Regency Centers Corp (REG) 2009 Q4 法說會逐字稿

Good morning. I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regency Centers Corporation fourth quarter 2009 earnings conference call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session period. (Operator instructions) I would now like to turn the conference over to Ms. Lisa Palmer, Senior Vice President, Capital Markets. Please go ahead, ma'am.

Thank you, Lena, and good morning, everyone.

On the call this morning on Hap Stein, Chairman and CEO; Brian Smith, President and COO; Bruce Johnson, CFO; and Chris Leavitt, Senior Vice President and Treasurer.

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 SEC, specifically the most recent reports on our 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.

Bruce?

Thank you, Lisa, and good morning to everyone on the call.

Recurring funds from operations for the fourth quarter was $0.63 per share. This was above the high end of our guidance due to higher net operating income, which was driven by improved collection rates and a termination fee. Furthermore, leasing activity was well above our fourth quarter expectations, and as a result third-party leasing commission profits were $1 million higher. Recurring funds from operations was $2.68 per share for the year, down $0.22 from the same period last year. The change is primarily related to a decline in net operating income, and increased interest expense as a result of lower capitalization.

The reduction in NOI was driven by a decrease in occupancy and higher bad debt expense. The decline in occupancy also negatively impacted our recovery ratio. Although not included in recurring FFO, we incurred a $3 million hedge ineffectiveness charge during the fourth quarter. Hedge ineffectiveness is a charge to earnings related to an overhedged position as a result of changing our assumptions of future debt issuances -- issues, excuse me. We revised our assumptions delaying a portion of expected debt issuance into 2011, and as a result of completing the $246 million forward equity offering in December, changed our assumptions.

As we have previously stated in addition to preserving a growing NOI, Regency's key focus and priority continues to be strengthening the balance sheet. In December, we entered into a forward agreement with JPMorgan and Wells Fargo Securities to sell 8 million shares of Regency common stock at $30.75 per share. We will use the estimated [$235] in net proceeds along with $100 million in cash on our balance sheet to pay down debt. Additionally, during the quarter we exercised our options to increase our ownership in the Macquarie II co-investment partnership. While the technical transfer of the ownership has not occurred due to lender consents, we began realizing the economic benefits of increased ownership, now 40%, beginning in December. Also on December 31st we received our final distribution in kind from the Macquarie I co-investment partnership, and finalized the dissolution of the entity. In total, we received six properties with combined value of nearly $203 million, which represents both a return of our 25% interest in the partnership and a $13 million promote.

Looking to 2010, we are expecting recurring FFO per share to be in the range of $2.11 to $2.31, unchanged from the guidance we provided in December. Total funds from operation for 2010 are expected to be in the range of $2.12 to $2.34 per share. Brian?

Thank you, Bruce.

When I step away from the numbers and survey the landscape, there is no question that there is still winds in our face. High unemployment and a weak housing market are but two of the lingering problems facing the industry. At the same time, the winds appear to be shifting and, knock on wood, even moderating. While we maintain a weary eye, there appears to be some real meaningful improvement in the environment. Retailers are gaining momentum and confidence, having enjoyed a good fourth quarter and one of their best holiday seasons in years. The surviving retailers have learned how to operate in this environment, with effective inventory control and lower overhead, which have translated into higher margins. Many believe they have seen the bottom, and are again undertaking store expansion.

Certain markets appear to be recovering, including Texas, coastal California, particularly the San Francisco Bay area, the Carolinas, and portions of Atlanta. As a matter of fact, our properties in most markets are experiencing a significant pick-up in traffic and retailer interest. Retailers, who for at least a year dragged their feet and kicked tires, are now showing sense of urgency to open stores as quickly as possible. As a result, there are lease negotiations going on not only for spaces previously vacant but for those not yet vacant. In several locations, we're already in discussion to back-fill blockbuster spaces, with leases expiring in late 2010 as well as some we expect to go dark in 2010. In at least one case, the new lease could result in double-digit rent growth.

We are also in final negotiations to fill up a vacant Linens'n'Things box in one of our Cincinnati centers. Although this transaction would result in a moderate reduction in rent, space would be taken as is, and would restore that asset to 100% leased. While retailers have picked the pace of expansion, they continue to be selective, focusing on healthier markets and better centers. Fortunately, this benefits Regency, as does our ability to fund tenant improvement dollars, pay brokers' commission and keep our centers looking attractive. A top grocer recently approached us about relocating into one of our centers, because they are not happy with the lack of upkeep in their current center across the street.

This improvement however is not without exceptions. Those areas hardest hit by the housing bust continue to struggle, with no improvement or increase in activity. These markets include Las Vegas, Phoenix and non-coastal California, particularly the Inland Empire and desert areas. And some retailers are still struggling. Tenant failures and move outs remain a concern, and pressure on rents is expected to continue until occupancy rates return to levels previously seen. This is particularly true in green areas, where densities are light.

