went to them and said we got a first right of refusal, two fabulous centers we bought at 9.39% cap rate and we've got a half a dozen I think it is joint ventures with them. We joint venture with Kroger in the past, so there's very strong relationships and I think we have an in place joint venture with Kroger, so we've got very strong relationship with both stores.

If we could do more then nuts and beaches one I talked about in my opening comments, we would be all over that. The ones that don't work for us would just be those that we're not comfortable with the amount of shop space it may take or something about the market but they are very interested in expanding.

Thank you.

We'll go next to [Ryan Levenson with PFF].

Thanks for taking my questions. I was beginning to lose hope. I just wanted to, the same exercise that you went through of breaking down the rent growth on the total leases, on the total new leases signed I was just wondering, on the total leases new and renewals, I was just wondering if you could do that specifically just on new leases.

You just want to know the break down?

What the rent spread was for less than 12 months and then the rent spread for 13 to 36 and then 37 and greater months.

For new versus, new and renewal versus all?

For new leases.

I don't have that.

Okay. But just to clarify that this hopefully is not a second question but this was the negative 13, negative 7, negative 0.6 that was for total leases?

Yes.

For total leases year-to-date.

Okay. Now my second question is and I'm just confused. Looking at this longer term and I'm a little confused as to how even if Q3 lease rates are the bottom, which I don't believe I'm just confused as to how you would have flat lease spreads in your in line space when you'll be renewing 2005 through 2007 vintage leases that had clearly escalated several dollars from where we are today.

Well I think you're talking about a national portfolio. First of all we have said that the rents in California, Florida, DC, where it had some of the biggest run ups, those are coming down but we've also got markets where there hasn't been that kind of rent acceleration and those are showing more positive rent growth. So I think it all just averages out but we have gone through space by space and looked at it.

It's down 3.5%.

But just remember what we did was some of these rents may have been vintage 2000, 2003 and what we did was we just used the leases we've signed so far this year as a reasonable proxy for market.

For year-to-date this year or Q3 this year?

Including Q3.

But year-to-date average?

Right.

Well, I mean, we also got input from our field for what the market rents were, so it wasn't a simple just take an average.

And the other thing I want to say is we didn't do this specifically to forecast rent growth. We did this to quantify whether we have much risk of significant roll down and based on that we got several data points that said that our average rents this year across the country are about $21 for less than 10,000 square feet and we compare that to what's rolling, you see we're right there, as Lisa said I said earlier you're talking 3.5% potential roll down based on looking at it that way.

And just so I'm looking at this on a like-for-like basis, the $21 is your year-to-date?

$22. If I was doing it from memory, I have it sitting in front of me.

I want to say real quick, the leasing activity is accelerated during the last two quarters so we've had more of the number one, not only is it two-thirds but it's just from a pure calendar standpoint but it's weighted back end weighted for the amount of leasing activity.

Oh, you mean the 22 is back end weighted to--

More current.

Okay. If you could just clarify for me then, I'm assuming you probably have about half of your 2010 leases completed by now.

No. Not like it is not like the original mall business. It's probably in the 10 to 15% range. Exactly.

But at this point in time, beginning of November I would assume that you have a pretty good lead as to what the first half of 2010 is going to look like, just wondering, does this $22 look like it's going to hold? You have 15% of your in line space rolling over and that's why I ask.

I think as Bruce indicated, we expect to see some further roll down in rents carrying into 2010.

But roll down from the 22 level here.

I think all the comments on the call, we don't really know. It feels like we might be at the bottom today in some markets and how could anybody be sure.

That's the reason we aren't giving guidance until January and we'll give more specific guidance then, in our February call.

Okay.

I think that's, we limit it to two questions, sorry.

But you didn't have an answer for my first one so I felt like that was, I was going to come back to you off line but I just wanted to if I could clarify because I still don't feel like I understand what the answer was, but is rent going to roll down from the 22 level or from the if I look at page 39 of your supplemental what the in place base rents are, is it going to roll down from that level?

The 22 is what Brian said what current markets are today, what you see in the supplemental is what's expiring.

But that's your spread.

Yes.

And I don't want to put words in your mouth, I want to make sure I'm understanding what you're communicating that the 22 that you could see rent roll down from the 22 level.

No, we did not say that.

Okay. Well I'm glad I asked then.

Follow-up with me after the call.

Okay.

Please follow-up with me after the call.

Okay.

Thank you.

We'll go next to [Ben Roesenflag with PMS].

All my questions have been answered, thanks.

We'll go next to Alex Barron with Agency Trading Group.

Thanks, Mary Lou, best wishes on your retirement.

Thank you.

Do you guys have a break down of your new leases between small and large tenants like in terms of square feet?

We actually in the supplemental and maybe you're looking for more than this, we do have a leasing specific page as it's pages 25 and 26 so you can see whether it's just for our prorata share or portfolio at 100% and we show that and that's the actual new and renewal and then for anchors and in line we just have the lease expiration table. So I don't know if that's enough.

I'll follow-up with you off line.

A special leasing transaction.

That's okay, I'll follow-up with you off line. Thank you.

Thank you.

Okay, thank you.

We'll go next to Chris Sommers with Greenlight Capital.

Hi guys. I'm trying to better understand the change in the fourth quarter guidance from the last quarter to this quarter. It looks like you're expecting FFO to be lower by about at least $12 million from what you thought fourth quarter might be a few months ago. Wondering if you could point out some of the larger items that are bringing that down, of the recurring component.

Chris? Have you seen the schedule on the website?

I have not.

I think that will fully explain the differences in the recurring. What we provided there was if we had provided that same recurring guidance last quarter so you can have an apples-to-apples number because it is not a decrease.

What one-time items were included in the fourth quarter on the last call then? Because last quarter your fourth quarter guidance was basically like $0.75. What items were in there? That aren't recurring.

We have I believe about a $13 million promote that is expected to be paid in the fourth quarter. The last quarter we didn't give recurring FFO guidance. I think that might be what's confusing you.

Got it. So that promote you don't expect to have happen next year.

It is not recurring which means we don't expect it to recur next year.

So the property is really running at like $0.55 a quarter of FFO currently?

You mean on a recurring basis?

Yes. All things being the same $0.55 times four is $2.20 and maybe that's a good starting point to think about 2010.

I don't think that we want to commit to that but our guidance for the fourth quarter for recurring FFO is $0.53 to $0.58 and that is recurring so there's no non-recurring items in there.

Okay. Thanks. I'll have a look at the website too.

Okay, if you have other questions obviously, Lisa or Bruce are available to you.

Great. Thanks.

Thanks, Chris.

This concludes today's question and answer session. At this time, I'd like to turn the call back over to Hap Stein for any additional or closing remarks.

Thank you very much for your time and everybody have a great weekend and those with kids have an awesome trick or treat. Happy Halloween. Thanks, bye.

This does conclude today's conference. We thank you for your participation.