Regency's performance in many ways mirrors this tale of two markets. Our operating portfolio occupancy level remains essentially unchanged from the third quarter. Leasing for the year was strong, especially considering the environment we've been in. For the year, we entered into over 1,600 lease transactions, representing approximately 5.3 million square feet; that's 1.4 million square feet in new leases, and 3.9 million square feet of renewals. Our renewal rate held strong at 75%. In fact, the fourth quarter was the best quarter for leasing since the first quarter of 2008, with renewals being the highest since the fourth quarter of 2007. This leasing momentum continued through the month of January.

Rent growth for the fourth quarter was virtually flat, with similar results in January. The spread on new leases was negative 18.5%, while renewals, which represent approximately 80% of lease transactions, the growth was nearly plus 7%, which is the positive number we've seen in four quarters. Renewals have been a relative bright spot, and should continue to be, and let me explain one reason why. If you assume market rents are $22 per square foot, and current rents in the center are $26 per square foot, a new lease would most likely be signed at the lower rent, for $22. However, chances are that the renewal will be executed at the higher number of $26. Successful retailers are understandably reluctant to walk away from a sizable investment in their stores, or to disrupt established shopping patterns.

One of our key strategies is to create value by reducing our land inventory, preferably through developing the properties where it's appropriate, acceptable returns on incremental invested capital, or by selling the land if development is not warranted. In the fourth quarter, we successfully executed this strategy on two parcels of land. In Raleigh, North Carolina, we started the development of the Market at Colonnade on land that we purchased in 2007. The underwritten return, including the land cost, is 8.4%, while the incremental return on the new cost is almost 11%.

This is a project that is clearly worth developing. Colonnade sits on a fabulous piece of real estate that we pursued on behalf of Whole Foods, with extremely high barriers to entry, strong demographics and significant pent-up demand for the limited amount of shop space that will be built. Both this project and and Publix anchor Seminole Shoppes in Jacksonville that we started earlier in the year, are classic in-fill grocery-anchored centers that are virtually impossible to replicate in their given markets.

In 2007, we also purchased 27 acres of land in Ceres, California in order to develop a Wal-Mart-anchored center. Ceres is located in the central valley of Northern California where, today, unemployment hovers around 20%. Unlike Colonnade, this is not a project that should be developed today, and early last year we began negotiations with Wal-Mart to sell them the undeveloped land. In November we closed on the sale of the entire property for nearly $14 million, or $12 per square foot, recording a small gain in the process. We continue to pursue advantageous ways to further reduce the land inventory.

I'm really pleased to note that we began three internal redevelopments during the fourth quarter that are creating value in multiple ways. At Wilson Center II in Virginia, we are expanding an undersized Safeway, restructuring their ground lease, extending the term, and nearly tripling the rent. At Eastport Plaza in South Florida, we are relocating the inline Walgreen's to a corner out parcel, also gaining meaningful rent growth there. The third redevelopment is an expansion of Publix at Millhopper Shopping Center in Central Florida, that will result in 20 years of extended lease term and significant rent growth.

As for future opportunities, we are finally seeing some sellers lowering expectation to the point that economics make sense, assuming specific tenant demand and strong market need. For example, in the Seattle market, we have long been aware of a build-to-suit opportunity for a large national retailer. Two years ago, we offered to buy the property for 25% of the asking price, but the seller refused to budge. Today, we are very close to finalizing a deal to buy that property at a price close to our original offer.

At the same time, the area of biggest concern is our large community center developments, chiefly those dependant on residential growth. Retailers remain risk averse when it comes to expanding into green and immature markets, resulting in additional leasing delays and compression of yields. The stabilized returns for all 42 developments, many of which will take much longer than three years to achieve the 95% target, fell 47 basis points to 7.1%. This decrease was entirely due to three things. First, the erosion of budgeted rents in five of the 42 projects, with all five being limited to specific region. Second, a portfolio-wide underwriting change to increase estimated collection losses, which was charged against every development project. And third, the phasing of one California project.

I should mention that we clarified the return description on the in-process developments page of the supplemental; what is now entitled "stabilized returns" was previously called "NOI yield after partner participation". This calculation methodology was all that changed.

While caution and apprehension are still appropriate, the market feedback and recent activity certainly feel more positive than anything we've experienced for a long time. I'm looking forward to 2010 to building on these positives and capitalizing on opportunities to grow NOI, lease up our centers, and create value for our shareholders. Our teams are energized and focused. I have full confidence in their abilities, and I know that we have all the necessary tools in place to be successful and to reap the full benefits for the economic recovery that's on the horizon.

Hap?

Thank you, Brian.

As I reflect on Regency's 2009 results, while they were clearly not up to our standards, I feel really good about the crucial steps we made to position Regency for the future. We strengthened our balance sheet by raising over $1 billion of capital through a combination of common stock, mortgage financings, property sales and contributions to co-investment partnerships. As a result, at the end of 2009 we have approximately $100 million in cash, over $700 million of untapped lines of credit, and $235 million of additional equity capital that will be funded during the year.

We facilitated the purchase of Macquarie CountryWide's interest in our largest co-investment partnership, gaining a new partner in GRI, and eliminating the refinance risk associated with maturing [CMBS] debt in the portfolio. This also enabled us to negotiate and exercise an option to purchase through remainder of MCW's interest, an investment in irreplaceable assets that we know well, at extremely favorable pricing. We established a new co-investment partnership with USAA. These two partnerships further expanded and solidified Regency's access to reliable sources of capital, and the companies' profitable operating platform.

Since the fourth quarter of 2008, we've reduced the size of our workforce by more than 30%, resulting in over $20 million in G&A savings before capitalization and other offsets. And, as Brian mentioned, in one of the toughest leasing environments in memory, we signed nearly 1.4 million square feet of new leases, and almost 4 million square feet of renewals.

Looking forward, we will undertake a plan comprised of five strategies, to sustain long-term growth in recurring earnings in NAB of 5% or more, and generate total shareholder return in excess of 10%, and above our shopping center peers, while securing Regency's position at the forefront of the industry.

Our central goal is to obtain an occupancy level of 95% in both the operating and development portfolios. While we acknowledge that this will take several years to achieve, doing so should generate additional NOI in the neighborhood of $35 million to $40 million, of which approximately 25% is from leases that are already signed. $40 million capped at 8% will result in additional shareholder value of roughly $5.50 per share. We would utilize our capital recycling program, selling properties -- and I might note that we sold over $1 billion of properties during the last five years, and deploying that capital into better quality acquisitions in developments and target markets with sustainable competitive advantages.

We will leverage our core competencies to develop market presence and anchor relationships to create value-added opportunities. This may be purchases from distressed owners, re-developments within our existing portfolios, selling or developing the 480 acres of land that we already own, or well-conceived new developments. Regardless of the form, new investments will be rigorously underwritten, have strong anchor sponsorship, demonstrated demand for limited side-shops and out-parcels, and offer attractive risk-adjusted returns and margins.

Although we are comfortable with Regency's sound financial condition, during the next five years we will cost-effectively further strengthen our balance sheet and maintain access to reliable sources of capital. By opportunistically improving our key financial rations, we'll ensure that Regency will be positioned to find profitable new investments, and better withstand another market downturn if and when it occurs. Growing NOI, and the resulting free cash flow, asset sales, co-investment partnerships, and patiently executing in a way that is consistent with building intrinsic value, will remain essential elements of Regency's capital market strategy. Finally, we will ensure that the Regency team, that I believe is second to none, is energized and focused on our strategic goals.

It is encouraging to see some real signs of improvement in the economy, and I am hopeful that this momentum will continue. At the same time, I recognize the tremendous challenges we will face. With national unemployment at historically high levels, there is a long, fragile and gradual journey ahead before we can attain the results that we achieved in the peak. I'm confident that the challenges we faced in 2009 made us stronger, and we've learned from those challenges. We have fortified our foundation, and are executing our strategy to reliably recurring earnings, net asset value and total shareholder return, so that Regency will cement our position as a premier shopping center company.

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

(Operator Instructions) And we'll go first to Nate Isbee with Stifel Nicolaus. Mr. Isbee, your line is open.

Due to no response, we'll move on. Our next question comes from David Wigginton with Macquarie.

Brian you highlighted the pickup and lease momentum in the quarter, maybe can you talk about in a little more detail like the leases you signed, the types of tenants and for what spaces, is the pickup in the small shop space that you saw or was it more on the larger store front space?

The leasing we did was about one-third anchors and two-thirds small shops, so it is kind of across the board, all property types, there is just a general pickup in activity. One thing we heard from several people out in the field is as I mentioned in the comment is that retailers have just kind of, all of a sudden there's more of a sense of urgency, they just want to get deals done, whereas they have been looking in the past. So just lot of activity, you're hearing about property tours being scheduled for the first time in well over a year, probably 18 months where a retailer may come into a market and want to look at multiple locations. So if you look at the actual numbers for the quarter, whether it was new or renewal, we did about 20% more leasing on a GLA basis than the average of the three quarters prior. So it was pretty wide spread.

Okay. And so -- I mean, the types of tenants are these local tenants, are these regional, national credits, what types of tenants are you seeing the most demand from right now?

We're seeing it for mall, we're seeing regional, we're actually seeing an interesting improvement when it comes to the franchisees, there's always been the trouble about getting financing and what we're seeing are two things.First of all the franchisee owners themselves are stepping up to help in many way the franchisees. They're in some cases offering financing, soft financing; they're putting free package deals together for them. So that's helping.

The other thing we're seeing which is kind of an interesting surprise is a result of all the corporate lay offs, you have people who have been with companies a long time, highly paid, getting some parachutes, and these guys are going in and opening up their own businesses, and they don't require any financing. Now for example in the mid-Atlantic region, we had 24 new non-anchor leases signed during the quarter, and none of those required any financing

Okay. Great. And then just in the second question, it has been pretty widely publicized and Macquarie continues to stick to divest itself of its U.S. holdings; can you maybe talk about your main JVs with Macquarie and your expectations for those JVs in 2010?

In regard to Macquarie interest in their JVs, I don't think there are any immediate plan for them to other than selling out of this, their large co-investment partnership. As a matter of fact, the one remaining JV that they have is the (inaudible) portfolio, and I might note that our ownership interest in that one is well less than 20%.

As a follow-up to that, obviously those are attractive assets; if the opportunity presented itself would Regency be a better on those and take those onto the balance sheet or will you look for another JV partner in that case?

Yes and when the opportunity present well, we'll figure out what makes the most sense to do, whether bring another partner or to increase our ownership like we did. And the largest partnership where we increased our ownership at a cap rate well in excess of 9%.

Okay. Thank you.

Thanks, David.

And we'll go next to Christie McElroy with UBS.

Just a follow up to the prior question Brian. Are these retailers that are looking to open stores, are they closing stores as well, are they being more selective about choosing space? And how does that translate into the outlook for overall square footage growth.

There is some. I don't think it was a lot. There is some of that going on where you see at the large chains, they will look at the impact on sister stores and if they've got a weak performing store, they will certainly look to close that maybe open up a better relocated one.But most of these were new stores that didn't have the cannibalization impact. So I think the impact going -- the outlook going forward is, if January is in the indication we see this pick up continuing, we've had three straight quarters of increased renewals, increased new leasing and January appears to be very strong.

Okay. And then Hap,you mentioned patient execution. In your strategy of leasing up vacant space, how do you think about the balance between waiting for the right tenant and waiting for the right rent?

I think today the focus is on waiting -- getting the right tenant in there sooner rather than later, and to the extent that we feel like the space is being leased at a rate that is below where we expect rents to be in several years like it was indicated in the past. We are either starting rents at the lower level or signing short-term leases.

Okay. Thank you.

And we'll go next to R.J. Milligan with Raymond James.

As a follow-up, the leasing trends for the renewals, is the shift from a negative spread to a positive spread a function of just a lower prior rent per square foot or have you guys seen retailers becoming I guess less aggressive and re-negotiate renewals?

I think there is a few things going on. I think there is a few things going on, one of the, there is definitely increased optimism on the part of the retailers. One of the things that we heard from the field pretty consistently is in the past whenever we giving concessions the retailers, we always got termination rights and we held those concessions to very short terms. The retailers appear to be not willing to enter into those kind of lease modifications now because they don't want the risk of loosing the store and they are looking more long-term.

So the renewals have to do with, little bit of what I talked about on the call in my prepared remarks which are that, they got, they've survived this long, which means they've got a customer following, they got a loyal base, they don't want to risk that. And frankly we are seeing a lot of people talking about how other centers, they are not able to get any TIs, the lenders aren't keeping up the centers. So there is not only reluctance not to leave and therefore to renew, but we're getting a fair share of people wanting to move into our centers because they know we take care of them.

Okay. Great. Thanks.

Thanks R.J.

And we'll go next to Quentin Velleley with Citi.

Morning, everybody. I'm here with Michael. Just in terms of the adjustment to your expectations on the development pipeline, I'm wondering if you can give a few more specifics in relation to a couple of assets, your large development that had more substantial decreases in their expected yield being Golden Hills Promenade and Deer Springs Town Center?

What I mentioned Quentin, the impact on, starting with the full portfolio 42 we all got hit by 15 basis points on average because of the change to the reserve that we added. The 26 basis points, that was due to just those five projects and two of the fives are the ones you mentioned. In all cases, we are just not seeing a pick up in the deserts, which would include Indio, which include Las Vegas and some of the other larger ones in California. So those five accounted for all of the real erosion in the rent that dragged down the yield.

What we did is basically we took their underwriting way down on those properties and in fact one of the things we didn't talked about on the prepared remarks is that in some markets we are hearing for the first time discussion about free rent. We have not had to give that in any of our markets, any of our projects. We have actually underwritten some of the -- you're taking the rents down and some of these desert projects to allow for like a year's free rent and then very, very low rent.

So we've really hit those budgets hard in those projects, and the other thing I would just as a general rule, the delay in leasing we continue to show that what we maybe too conservative. In 2008, we did over millions square feet of leasing in the development portfolio, this year we really did about 300,000 square feet and I think in 2010 we're budgeting just about 100,000 square feet, so that the land leasing is also part of the issue.

And just in terms of the yield now obviously we've sent it down over the last few quarters. We had a point now where you're much more comfortable but its low as it's going to get unless there's some kind of economic shock or something that could cause it to come down again?

You know, I hate to be pinned down on what is going to happen in the future, but I think when I say we've capitulated, that's what we're saying Quentin, is that the markets have clearly stabilized, the ARs has improved. We've had tenants that we budgeted to move that that have come current on their ARs. So the overall landscape is clearly improving, the ones that where its not improving I think are underwriting what we've done to those budgets is so bad I just -- frankly, I don't know how they could getting worse.

Okay. Thank you.

Thanks, Quentin.

We'll go next to Michael Mueller with JPMorgan.

Yes, hi, Brian, I mean your comments on leasing about the activity picking up across the board seem pretty bullish, just wondering if you could tie that to the guidance page where occupancy looks like it's going to be I'm pointing the PDF up now but like 90% to 92%, somewhere in that neighborhood and is it -- considering the end of the year at 93% as a function of that, some of that 93% is not real, and there is not real rent paying tenants in there, or you expecting a downdraft to come from some place else?

I'll let Bruce talk first, and I'll pitch in afterwards.

Michael, I think it is more related to your comment that we built in some of the non-rent players, the collection lost issues. I think that if things continue to go like they are, we would expect that obviously would be at the upper end of that guidance, occupancy guidance and part of this, that's a point in time guidance by the way as well, not a average, so one of the issues we are dealing with is what the average is going to be throughout the year and obviously is just leasing going to be on a straight line or is it going to be weighted at the end and so forth.

We haven't declared victory yet. It is looking good right now, but we're not - at this point in time we are not comfortable changing the guidance when we did in December, so we are exactly at the same.

Martin, we have already had that discussed around here because that very thought occurred to us but I think it's just until we see a few more months of this, we are going to be leaving it at where it is.

Okay. But just to clarify, is the 93% at 93% lets say you hit the midpoint you are talking about losing occupancy or is it 93% real a number that's lower because you have tenancy you think are non-rent paying in there?

We have both tenants that are non-rent paying that we expect to be evicted, but you also have in that number, you have a little over 50 basis points of tenants that have signed leases but haven't moved in yet.

Okay. Okay. Second question, just kind of looking at the USAA joint venture, is that something that you see expanding more of one shot deal, I guess more generically putting aside the Macquarie transaction, if you are looking at new investment activity, is it going to be pretty much geared towards being on balance sheet as opposed to end funds do you think?

I think based upon the guidance that we've given specifically, and then in general I'd say we expect to be a combination of own balance sheet and the partnerships and I think it just kind of depends on what makes sensitive from a balance sheet standpoint.

Okay. Okay. Thank you.

Thank you .

And we'll go next to Nate Isbee with Stifel Nicolaus.

Hi, I'm not sure what happened before. Looking at your renewal --

We were worried, Nate.

Just looking at your renewal statistics from 2009, it went up about 1.1%, the rents you signed were on average about 19 bucks, how would that break up between small shop and large shop? I'm just looking ahead to 2010 and your small shop rents are expiring at about 20 to 23, and just trying to get a sense of why? I understand what you're saying that they like the space, they're feeling good but it is on average probably more expensive than most of the neighboring centers?

Let us get back in touch with you on that.

Yes, we don't have the breakdown right in front of us but we can easily get to it.

All right. Thanks.

Thanks, Nate.

And we'll go next to nick Nick Vedder with Green Street Advisors.

You mentioned a lot about the leasing environment starting to pick up and I was just curious in terms of your post-end performance, have you seen any change in the phase of shops in today's fallout?

You're talking about the move out mix?

Yes, I'm talking about move out post-year end.

I would say that the move outs, they are higher than they were in January of 2008, and they are higher than the average for all of 2009, but they're also about 50% less than what our plan, our internal plan. So we are actually encouraged by and as I said there were lot of tenants that we had budget to move out that had AR issues and making current on their ARs and renewed. So we expected after the fourth quarter that there will be fallout, it just nothing anywhere near as bad as what we thought it would be.

Just to add a little color on that, I think at the end of the day, Nick, what we are going to be looking at very carefully is what happens in February, because that typically a more telling month than even January.

With respect to market rents, do you feel that the market rent deterioration is bottomed out or is that ticking down?

I think that in most markets, it is bottomed and obviously there is going to reset, lot of the rents that are out there have to resent to the new market but it has bottom. Obviously there is exceptions for that, the projects we talked about, we have some, still some development projects for example up in Indiana where, I don't think you've seen the bottom and I don't think we've seen it in the deserts. But I think pretty much everywhere else people will talk about that, we feel that we set bottom and that the retailers would tell you that they've hit bottom. So there are exceptions but overall, yes.

And I would that as you indicated earlier, we believe that we've incorporated our projections going forward.

All right. Thanks.

Thanks, Nick.

And we'll go next to Rich Moore with RBC Capital Markets.

Hi, good morning, guys. Looking at the new lease spreads they were pretty weak this quarter, is that a more a function of the particular pool of boxes that you guys fill this quarter, or do you think that that continues that kind of depth of negative spread continues for the rest of the year?

That's always a hard one to answer because it depends on two pretty critical things, what the percent of small shops that we actually sign leases on versus anchors and what markets to do the leasing and one of the things we talked about last quarter is how San Francisco, the Bay Area is one of our best markets, we are getting much, much higher rents from national anchors there.

But considering where they were, there is still big roll-downs and they moved the kneel just because of their size. So, again I can point to January and January looks like across the board it's flat. But I think going forward you got to say that things are improving and the anchors, I think we see that there is a lot of opportunity to see some positive rent growth on the small shops. I think overall we see that there is still probably negative 5%, negative 10% in most cases. So, you put it off together and you get to our guidance, which is slightly negative, I think we got minus 2% to minus 8%.

Brian, is that measured on the last rent that was paid in the space versus the new initial rent in the space?

Yes, it is. That's correct.

Okay. All right. Great. On the acquisition front, I mean where are you guys exactly? I mean, I heard you talk about the possibilities that are out there, but I mean are you looking at anything actively, I mean are we close to doing acquisitions or is that still further down in the future, do you think?

We are definitely actively looking. We do have a project that's under contract that we would expect to close this quarter hopefully, we're looking at lot of things, I just don't think anything has changed from the last several quarters which is first of all very little as trading of the quality that we want. And I think in this environment and going forward this can be a much -- we do not want to be playing in the C markets for sure, and the pricing is very aggressive I think the pricing, some of the recent trade to the properties that have gone. So we are trying.

Okay. Great, thank you, guys.

Thanks, Rich.

And we'll go next to Sarah Lewis with Credit Suisse.

Good morning, I was wondering if you could elaborate a bit more in the incremental $30 million to $40 million to the NOI you were talking about from meeting the 95% occupancy levels. I was wondering, specifically, if can you breakout what portion will come from stabilizing the pipeline versus leasing up current space? And also maybe if you can elaborate more on the timing of this occurring, are we talking of 2011, 2012 event or we're talking somewhere further down the line than that? Thanks.

Sarah, I think we'll start break up realizing that in 2010 some of that in 2010, but the majority of it is going to occur probably beyond 2011. So it's going to be a slow process during the next three to four years that will occur over but we'll start seeing some of benefits now. Of that number, about 25% comes from spaces that we've already leased. Secondly, of the remainder, about two-thirds of that is from the operating portfolio and the third is from the developments.

Okay. Thanks.

Thank you.

And we'll go next to Craig Schmidt with Banc of America/Merrill Lynch.

Good morning, I noticed that you maintain your 210 NOI same store guidance of minus one to minus four percent and that's pretty considerable improvement on your fourth quarter number. Is it easier comps or something else that's giving you the confidence to make those numbers move in that positive direction?

It is a combination of two things. Number one, it is the net operating income that we're comparing against first of all and then second of all we're seeing, it doesn't appear like we're bottoming, and even though as we've indicated, we're not ready to declare victory, the trends we feel pretty good about.

And Do you see that is gradually progressing to stronger numbers or is it - you must have see it in the first and second quarter as well?

I think, if you look at the economy our view of the economy is -- hopefully this is correct, because I think that we're involved in a gradual -- a gradual recovery. And I would say that's going to -- we're going to see that impact on our operating fundamentals.

Okay. Thanks.

Thanks, Craig.

Our next question comes from Jay Habermann with Goldman Sachs.

Good morning, everyone. Hap if think about the capital recycling plan and the potential for dispositions, can you give us some sense of the difference cap rates between where you think you'd be able to sell assets versus where you look to buy some of the better quality properties? And I guess just to quantify the dollar amount you're thinking over the next couple of years?

I think that better quality properties right now are trading in the 8% range, maybe below that for the best properties, and after we recently sold a property and that property we considered to be a little faulty property that we sold at a cap rate of just below 9% on an in-place income and our budgeted income was below 8%. So, to the extent that we can find buyers like that that will buy B minus and C properties, we'll take advantage of that.

And do you anticipate the pace of dispositions increasing into 2011 beyond what you have guided for the current year?

2011 yes I think we would anticipate some pick-up in dispositions in 2011.

Okay. And I guess just looking at the debt and preferreds to assets at around 52%, is that metric roughly where you want to be or where do you think that will trend after the sequence of dispositions?

Well, number one, let me say that when you -- couple of things to keep in mind the way we look at it. Number one, we've got the cash on the balance sheet, so any debt, the way we look at debt we will look on the net basis as far as cash that is coming in from the forward equity sale and the cash that is currently on the balance sheet. And, secondly, given in our view, you know, the importance of maturity risk that's been elevated during the last 12 to 24 months, we look at preferred equity as equity.

So from that standpoint, we anticipate being in the lower to mid-40s by the end of the year, just in effect executing the modest plan that is already in place. And secondly, as I think as we indicated in over the next three to five years, we like to get that debt back to debt asset ratio down to below 40%. We are comfortable with where we are, but to the extent that the opportunities present themselves to reduce that level, we'll act on that appropriately.

And just final question, Can you characterize the institutional interest? I guess your core partners for the higher quality real estate today at those 7.5% and 8% cap rates, is there interest there?

Yes.

Great. Thank you.

We'll take a follow-up question from Quentin Velleley with Citi.

Yes, it is Michael, speaking with Quintin. Bruce, maybe if you can just clarify listening on the in-process developments and we're thinking about the potential income and FFO growth going forward. Right now you're not capping a lot of interest, your capitalized interest is very low, but you have this big ramp on the development side from a competition yield than the eventuality of the stabilized deal, so more of it should drop to the bottom line. When I look at the numbers, you disclose in your supplemental on page 40 on the guidance page about $9.7 million of income from CIP, which is under $40 million NOI annualized.

And then if we look at the development page your completion yield was about 5.3% that would translate to probably $42 million or $43 million. So is it fair to say that you're effectively earning the completion yield today? Or is the income picking up some of the stabilized developments that are listed page 17, the $425 million? I just wanted to triangulate between them.

I think I understand the question. I'm going to ask Lisa to correct me, but I think that the answer to your question is related specifically to your last -- to your thought of the answer being it's properties that have already been moved into the stabilized area.

So right now this $40 million of income that's being earned that you list on CIP is both the $1 billion of assets that are in the process and the $420 million that is listed on the stabilized development schedule?

Lisa is going to clarify.

Michael -- Bruce is better than I am -- because I'm not sure I understand your question. I'm going to answer what I think is the question. We provide NOI from CIP properties and the supplemental for the fourth quarter only and that is about $9.7 million. The term fee that we talked about, that we received in the fourth quarter actually came from an in-process development. Okay?

Correct.

So that's inflated by - I mean if you will from a run rate standpoint by a little over $2 million. So you would have bring the run rate down just to closer to $7.5 million or $7.4 million. Is that what you were trying to get?

So that's $30 million, that's helpful, it seems too narrow of a gap, and so the $30 million, and that $30 million of income --

Excuse me, I'm sorry, before you keep asking, let me also, and this is still up on our website. In December at our investor day presentation we actually gave development NOI guidance, and that would remain unchanged because we haven't changed our guidance, and that was we expected NOI from our developments that are in process as of today to the $32.1 million to $34.1 million for the year 2010.

And that relates to the $1.074 billion that is on page 16?

Correct.

And then the eventualities that you'll get to a 5.2% yield from a 3% yield today and then at some point down the road when they stabilize it will get to a 7% yield?

That's right.

Effectively, you are not capitalizing interest on the majority of the platform, and so that you should get all of this effectively drops to the bottom line.

Correct. And also one thing, and I apologize, and I apologize as we said we are going to add it to the page 40 supplementals, we talked about that also on investor day. The capitalized interest on the properties that will flow into our development completions in 2010 for the year is less than a million dollar. So we are -- I mean, because these properties have been in process for quite some time, we stop capitalizing interest on most of them.

So, I think you are probably earning the most NOI the ones that are part of stabilization?

Correct.

Just to clarify, just to bring it all together, the difference between the completion and the stabilized yield, are you effectively marketing -- you are accepting leases today, is the difference just an occupancy pick up or you are saying, the rent I am signing today are really not what I wanted, and so the stabilized yield, I am hoping that in five years time when the lease rolls, I'll be able to get a higher rent or is it just purely an occupancy pick up going from completion yield to stabilized yield?

We actually added two footnotes on this change that Brian mentioned in prepared remarks, the actual labels or names of this column and then we have foot notes that describe it in the hopes of finally making this much more clear for everybody. But, so to answer your question, it's just an occupancy pick-up. Stabilized yield is simply when a project has 90% of the cost funded and it's 95% leased. And then the development comes -- completion yield is the earlier to occur of three years from the last anchor opening, or four years from the start of site work.

But most of the pick-up is from occupancy?

From occupancy.

At some point down the road?

Yes.

Okay. All right. Thank you.

Thank you, Michael.

And we'll go next to Chris Summers with Green Light Capital.

Just following up on that last question; it looks like a lot of the properties in process come on line in late 2011 and 2012. So the cost to complete the rest of these properties to bring that NOI on, it looks like it's a $100 million. So even though lot of these are 18 to 36 months off, they're already 90% complete and funded. Is that right?

That's right.

Okay. Got it. Thank you. That's all I have.

And our next question comes from Ryan Levinson with PSM.

Thanks for taking my question. Five weeks into 2010, I'm just wondering how much of the expiring lease space for 2010 has been negotiated?

Well, we don't really look at it that way. I would say that again we're planning on doing -- if we do 4 million square feet for the whole year, for January we've done close to 500,000, shy off 500,000, but that's pretty good amount.

Ryan, we do pre-leasing, which is really kind of your question. The metric that you are referring to is a metric that's more frequently used in the mall business, and we would not as an example have all of our leasing done for the rest of this year on our renewals, that would not be how we do that.

But I just re -- indicate, January we're off projections, but that's still real early in the year.

Okay. Okay, I mean that's what I'm kind of looking for is a little bit of color surrounding the guidance for rental rate contraction and how much of the expiring space throughout the rest of this year have you been in discussions on already? I mean obviously something that's coming up in November talking about now, but something that's coming up in June, you're not going to sign for a while but you might be talking about now

What we are talking about coming up in November as I mentioned in the prepared remarks, I limited it to Blockbuster but it is true all the way around, for anything renewing for 2010, and frankly anything that may be renewing in early 2011, we're already in discussions with all of those people. The activity is strong. We would expect renewals to remain strong for also for the reasons I gave earlier in the call. But beyond that -- I don't know, Bruce, if you want to add anything to it?

I think well, all indications are -- I mean the indications are that there's a positive trend going on both in the terms of the amount of leasing we're doing, the renewal percentage is higher ,and in addition it appears that our rental rate growth is also on a positive track; but early in the year for us to make a call for the rest of the year, as we indicated in the early comments.

Okay. Thanks.

Thanks, Ryan.

And we'll go next to Ian Weissman with ISI Group.

We certainly heard your comments about improvement in retail fundamentals and demand certainly picking up, but over the last 12 or 18 months I guess for you guys and lot of your peers the bigger issue has been the small shop local tenants. And I was wondering if you could just give a little bit of granularity on just how well they're doing today, are they're still facing credit issues, and are they sort of the drag on fundamentals in 2010?

Yes, like I mentioned little bit earlier, it's not just our perception that things are improving, the feedback that they're getting is that everybody was nervous, everybody was nervous about Christmas is that the retailers in our portfolio feel that Christmas was better than expected. They feel they hit bottom. The strongest survived. We moved out a lot of the weaker AR tenants. Those that remained with us were the ones who learned to operate in an environment with reduced top line sales. Everybody has become more efficient in the way they run their business, the overhead. The larger retailers are reducing their footprints in a lot of places. So that's all good.

I mentioned the concession requests are also way down as our ARs and the financing does remain an issue, but the retailers we have been leasing to haven't required it as much. I gave the example in the Mid-Atlantic, you have also got the franchises are helping out their franchises. But it would certainly help if financing became more available. I think one of the things we worry about I mean move outside is those retailers who have been great tenants who are standup people, they are paying, they are going to the end of the term, but at the end of that there may not be any financing for them to continue. So that is probably the biggest issues out there.

I guess my question is, you know, if you were to separate the improvements with well capitalized national tenants versus local tenants, have they improved in tandem or is there now a widening spread between local tenants versus nationals?

Well, the -- go ahead, Bruce.

Yes, just some color here. Just take the restaurant segment, which is the largest portion of our smaller tenants that really we've had a higher proportion of move-outs on. Those were definite credit issues. What interesting to note we're replacing those tenants with restaurant tenants, and updating the credit when we do that. They may be franchises, they may be corporate stores or whatever. But that is really what is going on. So we're upgrading -- just because those are the ones are willing to go forward and do business in this environment.

Okay. Thank you very much.

Thanks, Ian.

And we have a follow-up from Chris Summers with Green Light Capital.

Hey, guys, looking at the fourth quarter, it looks like your recovery percentage was just under 70%, if I did the math right here. And then your guidance is kind of -- for 2010 is the recovery similar to '09, because 4Q 09 was kind of an anomaly recovery, and you think they'll go back to kind of a normal level or what's there?

I'm sorry, Lisa, go ahead.

I think Chris you are probably, it's not that much different and it's been a sturdy year of developing and development. If you take our operating portfolio only, the recovery rate in the fourth quarter excluding development was over 75% because of the -- real estate taxes are build in the fourth quarter. So, we obviously recover those from our operating properties, but we are not recovering those from as much from our development. So, that's why it would fall more in the fourth quarter overall.

Like year-over-year, the fourth quarter this year versus fourth last year it's down like 10%, and historically the fourth quarter recovery rates been much higher than -- than it was this quarter. Was the development dynamic unique this fourth quarter?

It certainly more pronounced in 2009 than it was in 2008.

Okay. Thank you.

(Operator Instructions)

And it appears there are no more questions at this time. I'd like to turn it over to Mr. Hap Stein for any additional or closing remarks.

We thank you for your interest and participation in this call and interest in the Company, and we wish that you have a great day. Thank you.

And that concludes today's conference. Thank you for your participation.